M/S JINDAL STEEL AND POWER LTD. & ANR. [APPELLANTS] Vs. M/S BANSAL INFRA PROJECTS PVT. LTD. & OTHERS [RESPONDENTS]
CIVIL APPEAL NO. 6413 OF 2025
(2JB, J.B. Pardiwala and R. Mahadevan JJ., delivered by R. MAHADEVAN, J.)
This appeal challenges the Orissa High Court’s order dated 20.08.2024, which directed status quo on encashment of a bank guarantee in a dispute between the appellants and Respondent No.1, M/s Bansal Infra Projects Pvt. Ltd., concerning a terminated construction contract. The original dispute arose after the respondent’s poor performance led to the termination of a work order for a 400-flat project, initially valued at over ₹43.99 crore. The appellants issued multiple deadline extensions and eventually demanded the refund of ₹4.12 crore, failing which they intended to encash the respondent’s bank guarantee.
In response, Respondent No.1 filed an arbitration petition under Section 9 of the Arbitration and Conciliation Act, 1996, before the Commercial Court, seeking interim relief to prevent encashment of the bank guarantee. The Commercial Court refused to grant ex parte injunction and issued notice. This led the respondent to file a writ petition before the High Court under Article 227, which passed a status quo order and later directed parties to appear before the Commercial Court for early disposal of the arbitration petition, while extending the validity of the bank guarantee.
The appellants argue that the High Court wrongly exercised its supervisory jurisdiction under Article 227 when an appeal under Section 37 of the Arbitration Act was available. They contend that such judicial interference disrupts the arbitration process, which should be free from parallel litigation. Moreover, the bank guarantee was unconditional, and the High Court’s stay order was unjustified absent fraud or special equity. Hence, the appellants seek to set aside the High Court’s order.
In this matter, the learned counsel for Respondent No. 1 defended an interim order passed by the High Court restraining the appellants from invoking a bank guarantee during the pendency of arbitration proceedings under Section 9 of the Arbitration and Conciliation Act, 1996. Respondent No. 1 argued that since the arbitration petition is already partly heard and the appellants themselves sought adjournment, no prejudice was caused to them. To show good faith, Respondent No. 1 extended the bank guarantee until 30.06.2025. Respondent No. 1 also claimed that the invocation of the bank guarantee was unjust, as the alleged defaults were due to delays attributable to the appellants. Despite the appellants threatening to encash the guarantee citing non-compliance, a remedial course of action was agreed upon by both parties, but the appellants moved to invoke the guarantee prematurely.
The counsel further argued that the Commercial Court’s order was merely interim and not appealable under Section 37 of the Arbitration Act or Section 13 of the Commercial Courts Act. Thus, invoking Article 227 of the Constitution was necessary to prevent irreparable harm. The High Court, acknowledging “special equities,” restrained invocation of the guarantee until disposal of the Section 9 petition.
The Supreme Court upheld the High Court’s interim relief, emphasizing that it was a protective measure pending final adjudication. The bank guarantee, having been extended, caused no prejudice to the appellants. The Court directed the Commercial Court to conclude proceedings within eight weeks, with the bank guarantee remaining valid in the interim. The appeal was accordingly dismissed.
