Award Debtor Can Seek Protection U/S 9 Arbitration Act In Rare Cases To Prevent Irreparable Prejudice: Supreme Court
The Court upheld an order directing refund/deposit of encashed bank guarantee amounts pending Section 34 challenge where no counterclaim or finding on mobilization advance existed.
The Supreme Court has affirmed that an unsuccessful award debtor can invoke Section 9 of the Arbitration and Conciliation Act, 1996 post-award to seek interim relief under rare and compelling circumstances to prevent irreparable prejudice and preserve the efficacy of Section 34 challenge proceedings.
Applying this standard, the Court upheld orders directing an award creditor to deposit ₹3.5 crore, realized by encashing bank guarantees, into court pending the outcome of the award debtor's Section 34 petition.
A Division Bench comprising Justice K. V. Viswanathan and Justice Alok Aradhe while referring to Home Care Retail Marts Pvt. Ltd. v. Haresh N. Sanghavi, 2026 SCC Online SC 670 noted that the issues is no longer res integra. “This Court, while holding the application to be maintainable, has sounded a note of caution that the threshold for grant of interim relief will be higher in case the application is moved by an Award Debtor and that a court may, in rare and compelling cases, permit the unsuccessful party to invoke Section 9 to prevent irreparable prejudice and to preserve the efficacy of the challenge under Section 34”, it noted.
Advocate Rajat Arora appeared for the appellant and Advocate Ajay Bansal appeared for the respondent.
The dispute arose from a 2002 Memorandum of Understanding between National Projects Construction Corporation Ltd. (appellant) and Ishvakoo (India) Pvt. Ltd. (respondent) regarding the development of bus termini and the Taj Trapezium Zone Heritage Corridor in Agra. Ishvakoo was granted ₹3.5 crore as mobilization advance against bank guarantees.
When disputes erupted and arbitration was invoked, Ishvakoo filed an initial Section 9 petition. In 2005, the High Court recorded the appellant's undertaking not to encash the bank guarantees provided they were kept alive, clarifying that encashment would only be permitted if an executable award required recovery from Ishvakoo.
In September 2017, after Ishvakoo failed to keep the bank guarantees renewed, the appellant encashed them. The Arbitral Tribunal subsequently issued its award on December 5, 2017, dismissing Ishvakoo’s claims. Crucially, the appellant had filed no counterclaim before the tribunal. Ishvakoo challenged the award under Section 34 and simultaneously filed a post-award Section 9 petition seeking the return or court deposit of the ₹3.5 crore. A Single Judge of the Delhi High Court directed the appellant to deposit the sum in court, a decision subsequently affirmed by the Division Bench.
Dismissing the appeal, the Court noted that the arbitral award contained no finding that the mobilization advance was unutilized, nor was there any counterclaim or monetary decree in favor of the appellant. The Court held that the tribunal appeared oblivious to the prior encashment and had left the core issue of bank guarantee discharge unaddressed.
The Court directed the appellant to deposit ₹3.5 crore with the Registry of the Delhi High Court within four weeks. The Registry has been directed to invest the sum in an interest-bearing fixed deposit with a nationalized bank on auto-renewal basis until the final disposal of the Section 34 application.
Cause Title: National Projects Construction Corporation Ltd. v. Ishvakoo (India) Pvt. Ltd. (Neutral Citation: 2026 INSC 828)
Appearances:
Appellant: Rajat Arora, Advocate
Respondent: Ajay Bansal, Advocate