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Informist, Thursday, May 7, 2026

 

NEW DELHI – The Bombay High Court has directed Larsen & Toubro Ltd. that the bank guarantee provided by it to Oil and Natural Gas Corp. Ltd. towards liquidated damages be kept alive. The guarantee provided under a contract between the parties covered amounts of $9.7 million, 529,370 euros (around INR 58.8 million) and INR 524.25 million. If the bank guarantee has expired, Larsen & Toubro shall forthwith furnish a fresh and equivalent bank guarantee to ONGC, the court said. This bank guarantee will be alive till the petition filed by ONGC challenging an arbitral award in a case with Larsen & Toubro is decided, it addded.

 

The high court said that ONGC has crossed the higher threshold for making interim measures under the Arbitration and Conciliation Act, 1996 in the facts of the present case. ONGC has made out a very strong prima facie case for directing extension and renewal of the bank guarantee, said the court. ONGC would suffer irreparable injury if the security, which it holds for more than a decade for the liquidated damages, is permitted to be terminated by not renewing the bank guarantee, said the court.

 

Larsen & Toubro would only have an obligation to extend the bank guarantee, which has been in existence for over a decade, said the court. Refusal of interim measures would result in a manifest disproportion as ONGC would lose the security worth 10% of contract price, while Larsen & Toubro's only burden is the continued existence of the bank guarantee, said the court. ONGC has assured that it would not invoke or encash the bank guarantee and this balances out the scale of equities, it added.

 

The case has its genesis in ONGC engaging Larsen & Toubro for surveying, designing, engineering, procurement, fabrication, load-out, transportation, installation, hook-up, testing, pre-commissioning and commissioning of four well-head platforms for Mumbai High North Redevelopment Plan. The scheduled date for completion of all four platforms was 2011. Under the contract, ONGC was entitled to recover liquidated damages from Larsen & Toubro. The contract stated that it was permissible for Larsen & Toubro to furnish a bank guarantee for obtaining release of the amounts withheld by ONGC towards liquidated damages.

 

ONGC said the project was delayed due to factors attributable to Larsen & Toubro and three extensions were granted to the latter subject to levy of liquidated damages. The project was completed and handed over to ONGC in 2012. Thereafter, ONGC withheld and deducted amounts towards liquidated damages amounting to INR 1.23 billion. Larsen & Toubro submitted a bank guarantee for the sum of INR 1.50 billion, representing 10% of the contract price, and secured release of withheld amount of liquidated damages of INR 1.23 billion. 

 

Thereafter, disputes arose between ONGC and Larsen & Toubro over performance of the contract and subsequently, an arbitral tribunal was constituted. The arbitral award limited ONGC's entitlement to liquidated damages to 35% of the total amount of INR 1.23 billion and has directed the company to refund the balance 65% of the liquidated damages to Larsen & Toubro. In essence, the arbitral tribunal awarded INR 2.71 billion in favour of Larsen & Toubro and INR 429.57 million in favour of ONGC. ONGC has challenged the arbitral award before the high court. However, ONGC sought a direction for renewal of the bank guarantee to Larsen & Toubro as the petitioner would suffer irreparable harm if it would have no security against the respondent’s liability to liquidated damages. 

 

At 1309 IST, shares of ONGC were up 0.6% at INR 282.50 on the National Stock Exchange, and those of L&T were up 0.6% at INR 4,033.30.  End

 

US$1 = INR 94.26

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Surya Tripathi

Edited by Tanima Banerjee

 

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