Section 9 permits receivership to preserve hypothecated movable assets, but not routine security for monetary claims.

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 charges.

Following alleged defaults and part-payments, Tata Capital issued demand and recall notices, demanding the foreclosure amount and invoking the arbitration clause.

Tata Capital asserted that the respondents had failed to disclose the whereabouts of the hypothecated equipment and apprehended that the assets might be concealed, transferred, or otherwise dealt with, frustrating enforcement of a prospective arbitral award.

The respondents did not appear despite service.

Tata Capital therefore sought interim measures under Section 9 of the Arbitration and Conciliation Act, 1996, including disclosure of assets and the equipment’s location, attachment or freezing of bank accounts, furnishing of security or a bank guarantee, appointment of a Receiver, police assistance, injunction against transfer of the equipment, and directions to transport authorities.

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

Whether the respondents should be directed to disclose their assets, the present location of the hypothecated construction equipment, and the contracts under which the equipment was deployed?

Whether the respondents’ bank accounts should be attached or frozen, or whether they should be directed to furnish a bank guarantee or additional security for Tata Capital’s monetary claim?

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

Whether the respondents should be restrained from transferring, encumbering, creating third-party rights in, or parting with possession of the hypothecated equipment, and whether omnibus directions should be issued to transport authorities?

The Court applied Section 9 of the Arbitration and Conciliation Act, 1996, which empowers the Court to grant just, convenient, and necessary interim measures for protecting 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 prima facie case, balance of convenience, and the possibility that refusal of relief may frustrate the arbitral proceedings; however, the Court need not apply the procedural requirements of the CPC with excessive technicality.

Relying on Sadbhav Engineering Ltd. v. Efftech Infra Engineers, 2024 SCC OnLine 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, for the principle that hypothecated movable assets may depreciate or become untraceable and may therefore require prompt judicial protection, repossession, preservation, and, where justified, sale under safeguards.

Contractual Clauses 18.1, 18.2, and 18.5 conferred rights of repossession, delivery of possession and documents, appointment of a receiver, and judicially supervised repossession of the hypothecated assets.

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

The respondents’ absence and failure to disclose the location of the secured equipment, coupled with the nature of the equipment as movable and depreciating machinery, justified limited measures directed at preserving the subject matter of arbitration.

Accordingly, disclosure of assets, the equipment’s location, and deployment contracts was considered proportionate because it facilitated identification and preservation of the agreed security.

Conversely, the Court held that the material did not show dissipation or diversion of bank funds, and that freezing bank accounts or directing a bank guarantee or additional security would effectively secure the entire monetary claim before adjudication and potentially impose double security despite the existing hypothecation.

Since the hypothecated equipment was the principal subject of the contractual security, the Court considered appointment of a Receiver appropriate, but limited the Receiver’s powers to tracing, taking possession, inventory, and preservation.

Sale was not permitted without further orders after notice to the respondents.

The injunction against dealing with the equipment was granted to preserve its availability, whereas omnibus directions to all transport authorities were rejected for want of specific material connecting those authorities with any threatened transfer or misuse.

The respondents were directed, within two weeks of service, to file affidavits disclosing the location and identifying particulars of the hypothecated construction equipment and the contracts under which it was deployed.

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 power to locate, identify, and take symbolic or physical possession, seek police assistance, prepare inventories, photograph and record the condition of the assets, and preserve them.

The Receiver was prohibited from selling or disposing 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 transport authorities were rejected at this stage.

The findings were expressly declared prima facie, and Tata Capital was directed to initiate or continue arbitral proceedings within the period prescribed by Section 9(2).