Interim relief granted pending Section 34 challenge to arbitral award in oil and gas project dispute
In a significant decision, the Bombay High Court has directed the continuation of bank guarantees in a case involving Oil and Natural Gas Corporation Limited (ONGC) and Afcons Gunanusa Joint Venture. The Court's order comes amidst a legal battle concerning the arbitral award dated March 10, 2026, which rejected ONGC’s counterclaim for liquidated damages and directed the return of bank guarantees. The judgment, delivered by Justice Amit Borkar, allows ONGC's petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim protection pending the resolution of their Section 34 challenge against the arbitral award.
The dispute stems from a contract executed in May 2008 between ONGC and Afcons for the construction and commissioning of a project critical to ONGC’s operations. As per the contract, Afcons was required to furnish bank guarantees to cover potential liquidated damages due to project delays. The project, initially scheduled for completion by April 2011, was delayed by over 220 days, leading ONGC to claim liquidated damages under the contract's clauses.
Despite the arbitral tribunal acknowledging the delay attributable to Afcons, it rejected ONGC's counterclaim for liquidated damages, citing the lack of proof of actual loss. The tribunal's reliance on the Supreme Court's decision in Kailash Nath Associates was contested by ONGC, which argued that precedents such as Saw Pipes Ltd. and Construction & Design Services support the application of liquidated damages without strict proof of loss, especially in public utility contracts.
Justice Borkar, recognizing the complexity of the case, noted the prima facie errors in the arbitral award and emphasized the need to preserve the status quo until ONGC's Section 34 petition is adjudicated. The Court highlighted several factors that constitute rare and compelling circumstances warranting interim relief, including the project's significance to national energy infrastructure and the potential difficulty in enforcing claims against foreign entities involved in the joint venture.
The decision mandates Afcons to renew and maintain the bank guarantees, initially set to expire on July 15, 2026, until the final resolution of the Section 34 proceedings. The Court clarified that its observations are preliminary and do not influence the merits of ONGC's challenge to the arbitral award. This order ensures that ONGC's claim for liquidated damages remains secured, providing a crucial safeguard as the legal dispute progresses.
Bottom line:-
Arbitration - Post-award interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 - Continuation of Bank Guarantees pending adjudication of Section 34 petition challenging arbitral award - Exceptional circumstances and compelling reasons required for such relief.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 9, Section 34; Indian Contract Act, 1872 Section 74
