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The interplay between the supervisory jurisdiction of the High Court under Article 227 of the Constitution of India and the statutory appellate remedy under Section 37 of the Arbitration and Conciliation Act, 1996 (“the Act”) has for long been a contentious issue before Indian Courts. The present article analyzes the question-when a Commercial Court refuses to grant ex parte interim relief under Order XXXIX Rule 3 of the Code of Civil Procedure, 1908 (“CPC”) in proceedings under Section 9 of the Act, can the aggrieved party seek appellate remedy under Section 37(1)(b), or its only recourse is under Article 227 i.e. supervisory jurisdiction under the Constitution of India.
The aforesaid question was posed before the Hon’ble Supreme Court of India in Jindal Steel and Power Ltd. & Anr. v. Bansal Infra Projects Pvt. Ltd. & Ors. (2025 INSC 640), wherein vide its decision dated 07.05.2025, the SC opted for a pragmatic resolution that preserved the status quo pending final determination of the Section 9 petition by the Commercial Court. By way of the said judgment the SC has exercised its special jurisdiction under Article 136 of the Constitution of India to secure the ends of justice by upholding the order of the HC on the basis that that permitting encashment of the bank guarantee would render the Section 9 petition infructuous.
By way of background, it is pertinent to mention that the dispute between parties pertained to a Construction Contract. The Appellant, Jindal Steel and Power Ltd., issued a work order dated 24 January 2022 to Respondent No. 1, M/s Bansal Infra Projects Pvt. Ltd., for construction of flats within 8 months. The Appellants advanced a sum of Rs. 3,73,95,490 to the contractor, who furnished an irrevocable and unconditional bank guarantee dated 8 March 2022. The Appellants terminated the work order citing non-compliance with contractual obligations and sought to encash the bank guarantee.
Respondent No. 1 filed a Section 9 Petition before the Commercial Court at Cuttack, seeking interim measures restraining the Appellants from proceeding with termination and encashment of the bank guarantee, along with application under Order XXXIX Rules 1 and 2, and Order XXXIX Rule 3 CPC, seeking ex-parte ad interim injunction, which was rejected by the Commercial Court. Thereafter, Respondent No. 1 filed a writ Petition before the High Court of Orissa under Article 227 of the Constitution, in which the High Court granted status quo with regard to encashment of the bank guarantee. It is this order of the High Court that the Appellants challenged before the Supreme Court.
The Supreme Court, in its judgment against the impugned HC Order adopted a practical approach, holding that the order passed by the High Court was “merely an interim measure intended to protect the interests of both parties.” The Court noted that the High Court had disposed of the writ petition observing that if the Appellants were permitted to invoke the bank guarantee, the prayer made in the Section 9 petition would become infructuous. Significantly, the Court recognized that although the exercise of supervisory jurisdiction under Article 227 is ordinarily circumscribed and the Appellants had raised substantial questions regarding the availability of an alternative statutory remedy under Section 37(1)(b) of the Act, the peculiar circumstances of the case warranted the continuation of interim protection, in view of the ongoing arbitration proceedings where the Arbitral Tribunal had already been constituted and Section 9 petition was at the stage of final adjudication.
The Court reiterated the established principle that courts should refrain from interfering with the invocation of bank guarantees except in cases of fraud of an egregious nature or where allowing encashment would result in irretrievable injustice, relying on Hindustan Construction Co. Ltd. v. State of Bihar (1999) 8 SCC 436, which emphasized that bank guarantees serve as the backbone of commercial transactions and must be honored in accordance with their terms. However, in the peculiar circumstances of the present case, the Court noted that the High Court had arrived at a prima facie view after hearing both sides that special equities existed and that permitting encashment would render the Section 9 petition infructuous.
The Jindal Steel decision carries important implications in the sphere of commercial litigation and arbitration. The decision has without expressly endorsing the High Court’s exercise of Article 227 jurisdiction in a matter arising from arbitration proceedings, has upheld the exercise of jurisdiction to secure the ends of justice. By declining to interfere with the High Court’s order and instead treating it as a pragmatic interim measure, the Supreme Court has accepted that in the absence of a clear appellate remedy, supervisory jurisdiction under Article 227 remains available as a residuary safeguard against injustice.
The Court’s approach of preserving the status quo with respect to bank guarantee pending adjudication of Section 9 petition while simultaneously directing expeditious disposal balances competing interests of parties in construction and infrastructure disputes. The judgment demonstrates that where a Section 9 petition is at an advanced stage and the bank guarantee has been kept alive by the petitioner, courts may be disinclined to disturb interim arrangements.
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