Section 9 Arbitration Act | Bombay HC Grants Interim Protection for Indian Assets Despite Foreign-Seated Arbitration : Bombay HC

The Bombay High Court has delivered a significant judgment on the scope of Section 9 of the Arbitration and Conciliation Act, 1996, granting interim protection to a petitioner in a foreign-seated arbitration. The Court held that even after the constitution of an arbitral tribunal, a domestic court may grant interim relief if the foreign tribunal's orders are not enforceable against assets located in India. This ruling clarifies the interplay between Sections 9 and 17 of the Act and underscores the Court's role in preserving the effectiveness of arbitral awards.

Background & Facts

The Dispute

The petitioner, Norvic Shipping Asia PTE Limited, filed an arbitration petition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim protection in support of arbitration proceedings pending before the London Maritime Arbitrators Association (LMAA). The dispute arose from a Repayment Schedule Agreement dated 9 January 2025, under which the respondent, Zigma International, acknowledged a liability of USD 215,310.01 towards demurrage charges. The agreement provided for repayment in installments, with a clause stipulating that default in any installment would render the entire outstanding amount due and payable.

Key Facts

• 9 January 2025: Parties executed the Repayment Schedule Agreement, acknowledging liability of USD 215,310.01 under Clause 2 and providing for repayment in installments under Clause 1. Clause 3 stipulated that default in any installment would accelerate the entire outstanding amount.
• 15 January 2025: First installment became due but was not paid by the respondent.
• 27 March 2026: Petitioner invoked arbitration via email.
• 28 April 2026: A third party, Bulk Commodities (Bulkcom), issued a notice claiming a pledge over the respondent’s assets and directing the respondent not to pay the petitioner.
• Post-April 2026: Respondent raised defenses of settlement and pledge through Bulkcom, neither of which was substantiated by documentary evidence.
• Quantified Claims: Petitioner sought USD 215,310.01 as principal, USD 47,527.97 as contractual interest, GBP 9,400 as costs, and additional costs for arbitration and legal proceedings.

Procedural History

• Arbitration Proceedings: Initiated before the LMAA in London.
• 28 April 2026: Petitioner filed the present Arbitration Petition (L) No. 15734 of 2026 before the Bombay High Court under Section 9 seeking interim protection.
• 19 June 2026: Arguments concluded, and judgment was reserved.
• 2 July 2026: Judgment pronounced.

Relief Sought

The petitioner sought the following interim reliefs:

• Injunction restraining the respondent from dealing with its bank accounts or assets to the extent of USD 262,837.98 plus GBP 9,400.
• Injunction restraining the respondent from alienating, encumbering, or creating third-party interests in its movable or immovable properties.
• Direction to the respondent to disclose its assets, bank accounts, encumbrances, and details of creditors/debtors via affidavit.
• Appointment of a Receiver to attach the respondent’s assets.
• Direction to the respondent to deposit USD 262,837.98 plus GBP 9,400 in Court or furnish a bank guarantee for the same.
• Alternatively, attachment of the respondent’s bank accounts or properties.

The Parties' Positions

For the Petitioner

• The liability under the Repayment Schedule Agreement was admitted, and the respondent had defaulted on the first installment.
• The respondent’s conduct, including raising unsubstantiated defenses of settlement and pledge, indicated an attempt to defeat the petitioner’s claim.
• The principles of Order XXXVIII Rule 5 of the Code of Civil Procedure (CPC) guided the Court, but Section 9 conferred wider powers to ensure the arbitral award did not become a paper decree.
• The respondent’s financial difficulties and inconsistent defenses justified interim protection.
• The foreign-seated arbitral tribunal’s orders would not be enforceable against the respondent’s assets in India, rendering the remedy under Section 17 ineffective.

For the Respondent

• The petition lacked allegations of asset dissipation, and no material was placed to justify attachment or deposit of funds.
• The respondent had multiple creditors, and the petitioner could not claim priority over them.
• The respondent raised a defense of oral set-off, which required evidence before the arbitral tribunal.
• The respondent’s financial difficulties were genuine, and no dishonest intent was established.
• The petition was not maintainable after the constitution of the arbitral tribunal, as the petitioner should have approached the tribunal under Section 17.

The Legal Issue

The central questions before the Court were:

1. Whether the Bombay High Court could grant interim protection under Section 9 of the Arbitration Act after the constitution of a foreign-seated arbitral tribunal.
2. Whether the petitioner had established a strong prima facie case, balance of convenience, and irreparable prejudice justifying interim relief.
3. Whether the respondent’s conduct and financial condition indicated a strong possibility of diminution of assets, warranting protection under Section 9.

Arguments Presented

For the Petitioner

• Admitted Liability: The respondent acknowledged the debt under the Repayment Schedule Agreement and defaulted on the first installment.
• Wider Powers Under Section 9: While Order XXXVIII Rule 5 CPC guided the Court, Section 9 conferred broader powers to prevent the arbitral award from becoming ineffective.
• Inefficacy of Section 17: The foreign-seated arbitral tribunal’s orders would not be enforceable against the respondent’s assets in India, rendering Section 17 ineffective.
• Diminution of Assets: The respondent’s financial difficulties, inconsistent defenses, and rival claims by Bulkcom indicated a likelihood of asset diminution.
• Balance of Convenience: Refusal of interim protection would prejudice the petitioner, while grant of relief would not determine the merits of the dispute.

For the Respondent

• No Pleading of Asset Dissipation: The petition did not allege that the respondent was attempting to dissipate its assets.
• Multiple Creditors: The petitioner could not claim priority over other creditors.
• Oral Set-Off: The respondent’s defense of oral set-off required evidence before the arbitral tribunal.
• Financial Difficulties: The respondent’s default was due to genuine financial hardship, not dishonest intent.
• Maintainability: The petition was not maintainable after the constitution of the arbitral tribunal, as the petitioner should have approached the tribunal under Section 17.

The Court's Analysis

The Court conducted a detailed analysis of the legal principles governing Section 9 of the Arbitration Act, the maintainability of the petition, and the respondent’s conduct.

Scope of Section 9

The Court relied on the Supreme Court’s judgment in Essar House (P) Ltd. v. Arcellor Mittal Nippon Steel (India) Ltd., (2022) 20 SCC 178, which held that Section 9 confers wider powers than Order XXXVIII Rule 5 CPC. The object of Section 9 is to ensure that the arbitral award does not remain a paper decree due to the unavailability of assets. The Court observed:

"While considering an application under Section 9, it is not necessary to strictly apply all the requirements which are applicable while passing an order of attachment before judgment under Order XXXVIII Rule 5 of the Code of Civil Procedure. The powers under Section 9 are wider. The object behind conferring such power is to ensure that the arbitral award does not remain on paper because assets are no longer available."

The Court emphasized that Section 9 is preventive in nature. It is not necessary to prove dishonest intent or actual dissipation of assets. Instead, the Court must examine surrounding circumstances to determine whether there exists a real likelihood that the respondent’s assets may diminish before the arbitral award can be enforced. The expression "strong possibility of diminution of assets" includes:

• Reduction in the value of assets.
• Creation of encumbrances.
• Increase in secured liabilities.
• Transfer of receivables.
• Any other circumstance reducing the assets available for execution of the award.

Maintainability of the Petition

The Court examined the interplay between Sections 9 and 17 of the Arbitration Act. While Section 17 empowers the arbitral tribunal to grant interim protection during the pendency of proceedings, Section 9(3) restricts the Court’s jurisdiction after the constitution of the tribunal. However, this restriction is not absolute. The Court may still exercise jurisdiction if the remedy under Section 17 is inefficacious.

The Court relied on the Delhi High Court’s judgment in Shanghai Electric Group Co. Ltd., which held that if the assets are situated in India and the foreign tribunal’s orders are not enforceable in India, the remedy under Section 17 cannot be treated as efficacious. In the present case, the arbitration was seated in London, and the petitioner contended that the LMAA tribunal’s orders would not be enforceable against the respondent’s assets in India. The respondent failed to demonstrate otherwise, leading the Court to conclude:

"The submission of the respondent that the petitioner should be relegated to the Tribunal because the Tribunal has been constituted cannot be accepted. Such an interpretation would ignore the exception incorporated by the legislature in Section 9(3). The Court is required to examine the efficacy and not merely the existence of the remedy."

Prima Facie Case

The Court held that the petitioner had established a strong prima facie case for the following reasons:

• The Repayment Schedule Agreement contained an unequivocal acknowledgment of liability under Clause 2.
• The respondent defaulted on the first installment due on 15 January 2025.
• The respondent’s emails acknowledged the liability and sought time for payment.
• The defenses of settlement and pledge raised by the respondent were unsubstantiated by documentary evidence.

Balance of Convenience and Irreparable Prejudice

The Court held that the balance of convenience favored the petitioner. Refusal of interim protection would risk rendering the arbitral award unenforceable, given the respondent’s financial difficulties and inconsistent defenses. The Court observed:

"If interim protection is refused and the petitioner succeeds in arbitration, there exists a possibility that enforcement of the award may become difficult having regard to the respondent’s statements regarding its financial condition and inability to make payment."

The irreparable prejudice to the petitioner would arise if the respondent’s assets diminished during the pendency of arbitration, leaving the petitioner with an unenforceable award. The Court noted that such prejudice could not be compensated post-arbitration.

Proportionality of Relief

While granting interim protection, the Court emphasized that the relief must be proportionate to the facts of the case. Drastic measures like appointment of a Receiver or attachment of all assets would require stronger circumstances. The Court tailored the relief to balance the petitioner’s need for protection with the respondent’s ability to carry on its business.

The Verdict

The Court partly allowed the arbitration petition and granted the following reliefs:

1. Security for Claim: The respondent was directed to secure the petitioner’s claim of USD 262,837.98 plus GBP 9,400 by either:

   • Depositing the amount in Court, or
   • Furnishing an unconditional and irrevocable bank guarantee issued by a nationalized or scheduled commercial bank for the said amount.
   • The exercise was to be completed within four weeks from the date of the judgment.

2. Injunction: Till compliance with the above direction, the respondent was restrained from transferring, alienating, encumbering, or creating third-party rights in its assets to the extent of the petitioner’s claim.

3. Disclosure of Assets: The respondent was directed to file an affidavit within three weeks disclosing:

   • All bank accounts and their present balances.
   • Complete particulars of movable and immovable assets.
   • Particulars of mortgages, charges, and encumbrances.
   • Details of assets transferred, sold, or disposed of in the preceding two years.
   • Particulars of pending insolvency, bankruptcy, or winding-up proceedings.

4. Attachment in Case of Non-Compliance: If the respondent failed to comply with the security direction, the petitioner was at liberty to apply for attachment of the respondent’s disclosed bank accounts and assets.

5. Business Continuity: The respondent was permitted to carry on its business activities and make payments in the ordinary course but was restrained from creating fresh encumbrances or disposing of substantial assets without prior leave of the Court.

6. Rejection of Receiver: The prayer for appointment of a Receiver was rejected at this stage, with liberty to the petitioner to seek such relief if subsequent events disclosed violation of the order or further diminution of assets.

7. No Costs: There was no order as to costs.

What This Means For Similar Cases

Foreign-Seated Arbitrations and Enforceability of Interim Orders

• Section 9 Remains Available: Even after the constitution of a foreign-seated arbitral tribunal, domestic courts may grant interim protection under Section 9 if the foreign tribunal’s orders are not enforceable against assets located in India.
• Efficacy Over Existence: The Court’s jurisdiction under Section 9(3) is not barred merely because the arbitral tribunal is constituted. The test is whether the remedy under Section 17 is efficacious, not merely available.
• Practitioners’ Strategy: Parties in foreign-seated arbitrations must assess whether the arbitral tribunal’s interim orders can be enforced against assets in India. If not, approaching the domestic court under Section 9 may be necessary to preserve the subject matter of the dispute.

Diminution of Assets: A Broader Test

• Beyond Dishonest Intent: The Court clarified that diminution of assets is not limited to dishonest dissipation. It includes any circumstance - such as financial losses, encumbrances, or rival claims - that reduces the assets available for enforcement of the award.
• Objective Material Required: The Court must be satisfied from objective material that there exists a reasonable possibility of asset diminution. Mere suspicion or unsupported apprehension is insufficient.
• Financial Difficulties as a Factor: While financial distress alone does not justify interim protection, repeated defaults, inconsistent defenses, and rival claims may indicate a likelihood of asset diminution.

Proportionality in Interim Relief

• Tailored Relief: Courts must grant relief that is proportionate to the facts of the case. Drastic measures like appointment of a Receiver or attachment of all assets require stronger justification.
• Disclosure Orders: Directions requiring disclosure of assets must be limited to what is necessary for securing the claim. Overbroad disclosure orders may interfere with the respondent’s commercial activities.
• Business Continuity: Interim orders should not unduly hamper the respondent’s ability to carry on its business, unless there is evidence of mala fide conduct.

Key Takeaways for Practitioners

• Plead Surrounding Circumstances: While pleading under Section 9, emphasize surrounding circumstances (e.g., financial difficulties, rival claims, inconsistent defenses) that indicate a likelihood of asset diminution.
• Highlight Inefficacy of Section 17: In foreign-seated arbitrations, argue that the arbitral tribunal’s orders are not enforceable against assets in India, rendering Section 17 inefficacious.
• Balance of Convenience: Demonstrate that the hardship to the claimant from refusal of relief outweighs the inconvenience to the respondent from grant of protection.
• Irreparable Prejudice: Establish that refusal of interim protection may result in the arbitral award becoming unenforceable, causing irreparable prejudice.
• Proportionality: Seek relief that is proportionate to the claim, avoiding overly drastic measures unless justified by the facts.