Section 9 protection is warranted where an admitted obligation risks rendering the arbitral award a paper decree.

UGRO Capital Limited (“Petitioner”) and Trucap Finance Limited (“Respondent No. 1”), both NBFCs, entered into a Business Partnership Agreement dated 20 October 2022 for a co-lending arrangement.

Under Clause 5.4 read with Schedule X, Respondent No. 1 was required to provide a First Loss Default Guarantee (“FLDG”) comprising a lien-marked fixed deposit (“FD”) equal to 5% of the monthly portfolio outstanding and a corporate guarantee (“CG”) equal to 5% of the quarterly portfolio outstanding.

Respondent No. 1 furnished an FD of only ₹1.75 crore and failed to provide the required CG, apart from a payment of ₹1.27 crore, resulting in an aggregate FLDG shortfall of ₹1.70 crore.

When the Petitioner sought to invoke the FD on 16 July 2025, Respondent No. 2-bank stated that encashment was prevented by an alleged stay order in separate proceedings, to which the Petitioner was not a party.

Citing Respondent No. 1’s deteriorating financial condition, defaults, declining credit rating and mounting losses, the Petitioner filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (“Act”) seeking interim protection pending constitution of the arbitral tribunal.

Whether the Petitioner was entitled to interim protection under Section 9 of the Act in respect of the admitted and allegedly unpaid FLDG shortfall of ₹1.70 crore, particularly when the furnished FD could not presently be encashed.

Whether the Court should constitute an arbitral tribunal to adjudicate the disputes arising under the Agreement.

Whether Respondent No. 1 should be restrained from creating third-party rights, encumbering or disposing of assets up to the value of ₹1.70 crore pending consideration of interim relief by the arbitral tribunal.

The Court applied Section 9 of the Arbitration and Conciliation Act, 1996, which empowers a court to grant interim measures of protection before or during arbitral proceedings where such protection is necessary to preserve the subject matter or secure the amount in dispute.

The Court also relied on the principles of balance of convenience and irreparable harm, finding interim protection appropriate where, absent such protection, a prospective arbitral award may be rendered ineffective or reduced to a paper decree.

Upon constitution of the tribunal, the Section 9 application was directed to be treated as an application under Section 17 of the Act, enabling the arbitral tribunal to continue, modify, vary or vacate the interim arrangement.

The Court also invoked Section 12(2) of the Act concerning the arbitrator’s disclosure obligations.

The Court treated Respondent No. 1’s obligation to furnish the FLDG as admitted and undisputed, noting that the agreed security had not been fully provided and that the existing FD was, for the time being, incapable of invocation due to the alleged stay order in separate proceedings.

The Petitioner’s evidence regarding Respondent No. 1’s financial deterioration, defaults and mounting losses furnished reasonable grounds to apprehend that any future arbitral award might become commercially ineffectual.

On this basis, the Court found that the balance of convenience favoured the Petitioner and that refusal of protection could cause irreparable harm.

Since Respondent No. 1 raised no objection to reference of the disputes to arbitration, the Court appointed a sole arbitrator and directed that the interim application be placed before the tribunal after its constitution.

The Court preserved the security of the claim without finally adjudicating the parties’ substantive rights or the merits of the dispute.

Ms. Manisha Suri was appointed as the sole arbitrator, with the arbitration to be conducted under the rules and aegis of the Delhi International Arbitration Centre.

The Section 9 petition was to be treated as an application under Section 17 upon constitution of the tribunal, and the interim arrangement was to continue until the arbitrator passed appropriate orders, subject to modification, variation or vacation by the tribunal.

All claims, counterclaims, jurisdictional objections and other contentions were left open for determination in arbitration.