Interim asset restraint in arbitration is justified on prima facie diversion, but tracing claims need specific factual foundation.

Section 9 interim relief may be used to preserve assets and secure an arbitral award where there is prima facie evidence of fund diversion, dilution of shareholding, or likely dissipation of property. On the pleaded facts, restraint over the Gupta and Jain groups' properties, shareholdings, and the Noida interest was treated as a legitimate protective measure. By contrast, tracing-based restraint against Southend Infrastructure Pvt. Ltd. was declined because the pleadings did not show a specific flow of BMS funds into Southend or a sufficient factual basis to treat its assets as liable. The request for additional security by bank guarantee or other enhanced protection was also rejected.

---

---

Issues: (i) Whether the interim restraint against the Gupta Group and the Jain Group in respect of their properties, shareholdings and the Noida property was justified under Section 9 of the Arbitration and Conciliation Act, 1996; (ii) Whether any further restraint could be imposed on Southend Infrastructure Pvt. Ltd. and its property on the basis of the pleaded flow of funds and the tracing principle; (iii) Whether the appellant was entitled to a direction for additional security by way of bank guarantee or other enhanced protective relief.

Issue (i): Whether the interim restraint against the Gupta Group and the Jain Group in respect of their properties, shareholdings and the Noida property was justified under Section 9 of the Arbitration and Conciliation Act, 1996.

Analysis: The record showed diversion of funds by the Gupta Group and the Jain Group from BMS to other entities and individuals without security, along with dilution of shareholdings and prior conduct indicating a likelihood of alienation of assets. The restraint over their properties and shareholdings, including the direction preserving the 44% share in the constructed area at Noida, was found to be a legitimate interim measure to secure the award and prevent frustration of execution.

Conclusion: The restraint against the Gupta Group and the Jain Group was upheld and is against the appellant.

Issue (ii): Whether any further restraint could be imposed on Southend Infrastructure Pvt. Ltd. and its property on the basis of the pleaded flow of funds and the tracing principle.

Analysis: The pleadings against Southend were found to be sketchy and unsupported by material showing siphoning of BMS funds into Southend or control by the Gupta Group and the Jain Group. Mere shareholding changes were insufficient to apply tracing principles or to treat Southend as liable for restraints on its independent assets.

Conclusion: No further restraint against Southend was warranted, and the appellant was not entitled to relief on that basis.

Issue (iii): Whether the appellant was entitled to a direction for additional security by way of bank guarantee or other enhanced protective relief.

Analysis: The pleadings did not establish the value of the assets already covered by the interim order, and the appellant failed to show a sufficient basis for directing further security beyond the measures already granted. The court therefore declined to enlarge the interim protection in the manner sought.

Conclusion: The request for additional security was rejected and is against the appellant.

Final Conclusion: The interim protection granted by the Single Judge was substantially sustained, while the wider reliefs sought against Southend and for enhanced security were refused, resulting in dismissal of the appeals.

Ratio Decidendi: Interim relief under Section 9 may be granted to preserve assets and secure the award where there is prima facie material of diversion or dissipation, but tracing-based relief against a third party requires specific factual foundation showing identifiable transfer of the claimant's funds into that party's hands.

---