Delay in delivering performance guarantee by courier beyond the stipulated deadline cannot justify contract termination.

In brief

The question

1. Whether the termination of the contract and subsequent encashment of the Performance Bank Guarantee due to a two-day delay in delivery was legally sustainable given the Petitioner’s promptitude in dispatching the document

The court held

The Court answered the issue in favor of the Petitioner, holding that the two-day delay should not result in termination

It also directed

The Court quashed the termination notice and the order for encashment of the PBG

The Railways were directed to execute the contract within four weeks and allow the Petitioner to complete the work; It was further ordered that the already encashed PBG amount be adjusted against the work to be executed

The Writ Petition was allowed

01Facts

The Petitioner was issued a Letter of Acceptance (LoA) by Western Railways on 20.06.2025 for an IOT-based project

¶ 1

The LoA required the Petitioner to submit a Performance Bank Guarantee (PBG) of ₹26,08,417.45 within a stipulated 60-day period ending on 18.08.2025

¶ 2 & 5

The Petitioner purchased the PBG from ICICI Bank on 14.08.2025

¶ 3

Due to a public holiday on 15.08.2025, the Petitioner dispatched the PBG via DTDC courier on 16.08.2025

¶ 4

The courier reached the Railways on 20.08.2025, two days after the deadline

¶ 5

Consequently, the Railways terminated the contract on 26.08.2025 and encashed the PBG on 15.09.2025

¶ 6

The Petitioner challenged the termination and forfeiture

¶ 7

02Issues

i.1. Whether the termination of the contract and subsequent encashment of the Performance Bank Guarantee due to a two-day delay in delivery was legally sustainable given the Petitioner’s promptitude in dispatching the document

¶ 8-11

03Law Applied

The court assessed the principle of "deliberate fault" versus "promptitude" in contractual compliance.

¶ 9

It referenced Section 27 of the General Clauses Act, which creates a presumption of service in the "ordinary course of post" when a document is properly addressed and posted

¶ 9

The court further applied the principle that technical delays by third-party intermediaries (courier agencies) should not be attributed to a party that has otherwise exhibited due diligence and compliance with the spirit of the contract

¶ 12-14

Provisions in the judgment · 1 · Linked ones open on LawLens

General Clauses Act, 1897 Section 27

04Reasoning

The Court observed that the Petitioner secured the PBG on 14.08.2025 and dispatched it on 16.08.2025 (the first working day after a public holiday), which was two days prior to the deadline of 18.08.2025

¶ 13

This conduct demonstrated "promptitude"

¶ 13

The Court reasoned that since the dispatch occurred well before the expiry date, the subsequent two-day delay by the courier agency in delivering the document on 20.08.2025 could not be attributed to the Petitioner as a "deliberate fault"

¶ 10, 14

Thus, holding the Petitioner liable for a marginal delay caused by a third-party agency under these circumstances was deemed unjust

¶ 12