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SUPREME COURT OF INDIA
J.B. Pardiwala, R. Mahadevan, JJ.
M/s Jindal Steel And Power Ltd. & Anr. – Appellants
Versus
M/s Bansal Infra Projects Pvt. Ltd. & Others – Respondents
Civil Appeal No. 6413 of 2025 (Arising Out Of Slp (Civil) No. 21916 of 2024)
Decided On : 07-05-2025
Arbitration and Conciliation Act, 1996 – Section 9 – Civil Procedure Code, 1908 – Order XXXIX Rule 3 – Invocation of Bank Guarantee – Restraint order – Courts should refrain from interfering with invocation of Bank Guarantee except in cases of fraud of an egregious nature or in cases where allowing encashment would result in irretrievable injustice – Bank Guarantees serve as backbone of commercial transactions and must be honoured in accordance with their terms – Writ Court, exercising jurisdiction under Article 227 of Constitution, granted interim protection in favour of Respondent against invocation of Bank Guarantee until disposal of Section 9 arbitration petition – However, order passed by High Court is merely an interim measure intended to protect interests of both parties – In view of ongoing arbitration proceedings concerning Bank Guarantee, it is imperative to maintain existing position regarding Bank Guarantee until final outcome of Section 9 arbitration petition – No prejudice whatsoever is occasioned to appellants, for present – Section 9 arbitration petition is now ripe for arguments before Commercial Court – Bank Guarantee shall be kept alive and shall be subject to outcome of Section 9 arbitration petition. (Paras 10, 11, 12, 13, 14 and 15)
Facts of the case:
Challenge raised in present appeal is solely to interim order passed by the High Court restraining the appellants from invocation of the bank guarantee during the pendency of the proceedings under Section 9 of the Arbitration and Conciliation Act, 1996.
Findings of Court:
As directed by 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.
Result : Appeal disposed of.
Key Points: - Courts should be reluctant to grant injunctions against the invocation of a bank guarantee except in cases of established fraud or where irretrievable injury is likely to be caused to the guarantor (!) (!) . - Bank guarantees serve as the backbone of commercial transactions and must be honoured in accordance with their terms (!) (!) . - The High Court's order restraining the encashment of the bank guarantee was deemed an interim measure to protect the interests of both parties pending the outcome of the Section 9 arbitration petition (!) (!) . - The validity of the bank guarantee was maintained by extending it until the disposal of the Section 9 arbitration petition, ensuring no prejudice to the appellants at present (!) (!) . - The Commercial Court is directed to proceed with the Section 9 arbitration petition on merits within eight weeks, keeping the bank guarantee subject to the final outcome (!) . - The appeal was disposed of without deciding the substantive legal questions regarding the jurisdiction and appealability, leaving them open for consideration by the Commercial Court (!) .
| Table of Content |
|---|
| 1. timeline extensions and contract obligations. (Para 3) |
| 2. arguments on judicial intervention versus arbitration. (Para 4) |
| 3. court's ruling on supervisory jurisdiction and interim measures. (Para 6 , 8 , 9 , 10) |
| 4. established legal standards on bank guarantees. (Para 11 , 12) |
| 5. conclusion and outcome of the appeal. (Para 16) |
JUDGMENT :
R. MAHADEVAN, J.
Leave granted.
2. This appeal has been filed by the appellants challenging the order dated 20.08.2024 passed by the High Court of Orissa, Cuttack sup>1[Hereinafter referred to as “the High Court”] in W.P. (C) No. 11848 of 2024 which was filed under Article 227 of the Constitution of India, against the order dated 30.04.2024 passed by the Senior Civil Judge (Commercial Court), Cuttack sup>2[For short, “the Commercial Court”] , in Arbitration Petition No. 14 of 2024 filed by Respondent No.1. The Commercial Court by the said order dated 30.04.2024 rejected the prayer for ex parte ad interim injunction made in an application under Order XXXIX Rule 3 and Section 151 of the Code of Civil Procedure, 1908 sup>3[For short, “CPC”] filed in the application under Section 9 of the Arbitration and Conciliation Act, 1996, observing that no order of injunction could be passed without affording an opportunity of hearing to the opposite parties, and accordingly, it directed issuance of notice to the opposite parties and fixed 25.06.2024 as the date for their appearance. Challenging the said order of the Commercial Court, Respondent No.1 (herein) filed the writ petition before the High Court, in which, the High Court as an interim measure, granted an order of status quo till the next date of hearing with regard to encashment of bank guarantee. Thereafter, the High Court by the order impugned herein, disposed of the writ petition in the following terms:
41. On filing of Objection, the Senior Civil Judge, Commercial Court, Cuttack shall proceed further in accordance with law and shall try to conclude the said proceeding at the earliest, preferably within a period of six weeks from the date of filing of the objection and documents by the Opposite Parties.
42. Since the Bank Guarantee furnished by the Petitioner is going to expire on 05.09.2024, the petitioner is directed to extend the said BG until 31.12.2024 well before the expiry of the said period.
43. As the Opposite Parties contested the present Writ Petition on technical grounds of maintainability so also scope regarding interference by the Court regarding invocation of Bank Guarantee and are yet to file their Objection in ARBP No.14 of 2024, it is made clear that after filing of Objection by the Opposite Parties, the Senior Civil Judge, Commercial Court, Cuttack shall proceed further in accordance with law and decide the prayer made in ARBP No.14 of 2024 on merit taking into consideration the pleadings and documents on record, without being influenced by the observations made above. However, the interim order dated 20.05.2024 passed in the present case shall remain in force till disposal of the ARBP No.14 of 2024, subject to extension of Bank Guarantee by 31st August, 2024.”
Aggrieved by the aforesaid order of the High Court, the appellants are before us with the present appeal.
FACTUAL MATRIX
3. The relevant facts necessary to understand the background of the litigation are as follows:
3.1. The appellants issued a work order dated 24.01.2022 to Respondent No.1 viz., M/s. Bansal Infra Projects Private Limited, for construction of 400 flats at Jindal Nagar, South Block (Sharmik
Bank Guarantee – Courts should be reluctant in granting injunction against invocation of Bank Guarantee, except in cases of established fraud, or where irretrievable injury is likely to be caused to ....
The main legal point established in the judgment is that a bank guarantee cannot be invoked in the absence of default on the part of the respondent company, and the interim relief is not maintainable....
Invocation of an unconditional bank guarantee cannot be restrained unless fraud or irretrievable injustice is established; the nature of bank guarantees is independent and absolute.
The Appellate Court has jurisdiction to set aside ex-parte orders under Section 37 of the Arbitration and Conciliation Act, 1996, especially when the contract in question is deemed determinable.
Bank guarantees are independent contracts and can only be restrained from invocation in cases of fraud or special equities, which were not established in this case.
Unconditional bank guarantees may only be reviewed for egregious fraud or irretrievable injustice; disputes over contract performance must be resolved through arbitration.
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