The Bombay High Court has clarified that while courts retain power to grant interim relief under Section 9 of the Arbitration and Conciliation Act before arbitral proceedings commence, such petitions may be converted into applications under Section 17 once the arbitral tribunal is constituted. This decision reinforces the statutory preference for arbitral tribunals to manage interim measures after constitution, preserving judicial restraint in commercial disputes.
Background & Facts
The Dispute
The dispute arose from two agreements executed on 22 March 2024: a Securities Subscription Agreement and a Listing Framework Agreement between the petitioners (investors) and Respondent No. 1 (Synergies Castings Limited) and its promoters. The petitioners invested Rs. 27,18,46,775/- in preference shares, contingent on the company’s planned IPO. When the IPO stalled following the unexpected death of a key promoter, the petitioners invoked indemnification and put option clauses, alleging breach and misappropriation of funds.
Procedural History
- March 2024: Petitioners invested Rs. 27.18 crore under the Securities Subscription Agreement.
- October 2025: Petitioners issued formal notices invoking Put Option and Indemnification clauses.
- November 2025: Petitioners filed Commercial Arbitration Petition (L) No. 35542 of 2025 under Section 9 seeking interim measures.
- 28 November 2025: Court granted ad-interim relief restraining transfer of shares and changes to board/shareholding (prayers (a) and (c)).
- 12 January 2026: Respondents filed affidavit denying allegations, asserting lawful fund usage and citing force majeure.
- 28 January 2026: Court converted the Section 9 petition into a Section 17 application and constituted an arbitral tribunal.
Relief Sought
The petitioners sought seven interim reliefs, including: restraint on share transfers, asset freezes, disclosure of fund utilization, deposit of investment amount with the court, and inspection of records. The core objective was to preserve the status quo pending arbitration.
The Legal Issue
The central question was whether a court hearing a petition under Section 9 of the Arbitration and Conciliation Act may convert it into an application under Section 17 after constituting an arbitral tribunal, and whether such conversion precludes the tribunal from reconsidering interim relief.
Arguments Presented
For the Petitioner
Petitioners argued that the gravity of alleged fund diversion and impending insolvency proceedings warranted continued court intervention under Section 9. They contended that only the court, not the tribunal, could effectively restrain third-party creditors or enforce asset freezes. Reliance was placed on the urgency of preventing dissipation of assets before the tribunal could convene.
For the Respondent
Respondents argued that once the arbitral tribunal was constituted, jurisdiction over interim measures shifted exclusively to the tribunal under Section 17. They emphasized that the parties had agreed to arbitration as the exclusive dispute resolution mechanism and that court intervention beyond initial relief undermined party autonomy. They further noted that the petitioners had not demonstrated irreparable harm justifying continued court oversight.
The Court's Analysis
The Court examined the statutory scheme under the Arbitration Act, distinguishing between the pre-arbitration role of courts under Section 9 and the post-constitution role under Section 17. It held that Section 9 is designed for emergency relief before the tribunal is formed, while Section 17 empowers the tribunal to grant interim measures once constituted.
"The legislature intended that once the arbitral tribunal is constituted, the power to grant interim measures vests in the tribunal, and the court’s role under Section 9 becomes largely redundant."
The Court noted that the petitioners had not established a prima facie case for depositing Rs. 27.18 crore with the court (prayer (e)), as such relief required adjudication of entitlement - a matter for the tribunal. However, the Court found merit in the request for disclosure of fund utilization (prayer (d)), given the specific averment in the affidavit that funds were used for legitimate business purposes under Clause 2.4. This created a duty to verify compliance.
The Court further observed that the petitioners’ request to convert the Section 9 petition into a Section 17 application was procedurally sound and aligned with the Act’s objective of minimizing judicial interference. The tribunal, once constituted, would be fully empowered to revisit all interim reliefs, including those previously granted by the court.
The Verdict
The petitioners succeeded in part. The Court held that the Section 9 petition may be converted into an application under Section 17, and that the arbitral tribunal shall decide all interim relief applications on their merits. The court’s prior interim orders (a) and (c) were continued, and disclosure of fund usage (d) was mandated before the tribunal. The request for deposit of funds (e) was rejected as premature.
What This Means For Similar Cases
Section 9 Petitions May Be Converted to Section 17 Applications
- Practitioners may now formally move to convert pending Section 9 petitions into Section 17 applications once the tribunal is constituted.
- Courts are not required to retain jurisdiction over interim relief after tribunal formation; conversion is a procedural option, not a mandatory step.
- This avoids duplication of efforts and ensures consistency in interim orders.
Disclosure of Fund Utilization Is a Valid Interim Relief
- Where parties allege misuse of investment funds, courts may order disclosure of utilization even without freezing assets.
- Such disclosure must be made before the arbitral tribunal, not the court, once constituted.
- Affidavits claiming lawful use of funds trigger a duty to verify through documentary evidence.
Tribunal Holds Exclusive Power Over Interim Relief Post-Constitution
- Any interim relief granted under Section 9 before tribunal formation remains operative until the tribunal decides otherwise.
- The tribunal may modify, extend, or vacate such orders under Section 17 without requiring fresh court intervention.
- Practitioners must file all subsequent interim applications directly with the tribunal, not the court.
