In All Fairness, the Respondent Authority Ought to Have Noticed: Writ Petition Maintainable U/S 9 As Order Merely Closes Proceedings Without Granting or Refusing Relief: Kerala HC
Sanchayita Lahkar
The High Court of Kerala Single Bench of Justice Harisankar V. Menon held that the Airports Authority of India acted unfairly by encashing two bank guarantees despite the pendency of arbitration proceedings and prior court orders indicating interim protection. The Court directed that the amounts realized from the invocation of the bank guarantees be deposited in an interest-bearing fixed deposit with a Scheduled Bank, pending the outcome of the arbitral process. It further recorded that the petitioner was justified in approaching the High Court given the unique procedural posture of the case, where the Commercial Court had merely “closed” proceedings without a conclusive denial of interim relief. While closing the earlier writ petition as infructuous due to the subsequent events, the Court clarified that no fraud was alleged in the invocation but found injustice sufficient to warrant judicial intervention in the disposition of the proceeds.
The writ petitions pertain to disputes between a private duty-free retail operator and the Airports Authority of India (AAI) regarding license agreements for duty-free shops at Trivandrum and Calicut International Airports. The petitioner company operated under two separate license agreements until 31.08.2017, pursuant to which two bank guarantees were issued—one for ₹1,29,60,406 and the other for ₹2,66,93,694.
Following disputes over license fee liabilities, an arbitrator was initially appointed pursuant to prior orders of the High Court. However, arbitration proceedings were not completed within the prescribed timeframe, leading the petitioner to seek substitution of the arbitrator and extension of time. These requests were denied by the High Court via order dated 28.06.2022.
Subsequently, the petitioner filed a fresh arbitration petition (Ext.P5) and during its pendency, received a demand from AAI (Ext.P6 dated 25.11.2022) seeking over ₹8.8 crore. Fearing encashment of the bank guarantees, the petitioner approached the Commercial Court, Thiruvananthapuram under Section 9 of the Arbitration and Conciliation Act, 1996. The Commercial Court granted interim protection on 16.03.2023 for a 90-day period via Ext.P7.
The interim protection expired on 20.07.2023, and the Commercial Court closed the matter, citing that the arbitration process had already been initiated. Subsequently, the petitioner filed W.P(C) No.24021 of 2023 before the High Court seeking a restraint against encashment. On 21.07.2023, the High Court granted a one-month stay, which was extended periodically, including through revived orders dated 30.10.2023 and 17.01.2024.
However, when the matter came up on 26.09.2024, the learned judge chose to avoid it but granted a further two-week extension of the interim order. According to the petitioner, this matter was not listed within a reasonable time thereafter. On 22.01.2025, after hearing from its bankers that AAI was taking steps to encash the bank guarantees, the petitioner made an urgent mention. By then, however, both guarantees had been encashed by 23.01.2025.
Meanwhile, a new sole arbitrator had been appointed on 21.06.2024 by the High Court in A.R. No.139/2023, but AAI challenged this before the Supreme Court, which stayed the appointment on 05.11.2024.
In light of these developments, W.P(C) No.7025 of 2025 was filed seeking a declaration that the invocation was illegal, and alternatively, that the proceeds be deposited in a fixed deposit pending arbitration.
Arguments from both parties followed. Counsel for the petitioner contended that AAI’s actions lacked fairness, that the expiry of the stay was not entirely the petitioner’s fault, and that the encashment caused irreparable harm. Judgments of the Supreme Court and the Bombay High Court were cited in support of these claims.
In response, AAI argued that the writ petition against the Commercial Court’s order was not maintainable, alternative remedies were available, and that they had waited for over two months after the stay lapsed before acting. AAI relied on multiple Supreme Court precedents to justify the invocation of the irrevocable bank guarantees.
“The facts are not in dispute. There is a dispute between the parties with reference to the licence agreements entered into between them.”
The Court noted that the Commercial Court order dated 20.07.2023 did not amount to a “refusal” of interim relief, as it merely closed the matter based on the assumption that arbitration proceedings were already underway. As such, the petitioner did not have a statutory remedy under Section 37 of the Arbitration and Conciliation Act.
“In such circumstances, I hold that the petitioner was justified in preferring W.P(C) No.24021 of 2023 in the peculiar facts and circumstances of the case.”
On the second issue regarding invocation of the bank guarantees, the Court remarked: “The respondent authority is an instrumentality of the State, formed under the provisions of the Airports Authority of India Act, 1994.”
Citing ABL International Ltd v. Export Credit Guarantee Corporation of India Ltd. [(2004) 3 SCC 553], the Court held:
“Once State or an instrumentality of the State is a party to the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India.”
While acknowledging that the stay had expired on 26.09.2024 and the petitioner did not seek timely re-posting, the Court observed: “In all fairness, the respondent authority ought to have noticed, but for the stay order by the Apex Court, the petitioner could have approached the sole Arbitrator under Section 17 of the Act.”
On the aspect of fairness, the Court found: “The action of the respondent authority in seeking to encash the bank guarantee, in the afore circumstances, cannot be said to be a ‘fair action’.”
Referring to High Court Bar Association, Allahabad v. State of Uttar Pradesh and Others [(2024) 6 SCC 267], the Court quoted:
“An interim order lawfully passed by a court after hearing all contesting parties is not rendered illegal only due to the long passage of time.”
“No litigant should be allowed to suffer due to the fault of the court. If that happens, it is the bounden duty of the court to rectify its mistake.”
The Court remarked that, despite the time-bound nature of the interim order, the surrounding circumstances warranted judicial scrutiny. “I am of the opinion that the petitioner is justified in contending that the bank guarantees ought not to have been encashed.”
On the question of irreparable injury, the Court considered the petitioner’s submission that restoration was not sought, and instead: “The petitioner would be satisfied with the direction to keep the amounts in a separate fixed deposit as above.”
The Court concluded:
“In the totality of the factual position noticed above and especially in the light of the appointment of the sole Arbitrator, the sustainability of which order is now being considered by the Apex Court, the 1st respondent is to be directed to keep the amounts realised from the invocation of the two bank guarantees in an interest-bearing fixed deposit account.”
The High Court issued the following directions:
“There will be a direction to the 1st respondent authority in W.P(C) No.7025 of 2025 to deposit the amounts realized from the invocation of the two bank guarantees in an interest-bearing fixed deposit with a Scheduled Bank.”
Furthermore, it held: “W.P(C) No.24021 of 2023 would stand closed as infructuous, in the light of the disposal of W.P(C) No.7025 of 2025 as above.”
The Court did not order the restoration of the bank guarantees, considering the submission of the petitioner that such a remedy was not insisted upon at this stage.
No cost orders were issued. The Court clarified that the amounts deposited in fixed deposit shall abide by the outcome of the arbitral proceedings, the appointment of the sole arbitrator for which was pending adjudication before the Supreme Court.
Advocates Representing the Parties
For the Petitioners: G. Harikumar (Gopinathan Nair), Senior Advocate, Akhil Suresh and Santhosh Mathew
For the Respondents: V. Santharam, Shahier Singh M., Sharan Shahier
Case Title: Flemingo (DFS) Private Limited v. Airports Authority of India & Anr.
Neutral Citation: 2025:KER:31609
Case Numbers: W.P(C) No.24021 of 2023 and W.P(C) No.7025 of 2025
Bench: Justice Harisankar V. Menon
[Read/Download order]
