Section 9 Arbitration Act | Bombay HC Appoints Receiver to Preserve Disputed Property; Registered Deeds Prevail Over Unregistered Agreements

The Bombay High Court has delivered a significant ruling on the scope of interim protection under Section 9 of the Arbitration and Conciliation Act, 1996, in a dispute involving non-payment of sale consideration for 152 plots. The Court restrained further transfers of the disputed property pending arbitration, appointed a symbolic Court Receiver, and clarified the primacy of a registered conveyance deed over an unregistered agreement. This judgment underscores the importance of preserving the subject-matter of arbitration to prevent irreparable prejudice to the claimant’s rights.

Background & Facts

The Dispute

The petitioner, Prospective Estate and Realty Logical Solutions Private Limited, sought interim protection under Order XL Rule 1 of the Code of Civil Procedure, 1908, to restrain the respondent, Nirvana Lifestyle Homes LLP, from selling, transferring, or encumbering 152 plots forming part of a land parcel admeasuring 48,885.05 sq. mtrs. at Village Amboli, Taluka Dahanu, District Palghar. The dispute arose from alleged breaches of a Registered Conveyance Deed dated 6 April 2022 and an Addendum to Sale Deed dated 6 December 2024, wherein the respondent failed to pay the balance sale consideration of Rs. 31,83,00,000.

Key Facts

• The petitioner is the lawful owner of land bearing Survey Nos. 156/11, 14, 15, 17, and 18, divided into 260 plots (152 plots subject to dispute).
• A Registered Conveyance Deed was executed on 6 April 2022 for the transfer of 152 plots to the respondent for Rs. 31,83,00,000.
• The respondent paid Rs. 5.83 crores upfront and issued post-dated cheques (PDCs) for the balance Rs. 26 crores.
• A PDC of Rs. 42,80,000 (Cheque No. 000000001232) was dishonoured, and the respondent failed to honour subsequent payments despite assurances.
• The petitioner spent Rs. 2,85,36,134 on project development as per the Third Schedule of the deed.
• An Addendum to Sale Deed was executed on 6 December 2024, revising the payment schedule for Rs. 11,31,39,103 with 12% interest, payable in monthly EMIs of Rs. 30 lakh from December 2024 to December 2028.
• The respondent paid Rs. 19,98,55,933 but defaulted on the balance Rs. 19,87,98,471 (including interest and forfeited EMD of Rs. 3,00,00,000), aggregating to Rs. 20,23,44,891.
• The petitioner discovered that the respondent had created third-party rights in respect of 76 plots without consent, violating Clause 16 of the deed.

Procedural History

• 6 April 2022: Execution of Registered Conveyance Deed for 152 plots.
• 6 December 2024: Execution of Addendum to Sale Deed, revising payment terms.
• 2024-2025: Respondent defaults on multiple instalments; dishonour of PDC (Cheque No. 000000001232).
• 31 January 2026: Petitioner issues legal notice demanding payment within 15 days.
• Post-January 2026: Respondent acknowledges liability but fails to take bona fide steps for resolution.
• 2026: Petitioner files Arbitration Notice and a police complaint.
• 2026: Present Arbitration Petition (L) No. 15449 of 2026 filed before the Bombay High Court seeking interim protection.

Relief Sought

The petitioner sought:

1. Appointment of a Court Receiver for the 152 disputed plots.
2. Injunction restraining the respondent from selling, transferring, or encumbering the plots without prior written consent.
3. Preservation of the subject-matter pending arbitration.

The Legal Issue

The central question was whether the petitioner was entitled to interim protection under Section 9 of the Arbitration and Conciliation Act, 1996, given:

• The alleged breach of Clause 16 of the Registered Conveyance Deed, which restricted transfers until full payment of consideration.
• The respondent’s reliance on an unregistered Agreement dated 6 April 2022, which purportedly modified the payment terms and permitted sales through an escrow mechanism.
• The risk of irreparable prejudice to the petitioner if third-party rights were created during the pendency of arbitration.

Arguments Presented

For the Petitioner

• Relied on Clause 16 of the Registered Conveyance Deed, which prohibited the respondent from creating third-party rights until full payment of the sale consideration.
• Submitted that the respondent had breached this clause by transferring 76 plots without consent.
• Argued that the Addendum to Sale Deed did not override the registered deed, as an unregistered agreement cannot modify the terms of a registered instrument.
• Highlighted the respondent’s default in paying the balance consideration of Rs. 20,23,44,891, including accrued interest and forfeited EMD.
• Contended that granting interim protection was necessary to preserve the subject-matter of arbitration and prevent further prejudice.

For the Respondent

• Relied on Clauses 5 and 6 of the Agreement dated 6 April 2022, arguing that the payment terms were modified to allow recovery of outstanding amounts from sale proceeds of the Viroha City project.
• Submitted that the respondent was permitted to sell plots, with proceeds to be deposited in an escrow account and a mutually agreed percentage transferred to the petitioner.
• Contended that the petitioner’s claim for injunction was misplaced, as the respondent was acting within the contractual arrangement.

The Court's Analysis

The Court conducted a prima facie assessment under Section 9 of the Arbitration and Conciliation Act, 1996, focusing on the following principles:

1. Preservation of Subject-Matter: The Court emphasised that the purpose of interim protection is to preserve the subject-matter of arbitration so that the proceedings do not become infructuous. It noted that if third-party rights were created during the pendency of arbitration, restoration of the original position could become difficult, prejudicing the petitioner’s rights.

2. Registered vs. Unregistered Documents: The petitioner argued that the Registered Conveyance Deed could not be modified by an unregistered agreement. The Court observed that this raised a substantial legal issue, as the terms of a registered instrument generally prevail over unregistered documents. While the Court refrained from expressing a final opinion, it acknowledged the prima facie strength of the petitioner’s contention.

3. Default and Conduct of Parties: The Court noted that the respondent had acknowledged liability in its reply to the legal notice but failed to take bona fide steps to resolve the dispute. The dishonour of the PDC and subsequent defaults, despite the revised payment schedule under the Addendum, weighed against the respondent. The Court observed that the respondent had not placed material on record to show that the outstanding amount had been cleared or that the escrow mechanism was operational.

4. Balance of Convenience: The Court held that the balance of convenience favoured granting interim protection. It reasoned that:

   • The petitioner had demonstrated a prima facie case of breach of contract and non-payment of substantial consideration.
   • The risk of irreparable prejudice to the petitioner was higher if transfers were permitted, as enforcement of an arbitral award could become difficult.
   • The respondent would have full opportunity before the Arbitral Tribunal to establish that the Agreement dated 6 April 2022 governed the parties’ rights.

"The purpose of an interim order is not to decide the rights finally but to preserve the subject-matter so that the arbitration does not become ineffective."

The Verdict

The Court partly allowed the arbitration petition and passed the following directions:

1. The respondent is restrained from creating fresh third-party rights, transferring, alienating, or encumbering the balance unsold 152 plots without the petitioner’s prior written consent or leave of the Arbitral Tribunal/Court.
2. The Court Receiver, High Court, Bombay, is appointed as Receiver for the disputed plots, though the appointment is symbolic and does not entail physical possession unless specifically directed.
3. The respondent must maintain complete accounts of all transactions relating to the project and shall not divert sale proceeds except as permitted by law or further orders of the Arbitral Tribunal.
4. The order does not affect bona fide third-party rights created prior to the filing of the petition, the validity of which shall be subject to arbitral proceedings.
5. The observations in the judgment are prima facie and confined to interim relief under Section 9; the Arbitral Tribunal shall decide all issues independently.
6. No order as to costs.

What This Means For Similar Cases

Primacy of Registered Instruments Over Unregistered Agreements

• The judgment reinforces that registered conveyance deeds hold greater legal weight than unregistered agreements, especially when the latter purport to modify the former.
• Practitioners should advise clients to register all agreements that alter substantive rights, as unregistered documents may not override registered instruments in disputes.

Interim Protection Under Section 9: A Two-Pronged Test

• Courts will grant interim protection under Section 9 if:
  1. The applicant demonstrates a prima facie case of breach or default.
  2. The balance of convenience favours preservation of the subject-matter to prevent irreparable prejudice.
• The judgment clarifies that interim orders are not final adjudications but are intended to preserve the status quo pending arbitration.

Escrow Mechanisms Must Be Operationalised

• Parties relying on escrow arrangements to modify payment terms must ensure the mechanism is actively implemented and documented.
• Mere agreement to an escrow arrangement, without proof of compliance, may not suffice to defeat a claim for interim protection.
• Actionable Takeaways:
  • Document all modifications to payment schedules through registered instruments.
  • Maintain detailed records of escrow transactions and transfers to third parties.
  • Issue timely legal notices for defaults and exhaust amicable resolution before approaching courts.

Symbolic Receivership: A Pragmatic Approach

• The Court’s appointment of a symbolic Receiver strikes a balance between protecting the petitioner’s interests and avoiding undue interference with the respondent’s operations.
• This approach is particularly useful in real estate disputes, where physical possession may disrupt ongoing projects.
• Practitioners can cite this judgment to argue for symbolic receivership in cases where the subject-matter is at risk but physical possession is impractical.