Section 9 permits appointment of a receiver to preserve hypothecated movable assets pending arbitration.

Tata Capital Limited advanced construction-equipment finance to the respondents under Loan-cum-Hypothecation Agreements dated 8 November 2024.

The respondents agreed to repay the facilities in instalments and hypothecated the financed construction equipment as security for the principal, interest and other charges payable under the agreements.

After disbursement, the respondents took possession and used the equipment but allegedly defaulted in repayment and made only part-payments.

Tata Capital issued reminders and demand notices, recalled the facilities, demanded the foreclosure amount, and invoked the arbitration clauses.

Tata Capital asserted that it did not know the present location of the hypothecated equipment and apprehended that the respondents might conceal, transfer or otherwise deal with the secured assets, thereby frustrating recovery and the arbitral proceedings.

The respondents, although served, did not appear or oppose the petitions.

Tata Capital therefore sought interim measures under Section 9 of the Arbitration and Conciliation Act, 1996, including asset disclosure, attachment or freezing of bank accounts, security or a bank guarantee, disclosure of the equipment’s location and deployment contracts, appointment of a receiver, injunction against alienation, directions to transport authorities, and police-assisted repossession.

Whether Tata Capital had established a prima facie contractual relationship, subsisting arbitral dispute and entitlement to interim protection under Section 9 of the Arbitration and Conciliation Act, 1996

Whether the respondents could be directed to disclose the present location and deployment contracts of the hypothecated construction equipment

Whether the Court should appoint a Court Receiver to trace and take possession of the hypothecated construction equipment, with police assistance where necessary

Whether the respondents should be restrained from selling, transferring, encumbering or parting with possession of the hypothecated equipment

Whether Tata Capital was entitled, at the interim stage, to attachment or freezing of bank accounts, a bank guarantee, additional security, disclosure of receivables and cash flows, or omnibus directions to transport authorities

The Court applied Section 9 of the Arbitration and Conciliation Act, 1996, which empowers the Court to grant just and convenient interim measures for preservation of the subject matter of arbitration 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 require consideration of a prima facie case, balance of convenience and the risk of frustration of the arbitral proceedings, while strict procedural compliance with the CPC is not mandatory.

At the same time, relying on Sadbhav Engineering Ltd. v. Efftech Infra Engineers, 2024 Supreme (Guj) 63, the Court held that Section 9 relief is discretionary and that attachment or security for a monetary claim cannot be granted routinely without material showing a genuine risk to the arbitral process.

The Court also relied on ICICI Bank Ltd. v. Nidhi Sharma, 2019 SCC OnLine Del 12265, recognising that hypothecated movable assets may depreciate or become untraceable and that repossession and preservation may therefore require prompt judicial protection.

Contractual Clauses 18.1, 18.2 and 18.5 permitted Tata Capital, upon default, to declare the outstanding dues payable, repossess and sell the hypothecated assets, require delivery of possession and documents, and seek repossession through a court or arbitral tribunal.

The Court found that the loan agreements, hypothecation documents, statements of account, demand notices and invocation of arbitration established, prima facie, the parties’ relationship, the respondents’ alleged defaults and the existence of an arbitrable dispute.

The contractual remedies strengthened Tata Capital’s claim to protection of the construction equipment, but did not automatically justify every relief sought under Section 9.

Since the equipment constituted the agreed security, its location and deployment contracts were directly relevant to preserving the subject matter of arbitration; disclosure of those particulars caused comparatively little prejudice and was therefore justified.

The respondents’ absence, failure to disclose the equipment’s whereabouts and failure to provide any undertaking that the equipment would remain available supported a reasonable apprehension that the security could become ineffective.

Accordingly, appointment of a receiver to trace, identify and take possession of the equipment was necessary, although any sale required further judicial or arbitral permission and notice to the respondents.

The Court declined to freeze bank accounts, require a bank guarantee or additional security, or order disclosure of receivables and cash flows because Tata Capital had not shown dissipation of funds, insufficiency or disappearance of the hypothecated security, or any contractual charge over the respondents’ receivables.

Omnibus directions to all transport authorities were also refused for want of material showing attempted misuse of registration or involvement of such authorities.

The respondents were directed, within two weeks of service of the order, to file affidavits disclosing the present location, identification particulars and deployment contracts of the hypothecated construction equipment.

They were restrained, pending the arbitral proceedings and until further orders, from selling, transferring, encumbering, creating third-party rights in, or parting with possession of the equipment without permission of the Arbitral Tribunal or, before its constitution, the Court.

The Court Receiver, High Court, Bombay, was appointed with authority to locate, identify and take symbolic or physical possession of the equipment and to seek police assistance; the Receiver was required to prepare an inventory, record the equipment’s condition and preserve it in safe custody.

The Receiver could not sell or dispose of the equipment without further orders, and any proposed sale required notice to the respondents.

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

The findings were expressly declared prima facie, and Tata Capital was directed to commence or continue arbitration in accordance with Section 9(2) of the 1996 Act.