### Interim Injunction Against Bank Guarantee Invocation is Permissible Where Claims Arise From Extra-Contractual Assurances

The Petitioner, a construction company, was awarded two EPC contracts by Respondent No. 1 (NHIDCL) for road works on NH-37 in January 2024.

Pursuant to the agreements, the Petitioner furnished two Performance Bank Guarantees (PBGs) and one Mobilization Bank Guarantee (MBG) totaling approximately ₹8.63 Crores.

Following delays in project completion—which the Petitioner attributed to authority defaults and force majeure—NHIDCL issued a letter on 14.01.2026 seeking to encash the BGs to recover "undisputed vendor dues" and "funds released on assurances not honoured".

Subsequently, a Termination Notice was issued on 15.01.2026.

The Petitioner filed this Section 9 petition seeking to restrain the bank guarantee invocation and the termination of the contracts.

1. Whether the Court can grant an injunction against the termination of a contract that is by its nature determinable.

2. Whether the invocation of Performance and Mobilization Bank Guarantees can be stayed when the grounds for invocation fall outside the specific contractual default clauses.

The court applied Section 9 of the Arbitration and Conciliation Act, 1996, which empowers courts to grant interim measures to preserve the subject matter of the dispute.

It relied on *Indian Oil Corporation v. Amritsar Gas Service & Ors.*, establishing that under Section 14(1) of the Specific Relief Act, a determinable contract cannot be specifically enforced or its termination stayed.

Regarding bank guarantees, the court followed *Hindustan Construction Co. Ltd v. State of Bihar*, holding that invocation must be in strict accordance with the terms of the guarantee.

It distinguished between unconditional and Conditional Bank Guarantees (CBG), noting that CBGs require the fulfillment of predefined contingencies before invocation.

Finally, it cited *M/S Jindal Steel & Power Ltd v. M/S Bansal Infra Projects Pvt. Ltd* to justify intervention where invocation would render arbitral proceedings infructuous.

The Court first determined that the EPC contract was determinable, meaning no injunction could be granted against the Termination Notice.

However, regarding the BGs, the Court found they were "Conditional Bank Guarantees" tied specifically to "due and faithful performance" of contractual obligations.

The Court observed that Respondent No. 1 sought encashment for "extra-contractual" reasons—specifically the recovery of funds released on informal assurances and the settlement of third-party vendor disputes—which did not constitute "Contractor Default" as defined in Clause 23.1 of the Agreement.

The Court noted that liquidated damages under Clause 10.3 were to be recovered via deductions from payments, not through BG invocation.

Since the grounds for withdrawal were not traceable to the contractual "representation or warranty" clauses, the Court found a prima facie case of illegal invocation.

However, it granted a stay on the encashment of the three Bank Guarantees (PBGs and MBG), pending adjudication by the Arbitral Tribunal.

The Court held that the balance of convenience favoured the Petitioner as the invocation appeared to circumvent contractual terms, and encashment would cause irreparable prejudice before the merits could be arbitrated.