Section 9 interim protection must follow injunction principles and be tailored to secure claims without disproportionate commercial harm.

Section 9 interim relief under the Arbitration and Conciliation Act, 1996 must be exercised on settled injunction principles, including a prima facie case, balance of convenience and avoidance of disproportionate harm. The text explains that where respondents showed strong prima facie entitlement and there was support for securing the claim, interim protection was justified. It also notes that securing the entire amount by cash deposit could disrupt commercial operations, so the court may calibrate security to reduce business prejudice while preserving protection of the claim. The stated approach is to grant the form of security that best protects the subject matter of arbitration with the least risk of injustice.

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Issues: (i) Whether the interim order under Section 9 of the Arbitration and Conciliation Act, 1996 directing deposit of the disputed amount was justified on the basis of the principles governing interim injunctions and protection of the subject matter of arbitration. (ii) Whether the order required modification by securing the amount partly through cash deposit and partly through bank guarantee to avoid undue prejudice to the company's commercial operations.

Issue (i): Whether the interim order under Section 9 of the Arbitration and Conciliation Act, 1996 directing deposit of the disputed amount was justified on the basis of the principles governing interim injunctions and protection of the subject matter of arbitration.

Analysis: Section 9 confers wide powers for interim protection, but those powers are to be exercised on recognized principles akin to those governing interim injunctions, including the need to minimise the risk of injustice. The appellants had obtained substantial control over the company for nominal consideration while the agreed share warrants and preference shares had not been issued and the amounts paid by the respondents remained with them. The record showed a strong prima facie case in favour of the respondents, and there was statutory support for securing the claim. The appellants also failed to place material showing that compliance would cause irreparable prejudice or that the balance of convenience lay in their favour.

Conclusion: The interim protection granted by the learned single judge was justified and the challenge on merits failed.

Issue (ii): Whether the order required modification by securing the amount partly through cash deposit and partly through bank guarantee to avoid undue prejudice to the company's commercial operations.

Analysis: While the respondents established a strong prima facie case, the court accepted that securing the entire amount by cash deposit could potentially strain the company's business operations. To balance protection of the respondents' claim with the need to avoid disproportionate harm, a modified form of security was considered appropriate.

Conclusion: The order was modified to require a cash deposit of Rs. 250 crores and a bank guarantee for the balance of Rs. 329 crores.

Final Conclusion: The appeals failed on the substantive challenge, but the interim direction was recalibrated to secure the respondents' claim while reducing the risk of disruption to the company's business.

Ratio Decidendi: In proceedings under Section 9 of the Arbitration and Conciliation Act, 1996, interim relief must be fashioned on settled injunction principles so that the court grants the form of security that best protects the claim while causing the least risk of injustice and disproportionate commercial harm.

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