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MoRTH through EE NH Division Aurangabad vs. M/S State Construction Integrated Works Gangamai Industries and Constructions Ltd. Joint Venture

Arbitration Appeal (Commercial) · 2026:DHC:8189Decided 17 Sept 2026New Delhi Bench
ARB. A. (COMM.) 60/2025CNR: DLHC010802372025
Justice Om Prakash Shukla

Background

A road-construction joint venture was building a national highway stretch worth about Rs. 153.59 crore for the Ministry of Road Transport and Highways (MoRTH). After the contractor claimed the project was substantially complete (94-95% physically) and eligible for a "provisional completion" certificate, MoRTH pointed to a rising number of defective concrete pavement panels (from 66 to 259) and issued a notice threatening to terminate the contract and invoke the contractor's performance bank guarantee. An arbitral tribunal, while the dispute was pending, restrained MoRTH from terminating the contract or invoking the guarantee; MoRTH appealed that restraint order to the High Court.

Decision Breakdown

The Court examined the contract's own scheme and found that defects in completed work are meant to be handled under the contract's separate "remedial work" and "defects liability" clauses (which let the Authority get repairs done at the contractor's cost) rather than automatically justifying termination, and upheld the tribunal's finding that a genuine dispute existed over whether the contractor was actually in default given the substantial completion and Authority-caused delays. However, on the bank guarantee, the Court held that an unconditional guarantee can only be restrained in truly exceptional cases of fraud or irreversible injustice, and since the tribunal itself had accepted that any wrongful encashment could simply be compensated financially, its finding of "irreparable reputational injury" was not enough to justify blocking the bank guarantee. The appeal was therefore partly allowed: the stay on the termination notice was left undisturbed, but the stay on invoking the bank guarantee was set aside.

Lesson Learnt

Courts protect the sanctity of unconditional bank guarantees very strongly, even where a genuine underlying dispute justifies pausing a contract's termination, that alone usually will not stop the guarantee from being encashed unless fraud or truly irreversible harm is shown.

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