Arbitral Tribunal's Interim Relief Meant To Preserve Arbitration, Not Secure Speculative Claims: Delhi High Court

The Delhi High Court has observed that interim relief under Section 17 of the Arbitration and Conciliation Act is meant to preserve the fruits of arbitration and cannot be used to secure a claimant against speculative future contingencies.

Justice Harish Vaidyanathan Shankar in a judgment delivered on February 26, observed:

“Section 17 of the A&C Act is designed to preserve the fruits of arbitration where a real and imminent risk is established; it is not intended to secure a claimant against speculative future contingencies. The record does not disclose any material indicating dissipation of assets, imminent frustration of enforcement, or any circumstance warranting such intrusive financial directions."

The court made the observation while setting aside an arbitral tribunal's direction requiring Khurana Educational Society (Regd.) to deposit Rs 3 lakh per month as usage charges during the pendency of arbitration in a dispute with landlord Shashi Bala.

The dispute relates to a parcel of land measuring about 4,840 square yards in Village Goyla Khurd, New Delhi. Shashi Bala claimed ownership of the land based on a registered sale deed and had leased it to the appellant society through a lease deed dated May 2, 2000, at a monthly rent of Rs 1,000.

The dispute arose after she issued a termination notice on April 9, 2018. She subsequently filed a commercial suit before the Delhi High Court seeking possession of the land and other reliefs. The matter was later referred to arbitration under Section 8 of the Arbitration and Conciliation Act.

During the arbitral proceedings, Shashi Bala moved an application under Section 17 seeking interim measures, including payment of usage charges, inspection of the property, and a restraint on the creation of third-party rights.

The arbitrator partly allowed the application and directed the society to deposit Rs 3 lakh per month as mesne profits with effect from October 15, 2018.

Challenging this direction, the society filed an appeal before the High Court under Section 37(2)(b) of the Arbitration and Conciliation Act.

The High Court said the direction effectively granted part of the final relief sought in arbitration even though key disputes between the parties remained unresolved.

“The validity of the termination notice dated 09.04.2018, the rival claims of ownership, and the alleged family settlement are all issues that necessarily require a full-fledged trial.”

The court also found fault with the arbitrator's reliance on lease deeds from 2021 and 2025 to retrospectively determine mesne profits from 2018.

“The fixation of ₹3,00,000/- per month has been undertaken without any evidentiary scrutiny regarding comparability, temporal relevance, amenities, size, or nature of use of the Subject Property.”

The court further noted that the appellant runs a school and that imposing substantial financial liability at the interim stage could disrupt the functioning of an educational institution without determination of rights.

Holding that the arbitrator had exceeded the permissible scope of interim relief, the High Court set aside the direction requiring deposit of Rs 3 lakh per month while partly allowing the appeal.