Court grants interim relief under Section 9 of Arbitration and Conciliation Act, 1996 citing financial deterioration and risk of asset diminution to protect efficacy of pending arbitral award.
In a significant interim order dated October 9, 2026, the Bombay High Court directed Best Hawk Infosystems Private Limited ("Respondent") to secure an amount of Rs. 32,60,37,480/- either by depositing the sum with the Court or furnishing an equivalent bank guarantee. This direction was issued in favour of Ingram Micro India Private Limited ("Petitioner") under Section 9 of the Arbitration and Conciliation Act, 1996, in a commercial arbitration petition concerning unpaid invoices amounting to over Rs. 24 crores with additional interest claimed.
The Petitioner had supplied goods to the Respondent, who acknowledged the outstanding dues through emails and balance confirmations but failed to clear the payments despite repeated assurances. The Petitioner invoked the arbitration clause contained in the invoices after the Respondent dishonoured a cheque of Rs. 24 crores citing "Account Closed" as the reason.
The Court carefully examined the financial position of the Respondent, noting audited financial statements indicating a net loss of Rs. 15.23 crores for the financial year ending March 2025, negative reserves and surplus of Rs. 12.01 crores, and current liabilities exceeding Rs. 120 crores against cash and equivalents of only Rs. 0.73 crores. The Respondent had also disclosed only three immovable properties valued approximately at Rs. 12.5 crores, some encumbered, and had no movable assets disclosed.
Relying on precedents including a recent Division Bench judgment in Sunfield Global Pte Ltd v. Liberty Investments Pvt Ltd and Norvic Shipping Asia PTE Ltd v. Zigma International, the Court reiterated the principle that for interim relief under Section 9 to protect a monetary claim, the Petitioner need not establish dishonest intention or actual asset dissipation by the Respondent. Rather, a strong possibility of diminution or insufficiency of assets supported by objective material suffices.
The Court observed that the Respondent's financial deterioration and limited asset disclosure, coupled with the pendency of insolvency proceedings initiated by another creditor, justified protection of the claimed amount to preserve the efficacy of the eventual arbitral award. It clarified that the order was not a final adjudication of liability but a preventive measure to secure the disputed sum during arbitration.
The Respondent was directed to deposit the amount or furnish a bank guarantee within four weeks, and the security was to remain subject to the final award and Court orders. The Court expressly kept open all disputes regarding reconciliation of accounts, credit notes, interest claims, and the validity of the cheque for determination by the Arbitral Tribunal.
This judgment underscores the Court's proactive role in safeguarding parties' monetary claims in arbitration by ensuring that assets remain available for enforcement of awards, especially where objective evidence indicates financial distress and risk of asset dissipation.
Bottom Line:
Arbitration and Conciliation Act, 1996 Section 9 Interim protection before constitution of Arbitral Tribunal - For securing a monetary claim, applicant need not prove dishonest intention or actual transfer/concealment of assets - A strong possibility of diminution or insufficiency of assets, based on objective material such as audited financial statements, negative reserves, substantial liabilities and limited disclosed assets, is sufficient - Court can direct deposit of claim amount or furnishing of bank guarantee to preserve efficacy of arbitral award, without treating such order as final adjudication of liability.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 9, Negotiable Instruments Act, 1881 Section 138
