Supreme Court upholds Section 9 relief for losing arbitration party, orders ₹3.5 crore bank-guarantee amount deposited pending challenge

The appellant and respondent entered into an MoU in 2002 for construction and development works in Agra. The respondent received a mobilisation advance of ₹3.5 crores against bank guarantees.

During arbitral proceedings, the Delhi High Court, by order dated 15.12.2005, recorded the respondent’s undertaking to keep the bank guarantees alive until the arbitration, and thereafter until disposal of any Section 34 proceedings; the appellant could invoke them if an executable award required recovery from the respondent.

The respondent subsequently failed to keep the guarantees alive, and the appellant invoked and encashed them in September 2017.

The arbitral award dated 05.12.2017 rejected the respondent’s claims, including its claim concerning discharge of the guarantees and bank charges; the appellant had filed no counterclaim.

While the respondent’s Section 34 challenge was pending, it filed a fresh Section 9 application seeking return or deposit of the encashed amount. The Single Judge directed the appellant to deposit ₹3.5 crores with the High Court Registry, and the Division Bench upheld that direction.

Whether a post-award Section 9 application is maintainable at the instance of an award debtor whose claims have been dismissed and who has no enforceable award in its favour.

Whether, pending adjudication of the respondent’s Section 34 challenge, the courts below were justified in directing the appellant to deposit ₹3.5 crores equivalent to the encashed bank guarantees.

Whether the direction was a permissible interim measure under Section 9, or impermissibly amounted to a final adjudication of the parties’ rights.

Section 9 of the Arbitration and Conciliation Act, 1996 confers wide power on the court to grant interim measures securing the amount in dispute or protecting the subject matter of arbitration, including such measures as may appear “just and convenient,” before or after the award but before enforcement under Section 36.

Under Essar House Pvt. Ltd. v. Arcellor Mittal Nippon Steel India Ltd., (2022) 20 SCC 178, relief under Section 9 is governed by the existence of a prima facie case, balance of convenience, irreparable injury, and reasonable expedition; the power must be exercised judiciously to promote the efficacy of arbitration.

Adhunik Steels Ltd. v. Orissa Manganese & Minerals (P) Ltd., (2007) 7 SCC 125, establishes that ordinary principles governing interim injunctions, including prima facie case, balance of convenience and irreparable injury, apply to Section 9 relief.

Relying on Home Care Retail Marts Pvt. Ltd. v. Haresh N. Sanghavi, 2026 SCC OnLine SC 670, the Court held that an unsuccessful award debtor may, in rare and compelling cases, invoke Section 9 to prevent irreparable prejudice and preserve the efficacy of a pending Section 34 challenge, although the threshold for relief is higher.

Section 9 courts are guided by, but are not rigidly bound by, Order XXXVIII Rule 5 of the Code of Civil Procedure.

The Court held that the respondent’s Section 9 application was maintainable notwithstanding the dismissal of its arbitral claims, because the eventual outcome of the Section 34 proceedings could alter the parties’ rights and interim protection could be necessary to prevent irreversible prejudice.

On the merits, the 2005 order permitted invocation of the bank guarantees only if, after adjudication, the appellant was found entitled to recover an amount from the respondent.

The appellant had filed no counterclaim, and the arbitrator had not determined that the mobilisation advance was unutilised or that the appellant was entitled to retain the encashed amount.

The arbitrator also appeared not to have appreciated that the guarantees had already been encashed and did not effectively decide the issue concerning their discharge.

Consequently, the High Court had a strong prima facie basis to conclude that continued retention of ₹3.5 crores could result in unjust enrichment and conflict with the purpose of the 2005 order.

Depositing the amount in court, rather than directing immediate payment to the respondent, appropriately balanced the parties’ interests: the money would earn interest for the benefit of the ultimately successful party while preserving the subject matter pending the Section 34 proceedings.

The earlier order dated 01.11.2017, which had found no fault in the appellant’s conduct when the guarantees ceased to remain alive, did not bar the subsequent post-award Section 9 proceedings, which concerned the appellant’s entitlement to retain the encashed amount in light of the award.

Upon deposit, the amount was directed to be placed in a fixed deposit with a nationalised bank on an auto-renewal basis until disposal of the Section 34 application.

The Court held that the respondent had established a rare and compelling case satisfying the requirements of prima facie case, balance of convenience, irreparable prejudice and reasonable expedition under Section 9.

It clarified that the observations made in the Section 9 proceedings were prima facie and would not influence determination of the Section 34 challenge.

No order as to costs was made.