#performance security

The Bombay High Court restrained encashment of bank guarantees after finding that a mutually agreed, written, and implemented compensation adjustment for pandemic-related toll losses cannot be nullified by internal audit objections. This sets a critical precedent that contractual good faith and equitable adjustment take precedence over the absolute nature of bank guarantees in infrastructure contracts, protecting project operators from arbitrary financial clawbacks.

The Madhya Pradesh High Court holds that dead rent payments under mining agreements remain legally enforceable even when mining operations are delayed due to pending statutory clearances, affirming that contractual obligations are not automatically suspended by regulatory bottlenecks. This ruling impacts mining companies and state authorities by clarifying that delays beyond the lessee’s control do not extinguish financial liabilities tied to leasehold rights.

The Calcutta High Court has ruled that a public entity cannot invoke a bank guarantee after the defects liability period expires unless it proves the existence of unresolved defects and issues a valid notice. This reinforces that performance security is not an automatic fallback for delayed or unverified claims, protecting contractors from arbitrary encashment and upholding the contractual balance between security and accountability.

The Punjab & Haryana High Court ruled that performance bank guarantees cannot be encashed unilaterally when contractual disputes exist and an arbitration clause is operative. The court directed the petitioner to initiate arbitration within 45 days while restraining the respondent from encashing the guarantee, reinforcing the primacy of arbitration agreements in commercial disputes.

Delhi High Court holds that arbitral tribunals may permit partial encashment of performance security based on established breaches, even without precise loss quantification, under Section 74 ICA.