Pendency of conciliation or contractual disputes cannot justify restraining invocation of an unconditional bank guarantee.

The Petitioner (Engineering Projects India Limited) was awarded an Engineering, Procurement, and Construction (EPC) contract by Respondent No. 1 (Southern Railway) for the redevelopment of Katpadi Railway Station.

Pursuant to the contract, the Petitioner furnished three bank guarantees (Performance, Mobilization Advance, and Additional Performance) totaling approximately Rs. 31.28 Crores.

Disputes arose leading to two prior rounds of litigation under Section 9 of the Arbitration and Conciliation Act where interim protection was granted or the invocation was withdrawn.

Following a third termination on 12.08.2025 and subsequent invocation letters dated 03.11.2025, the Petitioner approached the Court again.

On 07.11.2025, the Court granted ad interim protection as the contractual completion period (30.11.2025) had not yet expired.

However, by the time of the final hearing, the project remained incomplete, the contract was terminated, and the contractual deadline had passed.

1. Whether the Petitioner made out a case for the continuation of an interim injunction restraining the invocation of unconditional and irrevocable bank guarantees after the expiry of the contractual period.

2. Whether the pendency of a mandatory pre-arbitral conciliation mechanism under the contract is a valid ground to restrain the invocation of a bank guarantee.

The court applied Section 9 of the Arbitration and Conciliation Act, 1996.

It relied on the settled doctrine that a bank guarantee is an independent and autonomous contract between the bank and the beneficiary, distinct from the underlying commercial dispute.

It cited United Commercial Bank v. Bank of India and U.P. Cooperative Federation Ltd. v. Singh Consultants & Engineers (P) Ltd., which established that judicial interference in unconditional bank guarantees is permitted only in cases of "egregious fraud" or "irretrievable injustice".

Furthermore, per National Thermal Power Corporation Ltd v. Flowmore Pvt. Ltd., the mere pendency of arbitration (or conciliation) does not justify restraining the encashment of such guarantees.

The Court reasoned that its jurisdiction under Section 9 is limited and does not extend to adjudicating the merits of the contract, such as the legality of termination or responsibility for delays.

While the ad interim order of 07.11.2025 was justified because the contract period was still active, the subsequent expiry of the deadline on 30.11.2025 without project completion materially changed the factual foundation.

The Petitioner failed to provide evidence of egregious fraud or prove that restitution would be impossible (irretrievable harm) if they eventually succeeded in arbitration.

The Court specifically rejected the argument that the pending conciliation process should stay the invocation, noting that such a process cannot enlarge the scope of judicial interference with a bank’s obligation to pay on demand.

The Court vacated the interim order dated 07.11.2025 and dismissed the petition. It clarified that these observations are limited to the Section 9 proceedings and do not reflect an opinion on the merits of the underlying contractual disputes to be decided by an arbitral tribunal.