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J. B. PARDIWALA, R. MAHADEVAN
Jindal Steel And Power Ltd. – Appellant
Versus
Bansal Infra Projects Pvt. Ltd. – Respondent
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 tha
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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