National Highways Infrastructure Development Corporation Ltd vs Sadguru Engineers And Allied Services Pvt Ltd & Ors.

$~111
* IN THE HIGH COURT OF DELHI AT NEW DELHI
th
Date of decision: 19 May, 2026
+ FAO(OS) (COMM) 83/2026, CM APPL. 21826/2026, CM APPL.
21827/2026, CM APPL. 21828/2026, CM APPL. 21829/2026 & CM
APPL. 28908/2026
NATIONAL HIGHWAYS INFRASTRUCTURE DEVELOPMENT
CORPORATION LTD .....Appellant
Through: Mr. Rajshekhar Rao, Sr. Adv.
(through VC) with Mr. Gopal Singh,
Mr. Subham Janghu, Mr. Yoshit Jain
& Ms. Ananya Diya, Advs.
versus
SADGURU ENGINEERS AND ALLIED SERVICES PVT LTD &
ORS. .....Respondents
Through: Mr. Amarjit Singh Chandhiok, Sr.
Adv. with Mr. Srisatya Mohanty &
Ms. Purva Kohli, Advs. for R-1.
Mr. Jatin Sehgal, Mr. Ashish Garg &
Mr. Shubham Aggarwal, Advs. for
R-4.
CORAM:
HON'BLE MR. JUSTICE DINESH MEHTA
HON'BLE MR. JUSTICE VINOD KUMAR
J U D G M E N T
DINESH MEHTA, J. (ORAL)
1. Instant appeal has been preferred under Section 37(1)(b) of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act of
1996’) against judgement dated 24.02.2026 passed by the learned Single
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By:NAVEEN KUMAR
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Judge, pursuant to an application under Section 9 of the Act of 1996 filed by
the respondent.
2. The facts in detail have been noted by the learned Single Judge in the
impugned order, hence, we are refraining from narrating those facts in detail.
3. The facts for the present purposes, briefly stated, are that the
respondent emerged as the successful bidder and was awarded a contract for
execution of balance work of four-laning of National Highway No.37 (Old),
Jorhat-Jhanji stretch, under the EPC mode for Package-I (consisting the Road
Works) and Package-IV (consisting the Structures & Toll Plaza).
4. On issuance of Letter of Acceptance (LoA) dated 15.01.2024, a
Contract Agreement dated 07.02.2024 came to be executed between the
parties and as per the terms of the contract/LoA, the respondent furnished two
performance bank guarantees and a mobilization bank guarantee drawn on
State Bank of India, SME AT Road Branch, Guwahati to the tune of
Rs.8,63,46,694/-.
5. According to the appellant, the respondent-contractor was lax in
performing the contractual obligations and despite all support including
financial support and accommodation given by the appellant (NHIDCL), the
respondent could not complete the work within time.
6. Various correspondences took place between the appellant and the
respondent, out of which the letter dated 14.01.2026 propelled the respondent
to approach the court under Section 9 of the Act of 1996. By said letter/notice,
the appellant had asked the respondent-contractor to comply with the
directions given therein, failing which the appellant would encash the bank
guarantees for recovery of the amount of Rs.8.496 crores, being the amount
claimed under the said notice.
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7. Feeling aggrieved of the said notice and proposed action of invocation
of the bank guarantees (as indicated in the notice), the respondent filed an
application under Section 9 of the Act of 1996 and prayed that the NHIDCL
be restrained from invoking/encashing following bank guarantees:
i. Performance Bank Guarantee No. 0151824BG0000014 for
Rs.3,24,00,324/- dated 20.01.2024;
ii. Mobilization Bank Guarantee No. 0151824BG0000057 for
Rs.3,50,46,351/- dated 04.03.2024; and
iii. Performance Bank Guarantee No. 0151824BG0000016 for
Rs.1,89,00,019/- dated 20.01.2024.
8. The application so filed by the respondent was heard by learned Single
Judge and after hearing rival counsel, he came to a conclusion vide the
impugned order dated 24.02.2026 that the bank guarantees in question were
conditional bank guarantees and the same could be invoked only upon
fulfilment of pre-defined contingencies linked to contractual performance or
compliances.
9. Having found so, the learned Single Judge stayed the encashment of the
above referred three bank guarantees.
10. The appellant has called in question the said order of learned Single
Judge dated 24.02.2026 by way of instant appeal.
11. Mr. Rajshekhar Rao, learned senior counsel assisted by Mr. Subham
Janghu, learned counsel for the appellant argued that learned Single Judge has
erred in interdicting the appellant from encashing/invoking bank guarantees
while holding the bank guarantees to be conditional bank guarantees whereas
they were not.
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12. He read the contents of bank guarantee and emphasised that the same is
undoubtedly an unconditional bank guarantees.
13. The relevant clause of the bank guarantee on the basis whereof he
contended that the bank guarantees are unconditional is reproduced hereinfra:
“NOW, THEREFORE, the Bank hereby,
unconditionally and irrevocably, guarantees and
affirms as follows:
The Bank hereby unconditionally and irrevocably
guarantees the due and faithful performance of the
Contractor's obligations during the {Construction
Period/ Defects Liability Period and Maintenance
Period} under and in accordance with the Contract, and
agrees and undertakes to pay to the Authority, upon its
mere first written demand, and without any demur,
reservation, recourse, contest or protest, and without
any reference to the Contractor, such sum or sums up to
an aggregate sum of the Guarantee Amount as the
Authority shall claim, without the Authority being
required to prove or to show grounds or reasons for its
demand and/or for the sum specified therein.”
14. He argued that the finding of learned Single Judge is contrary to facts
and law. He argued that since the very premise on which the order impugned
is based, is faulty, the order is liable to be quashed and set aside.
15. Learned counsel for the appellant submitted that the
respondent-contractor has neither performed the contract upto the satisfaction
of the appellant, nor has it shown any improvement, for which, the NHIDCL
has issued a notice for termination dated 31.01.2026.
16. Learned counsel submitted that since the appellant has taken steps as
contemplated under the agreement, learned Single Judge ought not to have
stayed the encashment of bank guarantees.
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17. Mr. Chandhiok, learned senior counsel for respondent no.1, on the
other hand, submitted that order impugned was passed on 24.02.2026 and that
the injunction granted by the learned Single Judge has continued for almost
three months. He argued that the fact that a dispute has arisen between the
parties is undeniable and therefore, rather than interfering with the order
under the appeal, the Court may appoint an Arbitrator and leave the parties to
pursue their remedies before the Arbitrator, including interim relief as per
Section 17 of the Act of 1996. He added that an Arbitrator will be in a better
position to decide the requirement of granting appropriate interim relief, as he
will have a better grip over the facts and dispute because of the relevant
material and pleadings before him.
18. Without prejudice to the above submissions, Mr. Chandhiok, learned
senior counsel argued that a perusal of the impugned communication dated
14.01.2026 shows that the appellant has sought to invoke the bank guarantees
for the reasons which do not relate to the contract - its performance or any
obligation thereunder. In this regard, he referred to paragraph no.7 of the
notice dated 14.01.2026 and pointed out that the respondents have sought to
recover a purported claim of Rs.8.496 crore comprising of Rs.2.28 crore
towards undisputed vendor dues and Rs.6.216 crore towards recovery of
funds released on assurance which were not honoured by the contractor.
19. Learned senior counsel argued that the amount of Rs.2.28 crore
claimed by the appellant is in relation to dues of the respondents’ vendors, qua
which the appellant could not have issued notice as it was a matter between
the contractor and its vendors. He further submitted that the amount of
Rs.6.216 crore claimed by the appellant indicated in the said notice relates to
the fund which the NHIDCL had released to the respondents on the assurance
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of mobilizing material and expediting the work. He argued that both the
amounts and the purported claim in this regard cannot entail invocation of
bank guarantees. He added that neither the terms of the contract nor does the
terms of performance guarantee permit the appellant to encash the bank
guarantees, in furtherance of letter dated 14.01.2026.
20. Heard learned counsel for the parties.
21. The basic issues which require consideration and determination are:-
(i) What is the nature of subject bank guarantees?
(ii) Whether the same can be invoked at the wish of the appellant or
certain conditions are required to be met, before doing so?
22. It will be gainful to reproduce relevant para of the Bank Guarantee.
“A letter from the Authority, under the hand of an officer
not below the rank of [General Manager of National
Highways & Infrastructure Development Corporation
Limited], that the Contractor has committed default in the
due and faithful performance of all or any of its obligations
under and in accordance with the Contract shall be
conclusive, final and binding on the Bank. The Bank further
agrees that the Authority shall be the sole judge as to
whether the Contractor is in default in due and faithful
performance of its obligations during and under the
Contract and its decision that the Contractor is in default
shall be final and binding on the Bank, notwithstanding any
differences between the Authority and the Contractor, or
any dispute between them pending before any court,
tribunal, arbitrators or any other authority or body, or by
the discharge of the Contractor for any reason
whatsoever.”
emphasis supplied.
23. A simple look at the above clause of the bank guarantees, clearly shows
that the appellant can seek invocation of the bank guarantees, in case the
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contractor has committed default in the due and faithful performance of all or
any of its obligations under and in accordance with the contract.
24. The opening part of the bank guarantees in question may give an
impression that the same are unconditional but if we peruse the complete
guarantees, it clearly suggests that such unconditional bank guarantees can be
invoked only in existence of certain situations or contingencies. According to
us, unless the pre-defined contingencies in the bank guarantees are in
existence, the appellant cannot justifiably invoke the bank guarantees.
25. If the impugned letter/communication dated 14.01.2026 is taken into
consideration, the entire gamut of the letter pertains to two claims
surrounding the vendor’s use and recovery of the fund which was released by
the appellant in order to ensure that the work will be done at the requisite
pace. It will not be out of place to reproduce the reason given in the letter
dated 14.01.2026 for intention to invoke bank guarantees as contained in
paragraph no.7:-
“7. Accordingly, the total amount presently claimed as
payable by the EPCC to NHIDCL stands at Rs. 8.496
Crore (Rs. 2.28 Crore towards undisputed vendor dues,
as set out above, and Rs. 6.216 Crore towards recovery
of funds released on assurances which have not been
honoured). The EPCC is hereby directed to forthwith
remit the entire amount of Rs. 8.496 Crore to NHIDCL
by 17.01.2026, without any demur or adjustment.
Further, the EPCC shall furnish in favour of NHIDCL
an unconditional and irrevocable BG of Rs. 2.50 Crore
securing any potential exposure of NHIDCL arising out
of the comfort letters, which amount is disputed by the
EPCC and may, subject to the outcome of the ongoing
litigation between the EPCC and the concerned vendor,
be determined as payable by the EPCC. The BG, so
submitted, shall be encashed only after a valid demand
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is raised against NHIDCL by the vendor; until such
time, the BG is to be always kept renewed and valid by
the EPCC at all times. The Account details for
depositing the above-mentioned amounts are as
follows:
Bank Name: Canara Bank
Branch: Specialised Govt Business Branch, Guwahati
A/c Name: RO NHIDGL PROJECTS”
26. We have no hesitation in holding that both the purported claims are not
relatable to the failure to perform contractual obligations or default.
Therefore, the contingencies encompassed in the bank guarantees do not
exist.
27. Furthermore, the obligations or purported dues do not directly relate to
obligations under and in accordance with the contract, which is a precursor
for invocation of bank guarantees.
28. Even if there is some scope for argument, equity and balance of
convenience warrant that unless the present and incidental dispute(s) between
the parties, which have escalated to the extent of issuing notice of termination
of the contract, is settled while keeping the relevant material in mind,
invocation of bank guarantees would not be justified.
29. We, therefore, do not find any error in the judgment of the learned
Single Judge. The appeal is, therefore, dismissed. All pending applications
are also disposed of.
30. During the course of submissions, both the parties agreed that a sole
arbitrator (preferably a former Judge of the Supreme Court) be appointed so
that the time and energy in moving an application under Section 11 of the Act
of 1996, seeking appointment of an Arbitrator be saved. They further
submitted that once an Arbitrator is appointed, the respondent-claimant be
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allowed to file an application under Section 17 of the Act of 1996.
31. While rejecting the appeal and upholding the judgment dated
24.02.2026 passed by the learned Single Judge, we appoint Hon’ble Mr.
Justice Arun Mishra (former Judge of the Supreme Court) (Mobile No. +91
7042963344), as the sole Arbitrator to adjudicate upon the disputes which
have arisen or likely to arise between the parties, including the claim &
counter-claim (if any).
32. Needless to mention that the learned Arbitrator will comply with
Section 12 of the Act of 1996. The sole Arbitrator shall be entitled for
applicable fee in accordance with the Fourth Schedule of the Act of 1996.
33. It will be open for the parties to file their respective claims/counter
claims before the learned Arbitrator which will be decided in accordance with
law.
34. We make it clear that the finding we have recorded and observation we
have made hereunder are our prima-facie opinion. Learned Arbitrator shall
not be bound by any of our observation while deciding the claim or
appreciation under Section 17 of the Act of 1996.
(DINESH MEHTA)
JUDGE
(VINOD KUMAR)
JUDGE
MAY 19, 2026 /ck/kk
Signature Not Verified
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By:NAVEEN KUMAR
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