Section 9 Arbitration Act | Post-Award Bank Guarantee Continuation Allowed for Liquidated Damages Security : Bombay HC

The Bombay High Court's judgment in Oil and Natural Gas Corporation Limited v. Afcons Gunanusa Joint Venture establishes a critical precedent for post-award interim relief under Section 9 of the Arbitration and Conciliation Act, 1996. The Court allowed continuation of bank guarantees securing liquidated damages claims in a public utility project, recognizing rare and compelling circumstances where security preservation is essential pending challenge to an arbitral award under Section 34.

Background & Facts

The Dispute

The petitioner, Oil and Natural Gas Corporation Limited (ONGC), entered into a contract dated 29.05.2008 with the respondent, Afcons Gunanusa Joint Venture (a joint venture between Afcons Infrastructure Limited and PT Gunanusa Utama Fabricators), for construction, installation, and commissioning of a hydrocarbon production project. The contract fixed the Completion Date as 30.04.2011 under Clause 6.3.1.2 of the General Conditions of Contract (GCC), with Clause 6.3.2 entitling ONGC to recover liquidated damages for delay.

Key Facts

• 16.09.2008: Joint Venture Agreement executed between Afcons Infrastructure Limited and PT Gunanusa Utama Fabricators.
• 29.05.2008: Contract executed between ONGC and Afcons for the Project.
• 29.04.2011: ONGC notified Afcons of delay in project completion.
• 31.05.2011 to 30.06.2011: ONGC granted multiple extensions of the Completion Date up to 31.12.2011, while reserving its right to recover liquidated damages.
• 22.07.2011: Contract amended to insert Clause 6.3.4, requiring Afcons to furnish unconditional and irrevocable bank guarantees covering 110% of ONGC's maximum liquidated damages claim. The clause stipulated that the bank guarantees would remain valid until the dispute regarding liquidated damages was finally settled.
• 31.10.2012 and 02.01.2013: Project completed with a delay of more than 220 days (approximately 30 weeks).
• 23.04.2013: Afcons denied responsibility for the delay.
• 10.05.2013: ONGC disputed Afcons' stand.
• 20.07.2015: Afcons invoked arbitration under Clause 1.3.2 of the GCC.
• 22.04.2022: Arbitral Tribunal restricted the bank guarantees to USD 29,909,433, INR 22,08,94,740, and EUR 4,551,725, directing they remain alive until the final award.
• 10.03.2026: Arbitral Tribunal passed the impugned award, dismissing ONGC's Counterclaim No. 8 for liquidated damages (USD 41,691,936.24, EUR 6,344,827.53, and INR 30,79,13,880) and directing return of the bank guarantees within 10 days.
• 26.03.2026 and 27.03.2026: Afcons demanded return of the bank guarantees in compliance with the award.
• 08.06.2026: ONGC filed a Section 34 petition challenging the award, along with an interim application seeking stay.
• 13.06.2026: ONGC filed the present Section 9 petition seeking continuation of the bank guarantees.
• 25.06.2026: Court directed Afcons to file its reply by 05.07.2026.
• 06.07.2026: Afcons filed its reply.
• 07.07.2026: ONGC filed rejoinder.

Procedural History

• 12.06.2019: Arbitration proceedings commenced.
• 22.04.2022: Arbitral Tribunal issued interim order restricting bank guarantees.
• 10.03.2026: Impugned arbitral award passed.
• 08.06.2026: ONGC filed Section 34 petition with interim stay application.
• 13.06.2026: Present Section 9 petition filed.
• 25.06.2026: Matter listed for hearing; directions issued for reply.
• 06.07.2026: Afcons filed reply.
• 07.07.2026: ONGC filed rejoinder.
• 10.07.2026: Judgment pronounced.

Relief Sought

ONGC sought:

1. Continuation and renewal of the bank guarantees until the Section 34 petition is finally decided.
2. Alternatively, direction to Afcons to furnish fresh bank guarantees of equivalent value.

The Legal Issue

The central question was whether Section 9 of the Arbitration and Conciliation Act, 1996 permits continuation of bank guarantees post-arbitral award when:

• The award rejects a liquidated damages claim in a public utility contract;
• The contract expressly requires the bank guarantees to remain alive until final settlement of the dispute;
• The challenge under Section 34 raises substantial questions of law regarding the interpretation of Section 74 of the Indian Contract Act, 1872 and the applicability of precedents like Saw Pipes Ltd., Construction & Design Services, and Kailash Nath Associates.

Arguments Presented

For the Petitioner (ONGC)

1. Prima Facie Case for Setting Aside Award:

   • The Arbitral Tribunal recorded findings that:
     • The delay of more than 220 days was solely attributable to Afcons;
     • Afcons was not entitled to an unconditional extension of time;
     • ONGC was entitled to recover liquidated damages under Clause 6.3.2 of the GCC.
   • Despite these findings, the Tribunal dismissed ONGC's counterclaim, relying on Kailash Nath Associates v. DDA (2015) 4 SCC 136, which requires proof of actual loss.
   • This reliance was misplaced because:
     • Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 held that in contracts with liquidated damages clauses, proof of actual loss is not required if the amount is a genuine pre-estimate of loss.
     • Construction & Design Services v. DDA (2015) 14 SCC 263 extended this principle to public utility projects, where loss can be presumed even without specific evidence.
     • Saisudhir Energy Solutions Ltd. v. NTPC Ltd. 2026 SCC OnLine SC 125 reiterated that in public interest projects, contractual terms bind both parties, and the defaulting party must prove no loss was caused.
     • GAIL (India) Ltd. v. Punj Lloyd Ltd. RFA (OS) (COMM) No. 6 of 2016 held that liquidated damages clauses in contracts with strict timelines represent a genuine estimate of loss and are payable without proof of actual loss.
     • BPL Ltd. v. Morgan Securities & Credits Pvt. Ltd. (2026) 3 SCC 1 emphasized that commercial contracts must be interpreted as per the parties' intention, and courts cannot alter terms unless they are arbitrary or mala fide.

2. Public Utility Project:

   • The Project involved the ICP-R process platform, an extension of ONGC's existing infrastructure for crude oil and natural gas production, directly impacting national energy security.
   • Delay in such projects results in blockage of capital, loss of foreign exchange, and production losses, which are difficult to quantify but were pleaded before the Tribunal.

3. Contractual Interpretation:

   • Clause 6.3.2 of the GCC provided for liquidated damages as a genuine pre-estimate of loss, payable without proof of actual loss.
   • Clause 6.3.4, inserted at Afcons' request, required bank guarantees to remain alive until the dispute was finally settled.
   • The Tribunal's insistence on proof of loss rewrote the contractual terms, contrary to the Supreme Court's decisions in Saw Pipes and Construction & Design Services.

4. Rare and Compelling Circumstances:

   • ONGC relied on Home Care Retail Marts Pvt. Ltd. v. Haresh N. Sanghavi 2026 SCC OnLine SC 670, which held that post-award interim protection can be granted to an unsuccessful party if:
     • A prima facie case exists;
     • The balance of convenience favors the applicant;
     • Irreparable injury would result if relief is denied.
   • The Court in ONGC v. Swiber Offshore Construction Pte. Ltd. Commercial Arbitration Petition (L) No. 17832 of 2026 applied these principles, holding that exceptional circumstances must exist for post-award relief.
   • ONGC argued that the present case satisfied these requirements because:
     • The bank guarantees were the only security for its liquidated damages claim (INR 323 crores);
     • One constituent of the Joint Venture is a foreign company in Indonesia, making future enforcement difficult;
     • The bank guarantees had remained alive for nearly fifteen years, and their continuation would preserve the existing contractual arrangement;
     • ONGC acted with due diligence, filing the Section 34 petition and the present petition promptly before the bank guarantees expired (15.07.2026).

5. Financial Prejudice:

   • Afcons' reliance on consolidated financial statements was misplaced because the liability rested on Afcons Infrastructure Limited, not its subsidiaries.
   • ONGC highlighted deteriorating financial indicators in Afcons Infrastructure Limited's latest audited statements (2025-26), including:
     • Reduced profit before tax;
     • Declined cash flow from operating activities;
     • Increased debt-equity ratio;
     • Reduced net profit margin.
   • These indicators suggested weakened financial position, increasing the risk of non-recovery if the bank guarantees lapsed.

For the Respondent (Afcons)

1. No Pleading or Proof of Loss:

   • Afcons relied on Fateh Chand v. Balkishan Dass AIR 1963 SC 1405, which held that Section 74 of the Indian Contract Act requires proof of loss for reasonable compensation, even if the contract specifies liquidated damages.
   • Kailash Nath Associates clarified that proof of loss is dispensed with only where it is impossible or difficult to establish. In all other cases, the claimant must plead and prove loss.
   • The Tribunal found that ONGC failed to plead or prove any loss, and Afcons never conceded that ONGC suffered no loss.

2. No Exceptional Circumstances:

   • Afcons argued that ONGC was an unsuccessful party before the Tribunal and could seek Section 9 relief only if the relief was non-prejudicial.
   • Continuation of the bank guarantees (nearly INR 400 crores) would seriously prejudice Afcons, which had succeeded in the arbitration.
   • Afcons' financial position was sound, with an annual turnover of INR 13,000 crores, and it was willing to furnish a corporate guarantee if ONGC succeeded in the Section 34 proceedings.

3. Bank Guarantee Terms:

   • Clause 8 of the bank guarantee allowed ONGC to invoke it within twelve months after expiry, provided the cause of action arose during its validity.
   • This clause sufficiently protected ONGC's interests, making continuation unnecessary.

4. No Rare or Compelling Circumstances:

   • Afcons relied on Home Care Retail Marts and ONGC v. Swiber, arguing that post-award relief is exceptional and ONGC had not demonstrated such circumstances.
   • The Section 34 challenge raised arguable legal issues, but this alone did not justify continuation of the bank guarantees.

The Court's Analysis

The Court undertook a detailed examination of the legal principles governing post-award interim relief under Section 9, the interpretation of Section 74 of the Indian Contract Act, and the interplay between conflicting precedents.

1. Post-Award Interim Relief:

   • The Supreme Court in Home Care Retail Marts held that Section 9 does not distinguish between successful and unsuccessful parties. Any party can seek interim relief until the award is enforced under Section 36.
   • However, the standard for granting relief to an unsuccessful party is stricter, requiring rare and compelling circumstances.
   • The Court in ONGC v. Swiber applied this principle, holding that continuation of a bank guarantee post-award is permissible only if the challenge to the award is exceptionally strong and surrounding facts show compelling circumstances.

2. Prima Facie Case:

   • The Court noted that the Arbitral Tribunal recorded findings that:
     • The delay of more than 220 days was attributable to Afcons;
     • Afcons was not entitled to an unconditional extension of time;
     • Clause 6.3.2 of the GCC was otherwise applicable.
   • Despite these findings, the Tribunal rejected ONGC's counterclaim on the ground that loss was neither pleaded nor proved.
   • The Court observed that this raised substantial questions of law, including:
     • Whether the Tribunal misapplied Kailash Nath Associates by ignoring the principles in Construction & Design Services for public utility contracts;
     • Whether the Tribunal rewrote the contractual terms by introducing a requirement of proof of loss, contrary to Clause 6.3.2;
     • Whether the Tribunal erred in relying on the Minister's statement in Parliament, which was not tested by cross-examination.

3. Section 74 and Liquidated Damages:

   • The Court analyzed the conflicting judgments:
     • Saw Pipes and Construction & Design Services held that in commercial contracts and public utility projects, liquidated damages clauses represent a genuine pre-estimate of loss, and proof of actual loss is not required.
     • Kailash Nath Associates and Fateh Chand held that Section 74 requires proof of loss, and liquidated damages can be awarded only if the amount is a genuine pre-estimate and loss is difficult or impossible to prove.
   • The Court reconciled these judgments by holding that:
     • Legal injury must exist, but the manner of proving it varies;
     • In public utility projects, where loss is difficult to quantify (e.g., blockage of capital, delayed production, environmental impact), the Court may presume loss based on the contract terms;
     • The burden shifts to the defaulting party to prove that no loss occurred.

4. Contractual Interpretation:

   • Clause 6.3.4 was inserted at Afcons' request, substituting deduction of liquidated damages with bank guarantees to secure ONGC's claim until final settlement.
   • The clause expressly required the bank guarantees to remain alive until the dispute was finally settled, supporting ONGC's contention that the parties intended continuation of security pending resolution.

5. Balance of Convenience:

   • The Court noted that:
     • The bank guarantees had remained alive for nearly fifteen years, including during the arbitration;
     • Continuation would preserve the existing arrangement, whereas allowing them to lapse would seriously prejudice ONGC;
     • Afcons' offer of a corporate guarantee was not equivalent to an unconditional bank guarantee;
     • The foreign constituent of the Joint Venture added complexity to future enforcement.

6. Irreparable Injury:

   • The Court held that if the bank guarantees lapsed:
     • ONGC would lose its only security for the liquidated damages claim (INR 323 crores);
     • Even if ONGC succeeded in the Section 34 proceedings, the relief would be meaningless without security;
     • Enforcement against the foreign entity would become difficult after completion of the Project.

7. Exceptional Circumstances:

   • The Court identified 23 cumulative circumstances justifying continuation of the bank guarantees, including:
     • The Tribunal's findings on delay and applicability of Clause 6.3.2;
     • The public utility nature of the Project, where loss is difficult to quantify;
     • The contractual arrangement under Clause 6.3.4, requiring bank guarantees to remain alive until final settlement;
     • The risk of irreparable injury if the bank guarantees lapsed;
     • ONGC's due diligence in approaching the Court promptly;
     • Both parties' challenges to the award, keeping the dispute sub judice.

"The Supreme Court in Home Care Retail Marts has observed that post-award interim protection should be granted only in rare and compelling cases. Prima facie, in my opinion, the present matter appears to satisfy that requirement."

The Verdict

The Court allowed the petition and directed:

1. The respondent shall renew, extend, and keep alive all bank guarantees furnished under Clause 6.3.4 of the GCC, on the same terms and conditions and for the same amounts, pending disposal of the Section 34 petition;
2. The respondent shall take steps for renewal at least fifteen days before expiry and furnish copies to ONGC;
3. The respondent shall not cancel, discharge, or release the bank guarantees until the Section 34 petition is decided;
4. ONGC shall not invoke the bank guarantees solely on the basis of this order; invocation remains subject to the contract terms and further orders;
5. All observations are prima facie and shall not influence the Section 34 proceedings;
6. No order as to costs.

What This Means For Similar Cases

Post-Award Interim Relief: Rare but Not Impossible

• Section 9 permits post-award interim relief even for unsuccessful parties, but the threshold is exceptionally high.
• Courts will consider:
  • Strength of the Section 34 challenge: Legal errors (e.g., misapplication of precedents) are more compelling than factual disputes;
  • Contractual terms: Express clauses requiring security continuation (e.g., Clause 6.3.4) weigh heavily in favor of relief;
  • Public interest: Projects affecting national infrastructure (e.g., energy, utilities) may justify presumption of loss;
  • Irreparable injury: Loss of security for large claims (e.g., INR 323 crores) or enforcement difficulties (e.g., foreign entities) strengthen the case for continuation.

Liquidated Damages in Public Utility Contracts

• Proof of loss is not always required in public utility projects where:
  • The contract specifies a genuine pre-estimate of loss;
  • The project involves national interest (e.g., energy, infrastructure);
  • Losses are difficult to quantify (e.g., blockage of capital, environmental impact).
• Burden shifts to the defaulting party to prove that no loss occurred.
• Tribunals/courts cannot rewrite contractual terms by introducing requirements not agreed upon by the parties (e.g., proof of loss where the contract dispenses with it).

Bank Guarantees: Security Beyond the Award

• Contractual clauses requiring bank guarantees to remain alive until final settlement are enforceable, even post-award.
• Corporate guarantees are not equivalent to unconditional bank guarantees; the latter provide higher security.
• Foreign entities in joint ventures add complexity to enforcement, justifying continuation of security.