Extension Without Liquidated Damages Does Not Bar Damages Or Bank Guarantee Invocation: Delhi HC

The Delhi High Court on 25 May held that extension of time without levy of liquidated damages does not, by itself, prevent a party from later invoking contractual remedies, including liquidated damages and enforcement of an unconditional bank guarantee, where disputes relating to delay and termination require arbitral adjudication.

A Bench of Justice Mini Pushkarna declined relief to Kalpataru Projects International Limited and refused to grant interim protection under Section 9 of the Arbitration and Conciliation Act, 1996, in a dispute arising from a Rs. 240 crore iron ore slurry pipeline project in Odisha. It held:

“This Court is of the prima facie view that the extension of time for completion of the Contract without liquidated damages entailed execution of the work by the petitioner. In the absence of completion of the work and in view of the various disputes between the parties as regards execution of the work and termination of the contract by the petitioner, it cannot prima facie be said that the respondent would be barred from imposing liquidated damages.”

The dispute arose from a Contract Agreement dated 14 September 2023 between Kalpataru Projects International Limited and JSW Infrastructure Limited, executed pursuant to a Letter of Intent dated 19 January 2022 and Purchase Order dated 5 February 2022 for a 131-km iron ore slurry pipeline project in Odisha. The total contract value was Rs. 240 crore, with completion scheduled within 24 months from 19 January 2022.

Kalpataru contended that delays occurred due to lapses attributable to JSW Infrastructure. JSW, however, issued Amendment No. 1 on 27 December 2023 extending the completion deadline to 31 May 2026 without levy of liquidated damages. Thereafter, JSW issued Amendment No. 5 on 7 May 2026, which reduced the scope of work and brought down the contract value from Rs. 240 crore to Rs. 123.20 crore, while reserving its right to impose liquidated damages.

On 15 May 2026, JSW issued a risk purchase notice alleging that Kalpataru had completed only 47% of the work. Kalpataru terminated the contract on 18 May 2026 and approached the Delhi High Court under Section 9 seeking restraint on invocation of liquidated damages and enforcement of a bank guarantee dated 18 July 2025.

Kalpataru argued that once JSW had granted extension without liquidated damages, it was estopped from later claiming such damages. It further contended that the bank guarantee could not be invoked for unquantified claims. JSW opposed the plea, stating that Kalpataru had abandoned the project, failed to complete the work, and that the contract expressly preserved the right to levy liquidated damages even after extension.

The Court noted that Clause 18.3 of the contract preserved JSW Infrastructure's right to levy liquidated damages despite extension of time. It also recorded that Kalpataru had stopped work from 7 July 2025 and terminated the contract before expiry of the extended completion period. It observed that disputes relating to delay, breach, and damages required evidence and adjudication before the arbitral tribunal and could not be conclusively determined at the interim stage.

On the bank guarantee, the Bench held that the instrument dated 18 July 2025 was unconditional and irrevocable. It reiterated the settled principle that courts should not interfere with invocation of unconditional bank guarantees and rejected the plea of hardship, holding:

“Mere pleading of financial or commercial hardship or distress, does not meet the threshold for irretrievable injury or injustice, which is attracted only when restitution is impossible in law. However, no such case has been made out by the petitioner in the present case”.

Accordingly, the High Court dismissed the Section 9 petition, clarifying that all observations were prima facie and would not influence arbitral proceedings.

Appearances for petitioner (Kalpataru Projects International Limited): Senior Advocate Dayan Krishnan; Advocates Dr. Sunil Mittal, Malak Bhatt, Anu Tiwari, Prithviraj Dey, Sukrit Seth.

Appearances for respondent (JSW Infrastructure Limited): Senior Advocate Darpan Wadhwa; Advocates Nakul Mohta, Misha Rohatgi Mohta, Amer Vaid, Sneha Menon.