Srei Equipment Finance LTD vs. The Karur Vysya Bank

Facts

SREI Equipment Finance Limited (Petitioner) filed four applications under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim relief. The Petitioner sought to restrain The Karur Vysya Bank (Respondent) from transferring or dealing with amounts in specific escrow accounts maintained with the Respondent. These applications stemmed from four agreements entered into in 2019 between the parties, which contained arbitration clauses. The Petitioner alleged that the Respondent, as assignee, was obligated to collect receivables, including the tax component, and transfer the tax component to the Petitioner for deposit with statutory authorities. The Petitioner claimed the Respondent failed to comply with these obligations despite several demand notices issued between August 2021 and June 2023. The Respondent contended that the applications were not maintainable, that the Petitioner had failed to comply with agreement prerequisites, and that the Respondent was entitled to exercise Banker's Lien due to outstanding dues from the Petitioner.

Held

The Court held that the applications for interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, were maintainable. The objection that the Petitioner had already invoked arbitration under Section 21 was rejected, as Section 9 explicitly permits applications for interim measures before or during arbitral proceedings. The Court cited the Supreme Court's decision in Arcelor Mittal Nippon Steel India Limited vs. Essar Bulk Terminal Limited, affirming the Court's discretion to grant limited interim protection under Section 9 even after the constitution of the arbitral tribunal, provided the Court had applied its mind to the matter. Regarding the Respondent's claim to retain excess amounts and exercise Banker's Lien, the Court held that this was a substantive dispute that required adjudication by the arbitral tribunal. The Court found that the Petitioner had established a prima facie case, irreparable injury, and balance of convenience for the grant of interim relief. The Petitioner's request for a restraint on the Respondent dealing with amounts in the escrow accounts was considered a measure for the preservation of the subject matter of the dispute, which is contemplated under Section 9(i)(a) and (c) of the Act. The Court allowed the applications, directing the Respondent Bank not to transfer or deal with the amounts in the specified escrow accounts until the formation of the arbitral tribunal and until the parties could approach the tribunal under Section 17. The parties were directed to take expeditious steps for the formation of the arbitral tribunal, in line with Section 9(2) of the Act.

Key Issues

1. Whether the Petitioner's applications for interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, are maintainable when arbitration clauses have been invoked by the Petitioner through notices under Section 21 of the Act? (Question of law, turning on Section 9 and Section 21 of the Arbitration and Conciliation Act, 1996). Petitioner's arguments: The applications are maintainable under Section 9, which allows parties to seek interim relief before, during, or after arbitral proceedings but before award enforcement. The Respondent's objection lacks statutory basis. Respondent's arguments: The applications are not maintainable as the Petitioner has already invoked arbitration clauses via Section 21 notices. (This argument was rejected by the Court). 2. Whether the Respondent Bank/assignee is entitled to retain excess amounts from the escrow accounts to adjust any shortfall in rent receivables or outstanding dues from the Petitioner, by exercising Banker's Lien under Section 171 of the Indian Contract Act, 1872? (Question of mixed law and fact, turning on the interpretation of the Assignment Agreement, Designated Account Agreement, and Section 171 of the Indian Contract Act, 1872). Petitioner's arguments: The Respondent's claim to retain excess amounts is a matter for the arbitral tribunal to decide. The interim relief sought is for preservation of the subject matter of the dispute. Respondent's arguments: The Respondent is entitled to retain excess amounts for adjusting shortfalls in rent receivables or outstanding dues, exercising Banker's Lien. The Petitioner has not established a prima facie case, irreparable injury, or balance of convenience for interim relief.