Introduction
In M/s Jindal Steel and Power Ltd. & Anr. v. M/s Bansal Infra Projects Pvt. Ltd. & Ors., the Supreme Court considered whether the High Court, in the exercise of its supervisory jurisdiction under Article 227 of the Constitution of India, could interdict the invocation of an unconditional bank guarantee during the pendency of a Section 9 Petition under the Arbitration and Conciliation Act, 1996. The Court, while affirming settled principles on bank guarantees, refused to interfere with the interim status quo order passed by the High Court in the exercise of its supervisory jurisdiction under Article 227, leaving open the legal questions arising in the matter.

Facts in a Nutshell
The dispute arose out of a work order dated 24th January 2022 issued by the Appellants for construction of 400 flats at Jindal Nagar (Sharmik Vihar) for a total value of Rs. 43.99 crores. An advance of Rs. 3.73 crores was paid, secured by an unconditional bank guarantee dated 8th March 2022.

Despite multiple extensions, the Appellants alleged that the Respondent’s performance was deficient in terms of quality, timelines, and compliance with contractual obligations. On 7th July 2023, the contract was terminated. The Appellants demanded refund of a debit balance of Rs. 4.12 crores and threatened encashment of the bank guarantee in default of payment by 30th April 2024.

The Respondent filed a Section 9 Petition along with an application under Order XXXIX Rules 1, 2 and 3 CPC. The Commercial Court refused to grant ex parte injunction and issued notice. The Respondent then invoked Article 227 jurisdiction of the High Court, which granted an interim order of status quo with regard to encashment of the bank guarantee. This order was challenged before the Supreme Court.

Submissions and Legal Contentions
The Appellants contended that the impugned order of the Commercial Court refusing interim relief was in the nature of an order passed under Section 9 and was appealable under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996. It was submitted that the High Court erred in exercising supervisory jurisdiction when a statutory appellate remedy was available. It was urged that The High Court, in utter disregard of settled principles, entertained a writ petition on an incorrect premise that the non-grant of exemption under Order XXXIX Rule 3 CPC is not appealable.

It was further argued that in the absence of fraud or special equities, the invocation of an unconditional bank guarantee cannot be interdicted. On the other hand, the Respondent submitted that the Commercial Court’s order was not a final determination under Section 9 and was therefore not appealable under Section 37. The High Court, having considered the pleadings, correspondence and contractual terms, had rightly protected the Respondent from irretrievable prejudice by directing extension of the bank guarantee and maintaining status quo.

The Respondent pointed out that permitting the appellants to invoke and encash the bank guarantee would result in irretrievable injustice. The bank guarantee was extended until 30th June 2025 pursuant to directions of the Court, and the Respondent undertook to keep it alive until disposal of the Section 9 Petition.

Supreme Court’s Observations
The Court noted that the order passed by the High Court is merely an interim measure intended to protect the interests of both parties. The Court observed that the Commercial Court had already partly heard the Section 9 Petition and the matter was now at the stage of arguments by the Appellants. It recorded the fact that an Arbitral Tribunal had also been constituted and proceedings were ongoing. Citing Hindustan Construction Co. Ltd. v. State of Bihar [(1999) 8 SCC 436], the Court reiterated the principle that 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.

While affirming that the terms of the bank guarantee are crucial and must be honoured, the Court noted that no prejudice was caused in the present case as the guarantee had been extended and the Commercial Court was seized of the matter. Accordingly, the Court declined to interfere and left the legal issues raised open for adjudication in future.

Conclusion
The Supreme Court disposed of the appeal without costs. It directed that the Commercial Court shall decide the Section 9 Petition within eight weeks and the bank guarantee shall be kept alive in the interim. The judgment reiterates the cautious approach courts must take while dealing with invocation of bank guarantees and underscores the importance of maintaining procedural discipline in arbitral proceedings without prejudicing either party².

By - Chaitanyaa Bhandarkar