Section 9 permits interim security where objective material shows a strong possibility of asset diminution.

The Petitioner supplied goods to the Respondent and claimed unpaid invoices.

The record included a balance confirmation, subsequent correspondence referring to outstanding amounts and assurances of payment, and a cheque that was dishonoured; the Respondent disputed the amount, relying on reconciliation and credit-note issues and contending that the cheque was an old security cheque.

The Petitioner sought interim protection under Section 9 of the Arbitration and Conciliation Act, 1996, including security for its claimed sum of Rs.32,60,37,480, pending constitution of the arbitral tribunal.

It relied on the Respondent’s audited financial statements, which showed a substantial loss, negative reserves and surplus, and significant liabilities compared with available cash; the Respondent had disclosed three immovable properties, some said to be encumbered.

The Respondent opposed the relief, asserting that it remained solvent and that the dispute over liability should be resolved in arbitration.

1. Whether the Petitioner established a sufficient basis under Section 9 for interim protection of its monetary claim, having regard to the possibility that assets available to satisfy a future award may diminish or become unavailable.

2. Whether the appropriate interim protection was to require security for the claimed amount without treating that direction as a final determination of the Respondent’s liability.

Section 9 of the Arbitration and Conciliation Act, 1996 empowers the Court to grant interim measures to preserve the efficacy of arbitration and a potential award.

As explained in Norvic Shipping Asia PTE Ltd. v. Zigma International, and approved by the Division Bench in Sunfield Global Pte Limited v. Liberty Investments Private Limited, an applicant need not prove dishonest transfer or concealment: a “strong possibility” of diminution of assets, supported by objective material, is sufficient, though more than bare suspicion is required.

Diminution may include a reduction in asset value, new encumbrances, increased secured liabilities, or transfers of receivables; the Court must also assess the prima facie case, balance of convenience and risk of irreparable prejudice.

The Court treated the invoices, balance confirmation and subsequent correspondence as supporting the Petitioner’s case prima facie, while leaving the Respondent’s reconciliation, credit-note and cheque defences open for arbitration.

The cheque was not treated as proof of the entire claim because the Respondent’s evidence raised an issue about its age and the closure of the relevant account.

The decisive consideration was the objective financial material: the audited statements showed a substantial loss, negative reserves, significant borrowings and trade payables, and limited cash; the three disclosed properties had a stated gross value materially below the claim and were partly encumbered.

Considered together with the other circumstances, this established a strong possibility that assets available for execution could become insufficient or unavailable, without requiring a finding of dishonest intent.

Requiring security, rather than payment to the Petitioner, preserved the claim while avoiding premature recovery.

The Respondent was directed, within four weeks, to deposit Rs.32,60,37,480 with the Prothonotary and Senior Master or furnish a bank guarantee from a Nationalised Bank or Scheduled Commercial Bank for that amount, to the Prothonotary and Senior Master’s satisfaction.

The security is subject to further orders and the arbitral tribunal’s final decision; the order is not an adjudication or decree for payment, and the parties’ contentions on liability, reconciliation, credit notes, interest and the cheque remain open.