Bombay HC Rejects Sewerage Contractor’s Bid To Block ₹43.4 Lakh Counter-Guarantee, Finding No Fraud Or Irretrievable Harm

The Petitioner sought relief under Section 9 of the Arbitration and Conciliation Act, 1996, to restrain the Municipal Corporation and its Chief Engineer from invoking or receiving payment under a deed of counter guarantee for ₹43,40,400.

The dispute arose from a sewerage-pipeline rehabilitation contract awarded in 2018.

The Petitioner attributed the work’s prolonged non-completion to delayed permissions, restrictions on road excavation, the COVID-19 pandemic and material shortages; the Respondents relied on the contractor’s responsibility to obtain permissions and the extended period of non-completion.

The Court noted that the deed named ICICI Bank as guarantor and Bank of Baroda as lender, while MCGM was beneficiary of an underlying Bank of Baroda guarantee.

The deed’s stated expiry date was 31 May 2026, and no extension beyond that date was produced.

Whether the Petitioner established a recognised ground—egregious fraud, irretrievable injustice or special equities—to restrain invocation of the counter guarantee under Section 9.

Whether the fact that termination was apprehended, rather than established, displaced the legal requirements governing injunctions against an independent guarantee.

Whether the relief sought could operate against the Respondents, given the counter guarantee’s identified parties and the absence of evidence that it remained valid beyond 31 May 2026.

Under Section 9 of the Arbitration and Conciliation Act, 1996, interim protection may be granted in aid of arbitration, but an unconditional, independent bank guarantee will ordinarily not be restrained except where egregious fraud affecting its foundation or irretrievable injustice is pleaded and prima facie established by strong evidence.

A dispute concerning performance of the underlying contract is not, by itself, a ground to prevent payment under an independent guarantee.

The Court relied on U.P. State Sugar Corporation v. Sumac International Ltd., (1997) 1 SCC 568; Himadri Chemicals Industries Ltd. v. Coal Tar Refining Company, (2007) 8 SCC 110; Gujarat Maritime Board v. Larsen & Toubro Infrastructure Development Projects Ltd., (2016) 10 SCC 46; and Standard Chartered Bank v. Heavy Engineering Corporation Ltd., (2020) 13 SCC 574, for these principles.

It also applied the preventive-injunction principle from Kuldip Singh: a quia timet injunction requires a sufficiently certain or imminent threat, not a mere possibility of future injury.

The alleged failures to grant permissions, rejection of alternative technology, extensions of time and causes of delay concerned the underlying contract; they did not establish fraud in obtaining or invoking the guarantee or irretrievable harm from payment.

The Petitioner’s letters expressing readiness to complete the work did not prove that the Respondents caused the delay or satisfy the exceptional threshold for restraining the guarantee.

Nor did the disputed prospect or fact of termination create an exception to the independent-guarantee rule; the guarantee’s own terms governed, and the material did not make termination a precondition to demand.

The Petitioner also failed to show that payment could not later be recovered, while the Court found material difficulties with the requested relief: MCGM was not the lender entitled to demand under the counter guarantee, and no document established its validity beyond the stated expiry date.

The Petition was dismissed, with no order as to costs.

The Court expressly left the parties’ contractual disputes—including responsibility for delay, validity of termination and claims for time or compensation—to be determined in appropriate proceedings.