Whether an Application for Interim Measures under Section 9 of the Arbitration and Conciliation Act, 1996 can be Maintained by an Award Debtor – Dr. Ananya Pratap Singh

Supreme Court of India: Whether an Application for Interim Measures under Section 9 of the Arbitration and Conciliation Act, 1996 can be Maintained by an Award Debtor

In National Projects Construction Corporation Ltd. v Ishvakoo (India) Pvt. Ltd., 2026 INSC 828, the Supreme Court decided the issue of whether courts were justified in directing the appellant to deposit an amount equivalent to encashed bank guarantees with the Registry of the High Court, pending disposal of a Section 34 application filed by the respondent challenging the arbitral award.

Factual Matrix

On 16.08.2002, the appellant and the respondent entered into a Memorandum of Understanding for work relating to Bus Terminus construction and development of the Taj Trapezium Zone Heritage Corridor for Agra.

In December 2002, the respondent was provided INR 3.5 crores as Mobilisation Advance against bank guarantees furnished by it. Disputes arose, and the respondent invoked the arbitration clause, following which an Arbitrator was appointed.

At that stage, the respondent filed a Section 9 application seeking to restrain the appellant from invoking the bank guarantees.

This was disposed of on 15.12.2005, recording the respondent’s undertaking to keep the bank guarantees alive until adjudication by the Arbitrator, and further recording that if the Arbitrator’s award found the appellant entitled to recover any amount from the respondent, the appellant would be entitled to recover it by invoking the bank guarantees.

The Arbitrator rendered the Award on 05.12.2017. In the interim, since the respondent was unable to keep the bank guarantees alive, the appellant invoked them in around September 2017.

Before the Award was pronounced, the respondent moved a fresh Section 9 petition, which was disposed of on 01.11.2017, holding that since the respondent had failed to keep the bank guarantees alive after September 2017, there was no fault in the appellant’s conduct.

Before the Arbitrator, the respondent was the claimant and the appellant was the respondent, and admittedly no counter-claim was filed by the appellant.

The Arbitrator framed Issue Nos. 3 and 4, concerning discharge of the bank guarantees and the respondent’s entitlement to bank charges of INR 77,27,225 for keeping them alive.

In the Award, the Arbitrator dismissed the respondent’s claims, recording that the respondent was bound by its own undertaking to keep the bank guarantees alive per the order dated 15.12.2005, and that due to the respondent’s “fraudulent and collusive conduct,” the appellant could not be fastened with liability, and was accordingly not liable for bank charges.

The respondent filed a Section 34 application. On 20.09.2018, an order was made directing the appellant to return the amount equivalent to the bank guarantees within three weeks, and a further order was made on 30.10.2018 reiterating this direction.

These orders were carried in appeal, and a consent order dated 29.11.2018 was passed, setting aside the impugned orders and leaving the questions raised to be decided along with the Section 34 objections, while permitting the respondent to file a fresh Section 9 petition.

Pursuant to this, another section 9 petition was filed by the respondent, seeking return of the amount equivalent to the bank guarantees.

This petition was allowed by the learned Single Judge on 05.04.2019, who recorded that there was no finding in the Award that the respondent had failed to utilise the mobilisation advance, and that Issue No. 3 (discharge of bank guarantees) had not actually been decided by the Arbitrator, who appeared unaware that the bank guarantees had already been encashed.

The Single Judge held that permitting the respondent (herein appellant) to retain the money would unjustly enrich it and would be contrary to the purpose of the order dated 15.12.2005, and directed deposit of INR 3.5 crores with the Registry in an interest-bearing fixed deposit. This order was upheld by the Division Bench on 21.05.2019, giving rise to the present appeal.

Parties’ Contentions

The appellant contended that under Section 9, a court cannot grant relief amounting to final adjudication of rights pending at the Section 34 stage, and that post-award, Section 9 power exists only to protect the fruits of the Award in aid of enforcement.

It was submitted that a claimant whose claims were dismissed in toto holds no Award and has no fruits of its own to protect, that the respondent was in substance seeking a mandatory direction to claw back monies lawfully realised under the bank guarantees, and that the legality of encashment stood concluded by the order dated 01.11.2017.

It was further submitted that the High Court had impermissibly undertaken a merits review of the Award at the interlocutory stage, that the Arbitrator had expressly refused relief on account of the respondent’s own undertaking and fraudulent and collusive conduct, that the relief granted fell outside Section 9(1)(ii)(e), that the absence of a counter-claim made no difference since dismissal of the claim removed the substratum for seeking return of the bank guarantee amounts, and that the principles of Order XXXVIII Rule 5 CPC were not satisfied.

The respondent contended that no counter-claim had been filed by the appellant, that there was no finding in the Award regarding non-utilisation of the mobilisation advance, and that Issue No. 3 before the Arbitrator remained unaddressed.

It was submitted that the finding of collusion against the respondent was subject to challenge in the pending Section 34 proceedings, and that permitting the appellant to retain the amount would unjustly enrich it.

It was further submitted that Section 9 confers wide powers to pass orders of the nature made by the Single Judge and the Division Bench.

Issue

Whether the courts below were justified in directing the appellant to deposit INR 3.5 crores with the Registry of the High Court, pending disposal of the Section 34 application filed by the respondent challenging the Arbitrator’s Award.

Findings of the Supreme Court

The Court held that the maintainability of a Section 9 application by an Award Debtor is no longer res integra, relying on Home Care Retail Marts Pvt. Ltd. v Haresh N. Sanghavi, 2026 SCC OnLine SC 670, which held that Sections 34 and 36 provide remedies against an award or a stay thereof, whereas Section 9 protects the subject matter or amount in dispute, and that denying interim relief to an unsuccessful party would leave it remediless, since the distinction between a “winning” and “losing” party cannot govern access to Section 9.

The Court noted that Home Care Retail Marts had also held that a purposive interpretation requires “a party” to mean any party to the arbitration agreement, and had envisaged that where a losing party had earlier obtained interim protection (such as an order restraining bank guarantee invocation) which would ordinarily stand vacated upon the award, immediate removal of such protection pending a Section 34 challenge with a Section 36(3) stay could cause irreversible prejudice, warranting Section 9 relief in rare and compelling cases, though the threshold for such relief would be higher for an unsuccessful party.

The Court reiterated the principles from Essar House Private Limited v Arcellor Mittal Nippon Steel India Limited, (2022) 20 SCC 178, that Section 9 confers wide power on courts to secure the amount in dispute at any stage of arbitration, before or after the award but prior to enforcement, with the court required to examine the existence of a good prima facie case, balance of convenience, and reasonable expedition in approaching the court, and that proof of actual attempts to dispose of property to defeat an award is not imperative, a strong possibility of diminution of assets sufficing.

The Court also referred to Adhunik Steels Ltd. v Orissa Manganese and Minerals (P) Ltd., (2007) 7 SCC 125, which held that the well-known principles governing interim injunctions are not alien to Section 9, and that the concept of balance of convenience, prima facie case, and irreparable injury cannot be kept out of the exercise of power under the provision.

Applying these principles to the facts, the Court held that the respondent had fulfilled the necessary parameters for relief under Section 9, for the following reasons:

1. The order dated 15.12.2005 in OMP No. 363/2003 had specifically conditioned the appellant’s entitlement to invoke the bank guarantees on a finding by the Arbitrator that it was entitled to recover an amount from the respondent;

2. No counter-claim had been filed by the appellant before the Arbitrator;

3. Issue Nos. 3 and 4 dealt with by the Arbitrator concerned only bank charges, and the Arbitrator appeared unaware that the bank guarantees had already been invoked prior to the Award;

4. Whether the Arbitrator had recorded any finding on non-utilisation of the mobilisation advance would finally be decided in the pending Section 34 application, though prima facie findings had been recorded to the effect that no such finding existed;

5. The order dated 01.11.2017 would not bar the respondent since the present proceedings arose from a post-Award Section 9 application, and the real question was whether permitting the appellant to retain the money would amount to unjust enrichment in light of the contents of the Award;

6. Given the absence of a counter-claim and of any finding on non-utilisation of the mobilisation advance, the High Court was justified in finding that permitting the appellant to retain the money would unjustly enrich it and would be contrary to the order dated 15.12.2005;

7. Applying Home Care Retail Marts and Essar House, the case presented a rare and compelling situation warranting relief even under the higher threshold applicable to an unsuccessful party, to prevent irreparable prejudice and preserve the efficacy of the Section 34 challenge;

8. The High Court’s exercise of jurisdiction was judicious rather than arbitrary, having regard to prima facie case, balance of convenience, irreparable prejudice, and the respondent’s reasonable expedition in approaching the court; and

9. The relief granted furthered the efficacy of arbitration as a form of dispute resolution and was consistent with the purpose of interim measures under Section 9.

Accordingly, the Court found no merit in the appeal and dismissed it, granting the appellant four weeks to deposit INR 3.5 crores with the Registry of the Delhi High Court, to be kept in a fixed deposit on auto-renewal basis until disposal of the Section 34 application.

The Court clarified that its observations were made only for the purpose of deciding the Section 9 petition, and that the Section 34 application would be decided on its own merits without being influenced by the observations in the orders of the courts below or in the present judgment.