Arbitral interim security: encumbered assets may be replaced by bank guarantee or fixed deposit, with limited appellate interference.

An arbitral tribunal may require alternative security under Section 17 where the asset offered is already encumbered and no longer provides dependable protection for the claim. Here, the tribunal found the property used as security was subject to a prior bank charge and that the earlier undertaking had not disclosed the encumbrances, so it directed the party to furnish a bank guarantee or place the amount in fixed deposit. On appeal under Section 37, the High Court held interference was unwarranted because the tribunal had exercised its discretion on relevant material, balanced the equities, and committed no perversity, illegality, or jurisdictional error. The interim order was sustained.

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Issues: (i) Whether the arbitral tribunal was justified in modifying the earlier interim order and directing the appellant to furnish a bank guarantee or deposit the amount in fixed deposit to secure the respondents' claim. (ii) Whether the High Court should interfere in appeal under Section 37 of the Arbitration and Conciliation Act, 1996 with the tribunal's exercise of discretion under Section 17 of the Act.

Issue (i): Whether the arbitral tribunal was justified in modifying the earlier interim order and directing the appellant to furnish a bank guarantee or deposit the amount in fixed deposit to secure the respondents' claim.

Analysis: The tribunal found that the appellant's property offered as security was already encumbered and that the bank had a prior charge over it. It held that, although the respondents were aware of the mortgage, the encumbrances had not been disclosed when the earlier undertaking was recorded. The tribunal considered the property no longer to be a dependable security for protecting the amount claimed in arbitration and therefore required alternative security by way of bank guarantee or fixed deposit.

Conclusion: The tribunal's direction to furnish alternative security was held to be justified and valid.

Issue (ii): Whether the High Court should interfere in appeal under Section 37 of the Arbitration and Conciliation Act, 1996 with the tribunal's exercise of discretion under Section 17 of the Act.

Analysis: Interference under Section 37 is limited and is warranted only if the tribunal's discretion is perverse or contrary to law. The tribunal had considered the material before it, balanced the equities between the parties, and acted to preserve the subject matter of the dispute. No perversity, illegality, or jurisdictional error was established to justify appellate interference.

Conclusion: No interference was called for with the tribunal's order under Section 17.

Final Conclusion: The appeal failed, and the impugned interim order protecting the disputed amount by requiring alternative security was sustained.

Ratio Decidendi: An appellate court will not interfere with an arbitral tribunal's discretionary interim order under Section 17 unless the discretion is shown to be perverse or contrary to law, and an encumbered asset may be treated as inadequate security for protecting the subject matter of the dispute.

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