Section 9 interim protection upheld where Kolkata execution and a real risk of premature diversion of rights issue proceeds were shown.

Territorial jurisdiction under Section 9 of the Arbitration and Conciliation Act was supported by execution of the share subscription and shareholders agreement and personal guarantees in Kolkata, purchase of stamp papers there, related correspondence, and the company's business presence within the court's limits; the application was therefore entertainable. Interim protection was also justified because the agreement and financing structure indicated that the investor's security arrangement was intended to continue, while there was a real apprehension that rights issue proceeds could be used to prematurely discharge the principal secured liability. On balance of convenience, restraint was appropriate to preserve the contractual position pending arbitration.

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Issues: (i) Whether the court had territorial jurisdiction to entertain the application under Section 9 of the Arbitration and Conciliation Act, 1996; (ii) whether the applicants had made out a prima facie case for interim protection under Section 9; (iii) whether the grant of interim injunction restraining use of the rights issue proceeds to discharge the security of the principal loan amount was justified.

Issue (i): Whether the court had territorial jurisdiction to entertain the application under Section 9 of the Arbitration and Conciliation Act, 1996.

Analysis: The share subscription and shareholders agreement was found to have been executed at Kolkata. The personal guarantees were also executed there, the stamp papers were purchased in Kolkata, and correspondence between the parties pointed to Kolkata. The challenge to execution at Kolkata was only a vague and evasive denial, which could not displace the inference of jurisdiction. The company was also carrying on business within the territorial limits of the court.

Conclusion: The court had territorial jurisdiction to entertain the Section 9 application, in favour of the respondents.

Issue (ii): Whether the applicants had made out a prima facie case for interim protection under Section 9.

Analysis: The agreement and the financing structure showed that the investor's security obligation was intended to subsist till 2014, while the rights issue was meant to support the company's funding and day-to-day functioning. The court found a real apprehension that the proceeds of the rights issue might be used to discharge the secured principal liability prematurely. That apprehension, coupled with the admitted contractual arrangement, furnished a prima facie basis for interim relief.

Conclusion: A prima facie case for interim protection was made out, in favour of the respondents.

Issue (iii): Whether the grant of interim injunction restraining use of the rights issue proceeds to discharge the security of the principal loan amount was justified.

Analysis: Section 9 permits interim relief before or during arbitral proceedings. The court held that the belated invocation of consultation and arbitration did not defeat the claim for protection. On balance of convenience, refusal of relief could have allowed diversion of the rights issue proceeds to premature discharge of the loan security, which would imperil the company's finances, whereas restraint would preserve the contractual arrangement pending arbitration.

Conclusion: The interim injunction was justified, in favour of the respondents.

Final Conclusion: The appellate court affirmed the order granting interim protection and declined interference with the injunction.

Ratio Decidendi: A court may grant interim protection under Section 9 to preserve the subject matter of arbitration where territorial jurisdiction is supported by the place of execution and surrounding conduct, and where a real apprehension of dissipation or premature diversion of funds is established on a prima facie assessment of convenience.

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