Delhi High Court Refuses Stay On Encashment Of Bank Guarantees In Jodhpur Railway Station Redevelopment Dispute

The Delhi High Court has refused an interim plea under the Arbitration and Conciliation Act seeking to restrain North Western Railway from invoking performance bank guarantees worth about ₹17.24 crore furnished under a ₹474.52 crore EPC contract for the redevelopment of Jodhpur Railway Station.

The court held that the contractor had failed to establish the limited grounds on which unconditional bank guarantees can be restrained.

Justice Subramonium Prasad held that the contractor had neither established fraud nor shown that the guarantees had been invoked outside the contract.

"Petitioner has not brought out any case of fraud or that the bank guarantee has been invoked by the Respondent outside the contract for which the guarantor is not liable. In view of the settled principle of law, injunction in the present case cannot be granted for the bank guarantees. If and when the matter is referred to arbitration and is placed before the DAB and if the DAB is not able to adjudicate the dispute, the matter will be referred to arbitration and it is open for the Petitioner to claim damages if bank guarantee has not been invoked.", it observed.

The dispute arose after North Western Railway invited bids on June 15, 2022, for the major redevelopment of Jodhpur Railway Station on an Engineering, Procurement and Construction (EPC) basis.

Vishal Infrastructure Ltd. and OJSC Euro-Asian Construction Corporation Evrascon formed a joint venture for the project. The joint venture emerged as the successful bidder and received the Letter of Acceptance on September 29, 2022, for a contract valued at ₹474.52 crore.

The parties executed the EPC agreement on July 14, 2023. The joint venture furnished performance security of about ₹14.23 crore. It also furnished four bank guarantees aggregating about ₹17.24 crore before commencing work on July 29, 2023. The project was scheduled to be completed by July 13, 2026.

North Western Railway later alleged that the contractor had failed to achieve project milestones. It also alleged inadequate deployment of resources and non-compliance with its contractual obligations. A default notice was issued on May 13, 2026, expressing the Railways' intention to terminate the contract.

Apprehending termination of the contract and other coercive measures, the joint venture first approached the Delhi High Court. On May 26, 2026, the court directed the parties to follow the contractual dispute resolution mechanism before the Dispute Adjudication Board (DAB). It also directed that the proposed imposition of ₹47.75 crore as liquidated damages should not be acted upon until the DAB rendered its decision.

North Western Railway thereafter terminated the EPC contract on May 29, 2026. It also invoked the four bank guarantees. The joint venture then filed the present petition seeking to restrain their encashment pending adjudication of the disputes before the DAB and, thereafter, arbitration.

The joint venture argued that the guarantees had not been invoked in accordance with the contract. It also contended that the invocation was invalid because it had allegedly been made by an officer below the rank of Chief Engineer, contrary to the contractual requirement.

North Western Railway opposed the plea. It maintained that the termination followed persistent contractual defaults. It also argued that unconditional bank guarantees could be restrained only in exceptional cases involving fraud or irretrievable injustice.

The court reiterated that an irrevocable bank guarantee is an independent contract between the issuing bank and the beneficiary. Such guarantees are ordinarily payable on demand irrespective of disputes arising under the underlying contract. It observed that courts can interfere only in exceptional cases involving fraud or irretrievable injustice.

The court found that the joint venture had failed to establish either of those grounds. It therefore declined to restrain invocation of the bank guarantees.

The court also rejected the contractor's objection regarding the authority of the officer who invoked the guarantees. After examining the records produced by North Western Railway, it found that the guarantees had in fact been invoked by an officer holding the rank of Chief Engineer.

It further noted that in the earlier proceedings, the court had only restrained North Western Railway from acting upon the proposed imposition of liquidated damages. It had not restrained invocation of the bank guarantees, although such a prayer had also been made.

Holding that no ground existed to grant interim protection, the court dismissed the petition. It clarified that the joint venture would remain free to pursue its remedies through the contractual dispute resolution mechanism, including a claim for damages, if available in law.

For Petitioners - JV: Senior Advocate Sandeep Sethi with Advocates Sonal Kumar Singh, Ratik Sharma, Muskan Agarwal, Parth Sindhwani and Yashvardhan Singh Gohil.

For Respondents (Chief Engineer (Const)-I, North Western Railway, Jaipur & Ors.): Advocates Siddhartha Shankar Ray, CGSC, with Vanshul Pali, GP, Sonali Modi, Ayushika Mishra and Riya Verma for Respondent No. 1; Advocates Kuber Dewan, Neeharika Aggarwal and Kaustubh Srivastava for Respondent No. 2 (ICICI Bank Ltd.).