Source: Supreme Court 

Why in News? 

A bench of Justice R Mahadevan and Justice JB Pardiwala held that the High Court in exceptional circumstances can exercise it’s supervisory jurisdiction under Article 227 of the Constitution to grant interim relief. 

• The Supreme Court held this in the case of M/s Jindal Steel And Power Ltd &  Anr  v. M/s Bansal Infra Projects Pvt. Ltd. (2025). 

What was the Background of M/s Jindal Steel And Power Ltd &  Anr  v. M/s Bansal Infra Projects Pvt. Ltd. (2025) Case?   

• The appellants issued a work order to Respondent No. 1 (M/s. Bansal Infra Projects Private Limited) on 24th January 2022, for construction of 400 flats at Jindal Nagar, valued at Rs. 43,99,46,924.13. 
• The appellants provided an advance of Rs. 3,73,95,490, which was secured by a bank guarantee (No. 32700IGL0001122) dated 8th March 2022, from Respondent No. 1. 
• The original project completion deadline was set for 30th September 2022, but was later extended to 30th June 2023, and then further extended by 60 days. 
• The project deadline was extended again to 30th September 2023, with the condition that retention money would be forfeited if the project extended beyond this date. 
• Due to quality deficiencies, missed deadlines, and non-compliance with contractual obligations, the appellants terminated the work order in accordance with several clauses in the contract. 
• On 21st February 2024, the appellants sent a letter to Respondent No. 1 highlighting the disregard for construction norms that compromised standards and posed safety risks. 
• When Respondent No. 1 failed to take corrective action, the appellants sent a letter on 25th March 2024, requesting refund of Rs. 4,12,54,904 (attributed to unadjusted advances and other deductions) by 30th April 2024, failing which the bank guarantee would be encashed. 
• Respondent No. 1 filed an Arbitration Petition (No. 14 of 2024) under Section 9 of the Arbitration and Conciliation Act, 1996 (A & C Act), seeking an interim order to restrain the appellants from proceeding with the termination notice and encashing the bank guarantee. 
• When the Commercial Court rejected the application for ex parte injunction, Respondent No. 1 filed a writ petition (W.P.(C) No. 11848 of 2024), in which the High Court granted a status quo order regarding the encashment of the bank guarantee. 
• Respondent No. 1 also invoked arbitration proceedings as per Clause 58.3 of the Work Order/Contract dated 24th January 2022. 
• On 20th August 2024, the High Court passed an order continuing the stay on encashment of the bank guarantee until disposal of Arbitration Petition No. 14 of 2024, which is now being challenged by the appellants.

What were the Court’s Observations?

• The appeal challenges the High Court's interim order restraining the appellants from invoking the bank guarantee during the pendency of proceedings under Section 9 of the A & C Act. 
• The Court acknowledges the established legal principle that courts should refrain from interfering with bank guarantee invocation except in cases of egregious fraud or where encashment would result in irretrievable injustice. 
• The Court cites Hindustan Construction Co. Ltd v. State of Bihar and others (1999), which emphasized that bank guarantees serve as the backbone of commercial transactions and must be honored according to their terms. 
• The Court notes that the High Court disposed of the writ petition with the consent of both parties, stating that allowing the appellants to invoke the bank guarantee would likely render the Section 9 arbitration petition infructuous. 
• The Court observes that the High Court's order is merely an interim measure intended to protect the interests of both parties. 
• The Court recognizes that Respondent No. 1 has initiated arbitration proceedings, and pursuant to the High Court's order dated 6th November 2024, an Arbitral Tribunal was constituted. 
• The Court finds it imperative to maintain the existing position regarding the bank guarantee until the final outcome of the Section 9 arbitration petition, given the ongoing arbitration proceedings concerning the matter. 
• The Court notes that Respondent No. 1 has extended the bank guarantee until 30th June 2025 and has given an undertaking to further extend it until the disposal of the Section 9 arbitration petition. 
• The Court decides not to rule on the legal issues raised and leaves them open for future consideration. 
• The Court directs the parties to advance all their contentions with necessary documents before the Commercial Court, which shall pass appropriate orders within eight weeks. 
• The Court orders that the bank guarantee shall be kept alive and subject to the outcome of the Section 9 arbitration petition.

What is Article 227 of the Constitution of India, 1950 (COI)? 

• Article 227 of the COI provides for the power of the High Court of Superintendence. 
• Every High Court has supervisory power over all courts and tribunals within its territorial jurisdiction. 
• The High Court can: 
  • Request reports from lower courts 
  • Make rules and create forms to regulate how these courts operate 
  • Decide how records and accounts should be kept by court officers 
• The High Court can also establish fee schedules for court officials, attorneys, advocates, and pleaders who work in these courts. 
• Any rules, forms, or fee schedules created by the High Court: 
  • Must not conflict with existing laws 
  • Need the Governor's approval before implementation 
• This supervisory power does not extend to military courts or tribunals established under laws related to the Armed Forces. 
• In simple terms, Article 227 gives High Courts the authority to oversee and regulate the functioning of all lower courts in their region, except for military courts.