An arbitral tribunal may preserve disputed inventory under Section 17 without exceeding the pleadings.

The parties’ dispute arose from a distributorship agreement dated 18 April 2016. Livguard alleged unpaid dues of approximately ₹2.40 crore and relied on a dishonoured cheque for ₹1,84,27,300.

The parties had jointly inspected unsold inventory on 1 February 2024, valued at approximately ₹1.64 crore; they disputed whether Livguard had agreed to accept its return in full and final settlement.

The High Court had earlier restrained the creation of third-party rights in premises occupied by the distributor, but the arbitrator later discontinued that restraint, directed preservation of the inventory, and declined Livguard’s request for monetary security under Section 17.

Livguard appealed under Section 37(2)(b), arguing, among other things, that the preservation direction went beyond the relief sought.

Whether the arbitral tribunal’s direction to preserve the unsold inventory went beyond the pleadings or introduced a new dimension to the dispute.

Whether the tribunal’s refusal to order monetary security, and its direction to preserve the inventory, warranted interference under Section 37(2)(b).

Section 37(2)(b) of the Arbitration and Conciliation Act, 1996 permits appellate interference with an order under Section 17 only on limited grounds, such as patent illegality, perversity, arbitrariness, capriciousness, or manifestly unreasonable exercise of discretion; a different view on the facts is not, by itself, sufficient.

Section 17(1)(ii)(a) empowers an arbitral tribunal to order the preservation or sale of goods forming the subject matter of the arbitration, and Section 17(1)(ii)(c) empowers it to direct inspection of property or a thing.

The court also considered Indo Spirits v. Pernod Ricard India Pvt. Ltd. & Ors., 2026:DHC:1413, and Indian Oil Corporation Ltd. v. M/s Fire Ball Engineers, 2024:DHC:8911-DB, in relation to the principle that a tribunal should not grant relief beyond the pleadings; it distinguished Indo Spirits on the facts.

The inventory’s condition and return were central to the parties’ competing accounts of the proposed settlement, and the alleged deterioration in its value was a basis on which Livguard sought monetary security. The preservation direction therefore concerned the existing subject matter of the dispute and did not introduce a new controversy or impose a new substantive liability.

The tribunal had considered Livguard’s allegation that the inventory had deteriorated to scrap value but found insufficient evidence to establish it; the High Court held that this disputed factual question could not be reassessed in its limited Section 37 jurisdiction.

The parties could seek modification from the tribunal if circumstances changed, including through an application for inspection, valuation, or sale.

The appeal was dismissed. The court clarified that Livguard could apply to the tribunal for appropriate directions concerning inspection, valuation, or sale if circumstances changed; pending applications were also disposed of.