The Bombay High Court has granted interim protection to a creditor under Section 9 of the Arbitration and Conciliation Act, 1996, directing the debtor to deposit Rs.2,14,99,523 with 18% interest and disclose all assets within strict timelines. The Court held that repeated written acknowledgments of liability, dishonour of security cheques, and continued failure to repay created a reasonable apprehension that the arbitral award may become unenforceable unless protected. The order underscores the Court's power to secure claims pending arbitration without prejudging the merits.
Background & Facts
The Genesis
The dispute arose from a series of loan transactions between the petitioner, Hemant K. Shah HUF, and the respondent, Jigar Pratapray Vora. The respondent admitted liability on multiple occasions through three Memoranda of Understanding (MOUs) executed on 28.02.2022, 22.12.2022, and 15.05.2024, each acknowledging progressively higher outstanding amounts with 18% interest per annum.
Key Facts
- 2017: Respondent admitted liability to repay a loan of Rs.50,00,000 to the petitioner.
- 28.02.2022: First MOU executed, acknowledging Rs.1,06,80,480 due as on 31.03.2022, with 18% interest and an arbitration clause.
- 01.04.2022: Respondent issued a security cheque for Rs.1,06,80,480 but requested the petitioner not to encash it, assuring repayment.
- 22.12.2022: Second MOU executed, acknowledging Rs.1,21,95,391 due as on 31.12.2022, with a fresh security cheque issued.
- 15.05.2024: Third MOU executed, acknowledging Rs.1,58,04,063 due as on 30.06.2024, with another security cheque issued.
- 30.09.2025: Fourth security cheque issued for Rs.1,47,78,467.
- 28.11.2025: Petitioner presented the fourth cheque for encashment, which was dishonoured with the endorsement "Funds Insufficient".
- 20.12.2025: Statutory notice under Section 138 of the Negotiable Instruments Act, 1881 issued to the respondent.
- January 2026: Complaint filed under Section 138 before the Metropolitan Magistrate, Mazgaon, Mumbai (pending issuance of process).
- 31.03.2026: Petitioner claimed Rs.2,14,99,523 as due, including 18% interest from 01.04.2026.
- 06.05.2026: Present Arbitration Petition filed under Section 9 seeking interim protection.
Procedural History
- 20.12.2025: Statutory notice issued under Section 138 NI Act.
- January 2026: Complaint filed under Section 138 before the Metropolitan Magistrate.
- 06.05.2026: Present Arbitration Petition (L) No.18763 of 2026 filed before the Bombay High Court.
- 17.07.2026: Arguments reserved.
- 21.07.2026: Judgment pronounced.
The Parties' Positions
Petitioner's Case
The petitioner argued that the respondent repeatedly admitted liability through three MOUs and issued multiple security cheques, which were dishonoured due to insufficient funds. The petitioner contended that the respondent's conduct created a reasonable apprehension of asset dissipation, warranting interim protection under Section 9.
Respondent's Case
The respondent disputed the calculation of the claimed amount, arguing that interest was charged on both principal and accrued interest, and that the MOUs were executed under coercion. The respondent also contended that directing deposit or security would amount to granting final relief and prejudice the respondent in the Section 138 proceedings.
Relief Sought
The petitioner sought:
- Direction to the respondent to deposit Rs.2,14,99,523 with the Prothonotary and Senior Master of the Court within seven days.
- In the alternative, direction to furnish sufficient security for the said amount.
- Further interest at 18% per annum from 01.04.2026 till payment.
The Legal Issue
The central question was whether the petitioner had made out a prima facie case for interim protection under Section 9 of the Arbitration and Conciliation Act, 1996, and whether the balance of convenience justified directing the respondent to deposit the claimed amount or furnish security.
Arguments Presented
For the Petitioner
- Relied on the respondent's repeated written acknowledgments of liability through three MOUs.
- Argued that the dishonour of the last security cheque for "Funds Insufficient" and the respondent's continued failure to repay created a reasonable apprehension of asset dissipation.
- Submitted that the respondent's conduct over several years strengthened the petitioner's case for interim protection.
- Contended that the delay in prosecuting the petition was not sufficient to refuse relief, given the urgency arising from the dishonour of the cheque.
For the Respondent
- Argued that the petitioner's monetary claim was disputed, including the calculation of interest and the method of arriving at the final figure.
- Contended that directing deposit or security would amount to granting final relief, which is impermissible under Section 9.
- Submitted that the MOUs were executed under coercion, as the petitioner threatened to present the security cheques, exposing the respondent to prosecution under Section 138 NI Act.
- Argued that the petition suffered from delay and laches, having been filed nearly two months after the petition was filed.
- Contended that any findings in the present proceedings would prejudice the respondent in the Section 138 proceedings.
The Court's Analysis
The Court examined the material on record, including the three MOUs, security cheques, bank return memo, statutory notice, and complaint under Section 138 NI Act. The Court noted the following key points:
"First, the Respondent signed one Memorandum admitting the outstanding amount. After that he issued one cheque. Again he executed another Memorandum showing revised dues. Again another cheque was issued. Thereafter he executed the third Memorandum and once more issued a fresh cheque. Lastly, he issued another cheque. One common feature is seen in all these transactions. Every later document proceeds on the basis that the earlier liability had not been cleared."
The Court held that the respondent's repeated acknowledgments of liability, issuance of security cheques, and dishonour of the last cheque created a prima facie case for interim protection. The Court rejected the respondent's contention that the MOUs were executed under coercion, noting the absence of contemporaneous material to support the allegation.
The Court also held that the dispute regarding the calculation of the amount did not negate the effect of the repeated acknowledgments. The Court distinguished Norvic Shipping Asia PTE Limited on the ground that the present case involved repeated written acknowledgments and dishonour of a security cheque, which were absent in the cited case.
The Court further held that directing deposit or security did not amount to granting final relief, as the amount would remain protected subject to the final decision in arbitration. The Court also clarified that its observations were only prima facie and would not bind the arbitral tribunal or the criminal court.
The Verdict
The Court allowed the arbitration petition in part and granted interim protection under Section 9. The respondent was directed to:
- Deposit Rs.2,14,99,523 with the Prothonotary and Senior Master of the Court within six weeks, along with 18% interest from 01.04.2026 till the date of deposit.
- File an affidavit disclosing all assets, including bank accounts, movable and immovable properties, investments, and encumbrances within two weeks.
- Produce copies of Income Tax Returns for the last three financial years within two weeks.
The Court clarified that its observations were only prima facie and would not prejudice the arbitral tribunal or the criminal court. The petition was allowed without costs.
What This Means For Similar Cases
Interim Protection Under Section 9 Is Not Routine
- Courts must examine the cumulative effect of the parties' conduct, including repeated acknowledgments of liability and dishonour of security instruments.
- Mere assertion of a monetary claim is insufficient; the petitioner must demonstrate a reasonable apprehension of asset dissipation or inability to recover the claim.
Written Acknowledgment of Liability Is Critical
- Repeated MOUs or agreements acknowledging liability, even if revised, strengthen the case for interim protection.
- The absence of contemporaneous material to support allegations of coercion weakens the respondent's defence at the interim stage.
Dishonour of Security Cheques Is a Key Circumstance
- Dishonour of a security cheque for "Funds Insufficient" is a significant circumstance, though it may not establish dishonest intent.
- Courts may consider such dishonour as part of the cumulative circumstances warranting interim protection.
Balance of Convenience Favours Securing the Claim
- Directing deposit or security does not amount to granting final relief, as the amount remains protected pending arbitration.
- The risk of the arbitral award becoming unenforceable due to asset dissipation justifies interim protection.
Observations Are Only Prima Facie
- Courts must clarify that their observations are only prima facie and will not bind the arbitral tribunal or criminal courts.
- This ensures that interim orders do not prejudice the parties' rights in subsequent proceedings.
