The bank has found itself in an awkward position: It must decide between defying a New York court order or a sovereign government, a move that it says would result in “grave sanctions” from Argentina.

“We’re going to obey, and if we obey, we have a gun to our head and the gun will probably go off,” Karen Wagner, a lawyer representing Citigroup, said.

The bank is the latest financial group to be caught in the battle between a group of bondholders and Argentina that prompted the country’s default this summer and threatens to engulf financial institutions which have until now watched from the sidelines.

Standing before a three-judge panel of the United States Court of Appeals for the Second Circuit, Ms. Wagner argued that the bank would suffer “serious and imminent hazard” if it obeyed a ruling from United States court judge that blocks it from making payments to bondholders.

The appeal comes on the heels of a ruling by  Judge Thomas P. Griesa of the United States District Court in Manhattan that prevents Citigroup’s Citibank Argentina branch from transferring $5 million in interest payments to bondholders by Sept. 30. Ms. Wagner appealed to the court to extend that payment deadline.

Citigroup is just one of a growing collection of disgruntled investors and financial institutions that have been dragged into a messy battle which has put Argentina’s president Cristina Fernandez de Kirchner against a group of entrenched New York hedge funds. Led by a unit of Paul E. Singer’s Elliott Management, the hedge funds are seeking a $1.5 billion payment on bonds that Argentina defaulted on in 2001.

After the default — which rocked the country and largely cut it off from global capital markets — Argentina offered bondholders discounted bonds in exchange for the defaulted bonds through two restructurings. The so-called “holdout” hedge funds rejected the terms of the new bonds. Argentina, for its part, has refused to pay the “holdouts” the full amount they have asked for.

The impasse came to a dramatic climax in July, after Judge Griesa ruled that Argentina could no longer pay the bondholders who exchanged their defaulted bonds for new, cheaper bonds without also paying the “holdouts.” The ruling precipitated another default after Argentina missed one of its regular bond payments on July 30.

Bank of New York Mellon was the first bank to be caught up in the rip tide that followed. In August, a separate group of hedge funds, including George Soros’s Quantum Partners and J. Kyle Bass’s Hayman Capital, sued the bank after a 226 million euro interest payment on their bonds was blocked because of Judge Griesa’s ruling.

Citigroup, meanwhile, was served with a subpoena by the holdouts, seeking to establish that the bank was being pressured to violate Judge Griesa’s order. Judge Griesa denied the request.

On Thursday, the three appeals court judges were equally tough in their questioning of lawyers for Argentina, Citigroup, and the holdout hedge funds.

In one moment of exasperation Judge Reena Raggi asked a lawyer representing the holdouts hedge funds, “Tell me what you expect Citibank to do to comply with the injunction?”

“What are they supposed to do practically?,” she pressed.

Judge Barrington Daniels Parker, Jr. complained about Argentina’s track record of defying United States court orders.

“We have a party that will not conform itself to the law,” Judge Parker said.

In a move that could put it in contempt of court, Argentina last month passed a new law that would allow it to evade Judge Griesa’s court order, replacing the Bank of New York Mellon with Argentina’s Banco de la Nacion.

Ms. Raggi, who was the most vocal of the three judges, told Carmine Boccuzzi, a lawyer for Argentina, “If you win I know you’ll be happy to abide by the court’s order.”