Bank Guarantee Invocation Valid Even Without Specifying Recoverable Amount: Delhi High Court

On 7 October, the Delhi High Court held that a performance bank guarantee can be invoked without specifying the exact amount recoverable from a contractor, provided the invocation notice states that the guarantee is being invoked to meet recoveries due or likely to be due.

Justice Manoj Jain dismissed Sanjeevni Infra Projects Limited's plea to restrain the Union of India from encashing a Rs. 1.37 crore bank guarantee issued by HDFC Bank for a Central Public Works Department (CPWD) construction contract. 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.”

The dispute arose from a contract awarded to Sanjeevni Infra Projects Limited for constructing a Regional Centre Building in Sector 30, Rohini, New Delhi.

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 Sanjeevni Infra had failed to execute and complete the construction work despite repeated directions and opportunities. It consequently terminated the contract under Clause 3 of the agreement.

On 1 October 2026, the Union of India issued a notice invoking the guarantee to meet recoveries due or likely to arise from the contractor's alleged default.

Sanjeevni Infra approached the High Court under Section 9 of the Arbitration and Conciliation Act, 1996, seeking an injunction against encashment. Its separate application seeking the appointment of an arbitrator was scheduled for consideration on 9 October 2026. It argued that the invocation notice violated the guarantee's contractual conditions because it did not specify any amount due or recoverable.

The Union of India maintained that the notice complied with the guarantee's conditions. It submitted that terminating the contract necessitated a fresh tender to complete the remaining work and that the anticipated recoveries would exceed the guarantee amount.

Rejecting the contractor's objection, the Court noted that the 1 October notice expressly referred to recoveries due or likely to be due, satisfying the essential requirement for invoking the guarantee. It observed:

“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.'”

The Bench reiterated that courts can interfere with unconditional bank guarantees only in exceptional circumstances, such as egregious fraud or irretrievable injustice. It noted that “fraud is neither pleaded nor argued.”

It clarified that financial hardship alone does not establish irretrievable injustice, particularly when a contractor can pursue legal proceedings to recover the money if the encashment is subsequently found to be wrongful.

Accordingly, the High Court found no grounds to interfere with the invocation, and dismissed Sanjeevni Infra's petition. It clarified that its observations were tentative and would not determine the merits of any dispute subsequently referred to arbitration.

Appearances for petitioner (Sanjeevni Infra Projects Limited): Advocates Sameer Dawar, Anshul Mittal, Vishwam Mishra, Pranay Bhati.

Appearances for respondent (Union of India & Anr.): Advocates Radhika Bishwajit Dubey (CGSC), Gurleen Kaur Waraich, K. Upadhyay, Amulya Dev Mishra, Saksham Sharma.