The Delhi High Court dismissed a Section 9 petition under the Arbitration and Conciliation Act, 1996, seeking interim protection against termination of a coal mining services contract and encashment of a performance bank guarantee (PBG) of USD 10.535 million, holding that no case of irretrievable injustice, special equities, or fraud was made out to justify interference with an unconditional bank guarantee.
The dispute arose from a 2017 contract for coal mining operation services at the Benga Coal Mine in Mozambique, which was extended till August 2025 by an addendum. Alleging incorrect computation of overburden volumes and excess payments amounting to approximately USD 30 million, the respondent issued a default notice, terminated the contract on 3 March 2025, and invoked the PBG. The petitioner challenged these actions, contending that termination was illegal, disproportionate, and in violation of the dispute resolution mechanism, and invocation of the PBG was contrary to its terms.
Rejecting the plea to grant an injunction against termination of the contract, Justice Jasmeet Singh noted that the contract had already been terminated, third-party rights had been created, and restoration of a determinable contract was impermissible at the Section 9 stage. The Court held that issues relating to the legality of termination shall be adjudicated by the Arbitral Tribunal, as and when raised.
On the issue of the invocation of PBG, the Court held that the guarantee was unconditional and irrevocable. Emphasising settled law, it reiterated that “bank guarantees are independent contracts and must be honoured in accordance with their terms and conditions” and courts should be “slow in granting an order of injunction to restrain the realisation of a bank guarantee.”
The Court rejected the argument that the letter for the invocation of PBG was defective for not expressly recording a breach, holding that nowhere does it state that the respondent must disclose its decision that the petitioner has breached its contractual obligations to the Bank. The PBG was “encashable on mere decision of the respondent regarding breach of the Contract.”
Addressing the plea of financial hardship and proportionality, the Court held that “irretrievable injustice, as an exception to the rule of non-interference with invocation/encashment of unconditional bank guarantee, is not fulfilled by mere pleading of loss or financial hardship” and that the petitioner failed to show that recovery would be impossible if it succeeded in arbitration.
Disputes regarding overburden computation, withholding of invoices, and alleged excess payments were held to be entirely arbitrable in nature and not for this Court to adjudicate upon in a Section 9 petition.
Consequently, the Court dismissed the petition, vacating the interim protection earlier granted.
Appearances
Petitioner- Mr. Rajiv Nayar, Sr. Adv. with Mr. Saurav Agrawal, Mr. Mayank Jain, Mr. Madhur Jain, Mr. Saurabh Seth, Mr. Arpit Goel, Mr. Deepak Jain, Ms. Allaka M, Mr. Raghav Thareja, Ms. Raadhika Chawla, Mr. Mehak Joshi, and Mr. Abhiroop Rathore Advs.
Respondent- Mr. Shaiwal Srivastava, Adv. for R2
