A Section 9 receiver may take possession of hypothecated assets solely to preserve them pending arbitration.

The Petitioner financed Respondent No. 1’s purchase of a CT scanner for ₹1.05 crore, with the equipment hypothecated as security and Respondents Nos. 2 and 3 also executing the finance documents.

Following defaults, the loan account was classified as an NPA; Respondent No. 1 later issued a surrender letter expressing willingness to hand over the machinery but did not do so.

The Petitioner recalled the loan and sought, under Section 9 of the Arbitration and Conciliation Act, 1996, appointment of a Receiver and police assistance to take possession of the equipment.

Respondent No. 1 opposed possession, arguing that the machinery generated its income and that taking it would effectively grant final relief; it also disputed the claimed balance and 36% default interest.

A separate civil suit had resulted in an interim restraint against creating third-party interests in the CT Scan Unit.

1. Whether interim protection under Section 9 warranted appointment of a Court Receiver to take possession of the hypothecated machinery despite the claimed impact on Respondent No. 1’s business.

2. Whether the Receiver or Petitioner should be authorised to sell or otherwise dispose of the machinery before determination of the parties’ rights and liabilities.

3. Whether the pending civil suit’s interim order prevented the Court from granting protection under Section 9.

Section 9 of the Arbitration and Conciliation Act, 1996 empowers the Court to order interim measures, including appointment of a Receiver and arrangements for the custody of property; such measures may preserve secured property without determining the final monetary claim or parties’ ultimate rights.

Section 9(2) requires the party obtaining interim relief before commencement of arbitration to take the necessary steps to commence arbitral proceedings within the prescribed period.

The Court relied on L & T Finance Ltd. v. G.G. Granites, 2013 SCC OnLine Mad 2719, for the principle that hypothecation creates a charge without delivery of possession and that the hypothecatee’s rights are governed by the contract; the decision does not make possession automatic, and the Court must assess the circumstances of each case.

The Court also noted that Indian Oil Corporation v. NEPC India Limited, 2006 (4) CTC 60 (SC) : AIR 2006 SC 2780, expressed no opinion on whether a creditor may take possession with or without court intervention.

The Court found a prima facie basis for protection in the finance agreement and hypothecation, prolonged defaults, recall of the loan, Respondent No. 1’s surrender letter, and failure to deliver possession.

It balanced the Petitioner’s security interest against the machinery’s importance to Respondent No. 1’s business and concluded that court-supervised possession would preserve the asset while avoiding private enforcement disputes.

The order would not decide the amount due, the enforceability of the 36% default interest, or the final rights of the parties; the machinery could not be sold, transferred, encumbered, dismantled, or otherwise disposed of.

The civil suit’s order was neither set aside nor varied; the Court held only that the suit did not defeat the Petitioner’s request for protective custody, with no third-party rights or disposal permitted under its order.

Police assistance was authorised for taking possession, including access where premises were locked or obstructed, subject to the Receiver recording the steps taken and the machinery’s condition.

No power to sell or otherwise dispose of the machinery was granted; the Petitioner was to bear the initial Receiver-related expenses, and all other rights and contentions remained open.