Introduction
In a significant decision concerning the scope of interim judicial intervention in arbitration-related disputes, the Court in Jindal Steel and Power Ltd. & Anr. v. Bansal Infra Projects Pvt. Ltd. & Ors. [Civil Appeal No. 6413 of 2025, decided on May 7, 2025], examined whether an order refusing ex parte interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, could be challenged through a writ petition under Article 227 of the Constitution.
The ruling provides critical guidance on the appealability of orders under Section 9, the invocation of bank guarantees in arbitration disputes, and the court’s discretionary power in commercial matters involving construction contracts and arbitration clauses.
Background and Factual Matrix
The dispute arose from a construction contract dated January 24, 2022, between Jindal Steel and Power Ltd. (JSPL) and Bansal Infra Projects Pvt. Ltd., for constructing 400 flats at “Sharmik Vihar,” valued at approximately ₹44 crore. An advance of ₹3.74 crore was paid by JSPL, secured by an unconditional bank guarantee furnished by Bansal Infra.
Due to alleged continuous lapses in project quality, delayed performance, and violation of contractual conditions, JSPL issued a termination notice and threatened to encash the bank guarantee unless ₹4.12 crore was refunded by April 30, 2024.
In response, Bansal Infra filed a Section 9 petition under the Arbitration Act, accompanied by an application for ex parte interim injunction to restrain encashment of the bank guarantee. The Commercial Court, Cuttack, refused to grant ex parte relief, prompting Bansal Infra to approach the Orissa High Court under Article 227.
Issues Before the Court
- Whether an ex parte order passed under Order XXXIX Rule 3 CPC in Section 9 proceedings is appealable under Section 37 of the Arbitration Act.
- Whether the High Court erred in exercising its supervisory jurisdiction under Article 227 where an alternate statutory remedy was available.
- Whether the High Court could stay encashment of a bank guarantee pending disposal of the Section 9 petition.
- Whether dual proceedings (arbitration invocation and court action) violate the spirit of the Arbitration Act.
Arguments by the Appellants (JSPL)
- The impugned order refusing ex parte relief amounted to a refusal under Section 9 and was thus appealable under Section 37(1)(b) of the Arbitration Act.
- The High Court should not have entertained a writ petition under Article 227, bypassing the remedy of statutory appeal.
- The Commercial Court’s refusal to grant ex parte relief did not constitute any perversity or miscarriage of justice .
- Cited decisions, including :
- Hindustan Construction Co. v. State of Bihar (1999) 8 SCC 436: emphasized that unconditional bank guarantees must be honoured unless fraud or irretrievable injustice is established.
- Hindustan Construction Co. v. State of Bihar (1999) 8 SCC 436: emphasized that unconditional bank guarantees must be honoured unless fraud or irretrievable injustice is established.
- Urged the Court to curb parallel litigation and uphold the integrity of arbitration as a standalone remedy .
Arguments by the Respondents (Bansal Infra)
- The Section 9 petition was partly heard, and the Commercial Court’s refusal of ex parte relief was interim, not final.
- Section 37(1)(b) permits appeals only against orders “granting or refusing any measure,” which should be interpreted as final orders under Section 9.
- Given no appeal or revision was maintainable under the Commercial Courts Act, 2015, the writ petition was justified.
- There were “special equities” in Bansal Infra’s favour; encashment would cause irretrievable injustice.
- The bank guarantee had already been extended to June 30, 2025, showing no prejudice to JSPL.
Reasoning and Findings
The Court noted the following:
- Interim orders under Order XXXIX Rule 3 CPC do not constitute final determinations under Section 9 and therefore may not attract appealability under Section 37.
- The Arbitration and Conciliation Act, 1996, though a self-contained code, does not explicitly prohibit writ jurisdiction, particularly where no effective remedy exists.
- The High Court’s intervention was confined to preserving the subject matter — i.e., the bank guarantee — until the Commercial Court decided the Section 9 petition.
- It reiterated principles from Hindustan Construction Co. and U.P. Coop. Federation v. Singh Consultants that courts should interfere with encashment of bank guarantees only where fraud or injustice is evident.
- However, since the arbitration process was active and the Commercial Court was seized of the matter, the Court declined to adjudicate the legal issues raised and focused on preserving the interim balance between the parties
Final Order
The Court disposed of the appeal with the following directions :
- The Commercial Court shall decide the Section 9 petition within eight weeks.
- Until disposal, the bank guarantee shall remain valid and uninvoked.
- The legal questions regarding Section 37’s scope and Article 227 jurisdiction were left open for future consideration.
FAQs:
1. What is a bank guarantee in the context of arbitration?
A bank guarantee is a financial instrument issued by a bank on behalf of a party, ensuring the fulfillment of contractual obligations. In arbitration, it serves as security for performance or payment, and its invocation is often a point of contention when disputes arise.
2. Under what circumstances can a court intervene in the invocation of a bank guarantee?
Courts generally refrain from intervening in the invocation of an unconditional bank guarantee. However, exceptions exist where:
Fraud is involved.
Irretrievable injustice would occur if the guarantee is invoked.
Special equities favor the party seeking to restrain the invocation.
These exceptions are narrowly construed and require strong prima facie evidence.
3. Can a bank guarantee be invoked during ongoing arbitration proceedings?
Yes, an unconditional bank guarantee can be invoked during arbitration proceedings, even if the underlying dispute is being adjudicated. The rationale is that the guarantee is a separate contract, and its invocation does not interfere with the arbitration process.
4. What are ‘special equities’ in the context of restraining bank guarantee invocation?
‘Special equities’ refer to exceptional circumstances where enforcing the bank guarantee would result in an unjust outcome, such as when the invoking party has already received substantial benefits or when the guarantee was obtained under questionable circumstances.
5. How does the court determine whether to grant an injunction against the invocation of a bank guarantee?
The court assesses:
Whether there is a prima facie case of fraud or special equities.
The balance of convenience, i.e., whether the harm to the party seeking the injunction outweighs the harm to the other party.
Whether irreparable injury would occur if the injunction is not granted.
Only if all these factors are in favor of the applicant may the court consider granting an injunction.
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