High Court May Grant Article 227 Interim Relief In Arbitration Proceedings In Exceptional Cases : Supreme Court

aThe Supreme Court  (May 7) held that while the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) mandates minimal judicial interference, a High Court may, in exceptional cases, exercise its supervisory jurisdiction under Article 227 of the Constitution to grant interim relief, particularly where denial of such protection would result in irreparable harm.

“We are aware of the established legal principle that the Courts should refrain from interfering with the invocation of a bank guarantee except in cases of fraud of an egregious nature or in cases where allowing encashment would result in irretrievable injustice.”, the court said.

The bench comprising Justices JB Pardiwala and R Mahadevan refused to interfere with the High Court's order granting interim protection from encashing the bank guarantees furnished by the Appellant for the construction of the residential units by the Respondent-Real Estate Company.

The bench noted that because the encashment of the bank guarantee would have caused irreversible harm, it upheld the High Court's intervention in a challenge against Section 9.

It was the case where an advance payment of 3.73 Crore made by the Appellant was secured by an unconditional bank guarantee (BG). Later on, the Appellant terminated the contract, citing delays and poor performance, and sought encashment of the BG.

The Respondent filed an application under Section 9 seeking an interim stay of encashment of BG. Following the court's refusal to grant an interim stay on BG encashment, the Respondent filed a Writ Petition seeking the intervention of the High Court to order a stay on BG encashment.

Aggrieved by the High Court's interference with the trial court's order refusing to order a stay on BG encashment, the Appellant-Jindal approached the Supreme Court.

The key issue before the Court was whether the High Court erred in exercising its supervisory jurisdiction (Article 227) to grant interim relief, despite an alternative remedy under Section 37(1)(b) of the Arbitration Act.

Answering in the affirmative, the judgment penned by Justice Mahadevan noted that while judicial interference in arbitration proceedings should generally be avoided, the ongoing nature of the arbitration and the extension of the bank guarantee justified the High Court's grant of interim protection.

“Ultimately, it was directed that the interim order restraining the appellants from encashing the bank guarantee 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. Thus, we are of the view that the order passed by the High Court is merely an interim measure intended to protect the interests of both parties.”, the court said.

“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.”, the court added.

Accordingly, the Court disposed of the appeal, passing an order to an effect that “the parties are directed to advance all their contentions along with necessary documents, and the Commercial Court shall pass appropriate orders within a period of eight weeks thereafter. Until such time, the bank guarantee shall be kept alive and shall be subject to the outcome of the Section 9 arbitration petition.”

Case Title: M/S JINDAL STEEL AND POWER LTD. & ANR. VERSUS M/S BANSAL INFRA PROJECTS PVT. LTD. & OTHERS

Citation : 2025 LiveLaw (SC) 544

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Appearance:

For Petitioner(s) :Mr. Saket Sikri, Adv. Mr. Manish Kharbanda, Adv. Ms. Charu Mathur, AOR Mr. Naman Joshi, Adv. Mr. Ajay Pal, Adv. Ms. Neha Maniktala, Adv. Ms. Ekta Gupta, Adv. Ms. Ritika Vohra, Adv. Mr. Guneet Sidhu, Adv. Ms. Amber Tickoo, Adv.

For Respondent(s) :Mr. Shubhranshu Padhi, AOR Mr. Prabodha Chandra Nayak, Adv. Mr. Jay Nirupam, Adv. Mr. D. Girish Kumar, Adv. Mr. Pranav Giri, Adv. Mr. Ekansh Sisodia, Adv. Mr. O. P. Gaggar, AOR Mr. Sachindra Karn, Adv.