Section 9 Arbitration Act | Interim Relief Requires Proof of Actual Asset Diversion, Not Mere Apprehension : Bombay HC

The Bombay High Court has clarified that Section 9 of the Arbitration and Conciliation Act, 1996 does not permit interim relief based solely on a prima facie arbitrable dispute. The Court held that without concrete evidence of asset diversion or financial instability, sweeping orders like freezing bank accounts or restraining asset dealings cannot be granted, even where substantial dues remain unpaid under a construction contract.

Background & Facts

The Dispute

The petitioner, Rajrajeshwari Associates, entered into a Construction Contract dated 22 December 2021 with the respondents (Shree Jai Ambe Developers and others) for the Moreshwar SRA CHSL Project in Dahisar (East), Mumbai. The contract contained an arbitration clause. The petitioner commenced construction work in January 2022, completing substantial RCC work, block work, plastering, and finishing works, along with additional items as instructed by the respondents. Between January 2022 and June 2023, the petitioner submitted Running Account (RA) Bills and tax invoices, which were accepted by the respondents without objection.

Key Facts

• 22 December 2021: Construction Contract executed with arbitration clause
• January 2022 to June 2023: Petitioner completes substantial work, submits RA Bills and invoices
• 27 February 2023: Last part payment of Rs. 5,76,00,000 received by petitioner
• Second week of June 2023: Work inspected and certified by respondents' Architect and RCC Consultant
• 21 June 2023: Petitioner raises Proforma Invoice for Rs. 5,59,12,908 (excluding GST), allegedly acknowledged by respondents
• June 2023 onwards: No further payments released; petitioner stops work due to non-payment
• 24 February 2024: Petitioner invokes arbitration under Section 21 of the Arbitration and Conciliation Act, 1996
• 22 July 2024: Pre-Institution Mediation declared a "Non Starter" under Section 12A of the Commercial Courts Act, 2015
• 05 December 2025: City Civil Court permits withdrawal of Commercial Suit No. 128 of 2025 with liberty to pursue arbitration
• February 2026: Petitioner calculates total dues at Rs. 9,10,96,680 (including 24% contractual interest)
• 07 February 2026: Present Commercial Arbitration Petition No. 5339 of 2026 filed under Section 9 seeking interim reliefs

Procedural History

• 24 February 2024: Arbitration invoked via Section 21 notice
• 22 July 2024: Mediation fails under Section 12A of the Commercial Courts Act
• 05 December 2025: Commercial Suit No. 128 of 2025 withdrawn with liberty to pursue arbitration
• 07 February 2026: Section 9 petition filed before Bombay High Court

Relief Sought

The petitioner sought the following interim reliefs pending constitution of the Arbitral Tribunal:

• (A): Direction to respondents to deposit the entire claim amount of Rs. 9,10,96,680
• (B): Furnishing of bank guarantee for the said amount
• (C): Freezing of all bank accounts of respondents
• (D): Restraint against dealing with movable/immovable assets
• (B-1, B-2, B-3): Additional reliefs restraining further construction work and asset transfers

The Parties' Positions

For the Petitioner

• Argued that respondents breached the Construction Contract by failing to pay admitted dues despite substantial work completion
• Work was inspected and certified by respondents' Architect and RCC Consultant
• Respondents prevented petitioner from continuing work without clearing outstanding dues
• Apprehension of asset diversion due to respondents operating additional bank accounts
• Proforma Invoice dated 21 June 2023 acknowledged by respondents, establishing liability

For the Respondents

• Contended that petitioner delayed invoking arbitration (notice under Section 21 issued only on 24 February 2024, despite dues allegedly payable from 21 June 2023)
• Petitioner first filed a commercial suit, later withdrawn, showing lack of urgency
• Alleged collusion between petitioner and respondent Nos. 4 to 6
• No evidence of asset diversion or financial instability
• Urgency is a prerequisite for Section 9 relief, which petitioner failed to establish

The Legal Issue

The central question was whether Section 9 of the Arbitration and Conciliation Act, 1996 permits interim reliefs like freezing bank accounts, restraining asset dealings, or directing deposit of the entire claim amount based solely on:

1. A prima facie arbitrable dispute, and
2. Apprehension of asset diversion without concrete evidence.

Arguments Presented

For the Petitioner

• Relied on the acknowledged Proforma Invoice and certification of work by respondents' consultants to establish a prima facie case
• Cited Section 9 to argue that interim relief is necessary to protect the subject-matter of arbitration
• Emphasized respondents' financial difficulties and operation of additional bank accounts as grounds for apprehension of asset diversion
• Argued that non-payment despite certification amounts to breach of contract, justifying interim protection

For the Respondents

• Highlighted delay in invoking arbitration (notice issued 8 months after invoice date) and filing of a commercial suit before pursuing arbitration
• Contended that mere apprehension of asset diversion is insufficient without material evidence
• Argued that Section 9 reliefs like freezing bank accounts or restraining asset dealings are draconian and require higher threshold of proof
• Submitted that urgency is lacking, as petitioner took no effective steps between June 2023 and February 2026

The Court's Analysis

The Court undertook a two-step analysis to determine the maintainability of the Section 9 petition:

Step 1: Existence of Prima Facie Arbitrable Dispute

The Court noted:

• Undisputed execution of the Construction Contract with an arbitration clause
• Substantial work completion by the petitioner, including RCC, block work, plastering, and finishing works
• Acceptance of RA Bills and invoices by respondents without objection
• Certification of work by respondents' Architect and RCC Consultant
• Proforma Invoice dated 21 June 2023 for Rs. 5,59,12,908, allegedly acknowledged by respondents

"The documents placed before this Court do show that construction work was carried out by the petitioner. The respondents have also not disputed execution of the contract or existence of the arbitration agreement. The Proforma Invoice dated 21 June 2023 and its alleged acknowledgment may not amount to admission of liability. Even then, those documents also cannot be ignored while considering whether the petitioner has made out a prima facie case requiring consideration."

The Court concluded that a prima facie arbitrable dispute exists, warranting adjudication by an Arbitral Tribunal.

Step 2: Sufficiency of Material for Interim Relief

The Court held that Section 9 relief is not automatic merely because an arbitrable dispute exists. The petitioner sought draconian reliefs, including:

• Deposit of the entire claim amount (Rs. 9,10,96,680)
• Furnishing of bank guarantee
• Freezing of bank accounts
• Restraint against dealing with assets
• Stoppage of construction work

The Court emphasized that such reliefs require higher threshold of proof due to their prejudicial impact on the respondents' business activities. Key observations:

1. Apprehension vs. Evidence:

   "Mere apprehension by itself cannot become sufficient ground for granting such relief under Section 9. If the Court directs deposit of the whole claim amount or directs furnishing of bank guarantee, the claim stands secured before adjudication. In the same way, freezing bank accounts or restraining a party from dealing with all its properties may affect its business activities. Therefore, before passing such orders, there should be sufficient material to indicate that there is real possibility that the future arbitral award may become incapable of enforcement."

   The petitioner's apprehension was based solely on the respondents operating additional bank accounts, which the Court held is insufficient to infer asset diversion or dishonest intent.

2. Delay in Seeking Relief: The Court noted the chronology of delay:

   • Amount allegedly became due on 21 June 2023
   • Arbitration invoked only on 24 February 2024
   • Commercial suit filed and withdrawn, with present petition filed on 07 February 2026

   "The chronology on record shows that considerable period has passed from the date on which the amount is alleged to have become due till filing of the present petition. Such delay may not always defeat relief under Section 9 because limitation and urgency are two different matters. In a proper case, interim protection can still be granted even after some delay."

   However, the Court held that delay becomes relevant when seeking draconian reliefs, as it undermines the claim of urgency.

3. Balance of Convenience: The Court emphasized the need to balance protection of the claimant's rights with avoiding hardship to the opposite party.

   "While exercising powers under Section 9, the Court has to keep balance between protecting the claim of one side and avoiding hardship to the other side."

   The Court found that the petitioner failed to demonstrate that the respondents were disposing of assets or becoming insolvent, which would justify freezing bank accounts or restraining asset dealings.

4. Scope of Interim Relief: The Court clarified that Section 9 relief must be tailored to the specific threat to enforceability of the arbitral award.

   "The material available is not sufficient for directing deposit of more than Rs.9 crores, directing the respondents to furnish bank guarantee, freezing all their bank accounts or restraining them from dealing with all their assets."

   The Court also rejected the prayer to restrain further construction work, as it would affect third parties (e.g., project beneficiaries) and is disproportionate to a monetary dispute.

The Verdict

The Court dismissed the petition with the following operative directions:

1. Dismissal of Arbitration Petition: The Section 9 petition is dismissed.
2. Rejection of Interim Reliefs: All interim reliefs sought under prayer clauses (A), (B), (C), (D), (B-1), (B-2), and (B-3) are rejected.
3. Prima Facie Observations: Observations made in the order are confined to adjudication under Section 9 and shall not influence the Arbitral Tribunal.
4. Liberty to Seek Relief Before Tribunal: The petitioner is not precluded from seeking interim or other reliefs before the Arbitral Tribunal, if permissible in law.
5. No Order as to Costs: Each party to bear their own costs.
6. Disposal of Interim Applications: All pending interim applications, if any, stand disposed of.

What This Means For Similar Cases

Evidence of Asset Diversion Is Mandatory for Draconian Reliefs

• Section 9 reliefs like freezing bank accounts, restraining asset dealings, or directing deposit of the entire claim amount cannot be granted based on mere apprehension or suspicion.
• Practitioners must produce concrete evidence of:
  • Actual asset transfers with dishonest intent
  • Disposal of properties to defeat claims
  • Insolvency or closure of business
  • Operation of multiple bank accounts with evidence of fund diversion
• Operating additional bank accounts alone is insufficient to infer malafide intent.

Delay Defeats Urgency for Interim Protection

• Urgency is a prerequisite for Section 9 relief, especially for draconian measures.
• Delay in invoking arbitration or filing Section 9 petitions weakens the claim of urgency.
• Chronology of inaction (e.g., filing a commercial suit first, then withdrawing it) may fatal to interim relief claims.
• Practitioners should:
  • Act promptly upon default or breach
  • Avoid alternative remedies that may undermine urgency
  • Document efforts to resolve disputes before litigation

Tailored Reliefs Over Blanket Restrictions

• Section 9 reliefs must be proportionate to the specific threat to enforceability of the arbitral award.
• Blanket restraints (e.g., freezing all bank accounts, restraining all assets) are unlikely to succeed without targeted evidence of asset diversion.
• Third-party interests (e.g., project beneficiaries) must be considered before granting reliefs like stoppage of construction work.
• Practitioners should:
  • Specify the exact threat (e.g., which asset is being diverted)
  • Limit reliefs to the minimum necessary to protect the claim
  • Avoid overbroad prayers that may prejudice the opposite party's business