Interim deposit in arbitration can secure disputed holdback amounts where contractual liability is clear and procedural attachment rules do not control.

In Section 9 proceedings under the Arbitration and Conciliation Act, 1996, a court may direct deposit of a disputed holdback amount as an interim measure where the contractual framework shows a clear obligation to secure or pay that sum. The Bombay HC treated the issue as an inter se contractual matter and held that Section 205 of the Income-tax Act, 1961 did not bar such relief. It also clarified that Section 9 is wide in scope and is not rigidly confined by Order 38 Rule 5 CPC, although those principles may guide discretion. On the facts, the deposit direction was justified to preserve the amount pending the substantive dispute.

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Issues: Whether the holdback amount could be directed to be deposited in court in proceedings under Section 9 of the Arbitration and Conciliation Act, 1996, and whether Section 205 of the Income-tax Act, 1961 barred such relief.

Analysis: The contractual obligation under the share and debenture purchase agreement required the purchasers either to deposit the holdback amount towards the seller's tax liability or, if not payable to the revenue, to pay it as part of the contractual consideration. The Court held that this was an inter se contractual obligation and not a matter governed by Section 205 of the Income-tax Act, 1961. It further held that the scope of Section 9 of the Arbitration and Conciliation Act, 1996 is wide and is not rigidly confined by the terms of Order 38 Rule 5 or other procedural provisions of the Code of Civil Procedure, 1908, though those principles may guide the exercise of discretion. On the facts, there was no real defence to the purchasers retaining the amount, and the surrounding circumstances also justified securing the sum as an interim measure of protection.

Conclusion: The deposit order was justified, and the challenge to it failed.

Final Conclusion: The appeals were rejected because the Court found no merit in the challenge to the interim deposit direction and treated the amount as requiring preservation pending the parties' substantive dispute.

Ratio Decidendi: In proceedings under Section 9 of the Arbitration and Conciliation Act, 1996, the Court may grant a suitable interim measure securing a sum in dispute where contractual liability to pay it is clear and the rigid requirements of procedural attachment rules do not adequately serve the interests of justice.

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