[Cites 8, Cited by 0]
Madras High Court
M/S.Geo Foundations Structures vs Bharatiya Nabhikiya Vidyut Nigam ... on 12 March, 2026
Author: Senthilkumar Ramamoorthy
Bench: Senthilkumar Ramamoorthy
2026:MHC:1039
OA No. 89 of 2026
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 12.03.2026
CORAM
THE HON'BLE MR JUSTICE SENTHILKUMAR RAMAMOORTHY
O.A. No. 89 of 2026
M/s.Geo Foundations Structures
Private Limited represented by its
Director and Authorized Officer
Mr.K.N.Madhusudan Pillai,
No. 89, 1st Main Road, Gandhi Nagar,
Adayar, Chennai 600 020.
.. Applicant
Vs
1. Bharatiya Nabhikiya Vidyut Nigam Limited
BHAVINI
Having its Registered Office at
51, II Floor, Montieth Road,
Egmore, Chennai
Also Having Office at
Kalpakkam, Chengapattu District 603 102.
2. Union Bank of India Represented by its
Branch Manager
Having its Branch Office at
Union Bank of India - Besant Nagar,
58, A.V. Church Road, Besant Nagar,
Chennai 600 090.
..Respondent(s)
Original Application filed under Order XIV Rule 8 of The High Court
Original Side Rules r/w Order 39 Rules 1 and 2 of C.P.C. r/w Section 9(1)
(E) of Arbitration and Conciliation Act, 1996 praying to grant an order of
interim injunction restraining the 1 st respondent, their men, servants or
agents from invoking the two Bank Guarantees, namely, 1) dated
24.10.2018 bearing No.BG No.52720IGL0002718 and 2) dated
01.06.2018 bearing No. BG No.52720IGL0001518, in all to the extent of
Rs.3,33,66,425/- issued by the second respondent.
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OA No. 89 of 2026
For Applicant: Mr.Rajnish Pathiyil
For Respondents: Mr.S.Senthilnathan for R1
No appearance for R2
ORDER
The applicant entered into a contract with the respondent for the
design and construction of a site assembly shop for FBR 1 and 2 at the
BHAVINI plant site at Kalpakkam. The contract contains a provision for
resolution of disputes by arbitration. The contract also provides for
performance guarantee in the form of a bank guarantee and for retention
of 6% of each running account bill as retention money. The applicant
procured and submitted two bank guarantees for sum of Rs.2,23,66,425/-
and Rs.2,00,00,000/-, respectively. The agreed position is that these two
bank guarantees were extended from time to time and the term runs upto
31.03.2026 and 30.06.2026, respectively.
2. By communication dated 02.02.2026 to the Union Bank of India,
the first respondent invoked both bank guarantees to the aggregate
extent of Rs.3,33,66,425/-. The applicant has approached this Court
seeking interim relief to prevent the encashment thereof.
3. Learned counsel for the applicant contended as under:
3.1 The bank guarantees are conditional inasmuch as the demand
could be made by the first respondent only if said respondent establishes
that loss was caused to it by reason of breach of the contract by the
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contractor. Such determination may only be made by the Arbitral Tribunal
and therefore, the call made on the bank guarantees is invalid;
3.2 The certificate dated 18.06.2024 was issued by the first
respondent to certify that 98% of the work had been completed as on
said date. About twenty months later, the bank guarantees were invoked
without even putting the applicant on notice;
3.3 The bank guarantees were invoked, by alleging that the
applicant is responsible for delay. Clause 35 of which deals with
compensation for delay, specifies the mechanism for computation based
on the extent of delay. All these aspects are required to be examined by
the Arbitral Tribunal. In Hindustan Construction Co. Ltd., Vs. State of
Bihar and Others [(1999) 8 SCC 436], the Supreme Court considered the
issue relating to whether a bank guarantee is conditional or
unconditional. Dealing with a bank guarantee similar to the bank
guarantees in this case, the Supreme Court construed the bank
guarantee as conditional and not unconditional;
3.4 The applicant is ready and willing to extend the bank
guarantees until conclusion of arbitral proceedings.
4. The contentions, in response, of learned counsel for the first
respondent are as under:
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4.1 The applicant submitted final bill dated 20.11.2025. Such final
bill was accompanied by an assertion that no further claims would be
made;
4.2 After submitting a final bill, the applicant has raised multiple
claims. Therefore, the dispute is non-arbitrable;
4.3 The contract provides for completion within twenty four months,
whereas the work was completed after six years. This justifies making a
call on the bank guarantees.
5. Taking into account the rival contentions, at the outset, the
arbitration clause in the contract is set out below:
‘59. Arbitration:
Except where otherwise provided for in the
Contract, all questions and disputes relating to the
meaning of the specifications, designs, drawings and
instructions herein before contained in this Contract or
as to the quality of the workmanship or materials used
on the work or arising out of the terms and conditions of
the Contract whether during the progress of the work or
after the completion or abandonment thereof, at the
request of the aggrieved party in writing, shall be
referred to the sole arbitration of the person nominated
and appointed by the Chairman and Managing Director,
Bharatiya Nabhikiya Vidyut Nigam Limited, in respect of
the Contracts entered for and on behalf of the BHAVINI
LTD., by any Officer/Authority of the BHAVINI LTD.,
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The parties of the Contract agree that it will be no
objection to any such appointment that the sole
arbitrator so appointed is a BHAVINI LTD., Employee.
The Sole Arbitrator to whom the matter is originally
referred being transferred or having vacated his office or
being unable to act for any reason whatsoever, the
Chairman and Managing Director, Bharatiya Nabhikiya
Vidyut Nigam Limited, as aforesaid at the time of such
transfer, vacation of office or inability to act, shall
appoint another person to act as arbitrator in accordance
with the terms of the Contract. Such person as and when
appointed shall proceed with the reference from the
stage at which it was left by his predecessor in
accordance with the rules, regulations and the law of the
land. It is also a term of this Contract that no person
other than a person appointed by the Chairman and
Managing Director, Bharatiya Nabhikiya Vidyut Nigam
Limited, as aforesaid should act as Arbitrator and if for
any reason that is not possible, the matter is not to be
referred to arbitration at all.
It is also the term of the Contract that the party
invoking the arbitration clause shall specify the
dispute(s) or difference(s) to be referred to the
arbitration under this Contract together with the
amount(s) claimed in respect of each such dispute(s) or
difference(s). In an arbitration invoked at the instance of
either party to the Contract, the Arbitrator would be free
to consider the counterclaims of the other party or even
though they are not mentioned in the reference to
arbitration.
Subject as aforesaid, the provisions of the
Arbitration and Conciliation Act, 1996 (No.26 of 1996) or
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any statutory modification or re-enactment thereof and
rules made thereunder and for the time being in force
shall apply to the arbitration proceeding under this
Clause.’
6. As is noticeable from the above extract, the clause provides for
sole arbitration by a person nominated by the Chairman and Managing
Director of the first respondent. While the agreement to submit disputes
for arbitration is valid, the prescription that the appointment would be
made by the Chairman and Managing Director is no longer valid.
7. Each bank guarantee provides as under:
‘NOW, WE UNION BANK OF INDIA, a body corporate
constituted under Banking Companies (Acquisition and
Transfer of Undertaking) Act 1970 (hereinafter referred to
as “the said bank”) and having central office at UNION
BANK BHAVAN, 239, VIDHAN BHAVAN MARG, NARIMAN
POINT, MUMBAI – 400 021 and amongst other places a
branch at Besant Nagar, 58, A.V.Church Road, Besant
Nagar, Chennai – 600 090, DO HEREBY AGREE and
undertake to pay on demand, without any demur to the
corporation the amount that may become due and payable
to the corporation, stating that the amount claimed is due
by way of loss or damage caused or suffered or would be
caused to or suffered by the corporation by reasons of any
breach by the said contractor(s) of any of the terms or
conditions contained in the said Agreement, or by reasons
of the contractor’s failure to perform the said agreement.
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Any such demand made on the Bank shall be conclusive
as regards the amount due and payable by the Bank
under this guarantee. However, our liability under this
guarantee shall be restricted to an amount not exceeding
Rs.2,23,66,425/- (Rupees Two Crores Twenty Three Lakhs
Sixty Six Thousand Four Hundred and Twenty Five only).’
8. While learned counsel for the applicant contended that the bank
guarantees are conditional, it is unnecessary for present purposes to
record any definitive conclusion on this issue. It is sufficient to record that
the bank guarantees envisage a demand by the first respondent for
amounts which become due and payable to it by way of loss caused on
account of a breach committed by the contractor.
9. On perusal of the letter dated 02.02.2026 invoking the bank
guarantees, it is noticeable that the first respondent has stated as under:
‘The above said BGs are going to expire on
31.03.2026 and 30.06.2026 with the claim period of
30.06.2026 and 30.09.2026 respectively. Out of the above
two BGs our proposal for encashment amount is
Rs.3,33,66,425 (Rupees three crore thirty three lakhs sixty
six thousand four hundred and twenty five only). Since
competent authority in BHAVINI has approved encashment
of above mentioned amount. This may be treated as our
claim and the said BGs shall be encashed to the following
account with intimation to us …..’
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10. The first respondent has clearly not stated that the sum of
Rs.3,33,66,425/- represents the loss caused to it as a result of breach of
contract by the applicant.
11. The contract between the parties provides for a security deposit
in the form of bank guarantee for a sum of Rs.3,33,66,425/- and also for
retention of an aggregate sum of Rs.3,33,66,425/-. The first respondent
agrees that the retention money is still with the said respondent and has
not been paid to the applicant.
12. The primary ground on which the first respondent opposes this
application is that there is no arbitrable dispute. Relying on a final running
bill No.74, the first respondent contends that the same amounts to a ‘No
Claim Certificate’. In relevant part, the cover letter accompanying final
running bill No.74 reads as under:
‘With reference to the above Work Order, we hereby
undertake to remit the GST (SGST & CGST)
Rs.1126409.22 collected from BHAVINI vide Invoice
No:GEO/2025-26/027 dt: 19.11.2025 as per the
requirements under the GST rules and will not make any
further claim from BHAVINI towards GST in future, in
respect of the said Invoice.’
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13. The applicant has stated that no further claim would be made
from BHAVINI towards GST in future in respect of the invoice referred to
therein. Prima facie, this does not qualify as a No Claim Certificate. In any
event, as per the law laid down by the Supreme Court inter alia in Vidya
Drolia and Others Vs. Durga Trading Corporation [(2021) 2 SCC 1], unless
a dispute is patently non-arbitrable, as per the principles laid down
therein, if an application for appointment of arbitrator were to be made,
the dispute is required to be referred for arbitration. Since a Section 11
petition has not been filed and listed as of now, it is not necessary to
record any finding in that respect. It is sufficient to record that the above
communication does not constitute a valid ground to reject the Section 9
application.
14. Considering the recitals in the two bank guarantees, the
communication invoking the bank guarantees does not fulfil the
requirement specified in the bank guarantees. In addition, as recorded
earlier, the first respondent continues to retain the retention money. The
applicant has invoked the arbitration clause by issuing notice under
Section 21 of the Arbitration and Conciliation Act, 1996. Considering all
these aspects in totality, I am of the view that special equities operate in
favour of the applicant justifying the extension of the order of interim
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injunction, albeit on condition that the applicant shall extend the bank
guarantees until conclusion of arbitral proceedings.
15. Therefore, the order of interim injunction is extended until
conclusion of arbitral proceedings on condition that the applicant shall
extend each bank guarantee at least 10 days before the expiry thereof,
including in respect of future renewals, and thereby keep both the bank
guarantees alive until conclusion of arbitral proceedings. In the event of
default in complying with this condition, the respondent shall be entitled
to make a call on and encash the bank guarantees. The bank guarantees
shall be subject to the outcome of arbitral proceedings.
16. This application is disposed of on the above terms without any
order as to costs.
12.03.2026
Index: No
Neutral Citation: Yes
mmi
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To
1. Bharatiya Nabhikiya Vidyut Nigam Limited
BHAVINI
Having its Registered Office at
51, II Floor, Montieth Road, Egmore,
Chennai
Also at
Kalpakkam, Chengapattu District 603 102.
2. Union Bank of India Represented by its
Branch Manager
Union Bank of India - Besant Nagar, 58,
A.V. Church Road, Besant Nagar,
Chennai 600 090.
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SENTHILKUMAR RAMAMOORTHY, J.
mmi
12.03.2026
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