M/S SAFETY CONTROLS AND DEVICES LTD v. NTPC RENEWABLE ENERGY LIMITED AND ORS

Respondent No.1 met at the project site. According to the Petitioner, discussions were held regarding progress and the submission of a recovery plan.

XI. Thereafter, by letter dated 30.01.2026, Respondent No. 1 terminated the Agreement under Clause 42.2.[2] of the General Conditions of Contract, alleging continued contractor default.

XII. On the following day, i.e., 31.01.2026, Respondent No.1 issued an invocation letter to Canara Bank seeking encashment of the Advance Bank Guarantee for an amount of ₹8,54,00,919/-. The Petitioner also apprehends the invocation of the Insurance Surety Bonds furnished under the Agreement.

XIII. The Petitioner asserts that substantial investments had been made towards the procurement of equipment and mobilisation for the project prior to termination and that civil and preparatory works were in progress at the site.

XIV. The Agreement between the parties contains an arbitration clause providing for the resolution of disputes through arbitration with the seat at Delhi. The Petitioner states that disputes arising from the termination of the Agreement and invocation of securities are intended to be referred to arbitration.

3. The present petition has been filed immediately after the termination of the Agreement and invocation of the Advance Bank Guarantee, seeking interim protection pending resolution of disputes between the parties.

CONTENTIONS ON BEHALF OF THE PETITIONER:

4. Learned Senior Counsel appearing on behalf of the Petitioner would contend that although the Agreements prescribed certain timelines for execution, adherence to the said timelines was rendered impracticable on account of delays occasioned by Respondent No. 1 under the Agreement.

5. He would submit that the principal impediment arose at the threshold stage of the project itself, inasmuch as site mobilisation, which was contractually required to be facilitated by Respondent NO. 1, was effected belatedly, thereby materially impacting the Petitioner’s ability to commence and progress the works in accordance with the agreed schedule.

6. Learned Senior Counsel would submit that the present petition is confined to seeking interdiction of the encashment of the Bank Guarantees, and in particular, the Advance Bank Guarantee. He would clarify that, for the purposes of the present proceedings, the Petitioner is limiting its challenge to the invocation of the said Bank Guarantee on the singular and well-recognised ground of the invocation being vitiated by egregious fraud, which, according to him, squarely attracts the limited exceptions carved out in law for judicial interference with unconditional bank guarantees.

7. In support of the aforesaid submission, learned Senior Counsel would invite the attention of this Court to the broad factual matrix borne out from the record, with particular emphasis on the delay in handing over the site and the withholding of essential technical inputs and approvals.

8. He would specifically rely upon the contractual default notice dated 12.12.2025, and submit that critical drawings and technical inputs were made available only on 11.12.2025. It would be contended that the issuance of the default notice within a day thereafter unmistakably reflects a pre-determined approach, which, according to learned Senior Counsel, amounts to fraud in law, vitiating the subsequent termination and the invocation of the Bank Guarantee.

9. Learned Senior Counsel would further contend that the contractual duration for completion of the project was twenty-four (24) months, and in such circumstances, no occasion arose for premature termination of the Agreement in the manner adopted by the Respondents.

10. He would submit that the assertion contained in the notices issued under the Agreement, to the effect that only 2.9% of the contract value stood executed, is misconceived and misleading, particularly when viewed in the context of the admitted delays attributable to the issuer itself. He would urge that the alleged nonperformance cannot be divorced from the Respondent’s own defaults, and consequently, the drastic measures of termination and encashment of the Bank Guarantee are wholly disproportionate and unsupported by the contractual framework.

CONTENTIONS ON BEHALF OF THE RESPONDENTS:

11. Per contra, learned Senior Counsel appearing on behalf of the Respondent would contend that the Bank Guarantee in question is an Advance Bank Guarantee, furnished by the Petitioner to secure the advance amounts released at the commencement of the Agreement. He would submit that once the Agreement has come to be terminated in accordance with its terms, the beneficiary under the Bank Guarantee became contractually entitled to invoke the same, and the invocation in the present case is strictly in consonance with the contractual framework.

12. Learned Senior Counsel would further submit that the terms of the Bank Guarantee are clear, unequivocal, and unconditional, and do not make encashment contingent upon adjudication of disputes or determination of breach. He would contend that settled law mandates that courts ordinarily do not interfere with the invocation of unconditional bank guarantees and that no exceptional circumstance has been demonstrated warranting departure from this rule. He would submit that the validity or otherwise of the termination, and any issues pertaining to performance of the Agreement, fall squarely within the domain of arbitration and cannot form the basis for interdiction of the Bank Guarantee.

13. Learned Senior Counsel would also submit that, as a matter of record, no substantive work was executed at the site, and that neither the pleadings nor the submissions advanced on behalf of the Petitioner disclose any material that would establish the existence of fraud of an egregious nature. He would contend that mere allegations of delay or dispute regarding contractual performance do not meet the stringent threshold required to attract the fraud exception, and, in the absence of such exceptional circumstances, this Court ought not to interdict the encashment of the Bank Guarantee. ANALYSIS:

14. This Court has heard the learned Senior Counsel for the parties at considerable length and, with their able assistance, undertaken a detailed, careful, and comprehensive examination of the entire record.

15. The solitary issue that arises for determination in the present lis is whether the invocation of the Advance Bank Guarantee, being unconditional in nature, is liable to be interdicted in exercise of jurisdiction under Section 9 of the Act.

16. At the outset, this Court deems it appropriate to advert to Section 9 of the Act, in order to appreciate the statutory framework governing the present adjudication, which reads as under: ―9. Interim measures, etc., by Court.— [(1)] A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court—

(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely:— (a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it. [(2) Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine. (3) Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious.]‖

17. Before adverting to the rival submissions, it is necessary to underscore that the jurisdiction of this Court under Section 9 of the Act is circumscribed and intended only to grant interim measures of protection, and does not extend to a determination of the merits of the underlying contractual disputes between the parties. The law with regard to the scope and jurisdiction of the Court under Section 9 of the Act is no longer res integra. In ArcelorMittal Nippon Steel (India) Ltd. v. Essar Bulk Terminal Ltd.4, the Hon’ble Supreme Court has expounded the contours of such jurisdiction in the following terms: ―88. Applications for interim relief are inherently applications which are required to be disposed of urgently. Interim relief is granted in aid of final relief. The object is to ensure protection of the property being the subject-matter of arbitration and/or otherwise ensure that the arbitration proceedings do not become infructuous and the arbitral award does not become an award on paper, of no real value.

89. The principles for grant of interim relief are (i) good prima facie case, (ii) balance of convenience in favour of grant of interim relief and (iii) irreparable injury or loss to the applicant for interim relief. Unless applications for interim measures are decided expeditiously, irreparable injury or prejudice may be caused to the party seeking interim relief.

90. It could, therefore, never have been the legislative intent that even after an application under Section 9 is finally heard, relief would have to be declined and the parties be remitted to their remedy under Section 17.

91. When an application has already been taken up for consideration and is in the process of consideration or has already been considered, the question of examining whether remedy under Section 17 is efficacious or not would not arise. The requirement to conduct the exercise arises only when the application is being entertained and/or taken up for consideration. As observed above, there could be numerous reasons which render the remedy under Section 17 inefficacious. To cite an example, the different arbitrators constituting an Arbitral Tribunal could be located at far away places and not in a position to assemble immediately. In such a case, an application for urgent interim relief may have to be entertained by the Court under Section 9(1).‖

18. It is well settled that courts ought not to interfere with the invocation of a bank guarantee except in cases of egregious fraud or where encashment would result in irretrievable injustice. In Hindustan Construction Co. Ltd. v. State of Bihar & Ors.5, the Hon’ble Supreme Court underscored that bank guarantees form the backbone of commercial transactions and must ordinarily be honoured strictly in accordance with their terms. The relevant observations are as under:

15. Our attention was invited to a number of decisions on this issue — among them, to Larsen & Toubro Ltd. v. Maharashtra SEB [(1995) 6 SCC 68] and Hindustan Steel Workers Construction Ltd. v. G.S. Atwal & Co. (Engineers) (P) Ltd. [(1995) 6 SCC 76] as also to National Thermal Power Corpn. Ltd. v. Flowmore (P) Ltd. [(1995) 4 SCC 515] The latest decision is in the case of State of Maharashtra v. National Construction Co. [(1996) 1 SCC 735: JT (1996) 1 SC 156] where this Court has summed up the position by stating: (SCC p. 741, para 13) “The rule is well established that a bank issuing a guarantee is not concerned with the underlying contract between the parties to the contract. The duty of the bank under a performance guarantee is created by the document itself. Once the documents are in order the bank giving the guarantee must honour the same and make payment ordinarily unless there is an allegation of fraud or the like. The courts will not interfere directly or indirectly to withhold payment, otherwise trust in commerce internal and international would be irreparably damaged. But that does not mean that the parties to the underlying contract cannot settle the disputes with respect to allegations of breach by resorting to litigation or arbitration as stipulated in the contract. The remedy arising ex contractu is not barred and the cause of action for the same is independent of enforcement of the guarantee.” The other recent decision is in Hindustan Steelworks Construction Ltd. v. Tarapore & Co. [(1996) 5 SCC 34: JT (1996) 6 SC 295]

16. Clearly, therefore, the existence of any dispute between the parties to the contract is not a ground for issuing an injunction to restrain the enforcement of bank guarantees. There must be a fraud in connection with the bank guarantee. In the present case we fail to see any such fraud. The High Court seems to have come to the conclusion that the termination of the contract by the appellant and his claim that time was of the essence of the contract, are not based on the terms of the contract and, therefore, there is a fraud in the invocation of the bank guarantee. This is an erroneous view. The disputes between the parties relating to the termination of the contract cannot make invocation of the bank guarantees fraudulent. The High Court has also referred to the conduct of the appellant in invoking the bank guarantees on an earlier occasion on 12-4-1992 and subsequently withdrawing such invocation. The court has used this circumstance in aid of its view that the time was not of the essence of the contract. We fail to see how an earlier invocation of the bank guarantees and subsequent withdrawal of this invocation make the bank guarantees or their invocation tainted with fraud in any manner. Under the terms of the contract it is stipulated that the respondent is required to give unconditional bank guarantees against advance payments as also a similar bank guarantee for due delivery of the contracted plant within the stipulated period. In the absence of any fraud the appellant is entitled to realise the bank guarantees.

27. It is equally well settled that a Bank Guarantee is an independent and a separate contract between the bank and the beneficiary. Existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of Bank Guarantees. Thus, in the case of Gujarat Maritime Board Versus Larsen and Toubro Infrastructure Development Projects Limited and Another, (2016) 10 SCC 46, the Supreme Court has held as follows:

11. It is contended on behalf of the first respondent that the invocation of bank guarantee depends on the cancellation of the contract and once the cancellation of the contract is not justified, the invocation of bank guarantee also is not justified. We are afraid that the contention cannot be appreciated. The bank guarantee is a separate contract and is not qualified by the contract on performance of the obligations. No doubt, in terms of the bank guarantee also, the invocation is only against a breach of the conditions in the LoI. But between the appellant and the Bank, it has been stipulated that the decision of the appellant as to the breach shall be absolute and binding on the Bank.

12. An injunction against the invocation of an absolute and an unconditional bank guarantee cannot be granted except in situations of egregious fraud or irretrievable injury to one of the parties concerned. This position also is no more res integra. In Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co. [Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110], at para 14: (SCC pp. 117-18) ―14. From the discussions made hereinabove relating to the principles for grant or refusal to grant of injunction to restrain enforcement of a bank guarantee or a letter of credit, we find that the following principles should be noted in the matter of injunction to restrain the encashment of a bank guarantee or a letter of credit:

(i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is entitled to realise such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the contract.

(ii) The bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer.

(iii) The courts should be slow in granting an order of injunction to restrain the realisation of a bank guarantee or a letter of credit.

(iv) Since a bank guarantee or a letter of credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of bank guarantees or letters of credit.

(v) Fraud of an egregious nature which would vitiate the very foundation of such a bank guarantee or letter of credit and the beneficiary seeks to take advantage of the situation.

(vi) Allowing encashment of an unconditional bank guarantee or a letter of credit would result in irretrievable harm or injustice to one of the parties concerned.‖

28. Plain reading of the Bank Guarantees submitted by the petitioner show that the same are unconditional and irrevocable in nature, wherein, it is stipulated that a letter from the respondent no.1-authority, under the hand of an officer not below the rank of General Manager that the contractor has committed default in the due and faithful performance of all or any of its obligations under and in accordance with the Contract Agreement, shall be conclusive, final and binding on the bank. Further, the bank has agreed in the said Bank Guarantees that the respondent no.1authority shall be the sole judge as to whether the contractor is in default in due and faithful performance of its obligations during and under the Contract Agreement, and its decision that the contractor is in default, shall be final and binding on the bank, notwithstanding any differences between the respondent no.1authority and the contractor.

29. Position of law is no more res integra that an injunction against the invocation of an absolute and an unconditional Bank Guarantee cannot be granted except in situations of egregious fraud or irretrievable injury to one of the parties concerned. However, no such facts of egregious fraud or irretrievable injury, have been pleaded, or brought forth before this Court.‖

26. Now adverting to the present factual matrix, this Court is unable to accept the submission advanced on behalf of the Petitioner that the subsistence of the contract in terms of its overall duration, or the alleged prematurity or unwarranted nature of the termination on the ground that only a minuscule portion of the work had been executed, by itself furnishes a ground to interdict the invocation of the Bank Guarantee.

27. Even if such contentions were to be assumed arguendo to be correct, they do not cross the high and exacting threshold required to establish egregious fraud. A dispute as to whether termination was justified, premature, or contractually untenable is a paradigmatic arbitrable controversy, one which lies squarely within the province of the arbitral forum chosen by the parties. Such disputes, however substantial, cannot be transmuted into a restraint upon an advance, unconditional and uncaveated bank guarantee, the invocation of which is contractually independent of adjudication on merits.

28. This court is of the view that fraud, in the law governing bank guarantees, occupies a narrow and exceptional domain. It is not established by allegations of unfairness, haste, procedural impropriety, or even by assertions of contractual breach. To qualify as fraud warranting judicial interdiction, the conduct alleged must be of such gravity as to vitiate the very foundation of the guarantee itself something approaching a deliberate deceit practised upon the issuing bank or a demand made with knowledge that the beneficiary possesses no semblance of entitlement whatsoever. The material placed on record in the present case falls far short of disclosing circumstances of such character.

29. The termination of the Agreement, whether viewed in isolation or cumulatively alongside the surrounding correspondence and contemporaneous conduct, does not, in the considered opinion of this Court, disclose conduct so extraordinary, unconscionable, or mala fide as to warrant its classification as ―egregious fraud‖ in law. To hold otherwise would be to efface the carefully preserved doctrinal distinction between contractual disputes on the one hand and fraud vitiating financial instruments on the other - a distinction which commercial jurisprudence has consciously and consistently guarded.

30. This Court is also mindful of the fact that the invocation of a bank guarantee, particularly one of substantial value, may entail serious financial consequences for the party furnishing it. However, commercial hardship, even if severe, does not ipso facto rise to the level of irretrievable injustice. The latter is attracted only where restitution is demonstrably impossible in law or in fact, rendering any eventual arbitral award illusory. No such circumstances have been established in the present case. The Petitioner has failed to demonstrate that its remedies before the arbitral forum would be rendered nugatory by the invocation of the Bank Guarantee.

31. In conclusion, while the disputes between the parties are undoubtedly contentious and substantial, they do not fall within the narrowly circumscribed and exceptional categories that alone justify judicial interdiction of an advance, unconditional and uncaveated bank guarantee. To grant relief in the present case would not only unsettle settled law but would also dilute the commercial efficacy and credibility of bank guarantees as instruments of financial assurance an outcome which this Court is neither inclined nor permitted to countenance. DECISION:

32. In view of the foregoing discussion and the settled position of law governing judicial interference with the invocation of unconditional bank guarantees, this Court is of the considered opinion that no case is made out for the exercise of jurisdiction under Section 9 of the Act. There thus arises no occasion for this Court to interdict the invocation or encashment of the Advance Bank Guarantee forming the subject matter of the present proceedings.

33. Accordingly, this Petition, along with pending application(s), if any, stands dismissed, without prejudice to the rights and contentions of the parties to seek adjudication of their disputes before the appropriate arbitral forum.

34. There shall be no order as to costs.

HARISH VAIDYANATHAN SHANKAR, J. FEBRUARY 12, 2026/tk/kr