Invocation Would Render Section 9 Petition Infructuous | Supreme Court Upholds Interim Relief Under Article 227 And Directs Expedited Hearing
Kiran Raj
The Supreme Court of India Division Bench of Justice J.B. Pardiwala and Justice R. Mahadevan held that continuation of the interim restraint against invocation of a bank guarantee was warranted, as encashment would render the pending petition under Section 9 of the Arbitration and Conciliation Act, 1996, infructuous. The Court dismissed the appeal challenging the High Court’s interim order and directed the Commercial Court to decide the arbitration petition on its merits within eight weeks from the conclusion of arguments. The Court further noted that the bank guarantee, having been extended, shall be maintained until disposal of the Section 9 petition.
The case arose from a commercial dispute related to a construction project for 400 flats at Jindal Nagar, South Block (Sharmik Vihar), valued at ₹43,99,46,924.13. The appellants had issued a work order dated 24.01.2022 to the respondent contractor, who furnished a bank guarantee of ₹3,73,95,490 to secure advance payments. The project, originally to be completed by 30.09.2022, had its timeline extended multiple times—first to 30.06.2023, and later further, subject to certain conditions, including potential forfeiture of retention money.
The appellants, citing non-performance, quality deficiencies, and contractual breaches, issued a termination of the work order in accordance with its clauses. On 21.02.2024, they communicated concerns over construction standards and instructed the respondent to address the issues. A subsequent letter dated 25.03.2024 demanded repayment of ₹4,12,54,904 attributed to unadjusted advances and warned of bank guarantee encashment if unpaid by 30.04.2024.
In response, the respondent filed Arbitration Petition No. 14 of 2024 under Section 9 of the Arbitration and Conciliation Act, 1996, before the Commercial Court, accompanied by applications under Order XXXIX Rules 1, 2, and 3 CPC. The prayer was to restrain invocation of the bank guarantee and prevent further action based on the termination notice until formation of an arbitral tribunal.
The Commercial Court rejected the application for an ex parte interim injunction and scheduled a hearing after issuing notice to the opposite parties. The respondent then moved the High Court of Orissa under Article 227 of the Constitution of India. The High Court initially granted status quo regarding the bank guarantee and later, by final order dated 20.08.2024, continued the interim order restraining invocation of the bank guarantee, directing both parties to appear before the Commercial Court and complete pleadings for resolution of the arbitration petition.
The High Court specified that objections must be filed within ten days from the scheduled hearing date and directed the Commercial Court to conclude proceedings within six weeks thereafter. It also required the respondent to extend the bank guarantee until 31.12.2024. The appellants, aggrieved by this restraint and its continuation, approached the Supreme Court through the present appeal.
The appellants argued that the writ under Article 227 was not maintainable due to availability of an appellate remedy under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996. They maintained that orders made under Order XXXIX Rule 3 CPC accompanying a Section 9 petition are effectively appealable under Section 37 of the Act and that the High Court had erred in exercising supervisory jurisdiction. The appellants emphasized that invocation of an unconditional bank guarantee should not be stayed without a showing of fraud or special equity.
They also contended that parallel court proceedings initiated while arbitration was invoked could delay resolution and conflict with the Arbitration and Conciliation Act’s minimal intervention mandate. They submitted that permitting judicial interference at this stage undermined the arbitral framework, and that the order rejecting ex parte relief did not constitute grounds for supervisory review under Article 227.
In response, the respondent stated that the Commercial Court's rejection of ex parte relief was interlocutory, and not appealable under Section 37, CPC, or the Commercial Courts Act. The High Court’s intervention was necessary to prevent irreparable harm. It was submitted that delays by the appellants, including failure to provide hutments and construction materials, were responsible for delays in project execution. It was further stated that any invocation of the bank guarantee prior to adjudication of disputes would cause undue financial hardship. The respondent had already extended the validity of the bank guarantee until 30.06.2025 to preserve the subject matter of the proceedings.
The respondent noted that arbitration proceedings had commenced, with pleadings concluded by some parties and pending final arguments by the appellants. The High Court’s order ensured interim protection without precluding adjudication on merits. The Commercial Court was directed to proceed independently, without being influenced by the High Court’s interim order.
The Supreme Court recorded the settled principle of law that judicial interference in bank guarantees is permitted only in limited circumstances. It stated: “We are aware of the established legal principle that the Courts should refrain from interfering with the invocation of a bank guarantee except in cases of fraud of an egregious nature or in cases where allowing encashment would result in irretrievable injustice.”
Quoting from its decision in Hindustan Construction Co. Ltd. v. State of Bihar, the Court observed: “It is for this reason that the courts are reluctant in granting an injunction against the invocation of bank guarantee, except in the case of fraud, which should be an established fraud, or where irretrievable injury was likely to be caused to the guarantor.”
Addressing the issue of High Court jurisdiction under Article 227, the Bench recorded:
“After hearing both sides and with the consent of the parties, the High Court disposed of the writ petition... stating that if the appellants were permitted to invoke the bank guarantee, the prayer made in the Section 9 arbitration petition would likely become infructuous.”
It noted: “The Commercial Court shall proceed in accordance with law and adjudicate upon the prayers made in the arbitration petition on its own merits, considering the pleadings and documents placed on record, without being influenced by any of the observations made therein.”
On the interim nature of the High Court's direction, the Bench stated: “The order passed by the High Court is merely an interim measure intended to protect the interests of both parties.”
Recognizing that arbitral proceedings had already commenced, the Court noted:
“In view of the ongoing arbitration proceedings concerning the bank guarantee, it is imperative to maintain the existing position regarding the bank guarantee until the final outcome of the Section 9 arbitration petition.”
Finally, it recorded: “The learned counsel for Respondent No. 1 has given an undertaking to extend the validity of the bank guarantee till the disposal of the Section 9 arbitration petition. As such, no prejudice whatsoever is occasioned to the appellants, for the present.”
The Court dismissed the appeal and upheld the interim arrangement made by the High Court. It issued the following directions: “Since the Section 9 arbitration petition is now ripe for arguments before the Commercial Court on behalf of the appellants, the parties are directed to advance all their contentions along with necessary documents, and the Commercial Court shall pass appropriate orders within a period of eight weeks thereafter.”
It further directed:“Until such time, the bank guarantee shall be kept alive and shall be subject to the outcome of the Section 9 arbitration petition.”
The judgment concluded with: “Accordingly, this appeal stands disposed of. No costs. Consequently, connected Miscellaneous Application(s), if any, shall stand closed.”
Advocates Representing the Parties
For the Petitioners: Mr. Saket Sikri, Mr. Manish Kharbanda, Ms. Charu Mathur, Mr. Naman Joshi, Mr. Ajay Pal, Ms. Neha Maniktala, Ms. Ekta Gupta, Ms. Ritika Vohra, Mr. Guneet Sidhu, Ms. Amber Tickoo, Advocates-on-Record
For the Respondents: Mr. Shubhranshu Padhi, Mr. Prabodha Chandra Nayak, Mr. Jay Nirupam, Mr. D. Girish Kumar, Mr. Pranav Giri, Mr. Ekansh Sisodia, Mr. O. P. Gaggar, Mr. Sachindra Karn, Advocates-on-Record
Case Title: M/s Jindal Steel and Power Ltd. & Anr. vs. M/s Bansal Infra Projects Pvt. Ltd. & Others
Neutral Citation: 2025 INSC 640
Case Number: Civil Appeal No. 6413 of 2025 (Arising out of SLP (Civil) No. 21916 of 2024)
Bench: Justice J.B. Pardiwala, Justice R. Mahadevan
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