Post-Award Section 9 Relief for an Unsuccessful Party: Court May Order Deposit of Encashed Bank Guarantee Amounts to Prevent Unjust Enrichment
Introduction
In National Projects Construction Corporation Limited v. Ishvakoo (India) Pvt. Ltd.,
the Supreme Court considered whether an unsuccessful claimant, whose arbitral claims had been dismissed,
could still obtain interim protection under Section 9 of the Arbitration and Conciliation Act, 1996
after the arbitral award, pending its challenge under Section 34.
The dispute arose from a 2002 Memorandum of Understanding for construction-related works in Agra.
The respondent, Ishvakoo, had received a mobilisation advance of Rs. 3.5 crores from the appellant,
NPCC, against bank guarantees. During the arbitral proceedings, the High Court had directed that the
bank guarantees be kept alive and that NPCC could encash them only if, after adjudication, it was found
entitled to recover amounts from Ishvakoo. However, before the award was delivered, NPCC encashed the
bank guarantees when Ishvakoo failed to keep them alive.
Summary of the Judgment
The Supreme Court dismissed NPCC’s appeal and upheld the orders of the Delhi High Court directing NPCC
to deposit Rs. 3.5 crores with the Registry of the High Court. The amount is to be kept in a fixed deposit
pending disposal of Ishvakoo’s Section 34 challenge to the arbitral award.
The Court held that although an unsuccessful party seeking post-award Section 9 relief must satisfy a
higher threshold, this was a rare and compelling case warranting interim protection. The Court found that:
- NPCC had filed no counterclaim in the arbitration;
- There was no clear arbitral finding that Ishvakoo had failed to utilise the mobilisation advance;
- The arbitrator appeared unaware that the bank guarantees had already been encashed;
- The original High Court order permitted encashment only if NPCC was found entitled to recover money under the award;
- Allowing NPCC to retain the money pending the Section 34 proceedings could amount to unjust enrichment.
The Supreme Court clarified that its observations were only for deciding the Section 9 issue and would
not influence the merits of the Section 34 proceedings.
Analysis
Precedents Cited
This was the central precedent relied upon by the Supreme Court. In that case, the Court held that a
party which has lost in arbitration is not automatically barred from invoking Section 9 after the award.
Section 9 protects the subject matter of the dispute and can be invoked even by an unsuccessful party
in rare and compelling circumstances.
The present judgment applies that principle directly. The Court accepted that Ishvakoo, though unsuccessful
before the arbitrator, could seek interim protection because the Section 34 challenge was pending and
because immediate denial of protection could cause irreversible prejudice.
This precedent was used to explain the width of Section 9. The Court reiterated that Section 9 empowers
courts to grant interim measures that are “just and convenient”, including measures to secure amounts in
dispute. However, the power must be exercised judicially, not arbitrarily.
The Supreme Court applied the familiar tests of prima facie case, balance of convenience,
irreparable prejudice, and reasonable expedition. It found that Ishvakoo satisfied these
requirements.
This Bombay High Court decision, quoted through Essar House, explained that Section 9 is not strictly
confined by the wording of Order XXXVIII Rule 5 of the Code of Civil Procedure. Courts are guided by
procedural principles but are not shackled by them where justice requires interim protection.
This case was cited for the proposition that Section 9 powers must be exercised to promote the efficacy
of arbitration as a dispute resolution mechanism. The present judgment follows that approach by ensuring
that the pending Section 34 challenge remains meaningful and that the disputed amount is preserved.
This decision established that Section 9 relief is not divorced from ordinary principles governing interim
injunctions. Courts must consider prima facie case, balance of convenience, irreparable injury, and what is
just and convenient. The Supreme Court relied on this framework while approving the High Court’s direction
to deposit the encashed amount.
Legal Reasoning
The Supreme Court’s reasoning turned on the special factual matrix. The bank guarantees were originally
intended as security for mobilisation advance. The High Court’s 2005 order had permitted NPCC to encash
them only if the arbitral adjudication showed that NPCC had recoverable amounts. But NPCC never filed a
counterclaim. Therefore, there was no award in NPCC’s favour directing recovery of Rs. 3.5 crores.
The Court also accepted the High Court’s prima facie view that the arbitrator did not properly address
the issue of discharge of the bank guarantees and appeared to proceed on the assumption that they were
still alive. Since the guarantees had already been encashed before the award, the actual consequence of
encashment was not considered by the tribunal.
Importantly, the Court rejected the argument that the earlier order dated 01.11.2017 concluded the issue.
That order had dealt with the pre-award situation, when Ishvakoo had failed to keep the guarantees alive.
The present question was different: after the award, and in the absence of a counterclaim or recovery finding,
could NPCC retain the money pending the Section 34 challenge?
The Supreme Court held that directing deposit in court did not amount to final adjudication. It was a
protective interim measure. The money would remain secured, earn interest, and ultimately go to the party
found entitled after the Section 34 proceedings.
Impact
This judgment is significant because it confirms that post-award Section 9 relief is not exclusively for
the award-holder. Even an unsuccessful party may seek interim protection, provided it crosses a higher
threshold and demonstrates rare and compelling circumstances.
The ruling will be especially relevant in cases involving bank guarantees, mobilisation advances, and
pre-award encashment. It signals that encashment of a security instrument does not automatically entitle
a party to retain the proceeds if the arbitral award does not support such recovery.
The judgment also encourages parties seeking monetary recovery in arbitration to file proper counterclaims.
A party cannot rely merely on defensive findings or general allegations to retain money where no adjudicated
entitlement exists.
Complex Concepts Simplified
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Section 9: A provision allowing courts to grant interim protection before, during, or after
arbitration but before enforcement of the award.
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Section 34: The provision under which a party challenges an arbitral award in court.
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Bank guarantee: A promise by a bank to pay a beneficiary if the party furnishing the guarantee
defaults or fails to meet agreed conditions.
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Mobilisation advance: Money advanced to a contractor at the start of a project to mobilise
resources, usually secured by bank guarantees.
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Prima facie case: A case that appears arguable or credible at first look.
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Balance of convenience: A comparison of hardship to both sides if interim relief is granted
or refused.
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Unjust enrichment: Retaining a benefit without legal justification at another’s expense.
Conclusion
The Supreme Court’s ruling affirms that Section 9 is a flexible protective jurisdiction designed to preserve
justice and the efficacy of arbitration. While an unsuccessful party faces a higher threshold after an award,
courts may intervene in rare cases to prevent unjust enrichment and preserve the subject matter of pending
Section 34 proceedings.
The key takeaway is that interim protection under Section 9 can extend even to directing deposit of already
encashed bank guarantee amounts, where retention of those proceeds is not supported by the award and may
prejudice the pending challenge.