Section 9 Arbitration Act | Post-Award Interim Relief Requires 'Rare Compelling Circumstances' : Bombay HC Upholds Bank Guarantee Continuation

The Bombay High Court has delivered a significant judgment on the scope of post-award interim protection under Section 9 of the Arbitration and Conciliation Act, 1996. The Court held that while an unsuccessful party in arbitration can seek interim relief, such relief requires rare and compelling circumstances. The judgment clarifies the interplay between Section 74 of the Indian Contract Act, liquidated damages clauses in public utility contracts, and the standards for granting interim protection after an arbitral award. Practitioners must note the heightened threshold for post-award relief and the importance of contractual clauses governing security instruments like bank guarantees.

Background & Facts

The Dispute

The petitioner, Oil and Natural Gas Corporation Limited (ONGC), entered into a contract dated 29th May, 2008 with the respondent, Afcons Gunanusa Joint Venture (Afcons), for the construction, installation, and commissioning of a process platform (ICP-R) as part of ONGC’s hydrocarbon extraction infrastructure. The General Conditions of Contract (GCC) fixed the Completion Date as 30th April, 2011, with Clause 6.3.2 entitling ONGC to recover liquidated damages for delay. The respondent, Afcons, delayed completion by more than 220 days (approximately 30 weeks), leading to disputes over liquidated damages.

Key Facts

• 16th September, 2008: Afcons Infrastructure Limited and PT Gunanusa Utama Fabricators formed a Joint Venture Agreement to execute the Project.
• 29th May, 2008: ONGC and Afcons executed the Contract for the ICP-R process platform, with Clause 6.3.2 providing for liquidated damages for delay.
• 29th April, 2011: ONGC notified Afcons of delay in completion.
• 3rd May, 2011 to 30th June, 2011: Afcons requested extensions of time and offered Bank Guarantees as security in lieu of immediate deduction of liquidated damages.
• 22nd July, 2011: The parties amended the Contract 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.
• 31st October, 2012 and 2nd January, 2013: The Project was completed with a delay of more than 220 days.
• 23rd April, 2013: Afcons denied responsibility for the delay.
• 10th May, 2013: ONGC disputed Afcons’ stand.
• 20th July, 2015: Afcons invoked arbitration under Clause 1.3.2 of the GCC.
• 22nd April, 2022: The 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.
• 10th March, 2026: The impugned arbitral award dismissed 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 directed ONGC to return the Bank Guarantees within ten days.
• 26th March, 2026 and 27th March, 2026: Afcons demanded return of the Bank Guarantees.
• 8th June, 2026: ONGC filed a petition under Section 34 challenging the award, along with an Interim Application for stay.
• 13th June, 2026: ONGC filed the present petition under Section 9 seeking continuation of the Bank Guarantees pending the Section 34 challenge.
• 25th June, 2026: The Court directed Afcons to file its reply by 5th July, 2026.
• 6th July, 2026: Afcons filed its reply.
• 7th July, 2026: ONGC filed its rejoinder.

Procedural History

• 20th July, 2015: Afcons invoked arbitration.
• 22nd April, 2022: Arbitral Tribunal restricted Bank Guarantees to 110% of ONGC’s maximum claim.
• 10th March, 2026: Arbitral Tribunal passed the impugned award, dismissing ONGC’s counterclaim for liquidated damages and directing return of Bank Guarantees.
• 8th June, 2026: ONGC filed Section 34 petition challenging the award.
• 13th June, 2026: ONGC filed present Section 9 petition.
• 25th June, 2026: First hearing before the High Court.
• 6th July, 2026: Afcons filed reply.
• 7th July, 2026: ONGC filed rejoinder.
• 10th July, 2026: Judgment pronounced.

The Parties' Positions

For the Petitioner (ONGC)

• The Arbitral Tribunal erred in law by rejecting ONGC’s counterclaim for liquidated damages despite recording findings that:
  • The delay of more than 220 days was 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.
• The Tribunal ignored binding precedents (Saw Pipes Ltd. v. ONGC, Construction & Design Services v. DDA, Saisudhir Energy Solutions Ltd. v. NTPC Ltd.) which hold that in public utility contracts, proof of actual loss is not required if the liquidated damages clause represents a genuine pre-estimate of loss.
• The Tribunal misapplied Kailash Nath Associates v. DDA, which requires proof of loss only where such loss is not obvious or difficult to quantify. In public utility projects, losses like blockage of capital, delayed production, and foreign exchange implications are presumed.
• The Bank Guarantees were furnished at Afcons’ request as security for liquidated damages and were intended to remain alive until final settlement under Clause 6.3.4.
• Irreparable prejudice would result if the Bank Guarantees lapse, as ONGC’s claim (INR 323 crores) would remain unsecured, especially against the foreign constituent of the Joint Venture (Indonesian entity).
• ONGC acted with due diligence, filing the Section 34 petition and Section 9 petition promptly before the Bank Guarantees’ expiry (15th July, 2026).

For the Respondent (Afcons)

• ONGC failed to plead or prove actual loss before the Arbitral Tribunal, which is a mandatory requirement under Section 74 of the Indian Contract Act and Kailash Nath Associates.
• The arbitral award is valid and binding until set aside under Section 34. The Court cannot ignore the award while deciding a Section 9 petition.
• Post-award interim relief under Section 9 is not automatic for an unsuccessful party. The petitioner must show rare and compelling circumstances, which ONGC has failed to establish.
• Continuation of the Bank Guarantees (nearly INR 400 crores) would cause financial hardship to Afcons, which has succeeded before the Tribunal.
• Afcons’ financial position is sound, and it is willing to furnish a corporate guarantee if ONGC succeeds in the Section 34 proceedings.
• Clause 8 of the Bank Guarantee allows ONGC to make a demand within twelve months after expiry, provided the cause of action arose during the validity period.

Relief Sought

ONGC sought:

• Continuation and renewal of the Bank Guarantees until the Section 34 petition is finally decided.
• Restraining Afcons from cancelling or releasing the Bank Guarantees.
• Clarification that ONGC’s rights under the Bank Guarantees remain unaffected by this order.

The Legal Issue

The central question was whether post-award interim protection under Section 9 of the Arbitration and Conciliation Act, 1996 can be granted to an unsuccessful party where:

1. The arbitral award records findings favouring the petitioner’s claim (delay attributable to respondent, applicability of liquidated damages clause) but rejects the claim on technical grounds (lack of proof of actual loss).
2. The Bank Guarantees were furnished as security for liquidated damages under a contractual clause requiring their continuation until final settlement.
3. Rare and compelling circumstances exist, such as irreparable prejudice if the security lapses, public utility nature of the project, and difficulty in enforcing claims against a foreign entity.

Arguments Presented

For the Petitioner

• Relied on Saw Pipes Ltd. v. ONGC (2003 5 SCC 705) to argue that proof of actual loss is not required where the contract provides for liquidated damages as a genuine pre-estimate of loss.
• Cited Construction & Design Services v. DDA (2015 14 SCC 263) to contend that in public utility projects, losses like blockage of capital and delayed production are presumed, and the burden shifts to the defaulting party to prove no loss occurred.
• Argued that the Tribunal misapplied Kailash Nath Associates by ignoring that loss was obvious in a public utility project, making proof of exact monetary loss unnecessary.
• Contended that Clause 6.3.4 of the GCC expressly required the Bank Guarantees to remain alive until final settlement, and the Section 34 proceedings prevent such finality.
• Highlighted irreparable prejudice if the Bank Guarantees lapse, including difficulty in recovering from the Indonesian entity and loss of the only security for ONGC’s claim.
• Relied on Home Care Retail Marts Pvt. Ltd. v. Haresh N. Sanghavi (2026 SCC OnLine SC 670) to argue that post-award interim protection can be granted where refusal would cause irreversible prejudice.

For the Respondent

• Contended that ONGC failed to plead or prove actual loss, which is mandatory under Section 74 of the Indian Contract Act and Kailash Nath Associates.
• Argued that the arbitral award is binding until set aside, and the Court cannot ignore its findings while deciding a Section 9 petition.
• Submitted that post-award relief under Section 9 requires rare and compelling circumstances, which ONGC has not established.
• Claimed that continuation of the Bank Guarantees would cause financial hardship, as Afcons has succeeded before the Tribunal and its financial position is sound.
• Relied on Clause 8 of the Bank Guarantee, which allows ONGC to make a demand within twelve months after expiry, provided the cause of action arose during the validity period.
• Offered to furnish a corporate guarantee if ONGC succeeds in the Section 34 proceedings, arguing this sufficiently protects ONGC’s interests.

The Court's Analysis

The Court examined the legal framework for post-award interim relief under Section 9, noting that while any party can invoke Section 9 even after an award, the threshold is higher for an unsuccessful party. The Court relied on Home Care Retail Marts Pvt. Ltd. v. Haresh N. Sanghavi, which held that such relief requires rare and compelling circumstances to prevent irreparable prejudice.

Key Legal Principles Applied

1. Post-Award Interim Relief Under Section 9:

   • The Supreme Court in Home Care Retail Marts held that Section 9 does not distinguish between successful and unsuccessful parties. However, an unsuccessful party must show rare and compelling circumstances to justify interim protection.
   • The Bombay High Court in ONGC v. Swiber Offshore Construction Pte. Ltd. applied this principle, holding that continuation of a Bank Guarantee after an award requires exceptionally strong challenge to the award and compelling surrounding facts.

2. Liquidated Damages and Proof of Loss:

   • The Court analysed the conflict between Kailash Nath Associates and Construction & Design Services.
   • Kailash Nath Associates held that Section 74 requires proof of loss, and liquidated damages can only be awarded if the loss is difficult or impossible to prove.
   • Construction & Design Services held that in public utility projects, losses like blockage of capital and delayed production are presumed, and proof of exact monetary loss is not required.
   • The Court reconciled these judgments, holding that legal injury must exist, but the manner of proving loss depends on the nature of the project. In public utility contracts, losses are presumed, and the burden shifts to the defaulting party to prove no loss occurred.

3. Contractual Interpretation and Statutory Limits:

   • The Court emphasised that contractual clauses cannot override statutory provisions like Sections 73 and 74 of the Indian Contract Act.
   • However, where parties consciously agree to a liquidated damages clause as a genuine pre-estimate of loss, courts should give effect to their intention unless the clause is arbitrary or penal.

4. Role of the Arbitral Tribunal’s Findings:

   • The Court cannot ignore the arbitral award while deciding a Section 9 petition. However, where the award itself records findings favouring the petitioner’s claim (e.g., delay attributable to respondent, applicability of liquidated damages clause), the challenge under Section 34 gains strength.
   • In this case, the Tribunal’s findings on delay and applicability of Clause 6.3.2 contradicted its rejection of the counterclaim, raising substantial legal questions about the interpretation of Section 74 and public utility contracts.

5. Balance of Convenience and Irreparable Injury:

   • The Court noted that Clause 6.3.4 was inserted at Afcons’ request to replace deduction of liquidated damages with Bank Guarantees, ensuring smooth continuation of the Project.
   • The Bank Guarantees had remained alive for nearly fifteen years, including during arbitration. Continuation preserves the existing arrangement rather than creating new security.
   • Irreparable prejudice would result if the Bank Guarantees lapse, as ONGC’s claim (INR 323 crores) would remain unsecured, especially against the Indonesian entity.
   • The corporate guarantee offered by Afcons was not equivalent to the unconditional Bank Guarantees issued under the Contract.

"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 challenge under Section 34 substantially raises a legal issue rather than requiring reappreciation of disputed facts. Whether the Tribunal has correctly applied the law laid down in Construction & Design Services, Kailash Nath Associates and the other judgments is a legal issue."

The Verdict

The Court allowed the Arbitration Petition, holding that rare and compelling circumstances justified continuation of the Bank Guarantees pending the Section 34 challenge. The key directions were:

• The respondent (Afcons) must 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, until the Section 34 petition is finally decided.
• Afcons must renew the Bank Guarantees at least fifteen days before expiry and furnish copies to ONGC.
• Afcons is restrained from cancelling, discharging, or releasing the Bank Guarantees until the Section 34 petition is decided.
• ONGC is prohibited from invoking the Bank Guarantees solely based on this order; invocation remains subject to the Contract terms and further court orders.
• No order as to costs was passed.
• The Court clarified that all observations are prima facie and shall not influence the Section 34 proceedings.

What This Means For Similar Cases

Post-Award Interim Relief Requires Rare Compelling Circumstances

• Heightened Threshold for Unsuccessful Parties: Courts will not grant post-award interim relief under Section 9 merely because the arbitral award is challenged. The applicant must show rare and compelling circumstances, such as:

  • Irreparable prejudice if relief is denied (e.g., loss of security, difficulty in enforcement).
  • Public utility nature of the project, where losses are presumed and difficult to quantify.
  • Contractual clauses expressly requiring continuation of security instruments until final settlement.
  • Findings in the award favouring the applicant’s claim (e.g., delay attributable to respondent, applicability of liquidated damages clause).

• Practitioners must argue exceptional circumstances beyond a mere challenge to the award. The Bombay High Court in Swiber held that arguable challenges are insufficient; the challenge must be exceptionally strong, and the facts must show compelling reasons for protection.

Liquidated Damages in Public Utility Contracts: Proof of Loss Not Always Required

• Public Utility Projects: In contracts involving public interest (e.g., hydrocarbon extraction, infrastructure, energy security), losses like blockage of capital, delayed production, and foreign exchange implications are presumed.

  • The burden shifts to the defaulting party to prove no loss occurred.
  • Proof of exact monetary loss is not required if the liquidated damages clause represents a genuine pre-estimate of loss.

• Ordinary Commercial Contracts: In non-public utility contracts, proof of actual loss is mandatory under Kailash Nath Associates. The claimant must plead and prove loss or show that quantification was difficult/impossible.

• Contractual Clauses vs. Statutory Limits: While parties can agree to liquidated damages clauses, courts will not enforce them if they are arbitrary, penal, or override statutory provisions like Sections 73 and 74 of the Indian Contract Act.

Bank Guarantees as Security: Contractual Clauses Govern Continuation

• Contractual Clauses Prevail: Where the contract expressly requires Bank Guarantees to remain alive until final settlement, courts will give effect to such clauses unless they are unreasonable or contrary to law.

• Post-Award Security: Parties should negotiate clear terms for continuation of Bank Guarantees pending Section 34 challenges. Vague clauses may lead to disputes over interpretation of "final settlement".

• Corporate Guarantees Are Not Equivalent: Courts will not accept corporate guarantees as substitutes for unconditional Bank Guarantees issued under the contract, especially where enforcement against foreign entities is a concern.

• Due Diligence in Seeking Relief: Applicants must act promptly to seek post-award interim relief before security instruments expire. Delay may weaken the case for exceptional circumstances.