Indemnity Bonds Cannot Secure Public Funds Like Bank Guarantees Can: Punjab & Haryana High Court for Releasing Compensation in Arbitration Stay Orders

“The release of 50% of the compensation to land-losers shall be upon furnishing bank guarantee instead of indemnity bonds” — In a significant clarification of procedure under Section 36(2) of the Arbitration and Conciliation Act, 1996, the Punjab and Haryana High Court, modified the terms imposed by an execution court in an arbitral award enforcement proceeding. The ruling came in the case of National Highways Authority of India v. Sarjiwan Kumar & Others, where the NHAI had challenged a condition requiring land-losers to furnish indemnity bonds for release of 50% compensation, despite the arbitral award being stayed.

Justice Jasgurpreet Singh Puri, exercising supervisory jurisdiction under Article 227 of the Constitution, substituted the requirement of indemnity bonds with bank guarantees, relying on the Court’s own precedent in NHAI v. Piara Lal, decided just weeks earlier.

The Court observed that where the arbitral award is stayed but compensation is partially released to claimants, “bank guarantees are a more reliable legal instrument than indemnity bonds for securing public funds in transition.”

“Supervisory Jurisdiction Can Be Invoked to Ensure Procedural Fairness in Execution of Stayed Awards”: High Court Applies Article 227 to Harmonize Conditions

The case arose out of an arbitral award dated 12.07.2019 passed in favour of landowners whose lands were acquired for a national highway project. The Additional District Judge, Patiala, while staying the operation of the award under Section 36(2), directed the National Highways Authority of India (NHAI) to deposit 100% of the enhanced awarded amount, and allowed 50% of the same to be released to the land-losers upon furnishing indemnity bonds.

NHAI approached the High Court not against the stay itself but seeking modification of the release condition, arguing that release upon indemnity bonds exposes public funds to risk, and that the High Court had already addressed the same issue in CR-2594-2025, NHAI v. Piara Lal, where it allowed substitution of indemnity bonds with bank guarantees.

Counsel for NHAI, Mr. Rishi Kaushal, submitted before the Court that “the petitioner-NHAI undertakes to deposit the aforesaid amount within a period of four weeks,” and pressed for similar relief as granted in Piara Lal. On the other hand, counsel for the respondents landowners did not dispute the legal proposition and agreed to the substitution if the full amount was duly deposited.

“Modification of Execution Terms in Interest of Equity and Uniformity”: Court Follows Precedent in NHAI v. Piara Lal

The High Court, after hearing both parties, held:

“Considering the judgment passed by this Court in Piara Lal’s case, the impugned order is hereby modified to the limited extent that the release of 50% of the amount to the respondents-land losers shall be upon furnishing bank guarantee instead of indemnity bonds.”

The Court found that the petition under Article 227 was maintainable, since it sought procedural correction and not a reappraisal of facts or merits of the arbitral award. It reiterated the limited but necessary supervisory jurisdiction to correct execution conditions that could have financial implications on public exchequer.

In a further direction, the Court said:

“Till the expiry of the aforesaid period of four weeks from today, 50% of the amount shall not be released to the respondents-land losers.” However, if the land-losers furnish bank guarantees after the NHAI deposits the entire awarded amount, they may seek release of the 50% compensation even before the four-week deadline.

“Land-losers Can Seek Early Release Upon Bank Guarantee After Deposit of Full Awarded Amount”: Relief Balanced Against Undertaking of NHAI

Interestingly, during arguments, counsel for NHAI pointed out that its accounts had already been attached and execution was listed for the same day, raising the concern that compensation might be released on the basis of the unmodified indemnity bond condition.

Responding to this urgency, the High Court gave a calibrated direction, stating:

“In view of the above, it is hereby directed that till the expiry of the aforesaid period of four weeks from today, 50% of the amount shall not be released… However, in case the respondents-land losers wish to furnish bank guarantee even prior to the expiry… the same may be released accordingly.”

The ruling thus strikes a balance between the landowners' right to compensation and the government’s need to protect public funds, especially in pending or stayed arbitral proceedings.

By allowing the procedural modification, the Court reaffirmed that execution courts must act in consonance with principles of consistency, security, and financial accountability, especially where awards are stayed but partial disbursal is permitted.

The Punjab and Haryana High Court’s judgment is a measured assertion of Article 227 jurisdiction, aimed at ensuring that execution of arbitral awards remains secure, equitable, and legally consistent. By substituting indemnity bonds with bank guarantees, the Court has made a significant procedural clarification that will likely influence execution practice across land acquisition disputes involving public infrastructure agencies.

The ruling strengthens the precedential value of NHAI v. Piara Lal and provides clarity on what kind of financial instruments are acceptable for conditional release of compensation during the pendency of execution or stay proceedings.

Date of Decision: 16 October 2025