Govt Cannot Encash ₹7,16,346 SAIL/DSP Guarantee After Expiry Without Defects or Prior Notice: Calcutta HC [Read Order]
SAIL/DSP’s attempt to encash Nirman Constructions’ ₹7.16 lakh Bank Guarantee was struck down by the Calcutta High Court as arbitrary and illegal
![Govt Cannot Encash ₹7,16,346 SAIL/DSP Guarantee After Expiry Without Defects or Prior Notice: Calcutta HC [Read Order]](https://images.taxscan.in/h-upload/2026/04/03/2131694-culcutta-hcjpg.webp "Govt Cannot Encash ₹7,16,346 SAIL/DSP Guarantee After Expiry Without Defects or Prior Notice: Calcutta HC [Read Order]")
In a recent ruling, the Calcutta High Court held that government authorities cannot invoke a contractor’s Bank Guarantee after the expiry of the defect liability period without citing any defects or issuing prior notice. The Court quashed SAIL/DSP’s March 2026 demand to encash the ₹7.16 lakh guarantee. The petitioner, Nirman Constructions, had completed civil repair works...
In a recent ruling, the Calcutta High Court held that government authorities cannot invoke a contractor’s Bank Guarantee after the expiry of the defect liability period without citing any defects or issuing prior notice. The Court quashed SAIL/DSP’s March 2026 demand to encash the ₹7.16 lakh guarantee.
The petitioner, Nirman Constructions, had completed civil repair works in DSP Township under a contract awarded in December 2022. The work was certified as completed on 31 December 2023, and the final bill was paid in January 2024. Despite this, the government authorities sought to encash the contractor’s Performance Bank Guarantee in March 2026, citing alleged overpayment.
Appearing for Nirman Constructions, Advocate Sayan Chattopadhyay argued that the guarantee period had expired in December 2024 without any defect being reported, and that the invocation of the Bank Guarantee two years later was unjustified.
He also pointed out that the email used to communicate the alleged overpayment was sent to an incorrect address, and no formal notice of recovery was ever issued.
CBDT Notifies New ITR-3 Form for Business and ProfessionalIncome for AY 2026-27 [Read Notification]
On the other hand, senior Advocate Sauvik Nandy, representing the respondents, contended that the completion certificate had been withdrawn and that measurement sheets revealed excess payment of ₹35.91 lakh. He argued that the Bank Guarantee was an independent contract and could be invoked without judicial interference unless fraud or special equity was proven.
After considering both sides, the high court noted that SAIL/DSP’s invocation of the ₹7.16 lakh Bank Guarantee was arbitrary and legally unsustainable, and the completion certificate had been withdrawn without explanation, no defects were reported during the one-year guarantee period, and the final bill had already been paid.
It was also observed that the email alleging overpayment was sent to the wrong address, and no formal recovery notice was issued.
The bench, Justice Krishna Rao observed that “This Court finds that the respondents after the period of two years three months, trying to invoke the Bank Guarantee without any justification, though there is no allegation upon the petitioners that the work executed by the petitioners is defective or has not complied with the terms and conditions of the contract”
The court held that the act of the respondent authorities for invoking the Bank Guarantee of the petitioners is arbitrary and illegal, and therefore, the Court quashed the letter dated 23 March 2026 issued to Punjab National Bank directing encashment of the ₹7.16 lakh guarantee.
Accordingly, the petition was disposed of.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
