Court’s Decision
The Bombay High Court allowed ONGC’s post-award Section 9 petition and directed Larsen & Toubro to extend and keep alive the bank guarantee furnished towards liquidated damages until ONGC’s Section 34 challenge is finally decided. The Court held that even though ONGC was largely an unsuccessful party in arbitration, it could still seek interim protection under Section 9 after the Supreme Court’s latest ruling in Home Care Retail Marts Pvt. Ltd. v. Haresh N. Sanghavi.
Facts
ONGC had awarded an offshore redevelopment contract to L&T. ONGC claimed delay and withheld liquidated damages. L&T furnished a bank guarantee of about ₹150.34 crore to secure release of the withheld amount. The Arbitral Tribunal later awarded around ₹271.12 crore to L&T and around ₹42.95 crore to ONGC, making L&T the net successful party. ONGC challenged the award under Section 34 and sought continuation of the bank guarantee.
Issue
The key issue was whether ONGC, being largely unsuccessful in arbitration, could still maintain a post-award Section 9 petition to secure its liquidated damages claim by seeking renewal of the bank guarantee.
Court’s Reasoning
The Court relied on the Supreme Court’s latest judgment in Home Care Retail Marts, which overruled the earlier Bombay High Court view in Dirk India and held that Section 9 is available to “any party”, including an unsuccessful party. However, the Court clarified that such relief can be granted only in rare and compelling cases and the threshold is higher for an unsuccessful party.
The Court found that ONGC had crossed this higher threshold. It noted that the bank guarantee was not a general performance security but was specifically furnished because L&T prevented ONGC from deducting liquidated damages from its bills. Since ONGC’s entitlement to 35% liquidated damages had been upheld by the Tribunal, L&T could not refuse both refund and security.
Important Observation
The Court held that directing renewal of the bank guarantee would not obstruct enforcement of the award in L&T’s favour. It would merely preserve ONGC’s ancillary rights pending the Section 34 challenge. The Court observed that this was a “non-prejudicial” interim measure because L&T could still enforce the award, while ONGC’s security would remain protected.
Conclusion
The High Court directed L&T to keep the Axis Bank guarantee alive until final disposal of ONGC’s Section 34 petition. If the guarantee had expired, L&T was directed to furnish a fresh equivalent bank guarantee. The petition was allowed with no order as to costs.