The Supreme Court has reaffirmed that an unsuccessful party in an arbitration can, in exceptional circumstances, seek interim protection under Section 9 of the Arbitration and Conciliation Act, 1996 even after an arbitral award has been passed.
A Bench of Justice KV Viswanathan and Justice Alok Aradhe declined to interfere with a Delhi High Court order granting such relief to an award debtor who had challenged the arbitral award under Section 34.
The case concerned a bank guarantee worth around ₹3.5 crore. The Court found that allowing the award holder to retain the money while the Section 34 challenge remained pending could result in unjust enrichment and undermine the effectiveness of the statutory challenge.
Section 9 remains available, but only in rare cases
The Supreme Court stressed that post-award applications under Section 9 are not ordinarily available as a matter of course to an unsuccessful party. The threshold for an award debtor seeking interim relief is considerably higher.
However, the Court noted that earlier decisions recognise the possibility of invoking Section 9 in rare and compelling situations where intervention is necessary to prevent irreparable prejudice and preserve the efficacy of proceedings under Section 34.
In the present case, the Court concluded that those exceptional circumstances existed.
The dispute originated from a 2002 Memorandum of Understanding between National Projects Construction Corporation Ltd. and Ishvakoo (India) Pvt. Ltd. Under the arrangement, Ishvakoo received a mobilisation advance of ₹3.5 crore against bank guarantees.
In 2005, proceedings under Section 9 resulted in an arrangement under which the bank guarantees were not to be invoked so long as they remained valid. If the eventual arbitral decision entitled the appellant to recover the amount, the guarantees could then be invoked.
The guarantees, however, were not kept alive. National Projects Construction Corporation subsequently invoked them in September 2017.
Arbitration award followed encashment of guarantees
The arbitrator delivered the award on December 5, 2017, rejecting Ishvakoo’s claims. By that stage, the bank guarantees had already been encashed.
Ishvakoo challenged the award under Section 34 and, while that challenge was pending, approached the court again under Section 9. It sought protection against retention of the ₹3.5 crore amount until the challenge to the award was decided.
The Single Judge accepted the plea and ordered National Projects Construction Corporation to deposit the amount with the Delhi High Court Registry. The Division Bench subsequently upheld that direction.
The award holder then approached the Supreme Court.
Supreme Court finds case met exceptional threshold
The Supreme Court dismissed the appeal, holding that the circumstances justified the unusual exercise of Section 9 jurisdiction.
The Bench observed that the award debtor had demonstrated the relevant requirements for interim protection, including a prima facie case and balance of convenience. Crucially, allowing the award holder to retain the money during the pendency of the Section 34 proceedings could lead to an unjust benefit.
The Court therefore treated the matter as falling within the narrow category of cases where post-award Section 9 relief can be granted to an unsuccessful party.
The judgment also reinforces an important distinction: Section 9 cannot be used routinely to reopen the consequences of an arbitral award, but it can remain a protective remedy where refusing intervention would cause serious prejudice and effectively dilute the challenge under Section 34.
The Supreme Court accordingly directed the appellant to deposit ₹3.5 crore with the Delhi High Court Registry within four weeks.
The Registry has been directed to place the amount in a fixed deposit with a nationalised bank on an auto-renewal basis until the Section 34 proceedings are decided.
The ruling arose in National Projects Construction Corporation Ltd. v. Ishvakoo (India) Pvt. Ltd.
