Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Del) 715

IN THE HIGH COURT OF DELHI AT NEW DELHI
DINESH MEHTA, VINOD KUMAR, JJ.
National Highways Infrastructure Development Corporation Ltd - Appellant
Versus
Sadguru Engineers And Allied Services Pvt Ltd And Ors. - Respondents
FAO(OS) (COMM) 83 of 2026, CM APPL. 21826 of 2026, CM APPL.21827 of 2026, CM APPL. 21828 of 2026, CM APPL. 21829 of 2026 & CM
APPL. 28908 of 2026
Decided On : 19-05-2026

Advocates Appeared:
For the Appellant : Mr. Rajshekhar Rao, Sr. Adv. (through VC) with Mr. Gopal Singh, Mr. Subham Janghu, Mr. Yoshit Jain & Ms. Ananya Diya, Advs.
For the Respondent: Mr. Amarjit Singh Chandhiok, Sr. Adv. with Mr. Srisatya Mohanty Ms. Purva Kohli, Advs., Mr. Jatin Sehgal, Mr. Ashish Garg, Mr. Shubham Aggarwal, Advs.

Bank guarantees that mandate proof of contractual default for invocation are conditional, despite language appearing otherwise. Encashment cannot be permitted for claims outside the scope of specific performance defaults defined in the contract.

Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 9 and 37 - Interim measures - Bank guarantees - Nature of - Whether conditional or unconditional - Instrument containing clauses requiring proof of default in performance of contractual obligations held to be conditional - Invocation of such guarantees is permissible only upon existence of pre-defined contingencies or default. (Paras 22-24)

(B) Bank Guarantees - Invocation - Principles for injunction - Court justified in restraining encashment where reasons for invocation do not relate to specific contractual defaults - Where claims are extraneous to obligations defined in contract, invocation cannot be sanctioned - Equitable considerations and balance of convenience remain relevant factors in interim relief. (Paras 25-28)

Facts of the case:
The appellant sought to invoke multiple bank guarantees provided by the contractor. The contractor, aggrieved by the proposed action, filed an application for stay of encashment. The lower court granted the injunction, holding the guarantees to be conditional. The appellant challenged this order, arguing the guarantees were unconditional and invocable on mere demand.

Findings of Court:
The Court held that while certain clauses in the guarantee instruments initially appeared unconditional, the overall interpretation of the operational clauses made the right to invoke contingent upon proof of default in the performance of contractual obligations. The claims raised by the appellant for recovery of funds and vendor dues were found to be outside the scope of the specific defaults for which the guarantees were issued.

Issues: The main issues addressed were the nature of the bank guarantees (conditional versus unconditional) and whether the appellant had satisfied the necessary conditions to proceed with the invocation of the financial instruments.

Ratio Decidendi: Regardless of the phrasing appearing to grant unconditional powers of invocation, if an instrument specifies that the authority remains the sole judge of, and is limited to, defaults in the performance of contractual obligations, the guarantee is strictly conditional. Invocation is prohibited in the absence of identified, contractually-rooted defaults.

Result: Appeal dismissed; Sole arbitrator appointed to resolve disputes.

Table of Content
1. factual foundation of the contract, dispute, and section 9 proceedings. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 10)
2. arguments comparing conditional vs unconditional bank guarantees and contractual obligations. (Para 8 , 9 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19)
3. determination that bank guarantees require specific triggering events tied to contractual default. (Para 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28)
4. dismissal of appeal and appointment of sole arbitrator for dispute resolution. (Para 29 , 30 , 31 , 32 , 33 , 34)

JUDGMENT :

DINESH MEHTA, J.

1. Instant appeal has been preferred under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act of 1996’) against judgement dated 24.02.2026 passed by the learned Single Judge, pursuant to an application under Section 9 of the Act of 1996 filed by the respondent.

2. The facts in detail have been noted by the learned Single Judge in the impugned order, hence, we are refraining from narrating those facts in detail.

3. The facts for the present purposes, briefly stated, are that the respondent emerged as the successful bidder and was awarded a contract for execution of balance work of four-laning of National Highway No.37 (Old), Jorhat-Jhanji stretch, under the EPC mode for Package-I (consisting the Road Works) and Package-IV (consisting the Structures & Toll Plaza).

4. On issuance of Letter of Acceptance (LoA) dated 15.01.2024, a Contract Agreement dated 07.02.2024 came to be executed between the parties and as per the terms of the contract/LoA, the respondent furnished two performance bank guarantees and a mobilization bank guarantee drawn on State Bank of India, SME AT Road Branch, Guwahati to the tune of Rs.8,63,46,694/-.

5. According to the appellant, the respondent-contractor was lax in performing the contractual obligations and despite all support including financial support and accommodation given by the appellant (NHIDCL), the respondent could not complete the work within time.

6. Various correspondences took place between the appellant and the respondent, out of which the letter dated 14.01.2026 propelled the respondent to approach the court under Section 9 of the Act of 1996. By said letter/notice, the appellant had asked the respondent-contractor to comply with the directions given therein, failing which the appellant would encash the bank guarantees for recovery of the amount of Rs.8.496 crores, being the amount claimed under the said notice.

7. Feeling aggrieved of the said notice and proposed action of invocation of the bank guarantees (as indicated in the notice), the respondent filed an application under Section 9 of the Act of 1996 and prayed that the NHIDCL be restrained from invoking/encashing following bank guarantees:

i. Performance Bank Guarantee No. 0151824BG0000014 for Rs.3,24,00,324/- dated 20.01.2024;

ii. Mobilization Bank Guarantee No. 0151824BG0000057 for Rs.3,50,46,351/- dated 04.03.2024; and

iii. Performance Bank Guarantee No. 0151824BG0000016 for Rs.1,89,00,019/- dated 20.01.2024.

8. The application so filed by the respondent was heard by learned Single Judge and after hearing rival counsel, he came to a conclusion vide the impugned order dated 24.02.2026 that the bank guarantees in question were conditional bank guarantees and the same could be invoked only upon fulfilment of pre-defined contingencies linked to contractual performance or compliances.

9. Having found so, the learned Single Judge stayed the encashment of the above referred three bank guarantees.

10. The appellant has called in question the said order of learned Single Judge dated 24.02.2026 by way of instant appeal.

11. Mr. Rajshekhar Rao, learned senior counsel assisted by Mr. Subham Janghu, learned counsel for the appellant argued that learned Single Judge has erred in interdicting the appellant from encashing/invoking bank guarantees while holding the bank guarantees to be conditional bank guarantees whereas they were not.

12. He re

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