The Delhi High Court has ruled that a performance bank guarantee can be validly invoked even if the exact amount recoverable from the contractor is not specified in the invocation notice, as long as the notice states that the guarantee is being invoked to meet recoveries due or likely to be due. The decision came on a petition filed by Sanjeevni Infra Projects Limited seeking to restrain the Union of India from encashing a Rs 1.37 crore bank guarantee issued by HDFC Bank in connection with a Central Public Works Department (CPWD) construction contract.

Justice Manoj Jain, presiding over a single bench, dismissed the petition under Section 9 of the Arbitration and Conciliation Act, 1996, observing that the invocation notice contained the “prime-most ingredient” required under the contractual terms. The dispute arose from a contract awarded to Sanjeevni Infra for constructing a Regional Centre Building in Sector 30, Rohini, New Delhi.

Invocation Notice Meets Contractual Conditions

Under the agreement, Sanjeevni Infra furnished a performance bank guarantee of Rs 1.37 crore issued by HDFC Bank on 17 September 2024. The company subsequently renewed the guarantee until 19 October 2026. The Union of India alleged that the contractor failed to execute and complete the construction work despite repeated directions and opportunities, leading to termination of the contract under Clause 3 of the agreement.

On 1 October 2026, the Union of India issued a notice invoking the bank guarantee to meet recoveries due or likely to arise from the contractor’s alleged default. Sanjeevni Infra challenged this invocation, arguing that the notice violated the guarantee’s contractual conditions because it did not specify any amount due or recoverable. The contractor contended that without a crystallized sum, the invocation was not in terms of the contractual obligations.

The court rejected this argument. Justice Jain noted that the invocation notice expressly referred to “recoveries due or likely to be due from the contractor.” The Bench observed: “Merely because the amount to be recovered or likely to be recovered from the contractor has not been specified or crystallized in the invocation notice, it would not mean that the invocation is not in terms of the contractual obligations and unsustainable. Sum and substance of the invocation notice is found to be in complete synchronization with the contractual terms and guarantee in question.”

Court Rejects Plea for Injunction

The Union of India maintained that the notice complied with the guarantee’s conditions and submitted that terminating the contract necessitated a fresh tender to complete the remaining work. It argued that the anticipated recoveries would exceed the guarantee amount. Sanjeevni Infra had separately filed an application seeking appointment of an arbitrator, which was scheduled for consideration on 9 October 2026.

The court emphasized that the invocation letter contained the essential requirement. “The letter, thus, contains the prime-most ingredient for the purposes of invocation as in no uncertain terms, it has been mentioned therein that ‘the invocation is to meet the recoveries due or likely to be due from the contractor,’” Justice Jain observed.

Reiterating the well-settled principle that courts can interfere with unconditional bank guarantees only in exceptional circumstances, the Bench noted that no case of egregious fraud or irretrievable injustice was made out. “Fraud is neither pleaded nor argued,” the court stated. It further clarified that financial hardship alone does not constitute irretrievable injustice, particularly when a contractor can pursue legal proceedings to recover the money if the encashment is subsequently found to be wrongful.

Limited Scope of Judicial Interference

The ruling reinforces the narrow grounds on which courts can restrain encashment of bank guarantees. The court held that the invocation was in complete synchronization with the contractual terms, and therefore no interference was warranted. The observations were tentative and would not determine the merits of any dispute subsequently referred to arbitration.

The decision provides clarity for government departments and contractors alike. It affirms that an invocation notice need not specify the exact recoverable amount as long as it clearly indicates that the guarantee is being invoked to meet recoveries due or likely to be due. This aligns with commercial practice where the precise quantum of loss may not be immediately ascertainable at the time of invocation.

What Lies Ahead

With the petition dismissed, the Union of India is free to encash the bank guarantee. Sanjeevni Infra can pursue its claims through arbitration, which is already in the pipeline. The court’s observation that the contractor can seek recovery if the encashment is later found wrongful provides a potential avenue for recourse. The arbitration proceedings will now proceed on their own merits, unaffected by the court’s tentative views on the invocation.

The appearances for the petitioner were led by Advocates Sameer Dawar, Anshul Mittal, Vishwam Mishra, and Pranay Bhati. The respondents were represented by Advocates Radhika Bishwajit Dubey (CGSC), Gurleen Kaur Waraich, K. Upadhyay, Amulya Dev Mishra, and Saksham Sharma.