Gujarat HC Temporarily Bars GUVNL From Encashing ₹8.12-Crore BESS Guarantee Pending GERC’s Decision On Developer’s Interim Plea

The petitioners challenged GUVNL’s notice of 18 September 2026, which treated the petitioner No. 1’s failure to achieve financial closure by 17 September 2026 as grounds for termination of the Battery Energy Storage Purchase Agreement (BESPA) and encashment of its performance bank guarantee.

The petitioner claimed that the West Asia conflict disrupted international supply chains and invoked the BESPA’s force majeure provisions; it also sought an extension of time and submitted supporting documents.

GUVNL disputed the force majeure claim and maintained that the petitioner had not met its contractual obligations.

The petitioner subsequently filed proceedings before the Gujarat Electricity Regulatory Commission (GERC), including an interim application, and sought protection from encashment and termination until that application could be heard.

1. Whether the petitioners were entitled to interim orders restraining encashment of the performance bank guarantee and preserving the BESPA until the GERC heard and decided their interim application

2. Whether such interim protection was justified despite the general rule against restraining invocation of a performance bank guarantee in a commercial transaction

Under Articles 226 and 227 of the Constitution, a High Court may grant interim protection where necessary to preserve the subject matter and prevent the pending remedy from becoming ineffective.

In relation to performance bank guarantees, Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co. and Standard Chartered Bank v. Heavy Engineering Corporation Ltd. recognise the general rule that an unconditional guarantee should be honoured, subject to narrow grounds for judicial intervention, including special equities in appropriate circumstances.

A State instrumentality must also act fairly and reasonably, consistent with Article 14, and afford a fair opportunity where the circumstances warrant it.

The Court relied on M/s Jindal Steel and Power Ltd. v. M/s Bansal Infra Projects Pvt. Ltd., 2025 INSC 640, for the principle that interim protection may be justified to preserve the position pending adjudication where otherwise the proceedings may be rendered infructuous.

The force majeure claim and the parties’ contractual rights under the BESPA remained matters for the competent forum to determine on their merits.

The Court did not determine whether the West Asia conflict constituted force majeure or whether the petitioner had complied with the BESPA.

It noted that the GERC proceedings were pending, but the scheduled GERC hearing would occur after the date on which GUVNL might terminate the agreement and encash the guarantee. Without temporary protection, the petitioner’s request to the Commission risked becoming ineffective before it could be considered.

Balancing the general rule on bank guarantees against the need for a meaningful hearing and preservation of the dispute, the Court granted limited interim relief and left the merits open.

The Court directed the GERC to hear the petitioner’s interim application on 27 October 2026, afford the parties an opportunity to be heard, and decide the application in accordance with law, preferably within two weeks of the hearing.

Pending adjudication of that application, the respondents were restrained from encashing the performance bank guarantee; the parties were also directed to maintain status quo regarding the BESPA until 27 October 2026.

The Court expressly left all merits and contentions open.