Unconditional Bank Guarantees Cannot Be Enjoined Absent Proven Egregious Fraud or Irretrievable Injustice

The Petitioner was awarded a contract for the upgradation of Jodhpur Railway Station on 29.09.2022

Following an "appointed date" of 29.07.2023, the Respondent issued a notice of intent to terminate on 13.05.2026, alleging delays and inadequate resource deployment

While a previous court order in OMP (I) COMM. 220/2026 restrained the imposition of liquidated damages pending a Dispute Adjudication Board (DAB) decision, the Respondent subsequently issued a formal Termination Notice on 29.05.2026

The Petitioner approached the High Court seeking an interim injunction under Section 9 of the Arbitration and Conciliation Act to restrain the Respondent from encashing four Bank Guarantees totaling approximately INR 17.23 Crores

1. Whether the Petitioner made out a case of "egregious fraud" or "irretrievable injustice" sufficient to restrain the invocation of unconditional Bank Guarantees

2. Whether the Bank Guarantees were invoked by an officer below the mandated rank of Chief Engineer, thereby vitiating the invocation

Section 9 of the Arbitration and Conciliation Act, 1996

Settled principles from U.P. State Sugar Corpn. v. Sumac International Ltd. and Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., which establish that an unconditional bank guarantee is an independent contract.

Injunctions against invocation are only permissible in two strictly defined exceptions: (i) fraud of an egregious nature that vitiates the entire underlying transaction, and (ii) where encashment would result in irretrievable harm or injustice of an exceptional nature

The beneficiary is the sole judge of the breach, and disputes regarding the underlying contract are not grounds for an injunction

The Court observed that the Bank Guarantees in question were unconditional, irrevocable, and payable on first demand without demur

Applying the Himadri Chemicals test, the Court found the Petitioner failed to demonstrate any "egregious fraud" or "irretrievable injustice"

While the Petitioner argued the invocation was procedurally flawed because it was initiated by an Assistant Financial Adviser instead of a Chief Engineer (citing Hindustan Construction Co. Ltd. v. State of Bihar), the Court perused the Respondent's internal documents and concluded that the invocation was, in fact, performed by an officer of the rank of Chief Engineer

The Court further noted that even if the termination was disputed, the proper remedy was to claim damages during arbitration rather than seeking to stay the bank guarantees

The Petition was dismissed, and the Respondent was permitted to proceed with the invocation of the Bank Guarantees. The Court clarified that the Petitioner remains at liberty to seek damages through the contractually stipulated arbitration and DAB process