Court grants interim possession of CT scan machinery to lender under Section 9 of Arbitration Act, balancing borrower's business interests and lender's security rights
In a significant interim relief order dated October 19, 2026, the Bombay High Court, presided over by Justice Amit Borkar, appointed a Court Receiver to take physical possession of a hypothecated CT scan unit owned by Nadeem Ahmad Khandey and others, following repeated loan defaults under a Finance Agreement with Siemens Financial Services Private Limited.
The petitioner, Siemens Financial Services, had sanctioned a loan of Rs. 1.05 crore in December 2023 to the respondent for purchasing the medical equipment "Somatom Go Now Compact with accessories." The loan was repayable in equated monthly installments over 72 months at an interest rate of 11.50% per annum. The machinery was hypothecated as security to the lender.
Despite issuance of a Pre-Litigation Notice and a Loan Recall Notice, the borrower failed to regularize the loan account and continued defaulting. Although the borrower expressed willingness to surrender possession of the machinery through a Surrender Letter dated February 23, 2026, they failed to hand over possession, raising concerns about potential disposal or creation of third-party rights over the secured asset.
Siemens invoked arbitration and moved the court under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim relief including appointment of a Receiver to preserve the hypothecated machinery. The court noted that the Finance Agreement specifically allowed the lender to take possession of the assets upon an event of default, which included failure to pay dues and change in business ownership.
The court recognized the borrower's argument that the machinery was the sole source of income and its removal could disrupt their medical diagnostic services. However, it balanced this against the lender's right to protect its security interest, given the continued defaults and risk of the asset being damaged, transferred, or placed beyond recovery. The court emphasized that the interim order does not amount to final relief or ownership transfer, as no power to sell or dispose of the machinery was granted.
The appointed Receiver is empowered to take physical possession from the premises, prepare an inventory, and hand over custody to the petitioner as custodian legis, subject to court supervision and without rights to alienate or encumber the asset. Police assistance is authorized to ensure peaceful possession. The petitioner will bear the initial expenses of the Receiver, subject to future orders.
This order preserves the machinery pending arbitration proceedings and protects the lender's security without prejudicing the borrower's business operations or final rights and liabilities under the Finance Agreement. The court clarified that the amount outstanding, the validity of the high default interest claimed (36% per annum), and other financial disputes will be adjudicated during arbitration.
The case highlights the court's careful exercise of its power under Section 9 of the Arbitration Act to grant interim protective measures that safeguard secured assets in commercial loan disputes while respecting the parties' contractual rights and the ongoing arbitration process.
Bottom Line:
Arbitration and Conciliation Act, 1996 Section 9 Interim protection in respect of hypothecated medical equipment - On continued loan defaults, recall notice, surrender letter and failure to hand over possession, Court can appoint Court Receiver to take possession of hypothecated machinery for preservation - Such order is only an interim measure and does not amount to final relief when no power of sale, transfer or disposal is granted and machinery is handed over to lender only as custodian legis.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 9
