Union Bank’s Secured Creditor Rights Limited to Receivables: Delhi HC Upholds DJB’s Termination of Sewer Project Contract [Read Order]

In a recent ruling, the Delhi High Court upheld the Delhi Jal Board’s (DJB) termination of key contracts under the Interceptor Sewer Project (ISP) Package-II, rejecting Union Bank of India’s plea. The Court held that the bank’s rights as a secured creditor were strictly limited to project receivables and did not extend to operational control or contractual enforcement.

The Package-II of the Interceptor Sewer Project (ISP), originally awarded in 2011 to a consortium led by Pratibha Industries Ltd. (PIL), now under liquidation. The petitioner, Union Bank, a secured creditor to PIL, had sanctioned a ₹500 crore loan and claimed rights over project assets and receivables.

After PIL entered liquidation in 2021,Delhi Jal board (DJB), the respondent continued operations under an O&M agreement signed with PIL. However, citing performance deficiencies and a lack of approval from the insolvency authorities, DJB terminated the contract in November 2025 and took over the project. Union Bank challenged the termination.

The petitioner argued that the termination was arbitrary and violated its rights as a secured creditor under Section 52 of the Insolvency and Bankruptcy Code (IBC) and Section 13(4)(b) of the Securities and Exchange Board of India (SARFAESI) Act .

also stated that the bank had lawfully taken over the project’s management and was conducting an auction of the secured assets. They also pointed out that termination violated principles of natural justice, as the final show-cause notice did not mention termination.

On the other hand, Mr. Sanjay Jain, appearing for DJB, countered that the bank’s security interest was limited to project receivables, not the business or contractual rights of PIL, and the O&M Agreement was void ab initio, having been signed post-liquidation without approval from the NCLT or the Liquidator.

They also argued that over 20 show-cause notices had been issued, citing serious performance deficiencies, and the termination was valid under Clause 38 of the contract and Section 39 of the Indian Contract Act.

After hearing both sides, the bench Justice Amit Bansal held that the bank’s security interest was limited to project receivables and current assets, so not the business or contractual rights of PIL. The Court noted that the O&M agreement was signed after PIL’s liquidation without approval from the NCLT or the Liquidator, rendering it void.

The court observed that “In terms of Clause 38 of the Agreement, the respondent no.1/DJB was entitled to determine and terminate the contract pursuant to a notice to the contractor………

In the instant case, more than 20 show cause notices were issued to the contractor and the impugned termination order was issued following an exhaustive review of all contractual provisions, correspondence, and notices issued to the petitioner and the responses of the petitioner”

The Court further observed that DJB had issued over 20 show-cause notices citing serious infrastructure and operational deficiencies, and adequate warnings and procedural compliance preceded the termination.

The court cited Supreme Court precedent Bareilly Development Authority v. Ajai Pal Singh, the Court noted that contractual disputes cannot be adjudicated under writ jurisdiction unless public law elements are involved.

Accordingly, the petition was dismissed, with liberty to pursue remedies under applicable law.

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