In a pronouncement that delves into the interplay between Arbitration law and Constitutional writ jurisdiction, the Hon'ble Supreme Court in Jindal Steel and Power Ltd. and Another v. Bansal Infra Projects Pvt. Ltd. and Others, 2025 SCC OnLine SC 1041, examined the permissibility of judicial interference under Article 227 of the Constitution of India against an interim order passed under Section 9 of the Arbitration & Conciliation Act, 1996 (Arbitration Act).
Background of the Dispute
The dispute arose from a commercial contract and transaction involving encashment of a Bank Guarantee following termination of a Construction Contract, wherein the Respondent had sought interim protection under Section 9 of the Arbitration Act.
Jindal Steel and Power Ltd (“Appellant”) issued a Work Order to Bansal Infra Projects Private Limited (“Respondent No.1”) for construction of flats. In lieu of this contract, Respondent No.1 had issued a Bank Guarantee to the Appellant to secure the advance paid. The Respondent No.1 continuously failed to meet deadlines, despite the timeline being extended by the Appellant from time to time. Apart from slow progress of works, there were quality deficiencies and non-compliance of contractual obligations. In fact, the Appellant had extended the time limit subject to a condition that if the handover schedule was extended, the retention money would be forfeited. Apart from delays in the timeline, there were various issues at the site related to disregard of construction norms, compromise of standards which were leading to serious risks. Despite a warning of corrective actions to be taken, the Respondent No.1 failed to comply, the Appellant requested a refund of debit balances, unadjusted advances and deductions, failing which the Appellant warned that the bank guarantee would be encashed. Fearing encashment of Bank Guarantee, the Respondent No.1 had filed an arbitration petition under Section 9 of the Arbitration Act along with applications under Order XXXIX Rules 1 and 2 before the Commercial Court seeking from the Court interim measures restraining the Appellant from terminating the Contract and encashing the bank guarantee till the constitution of Arbitral Tribunal. The Ld. Commercial Court refused to grant ex parte ad-interim injunction made in an Application under Order XXXIX Rule 3 and Section 151 of the Civil Procedure Code, 1908 (CPC) filed in the application under Section 9 of the Arbitration Act and against the said Order, Respondent No.1 filed a Writ Petition, under which the Hon'ble High Court granted an order of status quo w.r.t the encashment of Bank Guarantee. During this period, Arbitration proceedings were also invoked, and the Hon'ble High Court disposed the Writ Petition further holding that the interim order staying the Bank Guarantee would continue until disposal of the Arbitration Petition before the Ld. Commercial Court. Thereafter, the Appellant approached the Hon'ble Supreme Court.
Contentions of both parties
The principal contention advanced by the Appellant was that the order of the Ld. Commercial Court, in substance, constituted an order passed under Section 9 of the Arbitration Act. Accordingly, the Respondent had an efficacious alternative remedy available under Section 37(1)(b) of the Act. The Appellant further submitted that the exercise of jurisdiction under Article 227 of the Constitution is circumscribed and may be invoked only where a court or tribunal (i) assumes jurisdiction which it does not possess, (ii) fails to exercise jurisdiction vested in it, or (iii) exercises jurisdiction in a manner that transgresses the limits prescribed by law.
Conversely, the Respondent contended that the remedy of appeal under Section 37(1)(b) of the Arbitration Act is confined to orders either granting or refusing to grant measures under Section 9 and does not extend to interlocutory orders or procedural directions issued therein. It was submitted that an appeal lies only against a final order passed under Section 9. The Respondent further relied upon Section 8 of the Commercial Courts Act, 2015 to assert that there exists a statutory bar on the maintainability of revision petitions against interlocutory orders rendered by Commercial Courts. Additionally, it was argued that there is no statutory provision under which an appeal could be maintained against an order passed under Order XXXIX Rule 3 of the Code of Civil Procedure, 1908. In these circumstances, the Respondent submitted that it was constrained to invoke the jurisdiction of the Hon'ble High Court under Article 227 of the Constitution.
Issues as formulated by the Hon'ble Supreme Court
The various issues raised in the case revolve around the scope and limits of the Hon'ble High Court's supervisory jurisdiction under Article 227 of the Constitution, particularly in arbitration-related matters. The central questions in the subject matter dispute included whether the Hon'ble High Court could intervene on merits when an alternate statutory remedy under Section 37(1)(b) of the Arbitration Act was available, whether interlocutory orders like refusal of ex-parte injunctions in Section 9 petitions are appealable and whether invoking CPC provisions in arbitration proceedings undermines the self-contained nature of the Arbitration Act. Additionally, the Hon'ble Court was asked to consider whether initiating parallel proceedings under Article 227 while arbitration is pending, causes procedural delays and conflicts with the Arbitration Act's objective of minimal judicial interference.
Analysis and Findings of the Hon'ble Supreme Court
The Hon'ble Court discussed the precedents and law surrounding the invocation of bank guarantee, reiterating the well settled law that back guarantees serve as the backbone of commercial transactions and that the bank guarantee must be honoured in its terms. However, the Hon'ble Court held that since the Ld. Commercial Court had partly heard the Section 9 petition and the bank guarantee had been extended, no prejudice was being caused to the Appellant at this stage and the Hon'ble Supreme Court declined to interfere with the High Court's interim order and directed the Commercial Court to decide the Section 9 petition within eight weeks, and further directed that the bank guarantee be kept alive until then. The Hon'ble Court held that it was important to maintain the existing position regarding the bank guarantee until the final outcome of the Section 9 arbitration petition.
Conclusion
In the aforesaid judgment, the issues with reference to the use of Article 227 to bypass statutory remedies, which could encourage forum shopping or parallel litigation have not been addressed by the Hon'ble Court. It is pertinent to highlight that permitting parties to approach the Constitutional Courts and invoke the writ jurisdiction is contrary to the intent of the Arbitration Act and also contrary to the goal of procedural finality. Further, though the Hon'ble Apex Court reiterated the principles on bank guarantees, it has allowed a deviation from the said principles by upholding the interim protection granted without clear evidence of “fraud” or “irretrievable injustice”, which is a mandatory requirement.
Further, by refraining from ruling on whether an appeal under Section 37(1)(b) of the Arbitration Act was maintainable against an Interlocutory Order and hence deciding on the issue whether or not an alternative efficacious remedy was available, the Hon'ble Court missed an opportunity to provide doctrinal clarity. More critically, the Hon'ble Court's refusal to curtail the High Court's invocation of Article 227, despite the existence of an alternative statutory remedy, runs counter to the express legislative scheme of the Arbitration Act, which is intended as a self-contained Code limiting judicial intervention, as underscored in Section 5 of the Arbitration Act. Moreover, Section 13 of the Commercial Courts Act, 2015 provides a specific appellate structure, and Section 8 bars revision against interlocutory orders. Endorsing recourse to Article 227 of the Constitution in this backdrop indirectly legitimizes a parallel constitutional route that bypasses the exclusive remedy framework envisioned by the legislature. The Hon'ble Court's silence on this jurisdictional overreach risks eroding the commercial certainty and procedural economy that the arbitration regime seeks to protect, ultimately weakening the finality and efficiency of Section 9 proceedings and potentially encouraging judicial overreach in arbitral processes.
Article 227, when used to challenge interlocutory orders in commercial proceedings, especially where statutory remedies like Section 37 of the Arbitration Act exist, can be misused to bypass the carefully structured scheme of the Arbitration Act. This disrupts the principle of minimal judicial intervention, encourages forum shopping, and undermines arbitration as a speedy and final alternative to traditional litigation. It also risks undermining Section 5 of the Act, which bars judicial authority except as provided therein. In Jindal Steel and Power Ltd. and Another v. Bansal Infra Projects Pvt. Ltd. and Others., the Hon'ble Supreme Court has refrained from decisively curbing the invocation of Article 227, thereby leaving the door open for its continued use. While this protects access to constitutional remedies, it dilutes the Arbitration Act's self-contained nature. Hence, unless strictly confined to instances of jurisdictional error or grave injustice, Article 227 may end up increasingly functioning more as a judicial sword than a protective shield, disturbing the finality and sanctity of arbitration proceedings.
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