ArbitrationArbitration In IndiaSupreme Court DecisionsInterim Relief against Encashment of Bank Guarantee Can be Granted by High Court under Article 227 under Exceptional Cases

The Hon’ble Supreme Court (“Supreme Court”), in Jindal Steel and Power Ltd. & Anr. v. Bansal Infra Projects Pvt. Ltd. & Others (Civil Appeal No. 6413 of 2025), has held that interim relief can be granted by the High Court under Article 227, under exceptional cases.

While deciding an appeal filed against the order passed by the Hon’ble Orissa High Court (“High Court”), the Supreme Court held that though the Arbitration and Conciliation Act, 1996 (“the Act”) mandates minimum judicial interference, the High Court can grant interim relief under Article 227 especially in cases where denial of such relief can cause irreparable harm.

Relevant Facts

The Respondent No. 1 had filed a petition bearing Arbitration Petition No. 14 of 2024 under Section 9 of the Act before the Commercial Court, along with applications under Order XXXIX Rules 1 and 2 and Order XXXIX Rule 3 CPC, seeking to pass an order of interim measure restraining the appellants not to proceed further as per the termination notice and not to encash the bank guarantee in pursuance of the letter dated 25.03.2024 till the constitution of the Arbitral Tribunal.

The Commercial Court rejected the application seeking to grant ex-parte injunction, against which, Respondent No. 1 filed a writ petition bearing W.P.(C) No. 11848 of 2024, in which the High Court granted an order of status quo with regard to the encashment of the bank guarantee. The Respondent No. 1 also invoked the arbitration proceedings, in terms of Clause 58.3 of the Work Order / Contract dated 24.01.2022.

The High Court, after hearing both sides, passed the order dated 20.08.2024 that the interim order staying encashment of the bank guarantee shall continue until the disposal of the Arbitration Petition No. 14 of 2024. This order came to be challenged by the present Appellants.

Key Issue

Whether the High Court can exercise jurisdiction under Article 227 to grant interim relief when an alternative remedy is available under Section 37(1)(b) of the Act.

Judgment

The Supreme Court, while acknowledging the legal principles around bank guarantee as well as the minimal interference by the Courts in arbitration matters, observed that if the appellants were permitted to invoke the bank guarantee, the prayer made in the Section 9 arbitration petition would likely become infructuous.

The Supreme Court held that the interim order passed by the High Court restraining the appellants from encashing the bank guarantee was in the interest of both the parties and shall remain in force until the disposal of the arbitration petition pending before the Commercial Court, subject to Respondent No. 1 extending the validity of the bank guarantee.

The Court held,

“13. Admittedly, Respondent No. 1 initiated arbitration proceedings to resolve the disputes with the appellants. In the Section 9 arbitration petition filed by them, the arguments on behalf of Respondent No. 1 and Respondent No. 2 have already been concluded, and the matter stands partly heard, pending further arguments on behalf of the appellants. Furthermore, pursuant to the order dated 06.11.2024 passed by the High Court, an Arbitral Tribunal was constituted to adjudicate the disputes between the parties and a hearing was held on 03.01.2025, during which, the parties involved herein appeared and the Arbitral Tribunal directed them to file statement of claim, statement of defence and counter claim, if any, and reply to the same. Thus, 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.

14. It is also to be pointed out that as directed by the High Court, Respondent No. 1 renewed the bank guarantee till 31.12.2024, which was subsequently extended till 30.06.2025 pursuant to the directions of this Court. Furthermore, 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. Therefore, we will not decide the legal issues raised herein, and the same are left open.”

AMLEGALS Remarks

The exercise of powers by the Supreme Court under Article 227 under such circumstances is a welcome move and reaffirms the principle that though the Courts attempt to have a minimal interference in arbitration matters, in some cases of peculiar circumstances it has to pass orders in the interest of both the parties even when the appellate remedy was available.

This judgment will be a guiding factor for many such issues that come before the High Court and Supreme Court even in the cases pertaining to encashment of bank guarantee. It will be interesting to see if many such cases are directly brought before the High Court under Article 227 and if so, what would be their fate.

This article is purely for academic purposes.