Bank guarantees cannot be interdicted due to contractual disputes unless fraud or irretrievable injustice is established.

ORAL JUDGMENT

(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)

1. The appellant has filed the present appeal under Section 37 (1)(b) of the Arbitration and Reconciliation Act, 1996 [A&C Act], impugning the order dated 23.01.2026 [impugned order], passed by the learned LXXXII Addl. City Civil and Sessions Judge, Bengaluru [Commercial Court] in Com. A.A.No.284/2025, captioned ‘M/s. M.V. Constructions v. The General Manager, Southern Western Railway and others’. The appellant had filed the said petition under Section 9 of the A&C Act, inter alia, praying that the invocation of the bank guarantee [BG] bearing No.80501GP251088363 for a sum of Rs. 47,68,800/-, be interdicted, till final disposal of the above case.

2. A plain reading of the impugned order indicates that the learned Commercial Court found no grounds to restrain the respondent Nos.1 to 4 [the Railways] from invoking the BG. Accordingly, the petition filed by the appellant was dismissed by the impugned order.

3. The facts of the case are that, the respondent No.2 - The Chief Administrative Officer, South Western Railway had issued a notice dated 28.08.2023 inviting tenders for "construction of earth retaining wall on Mysore end approach of the ROB in lieu of LC-89 at Km.99/500-600 between Mavinkere and Hassan Section" as part of rehabilitation work. The appellant had submitted its bid for executing the said works. The Railways accepted the said bid and issued a Letter of Acceptance [LOA] dated 27.09.2023. The initial value of the work was fixed at Rs.9,53,74,654.78 (Rupees Nine Crores Fifty Three Lakhs Seventy-Four Thousand Six Hundred Fifty-Four and Paise Seventy-Eight Only). The works were required to be completed within a period of four months.

4. In terms of the LOA, the appellant was required to submit a performance guarantee for a sum of Rs.47,68,732.74 (Rupees Forty Seven Lakhs Sixty Eight Thousand Seven Hundred and Thirty Two and paise Seventy Four Only). In compliance with the aforesaid terms, the appellant submitted the BG, which was issued by respondent No.5 [the bank] in favour of the Railways, on 28.04.2025.

5. The appellant contends that the Railways failed to issue the drawings in time, which was one of the reasons for the delay in executing the project. The appellant further claims that during the course of execution of the works, the entire design of the structures was changed, and the variation statement was finalised on 11.01.2024. The delay as well as the change in the scope of work resulted in an increase in costs.

6. The averments made in the present appeal indicate that the Railways issued several notices regarding the slow progress of work, and further also complained regarding insufficient mobilisation of the workforce by the appellant. The appellant also responded to some of the said notices explaining the reasons for slow progress.

7. It is contended on behalf of the appellant that the Railways had made a substantial change in the scope of the work, whereby the quantity of work to be executed increased substantially. The appellant also contends that the increase in the scope of work could not be executed at the quoted rates due to a substantial cost escalation. By letter dated 16.04.2025 – which was sent by the appellant in response to the Seven Day Notice dated 12.04.2025 issued by the Railways advising the petitioner to improve the progress of the work – the appellant informed the Railways that due to the change in the design of work, it was not feasible to execute the remaining works at the rates as quoted and requested that the contract be foreclosed.

8. The Railways responded by a letter