Mumbai High Project Dispute: Bombay High Court Orders L&T To Keep ₹150 Crore Bank Guarantee Alive

The Bombay High Court has directed Larsen & Toubro Ltd. to continue renewing and keeping alive bank guarantees worth approximately ₹150.34 crore furnished to ONGC Ltd. in a dispute over liquidated damages arising from the Mumbai High North redevelopment project.

The court held that ONGC, though largely unsuccessful in the arbitration after the tribunal awarded higher claims to L&T, could still seek interim protection under Section 9 of the Arbitration and Conciliation Act in a rare and compelling case.

It ordered the guarantee to remain alive until the final disposal of ONGC's challenge to the arbitral award under Section 34.

Justice Sandeep V. Marne observed, “Refusal of interim measures would result in a manifest disproportion as the Petitioner would lose the security worth 10% of the contract price while Respondent's only burden is the continued existence of the bank guarantee.”

The dispute arose from a 2010 contract under which L&T was engaged for redevelopment of offshore well-head platforms for ONGC's Mumbai High North project.

ONGC alleged delays and withheld approximately ₹122.73 crore as liquidated damages. L&T then furnished a bank guarantee of approximately ₹150.34 crore, equivalent to 10% of the contract price, to secure release of the withheld amount.

A three-member arbitral tribunal largely ruled in favour of L&T, awarding it claims worth about ₹271.12 crore, while holding that ONGC was entitled to retain only 35% of the liquidated damages, amounting to ₹42.95 crore. An Additional Award later substituted the earlier direction requiring L&T to pay the 35% liquidated damages before the return of the bank guarantee with a mutual adjustment mechanism.

ONGC challenged the award under Section 34 and sought continuation of the bank guarantee, arguing that the tribunal exceeded its powers under Section 33 by materially altering the original award through the Additional Award.

L&T opposed the plea, arguing that ONGC, as an unsuccessful arbitral party, could not seek post-award interim relief under Section 9 and that extending the bank guarantee would interfere with enforcement of the award.

Rejecting the objection, the court relied on the Supreme Court's recent ruling in Home Care Retail Marts Pvt. Ltd. v. Haresh N. Sanghavi, which held that even unsuccessful parties may seek interim relief under Section 9 in rare and compelling cases.

The Court held ONGC had crossed that higher threshold, noting that the bank guarantee was specifically furnished to prevent ONGC from deducting the liquidated damages from L&T's bills.

“Directing Respondent to extend and renew the bank guarantee does not come in the way of enforceability of the Award. Even after renewing the bank guarantee, Respondent can enforce the Award and recover the awarded sum of INR 271.12 crores. Thus, directing interim measures in Section 9 petition in favour of the Petitioner merely preserves the ancillary rights of parties pending adjudication under Section 34 of the Act.", the court observed.

Holding that ONGC would suffer irreparable injury if the security were allowed to lapse, the Court allowed the petition and directed L&T to keep the bank guarantee alive pending disposal of the Section 34 proceedings.

For Petitioner: Senior Advocate Zubin Behramkamdin, with Advocates Shreya Gupta, Prachi Gupta, and Shradhha Kedia i/b M/s. Shardul Amarchand Mangaldas & Co.

For Respondent: Senior Advocate Vikram Nankani, with Advocates Rohaan Cama, Kyrus Modi, Mehul Talera, Indranil Deshmukh, Gathi Prakash Karrah, Nidhi Asher, Arushi Poddar & Prakhar Agarwal i/b M/s. Cyril Amarchand Mangaldas & Co.