Interim arbitration protection can reach connected property where investor funds were used but promised shares were never allotted.

In a Section 9 arbitration petition, interim protection may extend to property directly linked to the disputed investment, including assets released because of that investment, where the promised share allotment was never made. The Court found a prima facie misuse of share application money, since the funds were used to discharge the company's liability and the corresponding allotment obligation remained unperformed, engaging Section 42(6) of the Companies Act, 2013 on the pleaded facts. It held that the petitioner showed a strong prima facie case, risk of frustration of the arbitral process, and irreparable prejudice, so deposit of the investment equivalent with statutory interest and restraint against third-party interests were justified pending arbitration.

---

---

Issues: Whether, in a petition under Section 9 of the Arbitration and Conciliation Act, 1996, interim protective relief could extend to restraint over the company's assets and the Greater Kailash Property, and whether the invested amount, having not resulted in allotment of shares, justified a deposit order with interest under the statutory framework.

Analysis: The investment was made pursuant to an arbitration agreement, the funds were used to discharge the company's liability to SIDBI, and the respondents obtained the benefit of release of both the company's assets and the personal property and guarantees, while the promised shares were never allotted. The Court held that the Greater Kailash Property was not extraneous to the dispute, since its release was directly tied to the investment and formed part of the subject matter requiring protection pending arbitration. It further held that, on a prima facie basis, the use of share application money for purposes other than allotment or permissible refund offended Section 42(6) of the Companies Act, 2013, and that the petitioner had shown a strong prima facie case, risk of frustration of the arbitral process, and irreparable prejudice if protective relief were withheld.

Conclusion: Interim relief was justified. The respondents were directed to deposit the INR equivalent of USD 1 million with statutory interest, and restrained from creating any third-party interest over the company's properties and over the Greater Kailash Property, pending arbitration.

Final Conclusion: The petition succeeded by way of interim protection of the petitioner's investment and associated subject matter, with the restraints and deposit directions to operate until the arbitral proceedings are completed or varied by the competent forum.

Ratio Decidendi: Where investor funds are used to confer direct benefits on the respondents and the corresponding contractual allotment obligation remains unperformed, Section 9 permits protective measures over connected property that forms part of the dispute, guided by prima facie entitlement, risk of frustration, and equitable preservation of the arbitral subject matter.

---