The Supreme Court upheld the High Court’s interim order restraining encashment of a bank guarantee during pending Section 9 arbitration proceedings under the Arbitration Act. The Court emphasized that judicial interference with bank guarantees is permissible only to prevent irretrievable injustice, while leaving open questions regarding maintainability of Article 227 petitions against interlocutory orders in arbitration matters. The ruling preserves the arbitral process by directing the Commercial Court to decide the Section 9 petition within eight weeks, subject to continued extension of the bank guarantee validity. The judgment balances contractual sanctity of bank guarantees with equitable considerations in ongoing arbitration.
Facts Of The Case:
Jindal Steel & Power Ltd. awarded a construction contract to Bansal Infra Projects Pvt. Ltd. in January 2022 for ₹43.99 crore, with an advance payment of ₹3.73 crore secured by a bank guarantee. After multiple deadline extensions due to alleged poor performance, Jindal terminated the contract in July 2023 and demanded repayment of ₹4.12 crore in March 2024, threatening to encash the bank guarantee. Bansal Infra filed a Section 9 petition before the Commercial Court seeking injunction against encashment, along with an ex parte application under Order XXXIX Rule 3 CPC. The Commercial Court refused ex parte relief and issued notice.
Bansal then approached the Orissa High Court under Article 227, which granted status quo on bank guarantee encashment until disposal of the Section 9 petition, directing Bansal to extend the guarantee validity. Jindal appealed to the Supreme Court, challenging the High Court’s intervention under Article 227 when alternative remedies under arbitration law existed. The Supreme Court maintained the status quo but expedited the Commercial Court’s decision, directing final disposal of the Section 9 petition within eight weeks while requiring Bansal to keep the bank guarantee alive pending outcome. The dispute centers on whether contractual delays were caused by Bansal’s deficiencies or Jindal’s material supply issues.
Procedural History:
The dispute originated when Jindal Steel terminated its construction contract with Bansal Infra in July 2023 and threatened to encash a ₹3.73 crore bank guarantee in March 2024. Bansal Infra filed a Section 9 petition under the Arbitration Act before the Commercial Court, Cuttack (April 2024), seeking injunction against encashment along with an ex parte application under Order XXXIX Rule 3 CPC. The Commercial Court refused ex parte relief and issued notice (30.04.2024). Bansal Infra then approached the Orissa High Court under Article 227 (May 2024), which granted interim status quo on bank guarantee encashment and directed disposal of the Section 9 petition within six weeks (20.08.2024).
Jindal Steel appealed to the Supreme Court (September 2024), contesting the High Court’s interference under Article 227. Meanwhile, arbitration proceedings commenced (November 2024), and Bansal extended the bank guarantee validity to June 2025. The Supreme Court (07.05.2025) upheld the status quo but expedited the Commercial Court’s decision, directing final disposal of the Section 9 petition within eight weeks while requiring Bansal to maintain the bank guarantee. The procedural journey highlights the tension between arbitration timelines and interim judicial interventions in contractual disputes.
Court Observation:
The Supreme Court emphasized the delicate balance between honoring contractual obligations under bank guarantees and preventing irreparable harm during arbitration proceedings. While reaffirming the established principle that courts should generally not interfere with unconditional bank guarantees except in cases of proven fraud or irretrievable injustice, the Court recognized the unique circumstances of this case where immediate encashment could undermine the arbitration process. The Bench observed that the High Court’s interim protection order served to preserve the subject matter of dispute until the Commercial Court could properly adjudicate the Section 9 petition, noting that allowing encashment would effectively nullify the arbitration proceedings.
The Court declined to conclusively rule on whether Article 227 petitions could substitute statutory appeals under Section 37 of the Arbitration Act, focusing instead on practical justice by maintaining the status quo while expediting the lower court’s decision. Importantly, the judgment underscored the need for minimal judicial intervention in arbitration matters, directing the Commercial Court to decide the Section 9 petition within eight weeks while requiring the respondent to keep the bank guarantee alive, thereby protecting both parties’ interests during the dispute resolution process. The Court’s approach demonstrated a nuanced understanding of commercial realities while upholding the integrity of arbitration as an alternative dispute resolution mechanism.
Final Decision & Judgement:
The Supreme Court disposed of the appeal while maintaining the status quo regarding the bank guarantee’s encashment, subject to its continued extension by Bansal Infra until the Commercial Court’s final decision on the Section 9 petition. The Court refrained from conclusively ruling on the maintainability of Article 227 petitions against interlocutory arbitration orders, prioritizing instead the expeditious resolution of the underlying dispute. It directed the Commercial Court to decide Bansal Infra’s Section 9 petition on merits within eight weeks, emphasizing that the interim protection was justified solely to preserve the arbitral process from becoming infructuous.
The judgment upheld the High Court’s interim order as a temporarily necessary measure but clarified that the Commercial Court must independently evaluate the bank guarantee’s invocation without being influenced by earlier observations. By balancing the sanctity of contractual guarantees with equitable safeguards, the Court ensured neither party would suffer irreparable harm during arbitration, while mandating a swift resolution to prevent prolonged litigation. Costs were not awarded, and all pending applications were closed.
Case Details:
Case Title: M/s Jindal Steel and Power Ltd. & Anr. v. M/s Bansal Infra Projects Pvt. Ltd. & Ors. Citation: 2025 INSC 640 Civil Appeal No.: Civil Appeal No. 6413 of 2025 Date of Judgment: 7th May 2025 Judges/Justice Name: Justice R. Mahadevan & Justice J.B. Pardiwala
Download The Judgement Here