The Bombay High Court has affirmed that courts may grant interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, even before the constitution of an arbitral tribunal, provided a prima facie case of default and risk of asset dissipation are established. This decision reinforces the procedural flexibility available to parties seeking urgent protection of their rights pending arbitration.
Background & Facts
The Dispute
The petitioner, IIFL Finance Limited, is a financial institution that extended a business term loan to the respondents, Aqua Pure & Perfect Chemicals and another, for business expansion. The loan was formalized through a written loan agreement containing an arbitration clause. The petitioner disbursed Rs. 25,00,000 as per the agreement, with repayment terms structured as monthly instalments on a reducing balance basis, inclusive of interest and principal.
Key Facts
- Loan agreement executed on an unspecified date prior to disbursement
- Loan amount of Rs. 25,00,000 disbursed to respondents
- Respondents made initial repayments but defaulted after a few months
- As of 1 January 2026, outstanding amount claimed by petitioner: Rs. 8,13,283
- Demand notice issued by petitioner’s advocates on or before 22 December 2025, demanding payment within seven days
- No response or payment received from respondents after notice
- Foreclosure statement and account statement filed with petition, showing outstanding dues
- Petitioner alleges respondents are attempting to transfer or alienate assets to evade liability
- Clause 12 and 13 of the loan agreement define events of default
- Clause 26 of the loan agreement provides for arbitration as the dispute resolution mechanism
Procedural History
- 22 December 2025: Petitioner issued demand notice for Rs. 8,13,283
- 1 January 2026: Cut-off date for outstanding amount claimed
- 2026: Arbitration petition filed under Section 9 of the Arbitration and Conciliation Act, 1996
- 2 July 2026: Hearing before Bombay High Court, Commercial Division
- Respondents were duly served but did not appear or file any response
Relief Sought
The petitioner sought interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, specifically:
- Preservation of respondents’ assets to prevent dissipation
- Restraint on transfer or alienation of property
- Direction to maintain status quo pending constitution of arbitral tribunal
The Parties' Positions
Petitioner: Asserted a clear default under the loan agreement, supported by documentary evidence including the statement of account and demand notice. Alleged risk of asset dissipation to frustrate future enforcement of arbitral award. Invoked arbitration clause to justify invocation of Section 9.
Respondents: Did not appear, file any written submission, or contest the allegations. No evidence or counter-affidavit was submitted.
The Legal Issue
The central question was whether a court may grant interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 when an arbitration agreement exists, a prima facie case of default is established, and there is a credible apprehension of asset dissipation, even though the arbitral tribunal has not yet been constituted.
Arguments Presented
For the Petitioner
The petitioner relied on the existence of a valid arbitration clause in Clause 26 of the loan agreement to establish that the dispute falls within the ambit of the Arbitration Act. It submitted that the statement of account and demand notice collectively establish a prima facie case of default. The petitioner further argued that the respondents’ silence and non-appearance, coupled with the allegation of asset transfer, satisfy the threshold for interim protection under Section 9. It cited M/s. Enercon (India) Ltd. v. M/s. Enercon Gmbh to affirm that courts may intervene before tribunal constitution where irreparable harm is apprehended.
For the Respondent
No arguments were presented by the respondents, as they failed to appear despite service of notice. The court treated this as a waiver of the right to contest.
The Court's Analysis
The Court observed that the existence of an arbitration agreement is not in dispute, as Clause 26 of the loan agreement clearly provides for arbitration. The Court held that the petitioner’s invocation of Section 9 is therefore maintainable, even before the constitution of the arbitral tribunal.
"At this stage, the Court is not expected to decide the disputes between the parties. However, it is required to see whether the petitioner has shown a prima facie case for grant of interim protection on the basis of the available material."
The Court examined the statement of account and demand notice, noting that while the exact quantum of liability remains subject to arbitration, the documents provide sufficient prima facie support for the claim. The Court emphasized that the burden at this stage is not to determine final liability but to assess whether the petitioner has made out a credible case warranting interim protection.
The Court further held that the petitioner’s assertion regarding potential asset dissipation, though unverified, cannot be disregarded in the absence of any rebuttal from the respondents. The Court noted that if assets are transferred before the arbitral tribunal is constituted and an award is passed, enforcement may become impossible.
"If the assets are transferred during the pendency of the dispute and the petitioner succeeds in arbitration, recovery of the awarded amount may become difficult. Therefore, such apprehension expressed by the petitioner cannot be ignored while considering the prayer for interim protection."
The Court applied the tripartite test for interim relief under Section 9: prima facie case, balance of convenience, and irreparable injury. All three elements were satisfied. The Court declined to decide the merits of the claim but found the threshold for interim protection met.
The Verdict
The petition was allowed. The Court ordered the respondents to comply with the prayer for interim protection under Clause (e) of the petition, restraining any transfer or alienation of assets. The petitioner was directed to constitute the arbitral tribunal within 90 days from the date of judgment. There shall be no order as to costs.
What This Means For Similar Cases
Interim Relief Is Not Dependent on Tribunal Constitution
- Practitioners may now confidently invoke Section 9 immediately upon default, even if the arbitral tribunal has not yet been formed
- The mere existence of a valid arbitration clause is sufficient to trigger Section 9 jurisdiction
- Courts will not require final proof of liability at the interim stage - prima facie evidence suffices
Asset Dissipation Risk Justifies Urgent Relief
- Allegations of asset dissipation, even if uncorroborated, carry weight when respondents remain silent
- Petitioners must file a verified statement of apprehension; courts will treat non-appearance as acquiescence
- In financial disputes, preservation of assets is treated as a matter of urgency, not discretion
Documentary Evidence Trumps Silence
- Statement of account and demand notices, when properly authenticated, form the bedrock of prima facie case
- Respondents who fail to appear forfeit the right to challenge the factual basis of the claim
- Courts will not require expert testimony or cross-examination at the interim stage
