New Age Fire Fighting Co. Limited vs Nanded Airport Limited & Anr.

By the present Petition filed under Section 9 of the Arbitration and Conciliation Act, 1996, the Petitioner seeks directions against the Respondents to restrain the encashment of the Performance Bank Guarantee. The Petitioner states that Respondent No.1 has invoked the Bank Guarantee by its email dated 1 September 2026. The Petitioner has sought other reliefs connected with the said Bank Guarantee.

According to the Petitioner, the facts and circumstances which led to filing of the present Petition are as follows. On 18 April 2024, the Petitioner submitted its initial offer for supplying one Airfield Crash Fire Tender, known as ACFT, having a water tank capacity of 10,000 litres for Nanded Airport. Thereafter, on 10 July 2024, the Petitioner submitted a revised offer pursuant to the tender issued by Respondent No.1. On 5 August 2024, the Petitioner confirmed its offer. Respondent No.1 issued Letter of Award No. NAL/CPG/ADMIN/2024/11 dated 6 August 2024 for a total contract value of Rs.7,03,00,000/-. On 21 August 2024 and 22 August 2024, Respondent No.1 issued Notice to Proceed, which was made effective from 22 August 2024. Pursuant to the said Notice, the Petitioner started the work relating to execution of the contract, including procurement and manufacture of the ACFT. On 10 September 2024, the Petitioner furnished Advance Bank Guarantee No. 03352GI3D2403957 for Rs.1,48,94,068/- in favour of Respondent No.1. The Bank Guarantee was valid up to 6 October 2025 and its claim period was stated to be up to 6 October 2026. On 25 April 2025, Respondent No.1 directed the Petitioner to stop all engineering, manufacturing, procurement and delivery activities under the Letter of Award. The Petitioner informed Respondent No.1 that by that time major components had been manufactured and other parts and accessories had either been procured or ordered. Thereafter, on 20 June 2025, Respondent No.1 terminated the Letter of Award under Article 24, which provided for termination for convenience. Respondent No.1 stated that the termination was because MIDC had resumed Nanded Airport. Respondent No.1 asked the Petitioner to refund the advance amount of Rs.1,48,94,068/-. It was stated that the Bank Guarantee would be returned after the advance amount was received.

During September and October 2025, the parties exchanged correspondence regarding settlement of the matter. The discussions were concerning return of the Bank Guarantee against refund of the advance amount. However, the proposed settlement was not concluded by Respondent No.1. On 18 October 2025 and 28 October 2025, the Petitioner submitted its claim for Rs.4,63,82,051/-. The claim was towards the work carried out, materials procured and the obligations performed by the Petitioner up to the date of termination. On 30 March 2026, Respondent No.1 rejected the Petitioner's claim in its entirety. At that stage, Respondent No.1, for the first time, relied upon Article 39 concerning Force Majeure. Thereafter, on 1 September 2026, the Petitioner received information from its banker that Respondent No.1 had called upon Respondent No.2 to encash the Bank Guarantee. The Petitioner was informed that payment would be made after completion of the required formalities. According to the Petitioner, the encashment of the Bank Guarantee is imminent. It is in these circumstances that the Petitioner has filed the present Petition.

Mr. Savant, learned Advocate appearing for the Petitioner, submitted that Respondent No.1 terminated the Letter of Award by relying upon Article 24 of the GCC, which provides for Termination for Convenience. Article 25 of the GCC, which deals with Termination for Default, was never invoked against the Petitioner. The Termination Notice dated 20 June 2025 does not contain any allegation that the Petitioner had committed any default or breach, caused any delay, supplied defective goods or failed to perform its obligations. On the contrary, in paragraph 8 of the said Notice, Respondent No.1 appreciated the efforts made by the Petitioner, thanked the Petitioner for its cooperation and expressed its hope of working with the Petitioner in future projects. Paragraph 6 of the Notice stated that after termination, no obligations would arise against either party, except those obligations which were stated to continue even after termination.

According to Mr. Savant, the termination took place only because MIDC resumed possession of the airport site under its Resumption Order dated 8 April 2025. As a result, Respondent No.1 stopped its operations at Nanded Airport. This was an issue between Respondent No.1 and MIDC, which was a third party. The Petitioner had no role in that matter and had no control over it. At all relevant times, the Petitioner was ready and willing to perform its obligations under the contract. By then, major components of the ACFT had been manufactured. The other necessary parts and accessories had been procured or ordered and were available for being fitted to the ACFT. It was submitted that the rights of the Petitioner could not be affected because of a dispute or circumstance between Respondent No.1 and a third party.

Mr. Savant submitted that, in any event, Respondent No.1 has till date not alleged that it suffered any loss or damage because of any act or failure on the part of the Petitioner. Respondent No.1 has not stated the amount of any such loss or produced any material to support it. The contract was terminated by Respondent No.1 for its own convenience. In such circumstances, according to the Petitioner, encashing the Bank Guarantee without even claiming any loss cannot be treated as an ordinary enforcement of security. It would amount to Respondent No.1 recovering the amount of the Bank Guarantee on its own and without first establishing any liability of the Petitioner.

Mr. Savant submitted that the facts of the present case show several special circumstances which justify protection of the Petitioner. First, the Letter of Award was terminated by Respondent No.1 for its own convenience and not because of any default by the Petitioner. The termination was caused only because MIDC resumed the airport site, which was completely beyond the control of the Petitioner. Second, Respondent No.1 had stated that the Bank Guarantee would be returned to the Petitioner, but the settlement proposed for that purpose was not completed by Respondent No.1. Third, the Bank Guarantee was given only in respect of the unadjusted advance. According to the Petitioner, the advance had been used for performing the obligations and for procuring customised goods which could not easily be sold to another purchaser. Fourth, the Petitioner has made a quantified claim under Article 24.1 of the GCC arising from the same termination. The claim is more than three times the amount covered by the Bank Guarantee. Fifth, Respondent No.1 has taken different stands at different stages. It first terminated the contract under Article 24 and, only after receiving the Petitioner's claim, relied upon Article 39 relating to Force Majeure. Sixth, the Bank Guarantee was invoked shortly before expiry of its claim period, without prior notice to the Petitioner and without stating or quantifying any loss suffered by Respondent No.1.

It was submitted that Respondent No.1 has stopped carrying on the only business in which it was engaged and has lost the only asset from which it was earning revenue. In these circumstances, the Petitioner apprehends that if the Bank Guarantee is encashed and the amount is taken by Respondent No.1, the Petitioner may not be able to recover that amount even if it succeeds in the arbitration proceedings. According to the Petitioner, it may then have only an award in its favour without any possibility of recovering the money.

Mr. Savant pointed out that during September and October 2025, the parties were in correspondence regarding a settlement under which the Bank Guarantee was to be returned against repayment of the advance. By its e-mail dated 25 September 2025, the Petitioner requested a draft Minutes of Meeting recording this arrangement. Thereafter, by its e-mail dated 6 October 2025, the Petitioner forwarded a draft Minutes of Meeting along with a draft No Due Certificate. According to the Petitioner, it was Respondent No.1 which did not complete the proposed settlement. It was submitted that after not completing the arrangement which it had proposed, Respondent No.1 could not now unilaterally encash the Bank Guarantee.

Mr. Savant submitted that Article 24.1 of the GCC provides that when the contract is terminated for convenience, the Vendor is entitled to receive, as full compensation, the amount relating to all obligations performed under the Contract up to the date of termination, along with the retainage withheld. Relying upon this provision, the Petitioner, by its letter dated 18 October 2025, which was forwarded by e-mail dated 28 October 2025, submitted a quantified claim of Rs.4,63,82,051/-. The claim was supported by a detailed statement of claim and relevant documents. It was pointed out that this claim is more than three times the amount secured by the Bank Guarantee.

It was submitted that the advance payment cannot be looked at separately from the termination of the Letter of Award and the amounts which may become payable to the Petitioner because of such termination. According to the Petitioner, it is necessary to determine whether any amount is payable by the Petitioner towards the advance and, if so, whether that amount has to be adjusted against the amount payable to the Petitioner under Article 24.1. These questions can be decided only after the accounts between the parties are examined. They are part of the disputes which are required to be decided in arbitration. Respondent No.1 cannot dispute the Petitioner's entire claim on the one hand and, on the other hand, recover the entire advance amount by encashing the Bank Guarantee before the accounts between the parties are determined.

Mr. Kakalia, learned Advocate appearing for the Respondents, submitted that Respondent No.1 issued Letter of Award No. NAL/CPG/ADMIN/2024/11 dated 6 August 2024 in favour of the Petitioner for supply of one Airfield Crash Fire Tender, or ACFT, having a water tank capacity of 10,000 litres for use at Nanded Airport. The total contract value was Rs.7,03,00,000/-, including GST. The General Conditions of Contract, or GCC, formed part of the Letter of Award. Under the Letter of Award read with the GCC, Respondent No.1 paid an advance of Rs.1,48,94,068/- to the Petitioner on 27 September 2024. This amount was 25% of the contract value and was paid against the Bank Guarantee furnished by the Petitioner through Respondent No.2. Article 20.1 of the GCC required the Petitioner to furnish an “unconditional” Bank Guarantee in the prescribed format. The Bank Guarantee in question was issued in that format. Article 20.10 of the GCC provides that the Purchaser, namely Respondent No.1, “at its sole option may invoke the part or full value of the Bank Guarantee(s) unconditionally under terms of this Contract”. Article 20.11 provides that any claim or demand made by the Purchaser within one year from the expiry of the Bank Guarantee would fall within the claim period. It provides that interest on the advance would be recovered along with the advance amount.

As stated by the Petitioner, the lease under which Respondent No.1 was operating Nanded Airport was terminated by the Maharashtra Industrial Development Corporation, or MIDC, by its Resumption Order dated 8 April 2025. MIDC took possession of Nanded Airport and Respondent No.1 stopped its operations there. In these circumstances, which were beyond the control of Respondent No.1, Respondent No.1 by its email dated 25 April 2025 asked the Petitioner to stop work under the Letter of Award. Thereafter, by Termination Notice bearing Ref. No. NAL/CAO/2025/25 dated 20 June 2025, Respondent No.1 terminated the Letter of Award under Article 24 of the GCC.

Mr. Kakalia submitted that paragraph 7 of the Termination Notice called upon the Petitioner to refund the advance amount of Rs.1,48,94,068/-. The Notice stated that after receiving the said amount, the Bank Guarantee would be returned to the Petitioner. Thus, according to the Respondents, the return of the Bank Guarantee was subject to the Petitioner first refunding the advance amount. The Petitioner has, even till now, and for more than fourteen months after the Termination Notice, not refunded the advance amount or any part of it. It has continued to use the money of Respondent No.1 without making any payment for the same.

Mr. Kakalia submitted that the correspondence exchanged between the parties, which has been produced by the Petitioner, shows that the Petitioner had accepted its obligation to refund the advance against return of the Bank Guarantee. First, by its email dated 23 June 2025, the Petitioner's Director did not dispute the demand for refund. Instead, the Petitioner stated that “we are working with our finance team in regard to the advance payment”. The Petitioner only requested release of its standby fire tender vehicle. Respondent No.1 facilitated the release and the Petitioner collected the vehicle in June 2025. Second, by its email dated 25 September 2025, the Petitioner stated: “As discussed over our call, we kindly request you to share the draft MOM regarding the returning our Bank Guarantee, as we intend to return your advance payment.” Thus, the Petitioner stated that it intended to refund the advance and requested Respondent No.1 to prepare a draft Minutes of Meeting recording the arrangement for refund of the advance against return of the Bank Guarantee. Third, a meeting was held between the authorised representatives of both parties by way of conference call on 3 October 2025. The meeting was attended, among others, by Mr. Manoj Barnwal, Mr. Ajay Kapur and Mr. Pradeep Harsora on behalf of Respondent No.1 and Mr. Hemant Shah and Mr. Nayan Solanki on behalf of the Petitioner. According to Respondent No.1, the parties agreed upon the manner in which the matter was to be closed. Pursuant to that understanding and the Petitioner's own request dated 25 September 2025, Respondent No.1 sent the Petitioner a draft Minutes of Meeting along with the format of a No Dues Certificate. The Minutes of Meeting recorded under the heading “Agreed Way Forward” that the parties had mutually discussed the matter and agreed to the following course. First, NFFCL would refund the entire advance amount of Rs.1,48,94,068/- to the designated bank account of NAL within two working days from the signing of the Minutes of Meeting. Second, NFFCL would give a signed “No Due Claim” certificate in the format of NAL. Third, after receiving the refund and the signed No Due Claim certificate, NAL would return the Advance Bank Guarantee to NFFCL within two working days. Fourth, after completion of these steps, the contract would be treated as closed.

Mr. Kakalia submitted that the Petitioner's own email dated 6 October 2025 is important. By that email, the Petitioner forwarded to Respondent No.1 what it described as the “final draft” of the same Minutes of Meeting, along with a draft No Dues Certificate. The Petitioner stated: “As discussed, please find the attached final draft along with no due certificate in draft format. Kindly check and revert prior to signature from our management.” The document sent by the Petitioner was named “Draft-MOM-NAL-NewAge (1).docx”. This was the same draft which had earlier been sent by Respondent No.1 and which the Petitioner then returned as the final draft. According to Respondent No.1, this correspondence shows that the parties had agreed that the Petitioner would refund the advance amount and, after receiving that amount, Respondent No.1 would return the Bank Guarantee.

However, Mr. Kakalia submitted that on the very next day, namely 7 October 2025, the Petitioner changed its position. By an email sent through its Director, the Petitioner stated: “Since the order is cancelled and no transaction has taken place, No Due Certificate from our side is not required.” According to Respondent No.1, this email shows two things. First, the Petitioner's objection to the draft Minutes of Meeting was because it required a No Dues Certificate. Second, the reason given by the Petitioner for not giving such certificate was that “no transaction has taken place” under the Letter of Award. Respondent No.1 submits that this statement shows that the Petitioner accepted that the resumption of the Airport was a force majeure event and that the contract had consequently come to an end. Respondent No.1 contends that the Petitioner had accepted that the advance had not been adjusted and that the entire advance continued to be payable to Respondent No.1. By its email dated 9 October 2025, Respondent No.1 informed the Petitioner that Article 68 of the GCC, dealing with Contract Closure, required the Vendor to provide a No Demand Certificate in the Purchaser's prescribed format.

Thereafter, according to Mr. Kakalia, the Petitioner completely changed its stand. By its letter dated 18 October 2025, sent under cover of its email dated 28 October 2025, the Petitioner for the first time raised a claim of Rs.4,63,82,051/- against Respondent No.1. Respondent No.1 submits that this claim was raised only later as an attempt to avoid repayment of the advance. It is submitted that this was contrary to the Petitioner's own earlier conduct and its statement that “no transaction has taken place”. Respondent No.1 contends that the claim was an afterthought and is wholly denied and disputed.

Mr. Kakalia submitted that even Respondent No.1 continued to act bona fide and tried to resolve the dispute. By its email dated 16 December 2025, Respondent No.1 invited the Petitioner for a meeting and proposed 19 December 2025 as the date. Respondent No.1 sent reminders on 23 December 2025, 9 January 2026 and 16 January 2026. According to Respondent No.1, the Petitioner did not respond promptly. A meeting was held through video conference on 4 February 2026. Respondent No.1 sent a detailed reply dated 30 March 2026 dealing with and rejecting the Petitioner's claim. Even after more than fourteen months from the date of termination, the Petitioner had not refunded the advance amount. The claim period of the Bank Guarantee was to expire on 6 October 2026. In these circumstances, Respondent No.1 submitted that it exercised its rights and took steps to invoke the Bank Guarantee. According to Respondent No.1, the invocation was within the terms of the Bank Guarantee and within the claim period expressly provided in the Bank Guarantee and Article 20.11 of the GCC. It was submitted that the purpose of the invocation was to recover Respondent No.1's own money, namely the advance amount which, according to Respondent No.1, remained unadjusted.

I have considered the submissions made by Mr. Savant, learned Advocate for the Petitioner, and Mr. Kakalia, learned Advocate for the Respondents. I have considered the Letter of Award, the General Conditions of Contract, the Bank Guarantee, the correspondence exchanged between the parties and the other material placed before the Court. The principles laid down by the Supreme Court in Jindal Steel & Power Ltd. v. Bansal Infra Projects (P) Ltd., (2025) 10 SCC 176 and Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110 are required to be kept in mind while considering the present Petition.

The Bank Guarantee which is relied upon by both sides is an Advance Bank Guarantee for Rs.1,48,94,068/-. This Bank Guarantee was given for securing the advance amount paid by Respondent No.1. The Petition states that the Bank Guarantee was given for securing an advance equal to 25% of the contract value. Therefore, the question before the Court is whether Respondent No.1 can invoke this Advance Bank Guarantee for recovering the advance amount which has not been repaid.

The legal position on this issue is fairly settled. In Jindal Steel & Power Ltd., the Supreme Court in paragraph 22 has held as under:

The Supreme Court considered the judgment in Hindustan Construction Co. Ltd. v. State of Bihar (1999) 8 SCC 436 and reproduced paragraphs 8 and 9 thereof. The principle stated there is that a Bank Guarantee is an independent contract between the bank and the beneficiary. Therefore, the Court should not stop its encashment merely because some dispute has arisen between the parties under the main contract.

The same position has been explained in more detail by the Supreme Court in Himadri Chemicals Industries Ltd. In paragraph 10, the Supreme Court held that the bank has to honour the Bank Guarantee according to its terms even if there is a dispute between its customer and the beneficiary. Thus, merely because there is a dispute under the main contract, that fact by is not sufficient to stop enforcement of the Bank Guarantee. The exceptions are limited. One exception is where there is fraud which goes to the very foundation of the Bank Guarantee. The other is where encashment would result in irretrievable injury or injustice and the amount cannot be recovered.

In paragraph 11 of Himadri Chemicals, the Supreme Court explained the first exception and observed:

The Court has accepted that the material relating to fraud must be clear and must show the knowledge of the bank regarding such fraud. Therefore, merely stating that the beneficiary has acted wrongly in the contractual dispute is not sufficient. The fraud required for this purpose has to be of a much more serious nature. It must affect the foundation of the transaction and the Bank Guarantee.

The second exception is that of irretrievable injury or injustice. In paragraph 13 of Himadri Chemicals, while considering U.P. State Sugar Corpn. v. Sumac International Ltd., (1997) 1 SCC 568, the Supreme Court has made this position clear. Before the Court can stop encashment on this ground, exceptional circumstances have to be established. The Supreme Court has observed:

Therefore, it is not sufficient for the Petitioner to say that it may face financial difficulty if the Bank Guarantee is encashed. The Petitioner has to place material before the Court to show that even if it succeeds in arbitration, recovery of the amount from Respondent No.1 would become impossible.

Paragraph 14 of Himadri Chemicals summarises the principles. The following part is relevant:

The Supreme Court states:

Paragraph 14(iv) states:

These principles have to be applied while considering the facts and circumstances of the present case. The terms of the Bank Guarantee in the present case are important. Clause 5 describes the Bank Guarantee as unconditional, irrevocable and payable on demand. The Bank has agreed to pay the Purchaser, upon receiving a written demand, an amount up to Rs.1,48,94,068/- “without any demur, reservation, contest or protest and/or without reference to the Supplier and without the Purchaser needing to provide or show to the Bank grounds or reasons or give any justification for such demand”. Clause 6 provides that the decision of the Purchaser to invoke the Bank Guarantee would be binding upon the Bank even if there is a dispute between the Purchaser and the Supplier or such dispute is pending before a Court, Tribunal or Arbitrator. Clauses 7 and 8 make the Bank liable as a principal debtor. They do not require the Purchaser to first proceed against the Supplier. In view of this language, it is difficult to accept the submission of the Petitioner that Respondent No.1 must first prove default, breach, loss or damage before the Bank Guarantee can be invoked. There is no such condition in the Bank Guarantee. On the contrary, the Bank Guarantee states that the Purchaser need not give any reason or justification for making the demand. These are the terms which the parties had agreed. While exercising jurisdiction under Section 9, the Court cannot alter these terms merely because a dispute has arisen between the parties.

The Petitioner has relied upon the fact that the LOA was terminated under Article 24, namely Termination for Convenience, and not under Article 25 relating to default. It is correct that the Termination Notice dated 20 June 2025 invoked Article 24. The Notice records that Respondent No.1 had stopped its operations at Nanded Airport because of the Resumption Order issued by MIDC. It records appreciation of the efforts made by the Petitioner. The Notice does not allege default, defective supply, delay or non-performance by the Petitioner. Therefore, the Petitioner does have a dispute regarding the effect of the termination and its entitlement under Article 24.1. However, this fact by does not answer the question, which arises in the present Petition. Article 24.1 deals with the entitlement of the Petitioner arising from termination for convenience. The Bank Guarantee deals with the advance amount of Rs.1,48,94,068/- paid by Respondent No.1. Article 24.1, as reproduced in the Petition, provides for compensation to the Vendor for obligations performed before termination. Whether the Petitioner is entitled to Rs.4,63,82,051/-or to any other amount, and whether any amount is required to be adjusted against the advance, are questions which have to be decided under the contract. It is not necessary to give any final finding on the Petitioner's substantive claim in the present proceedings. But the existence of such a dispute cannot stop the encashment of an unconditional Bank Guarantee.

The same position applies to the Petitioner's submission regarding Article 39 concerning Force Majeure. The record shows that Respondent No.1 initially terminated the LOA by invoking Article 24 in the Termination Notice dated 20 June 2025. Thereafter, while rejecting the Petitioner's claim by letter dated 30 March 2026, Respondent No.1 relied upon Article 39 and stated that because of the resumption of the airport, it had become impossible to continue the performance. Whether Articles 24 and 39 are inconsistent, whether Article 39 was properly invoked, whether notice under Article 39.3 was necessary and whether the Petitioner is entitled to compensation under Article 24.1 are all questions arising from the main contract. These questions may have to be decided in arbitration. But they do not change the separate and independent terms of the Bank Guarantee.

There is substance in the submission of the Respondents that the invocation is connected with the purpose for which the Advance Bank Guarantee was given. The amount demanded by Respondent No.1 is the amount of advance secured by the Bank Guarantee. The Termination Notice demanded refund of Rs.1,48,94,068/- and stated that after receiving that amount, the Bank Guarantee would be returned. The material shows that Respondent No.1 has not invoked the Bank Guarantee for some new claim. It is seeking the very advance amount which was secured by the Bank Guarantee.The Petitioner has submitted that the advance amount was used for manufacturing a highly customised ACFT. According to the Petitioner, major components had been manufactured and other parts and accessories had been procured or ordered. Respondent No.1 disputes the effect of this expenditure and states that the Petitioner continues to have possession and ownership of the ACFT, its components and materials, and that their value can be considered while deciding the Petitioner's monetary claim. At this stage, it is not necessary to decide which version is correct. The important point is that spending the advance amount is not the same as repayment or adjustment of the advance. The Petitioner's claim for reimbursement or compensation can be considered in arbitration. Such expenditure by does not bring the security given for the advance to an end.

The conduct of the parties regarding refund of the advance is required to be considered. On 23 June 2025, the Petitioner informed Respondent No.1 that the issue of refund was being taken up with its finance team. Thereafter, by email dated 25 September 2025, the Petitioner stated: “we intend to return your advance payment”. The Petitioner asked Respondent No.1 to provide a draft Minutes of Meeting regarding return of the Bank Guarantee against refund of the advance. The parties had a meeting on 3 October 2025. Respondent No.1 forwarded a draft Minutes of Meeting providing for refund of the full advance and return of the Bank Guarantee after such refund. By email dated 6 October 2025, the Petitioner forwarded what it described as the “final draft”. It is not necessary, for deciding the present Petition, to hold that the draft Minutes of Meeting became a final and binding settlement. The draft appears to have required signatures of the managements of the parties. The Petitioner may contend in arbitration that no final settlement was completed. However, the correspondence does show one important fact. At the relevant time, the Petitioner was considering refund of the advance against return of the Bank Guarantee. This conduct has a bearing upon the present submission that the encashment has no connection with the purpose for which the Bank Guarantee was given.

Thereafter, the Petitioner raised its quantified claim of Rs.4,63,82,051/- under Article 24.1. The claim was made on 18 October 2025 and forwarded on 28 October 2025. Respondent No.1 rejected the claim on 30 March 2026. The fact that the Petitioner's claim is more than three times the amount of the Bank Guarantee does not by create a right to stop its encashment. The claim is disputed and has not yet been decided. The Bank Guarantee cannot be treated as a security which automatically gets adjusted against an unadjudicated claim of the Petitioner. Any question regarding adjustment can be considered by the competent forum.

The Petitioner has submitted that Respondent No.1 did not give notice before invoking the Bank Guarantee and that the Petitioner came to know about the invocation only through its banker. The Petition records that the Petitioner's banker informed it on 1 September 2026 that Respondent No.1 had called upon Respondent No.2 to encash the Bank Guarantee and that payment would follow after completion of the required formalities. The Respondents dispute the requirement of a notice and point out that the demand for refund of the same amount had been made on 20 June 2025. The Bank Guarantee does not make prior notice to the Petitioner a condition for payment by the Bank. Clause 5 requires a written demand upon the Bank and says that the demand can be made without reference to the Supplier. Therefore, the absence of a separate notice before invocation cannot by make the invocation invalid.

The fact that the invocation was made near the end of the claim period does not make the invocation unlawful. The material shows that the Bank Guarantee was valid up to 6 October 2025 and that the claim period extended up to 6 October 2026. The invocation was initiated on 1 September 2026. Therefore, the demand was made within the claim period. Merely because Respondent No.1 invoked the Bank Guarantee near the end of that period, it cannot be said that the invocation was for that reason impermissible.

I now come to the allegation of fraud. The Petition does not place before the Court any material to show that the Bank Guarantee was obtained by fraud, that the underlying transaction was fraudulent or that the Bank had knowledge of any such fraud. The case of the Petitioner is that Respondent No.1 wrongly terminated the LOA, wrongly rejected the Petitioner's claim and is now seeking to recover the advance through the Bank Guarantee. Even if this case is taken at its highest, it remains a dispute under the contract. It is not the kind of fraud which is required in law for stopping encashment of a Bank Guarantee. As stated by the Supreme Court in paragraph 11 of Himadri Chemicals:

That requirement is not established from the material placed before the Court.

The next question is regarding irretrievable injury or injustice. The Petitioner says that Respondent No.1 has stopped its operations at Nanded Airport, has lost its source of revenue and may not have sufficient financial capacity to repay the amount if the Petitioner succeeds in arbitration. The Petition describes this as a “serious and well-founded apprehension” and states that the Petitioner may otherwise be left with only a paper award. This submission has been considered.

Respondent No.1 has placed material showing a different financial position. It relies upon its audited financial statements for the financial year 2025-26. According to Respondent No.1, these financial statements show that it continues as a going concern. It relies upon continuing support from the Reliance group, trade receivables of Rs.2.24 crore and balances with Government authorities of Rs.2.63 crore. It relies upon the auditors' report regarding repayment of borrowings and statutory dues. These financial statements are not required to be treated as a guarantee that the Petitioner will certainly recover the money in future. That is not the test which has to be applied. The question is whether the Petitioner has shown that restitution would be impossible. On the material before the Court, this has not been shown. The Petitioner has shown that Respondent No.1 lost possession of Nanded Airport. But that fact alone does not establish that Respondent No.1 will be unable to satisfy an arbitral award. Respondent No.1 has placed financial material showing that it continues to exist and has assets and receivables. The case of the Petitioner remains an apprehension. As paragraph 13 of Himadri Chemicals states:

I cannot accept that irretrievable injury will arise merely because the Petitioner's bank account will be debited after encashment. Such financial effect is normally the consequence when an on-demand Bank Guarantee is encashed. Every encashment of such a Bank Guarantee has financial effect upon the party which furnished it. If this consequence is treated as irretrievable injustice, an unconditional Bank Guarantee would become difficult to enforce in almost every case. The Respondents have submitted that if the Petitioner succeeds in arbitration, its monetary claim can be decided and an award with interest can be passed.

The plea of “special equities” does not provide a ground to interfere with the Bank Guarantee. The circumstances relied upon by the Petitioner are the same matters which have been considered. The termination under Article 24, the Petitioner's claim under Article 24.1, the subsequent reliance upon Article 39, the expenditure allegedly incurred on the customised ACFT and the absence of immediate notice are all matters connected with the underlying contract. These matters may be important when the rights of the parties are decided. But in the facts of the present case, they do not amount to such exceptional circumstances by which the Court can disregard the unconditional Bank Guarantee.

The allegation regarding suppression of the Minutes of Meeting requires consideration. The Respondents have pointed out that the Petition relies upon the correspondence dated 25 September 2025 and 6 October 2025, but the attachment to the email dated 6 October 2025, namely the draft Minutes of Meeting and No Dues Certificate, was not annexed. According to Respondent No.1, this was an important document because it recorded the proposed refund of the entire advance against return of the Bank Guarantee. The Petitioner's own case accepts that correspondence regarding the proposed settlement had taken place. It is not necessary for this Court to record any finding regarding the intention of the Petitioner in not annexing the attachment. Such a finding is not required for deciding the Petition. However, the omission is material. The email dated 6 October 2025 becomes clearer when the document sent with it is seen. The document relied upon by Respondent No.1 records a proposed course under which the entire advance was to be refunded and the Bank Guarantee was to be returned. This was relevant to the Petitioner's plea of special equities and to its contention that Respondent No.1 was acting contrary to its earlier stand. Therefore, the omission has a bearing upon the Petitioner's prayer for equitable and discretionary relief under Section 9.

I do not accept the submission that Respondent No.1 is improperly bypassing Article 27 of the GCC by invoking the Bank Guarantee. Article 27 provides the procedure for resolution of disputes and arbitration. The Bank Guarantee is separately worded. It provides that the Purchaser may invoke it unconditionally and that the Bank's obligation to pay is not affected by any dispute between the Purchaser and the Supplier. Article 20.10 of the GCC and Clause 6 of the Bank Guarantee are relied upon by Respondent No.1 for this purpose. Therefore, exercising a right under the independent Bank Guarantee cannot be treated as defeating the dispute resolution procedure under the main contract.

The submission of the Petitioner that encashment would allow Respondent No.1 to obtain through “self-help” the amount which forms part of the disputed claim cannot be accepted. At present, the amount sought through the Bank Guarantee is not the Petitioner's claim of Rs.4,63,82,051/-. It is the amount of the advance originally paid by Respondent No.1 and secured by the Advance Bank Guarantee. Whether Respondent No.1 will be entitled to retain the entire amount, or whether some adjustment is required after considering the Petitioner's claim, is a separate question. Encashment of the Bank Guarantee does not decide that question.

The Petitioner's submission that Respondent No.1 had undertaken to return the Bank Guarantee has to be understood from the words used. Paragraph 7 of the Termination Notice stated that Respondent No.1 requested refund of the advance and that:

The present case is different from a case where a beneficiary seeks to encash an unconditional Bank Guarantee for an amount which has no connection with the purpose for which the guarantee was given. It is different from a case where clear material of egregious fraud is shown or where it is proved that restitution after encashment would be impossible. Here, the Bank Guarantee was furnished for securing the very advance which Respondent No.1 seeks to recover. The amount demanded corresponds with the guaranteed amount. The advance has not been returned by the Petitioner. The Bank Guarantee permits unconditional invocation. The disputes between the parties can still be decided in arbitration.

I have considered the submission of the Petitioner that the specialised ACFT had been manufactured and that the Petitioner would suffer loss if the Bank Guarantee is encashed. This question may have relevance to the Petitioner's monetary claim. But in the facts of this case, it cannot change the normal consequence of encashment into irretrievable injustice as understood in the judgments of the Supreme Court. Respondent No.1 states that the Petitioner continues to have the manufactured ACFT and its components and that their value can be considered while deciding the Petitioner's claim. There is no sufficient material to hold that the Petitioner's monetary rights will disappear only because the Bank Guarantee is encashed.

On considering the entire matter, I find that the grievance of the Petitioner against Respondent No.1 may give rise to disputes under Article 24, Article 39 and other provisions of the GCC. Those disputes are not being decided in the present proceedings. At the same time, such disputes cannot be used to stop an unconditional Advance Bank Guarantee. The Supreme Court in Himadri Chemicals has held:

The Petitioner has not established the recognised grounds on which the Court can interfere with the Bank Guarantee. There is no established fraud of an egregious nature. There is no sufficient material showing irretrievable injury or injustice. The plea of special equities is based upon disputes under the main contract. The Bank Guarantee is unconditional and payable on demand. On the material before the Court, the invocation has been made within the claim period and for the amount of the advance secured by the Bank Guarantee. Merely because the Petitioner may succeed in arbitration, the position regarding the Bank Guarantee does not change. If the arbitral tribunal finds that the Petitioner is entitled to payment under Article 24.1 or any other provision of the contract, the Petitioner's substantive claim can be decided in those proceedings and appropriate monetary relief can be granted. The present Section 9 proceedings cannot be converted into a complete trial of the claim only for the purpose of stopping encashment of an independent Bank Guarantee.

For all these reasons, I find that there is no sufficient ground to restrain Respondent No.1 from invoking or encashing the Advance Bank Guarantee bearing No. 03352GI3D2403957 for Rs.1,48,94,068/-. The Petition, to the extent it seeks an injunction against invocation and encashment of the said Bank Guarantee, cannot succeed. The claims and defences of the Petitioner are kept open for consideration and decision in accordance with the dispute resolution mechanism contained in the GCC.

In view of the foregoing discussion and for the reasons recorded hereinabove, the following order is passed:

At this stage, Mr. Savant, learned Advocate for the Petitioner seeks continuation of the interim relief. However, for the reasons recorded in this Judgment, the request for continuation of interim relief stands rejected.