In Brief
Gangotri Enterprises was awarded a railway construction contract but failed to complete it within the extended deadline due to site issues. The contract was terminated. The contractor held a separate bank guarantee (performance guarantee) for a different completed railway project (Anand Vihar), for which it had received a completion certificate. The employer sought to encash this bank guarantee to recover damages claimed under the terminated contract. The Supreme Court held that a performance guarantee for a completed contract cannot be encashed to recover disputed damages from another contract. Until damages are finally determined by an arbitrator, they do not constitute a "sum due" under the contract clauses permitting recovery. The Court allowed the appeal and restored the contractor's injunction against encashment."
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