Court Emphasizes Strict Legal Grounds Required to Restrain Unconditional Bank Guarantees, Rejects Contractor's Claims of Fraud and Irretrievable Injustice
In a significant ruling dated October 23, 2026, the Bombay High Court, presided over by Justice Amit Borkar, dismissed the petition filed by Gravit-Onsite-JV, India seeking to restrain the Municipal Corporation of Greater Mumbai (MCGM) from invoking a deed of counter guarantee amounting to Rs. 43,40,400. The petition was filed under Section 9 of the Arbitration and Conciliation Act, 1996, which empowers courts to grant interim relief during arbitration proceedings.
The dispute arose from a contract awarded by MCGM to Gravit-Onsite-JV in 2018 for pipeline rehabilitation work, originally scheduled for completion by May 2021. The petitioner blamed delays on factors beyond their control, including the COVID-19 pandemic, the Russia-Ukraine war, and alleged failure by MCGM to grant necessary traffic and ward permissions for excavation work. Despite requests to use alternative technology requiring no excavation and repeated correspondence indicating readiness to complete the remaining work, the petitioner feared wrongful termination of the contract and invocation of the bank guarantee.
The Court thoroughly examined the nature of the deed of counter guarantee, which involved ICICI Bank as the guarantor and Bank of Baroda as the lender, distinct from the underlying bank guarantee issued in favor of MCGM. Justice Borkar highlighted that invocation of an independent bank guarantee is a separate matter from disputes related to the main contract's performance. The petitioner failed to demonstrate egregious fraud affecting the guarantee's foundation or irretrievable injustice that would justify restraining invocation.
The Court underscored established Supreme Court precedents that injunctions against unconditional bank guarantees are exceptional and require strong prima facie evidence of fraud or special equities causing irreparable harm. Mere contractual disputes over delay, permissions, or readiness to perform do not satisfy these stringent criteria. Further, the Court noted that ordinary financial loss does not amount to irretrievable injustice, especially where arbitration provides a forum for recovery of disputed amounts.
Significantly, the Court found that the petitioner did not prove that either MCGM or the respondents named in the petition were entitled to invoke the counter guarantee, nor did the petitioner show the guarantee's validity beyond its expiry date. The absence of a termination order and ongoing contractual disputes were insufficient to restrain invocation of the guarantee.
Rejecting the petitioner's argument that injunctions should be granted prior to contract termination, the Court reaffirmed that the independent nature of bank guarantees demands strict adherence to their terms. The balance of convenience favored MCGM, given the public interest in timely completion of essential sewerage infrastructure and protection of financial securities.
In conclusion, the Bombay High Court dismissed the petition, leaving the contractual and arbitral disputes regarding delays, termination, and compensation to be resolved in appropriate forums. The judgment clarifies the high threshold for interim relief against invocation of bank guarantees, reinforcing that such financial instruments serve as critical security measures and cannot be easily restrained by courts without exceptional justification.
Bottom Line:
Arbitration and Conciliation Act, 1996 Section 9 Injunction against invocation of bank guarantee/counter guarantee - Mere apprehension of termination of contract or invocation before termination does not dilute settled principles governing interference with unconditional guarantees - Unless egregious fraud, irretrievable injustice or special equities of exceptional nature are pleaded and prima facie established, Court will not restrain invocation - Disputes regarding delay, permissions, extensions of time and readiness to perform pertain to main contract and are insufficient to stop payment under independent financial instrument - Further, where relief is sought against counter guarantee, Court must examine actual terms of such document, party entitled to invoke it and its subsistence.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 9
