Oil And Natural Gas Corporation Limited vs Afcons Gunanusa Joint Venture

CARBPL-20173-26-J-F-.doc

Sayali
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMM ARBITRATION PETITION (L) NO. 20173 OF 2026
Oil and Natural Gas Corporation
Limited Deendayal Urja Bhawan,
5A-5B, Nelson Mandela Road,
Vasant Kunj, Delhi-110070
… Petitioner
SAYALI
DEEPAK
UPASANI
Vs.
Afcons Gunanusa Joint Venture
Joint Venture of Afcons Infrastructure
Limited, a company organised and
existing under the laws of India and PT
Gunanusa Utama Fabricators, a
company organized and existing
under the laws of Indonesia, the
joint venture having its office at
Afcons House, No. 16, Shah Industrial
Estate Veera Desai Road, Andheri (W),
Mumbai - 400053
Respondents
Digitally signed by
SAYALI DEEPAK
UPASANI
Date: 2026.07.10
11:54:23 +0530
Mr. Sharan Jagtiani, Senior Advocate with ms. Chitra
Rentala, Mr. Atul Jain, Mr. Ritwik Kulkarni, Mr. Sohan
Kinkhabwala, Mr. Alabh Lal, Mr. Abhimanyu
Chaturvedi i/b Trilegal, for Petitioner.
Mr. Rajeev Sharma, Senior Counsel with Mr. Mayur
Khandeparkar, Mr. Abhishek Birthray, MR. Kunal
Kanungo, Ms. Shreya Sharwa, Mr. Tanmany Nandi, Mr.
Kartikeya Tripathi, Ms. Rupa Shaw, for Respondent.
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CORAM : AMIT BORKAR, J.
RESERVED ON : JULY 08, 2026.
PRONOUNCED ON : JULY 14, 2026
JUDGMENT:
1. By filing the present petition under Section 9 of the
Arbitration and Conciliation Act, 1996, the petitioner, Oil and
Natural Gas Corporation Limited (ONGC), has prayed for a
direction against the respondent to renew and continue the Bank
Guarantees furnished under the Contract till the petition filed
under Section 34 challenging the arbitral award dated 10th March,
2026 is finally decided. By the said award, the Arbitral Tribunal
rejected the petitioner's counterclaim for liquidated damages and
also directed return of the Bank Guarantees. According to the
petitioner, these Bank Guarantees are the only security available
for protecting its claim. It is its case that, under the terms of the
Contract, the Bank Guarantees are required to remain alive till the
dispute regarding levy of liquidated damages is finally decided. On
this basis, the present petition has been filed.
2. The facts giving rise to the present petition are as follows.
On 16th September, 2008, Afcons Infrastructure Limited and PT
Gunanusa Utama Fabricators entered into a Joint Venture
Agreement and constituted the respondent for participating in the
Project. Thereafter, on 29th May, 2008, the petitioner, ONGC, and
Afcons executed the Contract for construction, installation and
commissioning of the Project. Under the General Conditions of
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Contract (GCC), the Completion Date was fixed as 30th April,
2011. The Contract provided that time was of the essence under
Clause 6.3.1.2. It also gave ONGC a right to recover liquidated
damages if there was delay in completion of the Project, in terms
of Clause 6.3.2 of the GCC.
3. By its letter dated 29th April, 2011, ONGC informed Afcons
that the Project had not been completed within the stipulated
Completion Date. After that, by letters dated 3rd May, 2011, 16th
May, 2011 and 30th May, 2011, Afcons requested ONGC to grant
extension of time for completing the Project. Afcons also requested
that no liquidated damages should be deducted and, on its own,
offered to furnish Bank Guarantees as security instead of
immediate recovery of liquidated damages. Thereafter, by letters
dated 31st May, 2011, 21st June, 2011, 24th June, 2011 and 30th
June, 2011, ONGC extended the Completion Date up to 31st
December, 2011. At the same time, ONGC asked Afcons to furnish
an unconditional and irrevocable Bank Guarantee covering the full
amount of liquidated damages along with 10% interest. Afcons
accepted this condition. While granting extension of time, ONGC
clearly stated that it was not giving up its right to recover
liquidated damages under Clause 6.3.2 of the GCC.
4. Thereafter, on 22nd July, 2011, the parties amended the
Contract and inserted Clause 6.3.4 in the GCC. Under this clause,
Afcons agreed to furnish unconditional and irrevocable Bank
Guarantees securing 110% of ONGC's maximum claim towards
liquidated damages. Clause 6.3.4 further provided that the Bank
Guarantees would remain valid till the issue relating to ONGC's
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entitlement to recover liquidated damages under the Contract was
finally settled. Pursuant to this clause, Afcons furnished the
required Bank Guarantees. Initially, they were valid up to 31st
December, 2012. Thereafter, they were renewed from time to time
and, at present, they are valid up to 15th July, 2026.
5. The Project was ultimately completed on 31st October, 2012
and 2nd January, 2013, after an effective delay of more than 220
days, which is approximately 30 weeks beyond the stipulated
Completion Date. After completion of the Project, ONGC issued the
Project Completion Certificate. Thereafter, by its letter dated 23rd
April, 2013, Afcons denied that it was responsible for the delay in
completion of the Project. ONGC disputed this stand by its letter
dated 10th May, 2013. As both parties took different stands
regarding responsibility for the delay and liability to pay liquidated
damages, disputes arose between them. Subsequently, on 20th
July, 2015, Afcons invoked the arbitration clause contained in
Clause 1.3.2 of the GCC.
6. During the arbitral proceedings, Afcons filed an Interim
Application under Section 17 of the Arbitration and Conciliation
Act, 1996. By order dated 22nd April, 2022, the Arbitral Tribunal
directed that the Bank Guarantees furnished in place of liquidated
damages should be restricted to USD 29,909,433, INR
22,08,94,740 and EUR 4,551,725, which represented 110% of the
maximum claim for liquidated damages, and further directed that
such Bank Guarantees should remain alive till the final award was
made. Thereafter, by the impugned award dated 10th March,
2026, the Arbitral Tribunal, amongst other things, dismissed
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ONGC's counterclaims, including Counterclaim No. 8 claiming
liquidated damages of USD 41,691,936.24, EUR 6,344,827.53 and
INR 30,79,13,880/- together with interest. The Tribunal also
directed ONGC to return the Bank Guarantees within ten days.
Following the award, by letters dated 26th March, 2026 and 27th
March, 2026, Afcons called upon ONGC to return the Bank
Guarantees in accordance with the directions contained in the
award. In reply, ONGC informed Afcons that it was taking steps to
avail the statutory remedy available under law.
7. Thereafter, on 8th June, 2026, ONGC filed a petition under
Section 34 of the Arbitration and Conciliation Act, 1996
challenging the impugned award, particularly the part by which its
Counterclaim No. 8 for liquidated damages was rejected.
According to ONGC, that part of the award is contrary to the
fundamental policy of Indian law and is liable to be set aside.
Along with the said petition, ONGC also filed an Interim
Application seeking stay of the operation of the impugned award.
Thereafter, on 13th June, 2026, ONGC filed the present petition
under Section 9 seeking continuation of the Bank Guarantees. The
present petition came up for hearing on 25th June, 2026, when
this Court directed the respondent to file its reply on or before 5th
July, 2026. Afcons accordingly filed its reply on 6th July, 2026. On
7th July, 2026, the petitioner filed its rejoinder dealing with the
reply filed by Afcons. The matter is, therefore, before this Court for
consideration.
8. Mr. Sharan Jagtiani, learned Senior Advocate appearing for
the petitioner, submitted that ONGC has made out a strong prima
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facie case for setting aside the impugned award. According to him,
the Arbitral Tribunal has itself recorded that the delay in
completion of the Project was solely because of Afcons. It has also
held that Afcons was not entitled to an unconditional extension of
time for completing the Project. The Tribunal has further held that
ONGC was entitled to recover liquidated damages under Clause
6.3.2 of the General Conditions of Contract (GCC). He submitted
that once these findings are recorded by the Tribunal itself, the
dismissal of ONGC's counterclaim for liquidated damages is
contrary to the findings contained in the award.
9. Learned Senior Advocate further submitted that, despite
recording the above findings, the Tribunal dismissed ONGC's
counterclaim by relying upon the decision of the Supreme Court in
Kailash Nath Associates v. DDA (2015) 4 SCC 136 . According to
the Tribunal, a claim for liquidated damages does not remove the
requirement of proving actual loss and, therefore, ONGC could not
recover liquidated damages without pleading and proving such
loss. He submitted that the reliance placed on the said judgment is
completely misplaced as it ignores the settled legal position
applicable to the facts of the present case, particularly when the
Contract relates to a public utility project.
(a) He submitted that in Oil & Natural Gas Corporation Ltd.
v. Saw Pipes Ltd.(2003) 5 SCC 705, the Supreme Court held
that where the terms of a contract clearly provide for
payment of liquidated damages in case of breach, the party
suffering the breach is not required to prove actual loss. In
such a case, reasonable compensation can be awarded even
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if actual loss is not specifically proved.
(b) He further submitted that in Construction & Design
Services v. DDA (2015) 14 SCC 263 , the Supreme Court,
while following the decision in Saw Pipes , held that in public
utility projects, loss to the affected party can be presumed
even if there is no specific evidence of actual loss. If the
amount fixed under the contract is a genuine pre-estimate of
loss, proof of actual loss is not necessary. In such a situation,
the burden shifts upon the party committing the breach to
establish that no loss was likely to have been caused.
(c) He also relied upon the decision of the Delhi High Court
in GAIL (India) Ltd. v. Punj Lloyd Ltd. RFA (OS) (COMM)
No. 6 of 2016 , wherein it was held that when parties have
voluntarily agreed to a liquidated damages clause in a
contract where timely completion is important, the agreed
amount represents a genuine estimate of loss and becomes
payable without proof of actual loss.
(d) Learned Senior Advocate also placed reliance upon the
decision of the Supreme Court in Saisudhir Energy Solutions
Ltd. v. NTPC Ltd.2026 SCC OnLine SC 125 , wherein the
Supreme Court reiterated that in projects involving public
interest, the time schedule agreed between the parties
assumes importance. Once the parties have agreed upon a
liquidated damages clause which does not require proof of
actual loss, the contractual terms bind both parties. A party
committing the breach cannot avoid liability merely by
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contending that the exact loss has not been proved. In such
cases, the burden lies upon the defaulting party to establish
that no loss was caused or that the stipulated amount is in
the nature of a penalty.
(e) Reliance was also placed upon the decision of the
Supreme Court in BPL Ltd. v. Morgan Securities & Credits
Pvt. Ltd. (2026) 3 SCC 1 , wherein it has been held that
commercial contracts should be interpreted in a manner
which gives effect to the intention of the parties. It was
submitted that the terms voluntarily agreed upon by parties
cannot be altered by judicial interpretation unless they are
shown to be arbitrary, discriminatory, mala fide or affected
by bias. It was further submitted that the Arbitral Tribunal is
equally bound by the terms of the contract and cannot
depart from them.
10. Learned Senior Advocate submitted that the impugned
award wrongly distinguishes the decision in Construction & Design
Services by observing that the presumed loss in that case was
confined only to loss of interest on blocked capital. According to
him, the Supreme Court had also recognised that delay in such
public utility projects could result in environmental loss. He
submitted that the Tribunal has not assigned any reason as to why
similar losses, such as loss of interest on blocked capital, loss of
earnings or environmental loss, could not be presumed in the
present case also.
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11. Learned Senior Advocate further submitted that ONGC is
engaged in extraction of hydrocarbons, from which crude oil and
natural gas are separated and thereafter supplied to refineries for
further processing. For carrying out these activities, ONGC has
established the IC Complex consisting of three units, namely, the
Infill Complex Gas, the Infill Complex Production and the Infill
Complex Water. According to him, the present Contract related to
the design, engineering, testing, start-up and commissioning of the
ICP-R process platform, which was an extension of the existing ICP
platform.
12. It was submitted that the ICP-R process platform was
necessary for increasing ONGC's production capacity and thereby
enhancing extraction of crude oil and natural gas. According to
him, the Contract was, therefore, directly connected with a project
of public importance and also with the country's energy security.
He submitted that delay in completion of such a project naturally
resulted in different kinds of losses to ONGC, including loss of
capital, loss of foreign exchange and loss of production. He further
submitted that this was not a new case put forward for the first
time in the present proceedings, as alleged by Afcons, but was
consistently pleaded by ONGC before the Arbitral Tribunal and has
also been noticed in the impugned award.
13. Learned Senior Advocate submitted that the impugned
award also overlooks Clause 6.3.2 of the GCC. According to him,
the clause specifically provides that the amount of liquidated
damages represents a genuine pre-estimate of loss and is payable
on demand without requiring proof of actual loss or damage. He
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submitted that after holding Clause 6.3.2 to be valid and binding,
the Tribunal could not have insisted upon proof of actual loss. By
doing so, the Tribunal added a condition which the parties had
consciously excluded from the Contract and thereby virtually re-
wrote the contractual terms.
14. Learned Senior Advocate further submitted that Afcons has
contended in its reply that Clause 6.3.2 of the GCC was applicable
only till the final settlement of the arbitration. According to him,
this contention is contrary to the express terms of the Contract and
is also inconsistent with the principles laid down by the Supreme
Court in BPL Ltd. v. Morgan Securities & Credits Pvt. Ltd. . He
submitted that the Tribunal is bound to enforce the Contract as
agreed between the parties and cannot alter or re-write its terms.
15. Learned Senior Advocate also submitted that the impugned
award relies upon a statement made by the Minister of Petroleum
and Natural Gas in the Lok Sabha to conclude that ONGC had
suffered no loss. According to him, this approach is legally
unsustainable. He submitted that the Contract itself records that
ONGC entered into the Contract on its own behalf and that the
Government of India had no rights, liabilities or obligations under
it. He further submitted that the Minister was not a party to the
arbitration proceedings, was not examined as a witness and was
never subjected to cross-examination. Therefore, such a statement
could not have been relied upon by the Tribunal while deciding the
disputes.
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16. Learned Senior Advocate further submitted that Afcons has
contended in its reply that it had pleaded before the Tribunal that
ONGC had suffered no loss and that ONGC did not deny the said
contention. Though this submission is disputed, he submitted that
the important aspect is that the Tribunal has never recorded any
finding that ONGC had actually suffered no loss. According to him,
instead of requiring Afcons to establish that no loss had occurred,
as required by the law laid down in Construction & Design
Services , the Tribunal wrongly shifted the burden upon ONGC to
prove the loss. He submitted that, in the absence of any finding
that Afcons had discharged its burden, it is incorrect to suggest
that ONGC had accepted Afcons' case that no loss had been
suffered.
17. Learned Senior Advocate then addressed the requirements
for grant of post-award interim relief to a party which has partly
failed before the Arbitral Tribunal. He submitted that, in the
arbitration proceedings as a whole, ONGC cannot be treated as an
unsuccessful party because the Tribunal rejected twelve out of the
fifteen claims made by Afcons, involving claims of about USD
114.13 million and INR 101.18 crore, and only partly allowed
three claims involving much smaller amounts. According to him,
the only issue on which ONGC was unsuccessful was its
Counterclaim No. 8 relating to liquidated damages. Therefore, for
the limited purpose of the present petition, ONGC may be
regarded as an unsuccessful party seeking protection of its
liquidated damages claim by keeping the Bank Guarantees alive
during the pendency of the petition under Section 34.
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18. Learned Senior Advocate relied upon the decision of the
Supreme Court in Home Care Retail Marts Pvt. Ltd. v. Haresh N.
Sanghavi 2026 SCC OnLine SC 670 . He submitted that the
Supreme Court has held that even an unsuccessful party can
maintain a petition under Section 9 after the award for preserving
the subject matter of the dispute. According to him, apart from
satisfying the ordinary requirements of a prima facie case, balance
of convenience and irreparable injury, such a party is also required
to establish rare and compelling circumstances justifying grant of
interim protection. He submitted that the Supreme Court has
further observed that removal of interim protection relating to a
bank guarantee while the award is under challenge may result in
irreversible prejudice to the unsuccessful party.
19. Learned Senior Advocate further relied upon the decision of
this Court in ONGC v. Swiber Offshore Construction Pte.
Ltd.Commercial Arbitration Petition (L) No. 17832 of 2026 . He
submitted that this Court applied the principles laid down in Home
Care and held that post-award interim protection can be granted
only when exceptional circumstances exist which cannot be
corrected at a later stage and where the applicant possesses a
legally enforceable right to insist upon continuation of the bank
guarantee. According to him, these are the principles which govern
consideration of the present petition.
20. Learned Senior Advocate submitted that although this Court
declined relief in Swiber on the facts of that case, the present case
stands on a different footing and fully satisfies the principles laid
down in Home Care as well as Swiber . According to him, the facts
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of the present case are clearly distinguishable.
21. He submitted that, in Swiber , the parties had entered into
Consent Terms under which the Bank Guarantee was to remain
valid only for 120 days after the arbitral award. ONGC had
thereafter sought continuation of the Bank Guarantee beyond the
agreed period so as to use it as general security for its entire claim
during the liquidation proceedings of Swiber. In the present case,
however, there are no such Consent Terms. On the contrary, Clause
6.3.4 of the GCC, which was inserted at the request of Afcons,
specifically requires the Bank Guarantees to continue as security
for ONGC's claim for liquidated damages until the dispute is finally
settled, which is now pending in the petition under Section 34.
22. Learned Senior Advocate further submitted that the
petitioner has also established a strong prima facie case. He
pointed out that, in Swiber , ONGC had failed before the Tribunal
to establish that the delay in execution of the project was
attributable to Swiber and, therefore, this Court found that the
challenge to the arbitral award was not strong enough to ignore
the findings recorded by the Tribunal. According to him, the
position in the present case is entirely different because the
impugned award itself records that the delay in completion of the
Project was solely attributable to Afcons, that Afcons was not
entitled to an unconditional extension of time and that ONGC was
entitled to recover liquidated damages under Clause 6.3.2 of the
GCC. He submitted that, despite recording these findings, the
Tribunal ignored the binding law laid down by the Supreme Court
in Construction & Design Services . According to him, the reasons
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given by the Tribunal for distinguishing that judgment are brief
and without proper reasoning. He submitted that the present
Project is a public utility project of the very nature considered by
the Supreme Court in Construction & Design Services , and the
same principle has also been recognised in the decisions of the
Supreme Court in Saisudhir Energy Solutions Ltd. and of the Delhi
High Court in GAIL (India) Ltd. . Therefore, according to him, the
Tribunal committed an error in disregarding the decision in
Construction & Design Services and in applying the decision in
Kailash Nath Associates to the facts of the present case.
23. Learned Senior Advocate submitted that the impugned
award is liable to be set aside as it ignores the binding decisions of
superior Courts. According to him, when an Arbitral Tribunal
disregards the law laid down by the Supreme Court or a binding
judgment of a High Court, it acts contrary to the fundamental
policy of Indian law. He submitted that such an award cannot be
sustained in law.
24. Learned Senior Advocate further submitted that, even
assuming, without admitting, that the present case is governed by
the principles laid down in Kailash Nath Associates , the said
judgment itself recognises that where it is difficult or impossible to
prove the exact loss, the amount of liquidated damages fixed
under the contract, if it is a genuine pre-estimate of loss, can still
be awarded. According to him, ONGC had specifically raised this
contention before the Arbitral Tribunal. However, the Tribunal
failed to examine whether, in the facts of the present case, the loss
was difficult or impossible to quantify. He submitted that the
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Tribunal itself has held Afcons responsible for the delay of more
than 220 days in completing the Project. Since the Contract relates
to a public utility project, the losses arising from such delay cannot
be accurately measured in monetary terms. Therefore, according
to him, the Tribunal ought to have considered this aspect but failed
to do so.
25. Learned Senior Advocate further submitted that the
impugned award is also liable to be set aside because the Tribunal
relied upon a statement made by the Minister of Petroleum and
Natural Gas in the Lok Sabha for holding that ONGC had suffered
no loss. According to him, such reliance is legally impermissible
because the Minister was neither examined as a witness nor
subjected to cross-examination in the arbitral proceedings. He
submitted that the Tribunal committed a serious error in relying
upon such material while deciding the dispute. Therefore,
according to him, ONGC has made out a strong prima facie case
for setting aside the impugned award.
26. Learned Senior Advocate then submitted that the balance of
convenience is also entirely in favour of ONGC. He pointed out
that in Swiber , continuation of the Bank Guarantee would have
extended the security beyond what the parties had expressly
agreed under the Consent Terms. According to him, the facts of the
present case are completely different. Here, the Bank Guarantees
were furnished by Afcons itself in place of ONGC's contractual
right under Clause 6.3.2 of the GCC to deduct liquidated damages
from the running bills. He submitted that Afcons has continued to
renew these Bank Guarantees for nearly fifteen years. Therefore,
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directing continuation of the Bank Guarantees would only preserve
the existing position which has remained throughout the
arbitration proceedings. According to him, such continuation
would not cause any prejudice to Afcons, whereas permitting the
Bank Guarantees to expire would seriously prejudice ONGC. He
further submitted that ONGC had refrained from deducting
liquidated damages from Afcons' bills only because Afcons had
furnished these Bank Guarantees. Had ONGC exercised its
contractual right to deduct the amount at that stage, it would have
continued to retain the amount of liquidated damages even today.
27. Learned Senior Advocate further submitted that Clause 6.3.4
of the GCC itself forms part of the contractual mechanism agreed
between the parties. According to him, this clause specifically
requires the Bank Guarantees to remain as security for ONGC's
claim for liquidated damages until the dispute is finally settled.
Since the dispute is presently pending in the petition filed under
Section 34 of the Arbitration and Conciliation Act, the contractual
obligation to continue the Bank Guarantees still survives.
Therefore, according to him, the balance of convenience clearly
favours ONGC.
28. Learned Senior Advocate next submitted that ONGC would
also suffer irreparable injury if the Bank Guarantees are not
continued. He relied upon the decision of the Supreme Court in
Home Care Retail Marts Pvt. Ltd. , wherein it has been observed
that post-award interim protection can be granted to an
unsuccessful party where such protection does not affect the
enforceability of the award. He also relied upon the decision of this
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Court in Swiber , wherein it was recognised that continuation of a
Bank Guarantee may, in an appropriate case, constitute a
permissible post-award interim measure. According to him, these
decisions recognise that interim protection can be granted even
after an award if refusal of such protection would result in
irreparable prejudice.
29. Learned Senior Advocate submitted that while applying the
above principles in Swiber , this Court held that the Bank
Guarantee in that case had been furnished only as security for
liquidated damages and could not be converted into a general
security for all claims of ONGC. This Court also held that the fact
that Swiber was undergoing liquidation was, by itself, not a rare or
compelling circumstance for grant of post-award protection.
According to him, the present case stands on an entirely different
footing because the Bank Guarantees constitute the only security
available for ONGC's claim for liquidated damages and are due to
expire on 15th July, 2026. He submitted that if the Bank
Guarantees are permitted to lapse, the very subject matter of the
present dispute would be lost forever. Even if ONGC ultimately
succeeds in its petition under Section 34, such success would
become meaningless because there would be no security left to
satisfy its claim. According to him, ONGC would be left without
any effective remedy.
30. Learned Senior Advocate further submitted that one of the
constituents of the respondent Joint Venture is a foreign company
situated in Indonesia. According to him, after completion of the
Project, the purpose for which the Joint Venture was constituted
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has already been achieved. Therefore, if the Bank Guarantees are
allowed to expire, ONGC may face serious difficulty in securing
and enforcing its claim for liquidated damages against the foreign
entity. He submitted that this itself shows that ONGC would suffer
irreparable prejudice if the Bank Guarantees are not continued.
31. Learned Senior Advocate also submitted that ONGC has
acted with due diligence and without any delay. He pointed out
that in Swiber , although ONGC was aware from the beginning
about the date of expiry of the Bank Guarantee, it approached the
Court only shortly before its expiry. According to him, the facts of
the present case are different. As the Bank Guarantees were due to
expire on 15th July, 2026, ONGC filed the petition under Section
34 along with the Interim Application seeking stay on 8th June,
2026 and thereafter filed the present petition on 13th June, 2026.
He submitted that the present petition was immediately moved
before this Court and the proceedings have thereafter been
prosecuted with promptness. Therefore, there is no delay or lack of
diligence on the part of ONGC.
32. Learned Senior Advocate further submitted that the present
case discloses exceptional and rare circumstances warranting grant
of interim protection. He pointed out that although this Court in
Swiber held that no exceptional circumstances were established in
that case, the facts of the present case are materially different.
According to him, the impugned award itself records that the delay
of more than 220 days in completion of the Project was solely
attributable to Afcons, that Afcons was not entitled to an
unconditional extension of time, and that ONGC was entitled to
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recover liquidated damages under Clause 6.3.2 of the GCC.
33. Learned Senior Advocate submitted that despite recording
these findings, the Tribunal rejected ONGC's claim for liquidated
damages by relying upon the decision in Kailash Nath Associates
while ignoring the binding principles laid down by the Supreme
Court in Construction & Design Services . According to him, the
reasons given by the Tribunal for doing so are brief and
unsupported by proper reasoning. He submitted that since the
Contract relates to a public utility project and the Tribunal has
already found a delay of more than 220 days attributable to
Afcons, ONGC's claim for liquidated damages of about INR 323
crores deserves to remain secured by continuation of the Bank
Guarantees till the dispute is finally decided.
34. Learned Senior Advocate further submitted that under the
Joint Venture Agreement, the liabilities of Afcons Infrastructure
Limited and PT Gunanusa Utama Fabricators are joint as well as
several. According to him, ONGC is, therefore, entitled to proceed
independently against PT Gunanusa Utama Fabricators for
recovery of its claim. He submitted that if the Bank Guarantees are
allowed to lapse, ONGC will face serious prejudice in enforcing its
claim for liquidated damages against the foreign constituent of the
Joint Venture.
35. Learned Senior Advocate also submitted that, according to
the records available on the website of this Court, Afcons has itself
filed proceedings challenging the impugned award. However,
according to him, this fact has not been disclosed by Afcons in its
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reply to the present petition. He submitted that, irrespective of
such non-disclosure, the fact that both parties have challenged
different parts of the impugned award clearly shows that the
disputes between them are still pending adjudication. Therefore,
according to him, Clause 6.3.4 of the GCC continues to operate
and requires the Bank Guarantees to remain valid until the
disputes are finally settled.
36. Learned Senior Advocate then dealt with the contentions
raised by Afcons in its reply. He submitted that Afcons has claimed
that it is a financially sound company having an annual turnover of
more than INR 13,000 crores and has relied upon its consolidated
financial statements in support of this contention.
37. According to the learned Senior Advocate, reliance upon the
consolidated financial statements is misplaced because the liability
in the present proceedings is that of Afcons Infrastructure Limited
as a constituent of the respondent Joint Venture. The financial
position of its subsidiaries and associate companies is not relevant
for deciding the present dispute.
38. Learned Senior Advocate further submitted that Afcons has
not placed on record its latest audited financial statements for the
financial year 2025-26. According to him, those financial
statements show a significant deterioration in the financial
position of Afcons Infrastructure Limited. He submitted that the
profit before tax has substantially reduced, the cash flow from
operating activities has considerably declined, the debt-equity ratio
has increased and the net profit margin has also reduced.
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According to him, these financial indicators demonstrate a
weakening financial position.
39. Learned Senior Advocate submitted that these financial
figures clearly indicate deterioration in the financial condition of
Afcons Infrastructure Limited and also show lack of sufficient
liquidity to satisfy ONGC's claim for liquidated damages of about
INR 323 crores. He further submitted that although Afcons has
contended that continuation of the Bank Guarantees would cause
financial hardship and irretrievable loss, no material has been
produced to substantiate such contention. According to him,
Afcons has relied upon a letter issued by the State Bank of India
stating that Bank Guarantees may require a one hundred per cent
cash margin. However, no material has been placed to show that
the Bank Guarantees issued by Punjab National Bank in the
present case are subject to any such requirement.
40. Learned Senior Advocate further submitted that even if it is
assumed that Afcons has deposited one hundred per cent cash
margin with Punjab National Bank by way of fixed deposits, Afcons
would continue to earn interest on such deposits. According to
him, continuation of the arrangement which has remained in
existence for nearly fifteen years cannot cause any substantial
financial prejudice to Afcons, particularly when compared with the
serious prejudice likely to be caused to ONGC if the Bank
Guarantees are permitted to lapse.
41. In conclusion, learned Senior Advocate submitted that the
present case discloses rare and exceptional circumstances justifying
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grant of interim protection. He, therefore, prayed that this Court
should restrain return of the Bank Guarantees and direct their
extension and continuation until the petition under Section 34 is
finally decided. In the alternative, he prayed that Afcons be
directed to furnish fresh Bank Guarantees of equivalent value in
terms of the prayers made in the petition.
42. Mr. Rajeev Sharma, learned Senior Advocate appearing for
the respondent, submitted that the petitioner had neither pleaded
nor proved before the Arbitral Tribunal that it had suffered any
loss because of the delay in completion of the Project. According to
him, there was also no pleading or evidence to show that such loss
was impossible or difficult to prove. He submitted that, in the
absence of such pleadings and evidence, the petitioner could not
invoke the liquidated damages clause contained in the Contract.
43. Learned Senior Advocate invited my attention to the
judgment of the Supreme Court in Fateh Chand v. Balkishan Dass
AIR 1963 SC 1405 . He submitted that the Supreme Court has held
that Section 74 of the Indian Contract Act, 1872 entitles the
aggrieved party to receive reasonable compensation for breach of
contract irrespective of whether actual loss or damage is proved.
However, according to him, the said provision only dispenses with
strict proof of actual loss. It does not permit grant of compensation
where no legal injury has in fact been caused because of the
breach. He submitted that compensation for breach of contract can
be awarded only for such loss or damage as naturally arises in the
ordinary course of events or which the parties knew, at the time of
entering into the contract, was likely to result from such breach.
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44. Learned Senior Advocate also relied upon the judgment of
the Supreme Court in Kailash Nath Associates . He submitted that
the Supreme Court has held that since Section 74 provides for
reasonable compensation for loss or damage caused by breach of
contract, the existence of such loss or damage is an essential
requirement for invoking the provision. He further submitted that
the Supreme Court has explained that the words "whether or not
actual damage or loss is proved" mean that proof of actual loss is
dispensed with only where it is impossible or difficult to establish
such loss. According to him, only in such cases can the amount of
liquidated damages specified in the contract, if it represents a
genuine pre-estimate of loss, be awarded.
45. Learned Senior Advocate submitted that the Arbitral Tribunal
has considered both the judgments in Fateh Chand and Kailash
Nath Associates and, after appreciating the material placed before
it, has recorded a finding that the petitioner failed to plead as well
as prove any loss. He submitted that, in fact, the respondent had
never pleaded that the petitioner had suffered no loss. He also
relied upon the judgment of this Court in ONGC v. Swiber Offshore
Construction Pte. Ltd. and submitted that this Court has
extensively considered the principles governing exercise of powers
under Section 9 after passing of an arbitral award at the instance
of an unsuccessful party. According to him, since the present
petition also seeks post-award relief, those principles are directly
applicable. He further submitted that the scope of interference
under Section 34 is limited and, therefore, the petitioner cannot
seek wider relief by filing the present petition.
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46. In reply to the contention of the petitioner that the
respondent has also filed a petition under Section 34 challenging
the arbitral award, learned Senior Advocate submitted that such
challenge has no bearing on the present proceedings. According to
him, the grounds raised by the respondent in its petition under
Section 34 relate to different issues and are independent of the
controversy involved in the present petition. He further submitted
that the Supreme Court in Home Care Retail Marts (P) Ltd. has
held that an unsuccessful party in arbitration can seek relief under
Section 9 only if the relief claimed is of a non-prejudicial nature.
47. Learned Senior Advocate submitted that if the respondent is
required to continue the Bank Guarantees, it would have to
provide security of nearly INR 400 crores even though it has
succeeded before the Arbitral Tribunal. According to him, such a
direction would seriously prejudice the respondent and, therefore,
the relief sought by the petitioner cannot be treated as a non-
prejudicial interim measure. He submitted that the respondent has
already placed material in its affidavit to show that its financial
position is sound and that its assets are sufficient to satisfy the
petitioner's claim in the event the petitioner ultimately succeeds in
the proceedings under Section 34. He also invited my attention to
Clause 8 of the Bank Guarantee and submitted that the petitioner
is entitled to make a demand under the Bank Guarantee within
twelve months after expiry of its validity, provided the cause of
action has arisen during the period when the Bank Guarantee
remained valid. According to him, this clause itself sufficiently
protects the petitioner's interest.
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48. Learned Senior Advocate further submitted that, without
prejudice to its rights, the respondent is willing to furnish a
corporate guarantee in favour of the petitioner if the petitioner
ultimately succeeds in the proceedings under Section 34.
According to him, in view of this offer and having regard to the
principles laid down by the Supreme Court in Home Care Retail
Marts , the petitioner has failed to satisfy the conditions required
for grant of post-award interim protection. He therefore submitted
that the present petition deserves to be dismissed.
49. In rejoinder, Mr. Jagtiani, learned Senior Advocate appearing
for the petitioner, submitted that the judgment of the Supreme
Court in Construction & Design Services lays down that it is not
necessary in every case for the claimant to plead and prove actual
loss. According to him, the Supreme Court has held that where the
contract provides only the maximum limit of liquidated damages
and not a fixed amount, the Court may treat an appropriate part of
such amount as reasonable compensation even in the absence of
specific evidence of actual loss, while treating the remaining
amount as penalty, if necessary. He further submitted that the
Supreme Court has also held that the burden of proving that no
loss was likely to have been suffered rests upon the party which
committed the breach and not upon the party claiming liquidated
damages.
50. Learned Senior Advocate also referred to Clause 8 of the
Bank Guarantee and submitted that the expression "cause of
action" used therein cannot be understood in the same manner as
the cause of action required for filing a civil suit. According to him,
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Clause 8 merely permits invocation of the Bank Guarantee where
the claim arises during the period for which the Bank Guarantee
remains valid. He submitted that the petitioner is, therefore,
entitled to continuation of the Bank Guarantees and to the reliefs
prayed for in the present petition.
Reasons and Analysis
51. I have carefully considered the pleadings, the documents
placed on record, the arbitral award, the submissions made by the
learned Senior Counsel appearing for both sides and the
judgments relied upon by them. Both parties have made many
submissions on different issues. Still, the issue before this Court is
of limited nature. This Court is exercising powers under Section 9
of the Arbitration and Conciliation Act, 1996 after the arbitral
award has been passed and during pendency of the petition filed
under Section 34 challenging that award. Therefore, at this stage,
this Court is not required to finally decide whether the arbitral
award is right or wrong. At the same time, this Court also cannot
ignore the challenge made to the award because the petitioner is
seeking continuation of the Bank Guarantees though the Tribunal
has directed that they should be returned. Therefore, the only
question for consideration is whether, in the facts of the present
case, the petitioner has made out a case for grant of post-award
interim protection.
52. Before considering the rival submissions, it is necessary to
see the legal position relating to a petition under Section 9 after an
arbitral award is passed. Earlier, different Courts had taken
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different views whether a party who failed before the Arbitral
Tribunal could still file a petition under Section 9 after the award.
That issue now stands settled by the judgment of the Supreme
Court in Home Care Retail Marts Pvt. Ltd. . The Supreme Court has
held that the words "a party" used in Section 9 cannot be given
different meaning depending on whether such party has succeeded
or failed before the Tribunal. The Act does not make any such
distinction. Therefore, every party to the arbitration agreement can
invoke Section 9 till the arbitral award is enforced under Section
36. However, the judgment in Home Care Retail Marts does not
mean that unsuccessful party will get interim protection as a
matter of right. The Supreme Court has also made it clear that the
normal principles for grant of interim relief will continue to apply.
The applicant has to show a prima facie case, balance of
convenience and likelihood of irreparable injury. The Supreme
Court has further observed that where the applicant has lost before
the Tribunal, the requirement becomes much stricter. Such party
has to show rare and compelling circumstances. This higher
standard is prescribed because the Tribunal has considered the
evidence and passed the award. Therefore, while considering a
request for post-award interim protection, the Court cannot ignore
the findings recorded in the arbitral award.
53. This Court had occasion to consider these principles in
ONGC v. Swiber Offshore Construction Pte. Ltd. While applying the
law laid down by the Supreme Court in Home Care Retail Marts ,
this Court observed that though an unsuccessful party can
maintain a petition under Section 9, continuation of a Bank
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Guarantee after rejection of its claim can be granted where the
challenge to the award is exceptionally strong and the surrounding
facts also show compelling circumstances. The arbitral award
cannot be ignored while exercising powers under Section 9. The
findings recorded by the Tribunal continue to operate unless the
award is set aside.
54. Keeping these principles in mind, it is necessary to consider
the rival submissions. The petitioner has argued that the impugned
award suffers from serious error because the Tribunal has ignored
binding judgments of the Supreme Court while rejecting its
counterclaim for liquidated damages. According to the petitioner,
the Tribunal has recorded that the delay of more than 220 days in
completing the Project was because of the respondent. The
Tribunal has also held that the respondent was not entitled to
unconditional extension of time and that ONGC was entitled to
recover liquidated damages under Clause 6.3.2 of the General
Conditions of Contract. According to the petitioner, after recording
these findings, the Tribunal could not have rejected the
counterclaim because loss was not pleaded and proved. It is
submitted that this approach is contrary to the settled law
governing public utility contracts.
55. On the other hand, the respondent submitted that the award
cannot be read by taking some findings. According to the
respondent, the Tribunal has considered the entire evidence,
examined the pleadings of parties and reached a conclusion that
the petitioner had neither pleaded nor proved any loss. It is
submitted that the Tribunal has applied the principles laid down by
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the Supreme Court in Fateh Chand and Kailash Nath Associates
and recorded its findings. According to the respondent, whether
those findings are right or wrong is a matter which will be
examined in the proceedings under Section 34. At this stage, the
award is valid and binding and cannot be ignored because another
possible view may be available.
56. In my view, the petitioner is right in saying that while
considering whether a prima facie case exists, the Court cannot
ignore the grounds on which the arbitral award is challenged. At
the same time, the respondent is right in submitting that this Court
cannot make a detailed examination of the award while exercising
jurisdiction under Section 9. This Court is not deciding the petition
under Section 34. Therefore, it is not expected to decide whether
the award deserves to be set aside. The only exercise before this
Court is to see whether the challenge raised by the petitioner is
exceptionally strong so that interim protection deserves to
continue till the petition under Section 34 is finally decided.
57. The petitioner has placed emphasis on the findings recorded
by the Tribunal that the delay was attributable to the respondent.
Those findings cannot be ignored because they form the
foundation of the petitioner's claim for liquidated damages. If the
Tribunal had held that the petitioner was responsible for the delay,
the matter would have stood on a different footing. However, in
the present case, the Tribunal appears to have accepted that the
delay was because of the respondent and that Clause 6.3.2 of the
Contract was applicable. Even then, the Tribunal rejected the
counterclaim on the ground that actual loss was neither pleaded
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nor proved. Whether this approach is correct is one of the
important issues which will have to be considered in the
proceedings under Section 34. Therefore, at this stage, it cannot be
said that the petitioner has raised only a imaginary challenge.
58. At the same time, the submission of the respondent that the
award has to be read as a whole deserves consideration. The
Tribunal has not rejected the counterclaim without assigning
reasons. It has discussed the legal principles flowing from Fateh
Chand and Kailash Nath Associates . It has considered the
pleadings and evidence placed before it before recording its
conclusion that loss was not pleaded or proved. Therefore, this is
not a case where the Tribunal ignored the issue or passed an order
without discussion. Whether the reasons given by the Tribunal are
sustainable is another matter. But, at present, it cannot be said that
the award is without reasons or passed without application of
mind.
59. The dispute between the parties is regarding the
interpretation of Section 74 of the Indian Contract Act and the
effect of the judgments in Saw Pipes Ltd. , Construction & Design
Services and Kailash Nath Associates . According to the petitioner,
the decision in Construction & Design Services applies because the
present Contract relates to a public utility project and, therefore,
proof of actual loss is not necessary. On the other hand, the
respondent has submitted that Kailash Nath Associates lays down
that existence of loss is an essential requirement for applying
Section 74 and unless the petitioner has pleaded and proved actual
loss, or at least shown that such loss was impossible or difficult to
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prove, compensation cannot be granted. This issue goes to the root
of the challenge made by the petitioner and therefore requires
careful examination.
60. Both parties have relied upon several judgments in support
of their submissions. The petitioner has relied upon Saw Pipes ,
Construction & Design Services , Saisudhir Energy Solutions , GAIL
(India) Ltd. and BPL Ltd. The respondent, on the other hand, has
relied upon Fateh Chand , Kailash Nath Associates and the
judgment of the this Court in Punj Lloyd Ltd. Therefore, the issue
is not simply to accept one judgment and reject the other. The duty
of the Court is to see whether all these judgments can be read
together and whether the Tribunal has correctly understood and
applied the legal principles coming from them. Only after such
examination can it be considered whether the petitioner has
shown the exceptionally strong prima facie case.
61. The main submission of the petitioner is that the Arbitral
Tribunal has committed a legal error while applying the law
relating to liquidated damages. According to the petitioner, after
recording that the delay of more than 220 days in completion of
the Project was because of the respondent and that ONGC was
otherwise entitled to invoke Clause 6.3.2 of the General Conditions
of Contract, the Tribunal could not have rejected the counterclaim
on the ground that actual loss was not pleaded or proved. It is
submitted that while doing so, the Tribunal ignored the law laid
down by the Supreme Court from time to time in matters relating
to public utility contracts.
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62. Before considering this submission, it is necessary to see the
scheme of the Contract. Clause 6.3.2 provides for recovery of
liquidated damages in case of delay. Later, at the request of the
respondent, Clause 6.3.4 came to be added in the Contract. Under
this clause, instead of ONGC deducting the liquidated damages
from the running bills, the respondent agreed to furnish
unconditional and irrevocable Bank Guarantees for 110% of the
maximum claim towards liquidated damages. The clause further
provides that these Bank Guarantees shall remain alive till the
issue relating to ONGC's right to recover liquidated damages is
settled. Prima facie, this arrangement appears to show that both
parties agreed to keep the dispute open and secure the claim
through Bank Guarantees, so that the Project could continue
without affecting the financial flow.
63. The petitioner has placed reliance upon the judgment of the
Supreme Court in Saw Pipes . According to the petitioner, the
Supreme Court has held that where the parties themselves have
agreed upon a genuine pre-estimate of damages, the Court can
grant reasonable compensation even without proof of actual loss,
provided the requirements of Section 74 of the Contract Act are
satisfied. The judgment also says that in commercial contracts the
parties are in a better position to estimate the likely result of
breach. Therefore, according to the petitioner, once Clause 6.3.2 is
accepted to be valid, insisting on strict proof of actual loss would
defeat the purpose for which such clause was included.
64. The petitioner has also relied upon the later judgment in
Construction & Design Services . According to the petitioner, that
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judgment is important because it relates to a public utility project.
The Supreme Court observed that delay in such projects causes
loss to the public authority, though the exact amount of such loss
may not always be possible to calculate. The Supreme Court also
noticed that delay may result in blockage of capital, delayed use of
public infrastructure and other consequences which may not be
capable of exact proof. Therefore, where the amount mentioned in
the Contract is a genuine pre-estimate of the likely loss, reasonable
compensation can be granted without insisting on proof of the
monetary loss. According to the petitioner, the present Project
relating to increase in production of crude oil and natural gas is of
similar nature and therefore the same principle should apply.
65. The respondent, however, has disputed this interpretation.
Learned Senior Counsel submitted that Construction & Design
Services does not say that proof of loss is unnecessary in every
matter. According to him, the judgment says that where loss is
obvious but the exact amount is difficult or impossible to calculate,
proof of the loss may not be necessary. Even then, the party
claiming liquidated damages must at least plead that loss has
occurred and also explain why such loss cannot be proved.
According to the respondent neither of these basic requirements
was satisfied. In support of this submission, the respondent has
relied upon the judgments in Fateh Chand and Kailash Nath
Associates . In Fateh Chand , the Supreme Court observed that
Section 74 removes the requirement of proving actual damage in
proper cases, but it does not permit grant of compensation where
no legal injury is caused. This principle was explained in Kailash
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Nath Associates , where the Supreme Court summarised the law
under Section 74. The Court held that damage or loss caused
because of breach is a necessary requirement for applying Section
74. It also explained that the words "whether or not actual damage
or loss is proved" mean that where actual loss can be proved, such
proof should be given. It is only where the loss is difficult or
impossible to prove that the amount fixed in the Contract, if found
to be a genuine pre-estimate, may be awarded as compensation.
66. At the first reading, the judgments relied upon by both
parties appear to support different views. However, on closer
consideration, such difference may not exist. This Court in Punj
Lloyd Ltd. has read these judgments together. The Court held that
Section 74 cannot be read separately from Section 73. Even where
the Contract contains a liquidated damages clause, the party
alleging breach must plead and show that some loss has occurred.
Where actual loss can be proved, such proof should be produced.
If, because of the nature of the transaction, proof of loss is
impossible or difficult, then those circumstances must be pleaded
and shown. Only after that can the Court exercise its discretion to
award the liquidated amount as compensation, if it is satisfied that
such amount is a genuine pre-estimate of the loss.
67. Prima facie, this view appears to bring Kailash Nath
Associates and Construction & Design Services on the same line.
Construction & Design Services does not lay down that proof of
loss is unnecessary in every public utility project. Similarly, Kailash
Nath Associates does not require proof of the loss in every case.
The principle in judgments appears to be that legal injury must
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exist. The difference is about the manner in which such loss has to
be established. Where the nature of the Project makes exact
calculation of loss difficult or impossible, the Court may,
depending upon the surrounding facts and the terms of the
Contract, presume that some loss has occurred.
68. Whether the petitioner has satisfied these requirements is the
dispute between the parties. According to the petitioner, the
Project was not an ordinary contract but was connected with the
country's hydrocarbon infrastructure. It is submitted that delay in
commissioning such Project resulted in blockage of capital,
postponement of production, loss of foreign exchange and other
consequences affecting public interest. It is further submitted that
these aspects were pleaded before the Tribunal and have also
found place in the arbitral award. Therefore, according to the
petitioner, this is the kind of matter where the principle laid down
in Construction & Design Services ought to have been applied.
69. The respondent has disputed this. According to the
respondent, these losses were never pleaded or proved before the
Tribunal. General statements regarding public interest cannot take
the place of pleadings relating to loss. It is submitted that the
petitioner neither established the nature of the alleged loss nor
explained why such loss was incapable of proof. Therefore,
according to the respondent, the Tribunal rightly applied the
judgment in Kailash Nath Associates and held that the
requirements of Section 74 were not satisfied.
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70. The petitioner has criticised the Tribunal for relying upon a
statement made by the Minister of Petroleum and Natural Gas in
Parliament while considering whether ONGC had suffered any
loss. According to the petitioner, such statement could not have
been treated as evidence because the Minister was never examined
before the Tribunal and the statement was never tested by cross-
examination. It is also submitted that under the Contract, ONGC
had entered into the agreement on its own behalf and not on
behalf of the Union of India. Therefore, according to the petitioner,
the Tribunal committed a serious legal error by relying upon such
statement while deciding the issue relating to loss.
71. Prima facie, this submission also requires consideration in
the proceedings under Section 34. Whether the Tribunal was
justified in relying upon such material, and to what extent such
reliance is permissible, cannot be decided in the present
proceedings. However, since the petitioner has challenged that part
of the reasoning and the respondent has defended it, the issue
cannot be said to be without substance.
72. The petitioner has argued that after holding Clause 6.3.2 to
be binding, the Tribunal has rewritten the Contract by introducing
a condition requiring proof of loss, though the parties had agreed
otherwise. The respondent has disputed this submission by
contending that every liquidated damages clause remains subject
to Section 74 of the Contract Act and no contractual clause can
override the statutory requirement that compensation must remain
reasonable and connected with the loss caused because of the
breach. This submission deserves consideration because it concerns
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the relation between the freedom of parties to enter into a contract
and the limitations contained in Sections 73 and 74 of the Contract
Act.
73. After considering the rival submissions, I am, prima facie, of
the opinion that the petitioner has raised substantial questions
relating to interpretation of Section 74, the scope of the judgments
in Kailash Nath Associates and Construction & Design Services ,
and the effect of the contractual clauses relating to liquidated
damages. Therefore, at this stage, the challenge raised by the
petitioner cannot be said to be without merit. These issues will
have to be finally decided in the proceedings under Section 34.
What still remains to be considered is whether, despite this
position, the petitioner has shown such exceptional circumstances
which would justify continuation of the Bank Guarantees.
74. The respondent has placed reliance upon the observations
made by this Court in Swiber Offshore Construction Pte. Ltd. In
that case, this Court observed that merely because a challenge is
arguable, interim protection cannot follow and the arbitral award
cannot be ignored while deciding a petition under Section 9. There
cannot be any disagreement with this principle. At the same time,
every judgment has to be understood in the facts of that particular
case. In Swiber , the Tribunal had held that ONGC failed to
establish that the delay affecting the critical path of the Project was
attributable to the contractor. Therefore, the challenge in that case
required reconsideration of factual findings relating to delay. Apart
from this, there were also Consent Terms under which the parties
had agreed that the Bank Guarantee would continue for a limited
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period after the award. It was in those facts that this Court held
that ONGC had not shown the exceptional circumstances
contemplated by the Supreme Court in Home Care Retail Marts .
Prima facie, the facts of the present case are different. Here, the
Tribunal has accepted that the delay was attributable to the
respondent. It has held that the clause relating to liquidated
damages was otherwise applicable. Therefore, the dispute is not
about the factual finding regarding delay but about the legal effect
which the Tribunal has given to those findings. Whether the
Tribunal has correctly applied the law laid down in Construction &
Design Services , Kailash Nath Associates and the other judgments
is a legal issue. Without expressing any opinion on that question, it
cannot be said that the challenge raised by the petitioner is
without merit. Therefore, though the principles stated in Swiber
continue to apply, their application will depend upon the facts of
the case.
75. After considering the rival submissions, it becomes necessary
to see whether the petitioner has fulfilled the requirements for
grant of post-award interim protection. As already noticed, the
Supreme Court in Home Care Retail Marts Pvt. Ltd. has held that
because a party has failed before the Arbitral Tribunal, it does not
lose its right to invoke Section 9. At the same time, the Supreme
Court has also made it clear that such relief cannot be granted in
an ordinary way. The standard is much higher. Therefore, this
Court has to see whether the petitioner has shown a prima facie
case and whether the facts of the present case show exceptional
circumstances which would justify continuation of the Bank
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Guarantees.
76. In the facts of the present case, certain circumstances, prima
facie, appear to support the petitioner's case for the purpose of
Section 9. Firstly, the Arbitral Tribunal has recorded that the delay
of more than 220 days in completion of the Project was because of
the respondent. Secondly, the Tribunal has found that the
respondent was not entitled to an unconditional extension of time
for completing the Project. Thirdly, the Tribunal has further
accepted that ONGC was otherwise entitled to invoke Clause 6.3.2
of the General Conditions of Contract relating to liquidated
damages. These findings cannot be ignored while considering
whether the petitioner has made out a prima facie case for grant of
interim protection.
77. The next question is regarding the balance of convenience.
According to the petitioner, the Bank Guarantees were given
because the respondent requested for such arrangement. Instead of
deducting liquidated damages from the running bills, ONGC
agreed to accept Bank Guarantees so that the Project could
continue smoothly. It is also not disputed that these Bank
Guarantees have remained alive for almost fifteen years, including
during the arbitral proceedings. Therefore continuation of the
arrangement keeps the same position which has continued for a
long time. The respondent has submitted that continuation of the
Bank Guarantees after the arbitral award would require it to keep
security of nearly INR 400 crores alive though it has succeeded
before the Tribunal. According to the respondent, such
continuation causes prejudice because a successful party is entitled
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to enjoy the benefit of the award. It is further submitted that
material has been produced to show that the financial position of
the respondent is sound and that it would be able to satisfy any
liability if the petitioner succeeds.
78. It is true that a successful party becomes entitled to enjoy the
benefit arising from the decision in its favour. The same principle
applies to an arbitral award. However the petitioner is not asking
for enforcement of its claim or immediate invocation of the Bank
Guarantees. The petitioner is asking for continuation of the
existing security till the proceedings under Section 34 are decided.
Therefore, whether such continuation would really cause prejudice
to the respondent has to be considered in the light of the
arrangement voluntarily entered into between the parties. In this
background, Clause 6.3.4 becomes important. Prima facie, this
clause appears to have been inserted at the request of the
respondent. The object was to replace deduction of liquidated
damages by furnishing Bank Guarantees. The clause provides that
the Bank Guarantees shall continue till settlement of the dispute
relating to liquidated damages. It is true that the words "final
settlement" may require interpretation in the proceedings under
Section 34. However, at this stage, the language of the clause
support the submission of the petitioner that the parties intended
the Bank Guarantees to continue till the dispute reaches finality.
79. The respondent has relied upon Clause 8 of the Bank
Guarantee and submitted that after expiry of the validity period,
an additional claim period is available and therefore the
petitioner's rights remain protected. The petitioner has disputed
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this interpretation and submitted that the claim period cannot
extend the life of the Bank Guarantee and would apply only where
a cause of action arises while the Bank Guarantee is alive. This
issue involves interpretation of the terms of the Bank Guarantee
and cannot be finally decided in the present proceedings. Prima
facie, however, the existence of the claim period may not answer
the grievance of the petitioner that once the Bank Guarantee
expires, the security may no longer remain available.
80. The question of irreparable injury also requires
consideration. According to the petitioner, the Bank Guarantees
are the only security available for its claim of liquidated damages.
If they are allowed to lapse and the petitioner succeeds in the
proceedings under Section 34, the challenge may become
meaningless because the security would no longer exist. The
petitioner has pointed out that one of the constituents of the
respondent Joint Venture is a foreign company situated in
Indonesia. According to the petitioner, after completion of the
Project, the purpose of the Joint Venture stands achieved.
Therefore, recovery against the foreign entity may become
difficult.
81. The respondent has disputed this apprehension. According to
it, the financial position of Afcons Infrastructure Limited is strong
and its assets are adequate to satisfy any liability which may arise.
The respondent has expressed readiness to furnish a corporate
guarante. These submissions deserve consideration. At the same
time, it cannot be ignored that a corporate guarantee and an
unconditional Bank Guarantee issued by a nationalised bank are
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not the same. Both stand on different footing and give different
degree of security. Therefore, merely because the respondent is
willing to furnish a corporate guarantee, it may not become
substitute for the security agreed between the parties. The
petitioner has also questioned the financial material relied upon by
the respondent. According to the petitioner, the respondent relied
upon consolidated financial statements, whereas the latest
financial statements of Afcons Infrastructure Limited indicate
reduction in profitability, decline in operating cash flow, increase in
debt-equity ratio and fall in the profit margin. The respondent has
disputed the importance of these figures. At this stage, it would
not be proper to record any final finding regarding the financial
condition of the respondent. However, these submissions do
indicate that the apprehension expressed by the petitioner cannot
be treated as without basis.
82. One more circumstance also deserves notice. Both parties
have challenged parts of the arbitral award. According to the
respondent, its challenge relates to different issues and does not
affect the present proceedings. Though this submission may be
correct, the fact remains that neither party has accepted the award
in full. Both have approached this Court under Section 34.
Therefore, the disputes between them have not attained finality.
This circumstance alone may not justify continuation of the Bank
Guarantees, but it forms one part of the overall background while
considering the nature of interim protection sought.
83. On the facts placed in the present case, the following
circumstances, when considered cumulatively, may constitute the
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exceptional and compelling circumstances contemplated by the
Supreme Court in Home Care Retail Marts Pvt. Ltd. for
continuation of the Bank Guarantees after the arbitral award:
(i) The Arbitral Tribunal has recorded a finding that
the delay of more than 220 days in completion of the
Project was attributable to the respondent;
(ii) The Tribunal has held that the respondent was
not entitled to an unconditional extension of time for
completion of the Project;
(iii) The Tribunal has also accepted that Clause 6.3.2
of the General Conditions of Contract governing
liquidated damages was otherwise applicable;
(iv) Despite the above findings, the Tribunal rejected
the counterclaim on the legal ground that loss was
neither pleaded nor proved. Therefore, the challenge
under Section 34 substantially raises a legal issue
rather than requiring reappreciation of disputed facts;
(v) The petitioner has raised substantial questions
regarding the interpretation of Section 74 of the Indian
Contract Act and the interplay between the judgments
in Saw Pipes Ltd. , Construction & Design Services,
Kailash Nath Associates , Saisudhir Energy Solutions
Ltd. , Punj Lloyd Ltd. and other authorities;
(vi) The challenge under Section 34 is not merely
arguable. It raises an important question whether the
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Tribunal misinterpreted precedents governing public
utility contracts;
(vii) The Contract relates to a public utility project
concerning crude oil and natural gas production,
involving issues of national energy infrastructure
where monetary loss may not be capable of exact
proof;
(viii) The petitioner has maintained that losses such as
blockage of capital, delayed production, foreign
exchange implications and consequential public losses
arise from delay in such projects, and these aspects
were part of the arbitral record;
(ix) The petitioner has challenged the Tribunal's
reliance upon the statement made by the Minister of
Petroleum and Natural Gas, contending that such
material was not evidence before the Tribunal and was
never tested by cross-examination;
(x) Clause 6.3.4 of the Contract was introduced at
the request of the respondent after delay had occurred;
(xi) Instead of exercising its right to deduct liquidated
damages from the running bills, ONGC agreed to
accept Bank Guarantees to enable the Project to
continue smoothly;
(xii) The Bank Guarantees therefore formed security
consciously substituted for deduction of liquidated
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damages;
(xiii) Clause 6.3.4 provides that the Bank Guarantees
shall continue till final settlement of the dispute
relating to liquidated damages, giving the petitioner
basis to seek continuation of the security;
(xiv) The Bank Guarantees have remained alive for
nearly fifteen years, throughout the arbitral
proceedings. Continuation would preserve the existing
position and not create new security;
(xv) The petitioner does not seek encashment of the
Bank Guarantees or satisfaction of its claim. It seeks
preservation of the existing security pending
adjudication under Section 34;
(xvi) The Bank Guarantees constitute the only security
available for securing the petitioner's liquidated
damages claim;
(xvii) If the Bank Guarantees are permitted to expire
and the petitioner succeeds under Section 34,
restoration of the same security may become
impossible, thereby rendering the relief ineffective;
(xviii) One constituent of the respondent Joint Venture
is a foreign company incorporated in Indonesia. After
completion of the Project, the Joint Venture has served
its purpose, making future enforcement of the
petitioner's claim against the foreign constituent may
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be more difficult;
(xix) The corporate guarantee offered by the
respondent is not commercially equivalent to an
unconditional Bank Guarantee issued under the
Contract;
(xx) The petitioner approached the Court promptly
before expiry of the Bank Guarantees by filing the
Section 34 petition, the stay application and the
present Section 9 petition without delay, showing due
diligence’
(xxi) Both parties have challenged parts of the arbitral
award under Section 34. Therefore, the award has not
attained finality and the disputes remain subjudice;
(xxii) Continuation of the Bank Guarantees does not
enlarge the petitioner's contractual rights. It preserves
the security agreed between the parties until the
pending proceedings are decided;
(xxiii) Refusal of interim protection is likely to result in
irreversible prejudice because once the Bank
Guarantees lapse, the security may disappear even if
the petitioner succeeds in setting aside the award.
84. Considering all these circumstances together, the present
case may be regarded as falling within the category of "rare and
compelling circumstances" contemplated in Home Care Retail
Marts Pvt. Ltd. , justifying continuation of the Bank Guarantees
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pending disposal of the proceedings under Section 34.
85. After considering the rival submissions, the terms of the
Contract, the arbitral award and the judgments relied upon by
both sides, I am, prima facie, of the view that the present matter
satisfies the higher standard laid down by the Supreme Court for
grant of post-award interim protection. The present view is
reached because, when all the circumstances appearing from the
record are considered together, they show an exceptional situation
where refusal of interim protection may defeat the purpose of the
pending challenge. The Supreme Court in Home Care Retail Marts
has observed that post-award interim protection should be granted
only in rare and compelling cases. Prima facie, in my opinion, the
present matter appears to satisfy that requirement.
86. In view of the foregoing discussion, and upon overall
assessment of the material record, the following order is passed:
(a) The Arbitration Petition is allowed;
(b) Pending hearing and final disposal of the petition filed
by the petitioner under Section 34 of the Arbitration and
Conciliation Act, 1996 challenging the arbitral award dated
10th March, 2026, the respondent shall renew, extend and
keep alive all the Bank Guarantees furnished under Clause
6.3.4 of the General Conditions of Contract, on the same
terms and conditions and for the same amounts, from time
to time;
(c) The respondent shall take all necessary steps for
renewal and extension of the Bank Guarantees at least
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fifteen days before their expiry and shall furnish copies of the
renewed Bank Guarantees to the petitioner immediately
upon renewal;
(d) Till the petition under Section 34 is decided, the
respondent shall not take any steps for cancellation,
discharge, or release of the Bank Guarantees;
(e) The petitioner shall not invoke the Bank Guarantees
solely on the basis of this order. The rights and obligations of
the parties in relation to invocation of the Bank Guarantees
shall remain subject to the terms of the Contract, the Bank
Guarantees and further orders, if any, passed by the
competent Court;
(f) It is clarified that all observations made in this order
are prima facie in nature and are confined only to
adjudication of the present petition under Section 9 of the
Arbitration and Conciliation Act, 1996. The Court hearing
the petition under Section 34 shall decide the same
independently and uninfluenced by any observations
contained in this order;
(g) All rights and contentions of both parties in the
proceedings under Section 34 and all other connected
proceedings are kept open;
(h) There shall be no order as to costs.
(i) Pending Interim Applications, if any, stand disposed of.
(AMIT BORKAR, J.)
48