Section 9 permits court-appointed receivership 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 financed construction equipment was hypothecated in favour of the petitioner as security for repayment of the principal, interest and other contractual charges.

The respondents allegedly defaulted in making regular monthly payments despite reminders. The petitioner consequently recalled the loan facility, demanded payment of the foreclosure amount, invoked the arbitration clause and asserted that the whereabouts of the hypothecated equipment were unknown.

The petitioner filed applications under Section 9 of the Arbitration and Conciliation Act, 1996, seeking disclosure of the respondents’ assets and the equipment’s location, attachment or freezing of bank accounts, furnishing of security or a bank guarantee, appointment of a Receiver, restraint against alienation of the equipment, police assistance, and directions to transport authorities to blacklist and locate the equipment.

Despite service, the respondents did not appear. The Court therefore independently examined whether a prima facie contractual right, an existing arbitral dispute and a necessity for interim protection had been established.

1. Whether the petitioner had established a prima facie contractual and arbitral dispute warranting interim protection under Section 9 of the Arbitration and Conciliation Act, 1996.

2. Whether the respondents should be directed to disclose the location and deployment contracts of the hypothecated construction equipment.

3. Whether a Court Receiver should be appointed to trace, identify and take possession of the hypothecated equipment, with police assistance where necessary.

4. Whether the respondents should be restrained from selling, transferring, encumbering or creating third-party rights in the hypothecated equipment.

5. Whether the petitioner was entitled to attachment or freezing of bank accounts, a bank guarantee, or additional security for its 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 just and convenient interim measures, including preservation of the subject matter of arbitration, securing the amount in dispute, appointment of a Receiver and other protective reliefs.

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 a practical approach and consideration of a prima facie case, balance of convenience and the risk of frustration of the arbitral proceedings, although the Court must still apply the basic principles underlying the CPC.

It also relied on Sadbhav Engineering Ltd. v. Efftech Infra Engineers, 2024 SCC OnLine Guj 63, for the principle that Section 9 relief must not become a routine method of securing every monetary claim and must be supported by material demonstrating a genuine need for interim protection.

The Court further drew guidance from ICICI Bank Ltd. v. Nidhi Sharma, 2019 SCC OnLine Del 12265, recognising that hypothecated movable assets may depreciate or become untraceable and that appropriate measures may be necessary for their preservation and repossession.

Contractual Clauses 18.1, 18.2 and 18.5 gave the lender rights to declare the outstanding amount due, repossess and sell the secured equipment, require delivery of possession and seek judicial or arbitral orders for repossession.

The Court found that the loan agreements, hypothecation documents, statements of account, demand notices and recall of the facility sufficiently established, prima facie, the financing relationship, contractual default and a subsisting arbitral dispute.

The contractual security over the construction equipment directly connected the requested relief to preservation of the subject matter of arbitration.

Since the respondents remained absent and failed to disclose the equipment’s location, the Court considered disclosure of the equipment’s location and deployment contracts proportionate and necessary, causing comparatively little prejudice.

The same circumstances, coupled with the movable and depreciating nature of heavy construction equipment, justified appointment of a Receiver to trace and take possession, while requiring inventory, photographs and preservation of the assets.

However, the petitioner had produced no specific material showing dissipation of bank funds, diversion of assets, disappearance of the equipment or inadequacy of the agreed hypothecation security.

Freezing bank accounts, directing a bank guarantee or requiring additional security would therefore amount to securing the entire monetary claim or imposing double security before adjudication.

Similarly, general directions to all transport authorities were excessive and unsupported by evidence of attempted transfer or misuse of registration.

The Court therefore granted only measures proportionate to preserving and enforcing the contractual security.

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

They were restrained, pending the arbitral proceedings and further orders, from selling, transferring, alienating, 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 obtain police assistance where necessary.

The Receiver was directed to prepare an inventory, record the condition of the assets, photograph or video-record the process and preserve the equipment.

Sale or disposal was prohibited without further orders of the Court or the Arbitral Tribunal after notice to the respondents.

The prayers for attachment or freezing of bank accounts, 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 declared prima facie, and the petitioner was directed to initiate or continue arbitration in accordance with Section 9(2) of the Act.

There was no order as to costs.