Bombay High Court allows Court Receiver to trace and take possession of hypothecated construction equipment in loan-default arbitration cases while rejecting bank-account attachment and additional-security demands

Tata Capital Limited financed the respondents’ purchase of construction equipment under Loan-cum-Hypothecation Agreements dated 8 November 2024.

The equipment was hypothecated in favour of Tata Capital as security for repayment of the principal, interest and other contractual dues.

The respondents allegedly defaulted in repayment despite reminders and demand notices. Tata Capital recalled the loan facilities, demanded the foreclosure amount, and invoked the arbitration clauses in the agreements.

As the respondents allegedly failed to disclose the whereabouts of the hypothecated equipment and did not appear despite service, Tata Capital approached the Bombay High Court under Section 9 of the Arbitration and Conciliation Act, 1996, seeking disclosure of assets, attachment or securing of the monetary claim, repossession through a Receiver, injunction against transfer of the equipment, and police/RTO assistance.

The petitions were heard together because they involved substantially identical facts and legal questions.

1. Whether Tata Capital had established a prima facie contractual right, an existing or contemplated arbitral dispute, and a need for interim protection under Section 9 of the Arbitration and Conciliation Act, 1996?

2. Whether the Court should direct the respondents to disclose the location and deployment contracts of the hypothecated construction equipment?

3. Whether the Court should appoint a Receiver to trace and take symbolic or physical possession of the hypothecated equipment, including with police assistance?

4. Whether the respondents should be restrained from selling, transferring, encumbering or parting with possession of the hypothecated equipment during the arbitral proceedings?

5. Whether the Court should attach or freeze the respondents’ bank accounts, direct disclosure of broader financial assets, or require a bank guarantee or additional security for Tata Capital’s monetary claim?

6. Whether omnibus directions should be issued to transport authorities throughout India to blacklist the equipment and disclose its location?

The Court applied Section 9 of the Arbitration and Conciliation Act, 1996, which empowers the Court to grant interim measures for the protection of the subject matter of arbitration, preservation of property, and securing the amount in dispute.

Relying on Essar House (P) Ltd. v. Arcellor Mittal Nippon Steel (India) Ltd., (2022) 20 SCC 178, the Court held that Section 9 proceedings are equitable and flexible, and that the Court should consider a prima facie case, balance of convenience, and the risk that refusal of relief may frustrate the arbitral proceedings, without applying the procedural requirements of the CPC mechanically.

However, relying on Sadbhav Engineering Ltd. v. Efftech Infra Engineers, 2024 Supreme (Guj) 63, the Court held that Section 9 relief cannot routinely be used to secure an unadjudicated money claim; there must be material showing that the arbitral proceedings or the subject matter may otherwise become ineffective.

The Court also relied on ICICI Bank Ltd. v. Nidhi Sharma, 2019 SCC OnLine Del 12265, which recognises that hypothecated movable assets may depreciate or become untraceable and that appropriate measures may be necessary for their preservation and repossession.

The contractual provisions—particularly Clauses 18.1, 18.2, 18.3, 18.4 and 18.5—authorised declaration of the outstanding dues, repossession and sale of the hypothecated assets, delivery of possession and documents, and repossession either through judicial orders or under the contractual authority granted to the lender.

The Court found that the loan agreements, hypothecation documents, statements of account, demand notices and recall of the facilities established, prima facie, the contractual relationship, the respondents’ defaults and a subsisting arbitral dispute.

Since the construction equipment constituted the agreed security and its whereabouts had not been disclosed, an order requiring disclosure of its location and deployment contracts was directly connected with preserving the subject matter of arbitration and caused comparatively little prejudice to the respondents.

The respondents’ absence despite service, coupled with their failure to account for the equipment, justified protective intervention.

The Court therefore appointed the Court Receiver to locate, identify and take symbolic or physical possession, with police assistance where necessary, while requiring an inventory, photographs and preservation of the equipment.

A restraint against transfer, encumbrance or parting with possession was proportionate because it preserved the secured assets without determining the parties’ substantive rights.

In contrast, the Court found no material showing dissipation of bank balances, concealment of broader assets, or inadequacy or unavailability of the hypothecated equipment; attachment of bank accounts, a bank guarantee or additional security would therefore improperly secure the entire monetary claim before adjudication and potentially impose double security.

Omnibus directions to all RTOs and transport authorities were also declined because there was no evidence of attempted registration changes or involvement of those authorities.

The respondents were directed, within two weeks of service of the order, to disclose by affidavit the present location, identifying particulars and deployment contracts of the hypothecated construction equipment.

They were restrained from selling, transferring, alienating, encumbering, creating third-party rights in, or parting with possession of the equipment without permission of the Arbitral Tribunal or, until its constitution, the Court.

The Court Receiver, High Court, Bombay, was appointed with powers under Order XL Rule 1 CPC to locate and take symbolic or physical possession, obtain police assistance, prepare inventories, record the condition of the equipment and preserve it.

The Receiver could not sell or dispose of the equipment without further orders of the Arbitral Tribunal or the Court after notice to the respondents.

Reliefs seeking attachment or freezing of bank accounts, a bank guarantee, additional security, disclosure of receivables and cash flows, and omnibus directions to RTOs were rejected at that stage.

The findings were expressly declared prima facie and not binding on the Arbitral Tribunal; Tata Capital was directed to commence or continue arbitration in accordance with Section 9(2).