The Supreme Court has dismissed an appeal filed by National Projects Construction Corporation Ltd. and upheld the directions requiring it to deposit ₹3.5 crore with the Registry of the Delhi High Court pending adjudication of a Section 34 challenge to an arbitral award and held that Section 9 can protect award debtor in rare and compelling cases.

A Bench comprising Justice K. V. Viswanathan and Justice Alok Aradhe held that the present case fell within the category of a “rare and compelling” case in which Section 9 relief could appropriately be granted to prevent irreparable prejudice and preserve the efficacy of the pending Section 34 proceedings. 

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The dispute arose from a Memorandum of Understanding dated 16 August 2002 between the parties concerning works relating to bus terminals at Taj Mahal Bus Stand, UPST Bus Stand and Idgah Bus Stand, besides development of the Taj Trapezium Zone Heritage Corridor in Agra, Uttar Pradesh.

In December 2002, Ishvakoo (India) Pvt. Ltd. received ₹3.5 crore as mobilisation advance against bank guarantees furnished in favour of National Projects Construction Corporation. Disputes subsequently arose between the parties and arbitration proceedings commenced. 

The bank guarantees, amounting to ₹3.5 crore, became the subject of several proceedings before the Delhi High Court. In an order dated 15 December 2005, the High Court had recorded the undertaking that the guarantees would remain alive until the arbitral proceedings and any Section 34 challenge were concluded. It was also made clear that if, after adjudication, the appellant was found entitled to recover any amount, it could invoke the bank guarantees. 

While arbitration was pending, Ishvakoo was unable to keep the bank guarantees alive. Consequently, National Projects Construction Corporation invoked the guarantees in or around September 2017.

The arbitral award was subsequently rendered on 5 December 2017. Significantly, the appellant had not filed any counter-claim before the arbitrator. 

The arbitrator dismissed Ishvakoo’s claims. Among the issues framed were whether Ishvakoo was entitled to discharge the bank guarantees and whether it was entitled to ₹77,27,225 towards bank charges incurred for keeping the guarantees alive. 

However, the Supreme Court noted that the arbitrator’s discussion did not actually resolve the question concerning the continued retention of the bank-guarantee amount in the circumstances that ultimately arose.

Ishvakoo challenged the arbitral award under Section 34 of the Arbitration and Conciliation Act.

During the pendency of the Section 34 proceedings, the Delhi High Court passed orders directing National Projects Construction Corporation to bring back an amount equivalent to the bank guarantees. Those orders were subsequently set aside by consent, while leaving the parties’ rights and contentions open. Ishvakoo thereafter filed a fresh Section 9 petition seeking return of the amount equivalent to the bank guarantees. 

On 5 April 2019, the Single Judge of the Delhi High Court allowed the Section 9 application.

The Single Judge observed that there was no finding in the arbitral award that Ishvakoo had failed to utilise the mobilisation advance. The Court also found that the arbitrator had not properly addressed the issue concerning discharge of the bank guarantees. 

The High Court ultimately directed the appellant to deposit ₹3.5 crore with the Court Registry, with the amount to be kept in an interest-bearing fixed deposit with a nationalised bank. The Division Bench subsequently upheld that order. 

The central question before the Supreme Court was whether the courts below were justified in directing National Projects Construction Corporation to deposit ₹3.5 crore pending disposal of the Section 34 proceedings challenging the arbitral award. 

The appellant argued that Section 9 could not be used to grant relief which effectively amounted to a final determination of rights that were still pending consideration under Section 34.

It was also contended that the bank guarantees had already been lawfully encashed and that the High Court had effectively undertaken a merits review of the arbitral award at an interlocutory stage. 

Ishvakoo, on the other hand, argued that no counter-claim had been filed, there was no finding that the mobilisation advance had not been utilised, and the relevant issue concerning the bank guarantees remained unaddressed by the arbitrator. It was therefore contended that permitting the appellant to retain ₹3.5 crore would result in unjust enrichment. 

The Supreme Court referred to its recent decision in Home Care Retail Marts Pvt. Ltd. v. Haresh N. Sanghavi, where it had considered whether a party that had lost in arbitration could invoke Section 9 after the award.

The Court reiterated that an unsuccessful party is not automatically barred from seeking interim protection under Section 9. However, the threshold for granting such relief to an award debtor is higher, and such relief should generally be confined to rare and compelling cases where denial of protection could cause irreparable prejudice. 

The Court explained that Sections 34 and 36 provide remedies concerning the award and its enforcement, while Section 9 serves the purpose of protecting the subject matter or amount in dispute. The mere distinction between a “winning” and “losing” party cannot, by itself, determine access to Section 9 relief. 

The Supreme Court reiterated the principles laid down in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited, holding that Section 9 confers wide powers upon courts to grant interim measures.

However, the discretion has to be exercised judicially. The Court must consider factors including: existence of a prima facie case; balance of convenience; likelihood of irreparable harm or injury; and whether the applicant approached the court with reasonable expedition. 

The Court further emphasised that the “just and convenient” power under Section 9 cannot be exercised arbitrarily. The exercise of discretion must promote the efficacy of arbitration as a dispute-resolution mechanism. 

The judgment also reaffirmed that although principles underlying the Code of Civil Procedure are relevant while exercising Section 9 jurisdiction, courts are not mechanically bound by every procedural requirement of the CPC.

Referring to Essar House, the Supreme Court reiterated that Section 9 gives courts a broad discretion to grant interim measures that appear just and convenient, while still requiring judicial application of established principles governing interim relief. 

The Court also relied upon Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd., reiterating that concepts such as prima facie case, balance of convenience and irreparable injury remain relevant while considering interim measures under Section 9. 

Applying these principles, the Supreme Court concluded that Ishvakoo had sufficiently satisfied the requirements for Section 9 relief.

The Court identified several important circumstances.

First, the 2005 High Court order contemplated invocation of the bank guarantees after adjudication if National Projects Construction Corporation was found entitled to recover money from Ishvakoo. 

Second, the appellant had not filed any counter-claim before the arbitrator. 

Third, the issues considered by the arbitrator concerned discharge of the bank guarantees and bank charges, while the arbitrator appeared to have been unaware that the guarantees had already been encashed before the award was delivered. 

Fourth, the Section 34 Court was examining whether there was any finding in the arbitral award that Ishvakoo had failed to utilise the mobilisation advance. The Supreme Court made it clear that this issue would ultimately be decided in the Section 34 proceedings. 

A significant consideration for the Supreme Court was the absence of a counter-claim and the absence, prima facie, of a finding that the mobilisation advance had not been utilised.

Against this background, the Court agreed that permitting the appellant to retain the money while the Section 34 challenge remained pending could amount to unjust enrichment and would be inconsistent with the purpose of the earlier High Court order concerning the bank guarantees. 

The Court therefore concluded that the case satisfied the heightened threshold applicable to an award debtor seeking interim relief after an adverse arbitral award.

The Supreme Court ultimately found no merit in the appeal and dismissed it.

It granted the appellant four weeks to deposit ₹3.5 crore with the Registry of the Delhi High Court. The Registry was directed to keep the amount in a fixed deposit with a nationalised bank on an auto-renewal basis until disposal of the Section 34 application. 

The Supreme Court clarified that the observations made in the present proceedings were confined to the determination of the Section 9 petition. The pending Section 34 proceedings are to be decided independently and will not be influenced by the observations made by the courts in the Section 9 proceedings or by the Supreme Court in the present judgment. 

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