Section 9 relief may preserve hypothecated assets, but cannot routinely secure monetary claims.

Tata Capital Limited advanced financial facilities to the respondents for purchasing construction equipment. The parties executed Loan-cum-Hypothecation Agreements dated 8 November 2024, under which the equipment was hypothecated in favour of Tata Capital as security for repayment of principal, interest and other charges.

The respondents allegedly defaulted in payment of instalments despite reminders. Tata Capital issued demand and recall notices, demanded payment of the foreclosure amount, and invoked the arbitration clauses contained in the loan agreements.

Tata Capital contended that the respondents had failed to disclose the whereabouts of the hypothecated construction equipment and that the security might be removed, transferred or otherwise dealt with before completion of 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 disclosure of assets and the equipment’s location, attachment of bank accounts, furnishing of security, appointment of a Receiver, restraint against creation of third-party rights, and police assistance for repossession.

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

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

Whether attachment or freezing of the respondents’ bank accounts, or directions to furnish a bank guarantee or additional security, were justified merely because Tata Capital had a prima facie monetary claim?

Whether appointment of a Court Receiver to trace and take possession of the hypothecated construction equipment was necessary to preserve the subject matter of the arbitration?

Whether the respondents should be restrained from selling, transferring, encumbering or parting with possession of the hypothecated equipment, and whether directions should be issued to transport authorities to blacklist or locate the equipment?

The Court applied Section 9 of the Arbitration and Conciliation Act, 1996, which empowers the Court to grant interim measures for preservation, interim custody or sale of the subject matter of arbitration, securing the amount in dispute, or appointing a receiver.

Although the Court is not strictly bound by every procedural requirement of the Code of Civil Procedure, the principles underlying Order XXXVIII Rule 5 remain relevant, particularly the requirement of material showing that refusal of protection may frustrate the arbitral proceedings.

Relying on Essar House (P) Ltd. v. Arcellor Mittal Nippon Steel (India) Ltd., (2022) 20 SCC 178, the Court held that Section 9 must be applied pragmatically, after considering a prima facie case, balance of convenience, and the risk of frustration of arbitration.

It also relied on Sadbhav Engineering Ltd. v. Efftech Infra Engineers, 2024 SCC OnLine Guj 63, for the principle that interim protection or security for a monetary claim cannot be granted routinely without material demonstrating a genuine risk to the arbitral process.

ICICI Bank Ltd. v. Nidhi Sharma, 2019 SCC OnLine Del 12265, was relied upon for the preservation and supervised repossession of hypothecated movable assets whose value may depreciate with time.

The contractual clauses, particularly Clauses 18.1, 18.2 and 18.5, authorised declaration of the outstanding dues, repossession and sale of the hypothecated assets, and repossession through judicial intervention or other contractually authorised means.

The loan agreements, hypothecation documents, statements of account, demand notices and recall of the loan facilities established, prima facie, a subsisting contractual relationship, default and an arbitrable dispute.

However, the Court distinguished between measures directed at preserving the hypothecated equipment and measures merely securing Tata Capital’s monetary claim.

Disclosure of assets and of the equipment’s present location was considered proportionate and necessary because the respondents had remained absent and had not accounted for the secured movable assets.

Similarly, disclosure of contracts under which the equipment was deployed was directly connected with locating and preserving the secured assets, but disclosure of all receivables and cash flows was rejected because the agreements did not create a charge over those amounts.

The Court declined attachment or freezing of bank accounts, a bank guarantee, or additional security because Tata Capital had not produced material showing dissipation of funds, concealment of assets, or insufficiency of the existing hypothecation.

Granting such relief would have secured the entire monetary claim before adjudication and created double security beyond the parties’ contractual arrangement.

In contrast, the construction equipment constituted the agreed subject matter of the security, and its possible concealment, transfer or depreciation justified judicial intervention.

Appointment of a Receiver to trace, identify and take possession of the equipment was therefore held necessary, but sale was not permitted automatically; any sale required further orders after notice to the respondents.

A restraint against transfer or creation of third-party rights was granted to preserve the equipment, whereas omnibus directions to all transport authorities were refused for want of specific evidence of registration-related misuse or attempted transfer.

The respondents were directed, within two weeks of service, to file affidavits disclosing the present location and identifying particulars of the hypothecated construction equipment, as well as 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 authority to locate, identify and take symbolic or physical possession of the equipment, seek police assistance, prepare inventories, record condition, and preserve the assets.

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.

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