Authors: Pavitra Singh and Sambhav Sharma*
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In February 2026, the Delhi High Court in Khurana Educational Society v. Shashi Bala set aside an arbitrator’s order directing a party to deposit recurring monetary amounts under Section 17 of India’s Arbitration and Conciliation Act, 1996 (“Act”), during the pendency of arbitration proceedings. The decision strikes at a growing tendency in Indian arbitration – the use of interim measures as a vehicle for premature debt recovery, particularly where the applicant’s case rests merely on an allegation of the opposing party’s weak financial health.
The judgment arrives at a time when parties in commercial arbitrations increasingly seek to mitigate their financial risk by pursuing deposit orders under Section 17. This is often based on speculative financial risk, credit downgrades, or generalized concerns of insolvency of the counterparty, without demonstrating any concrete threat to enforceability of a future award. Khurana is significant because it synthesizes and reinforces a doctrinal position that Indian courts have been building for nearly two decades – the power to grant interim security in arbitration cannot be used to convert disputed, unsecured claims into secured ones merely because the respondent faces commercial adversity.
Section 17 of the Act empowers arbitral tribunals to order interim measures of protection during the pendency of proceedings, including orders to secure the amount in dispute. Section 9 of the Act confers parallel powers on courts to grant interim relief in support of arbitration. The power under Section 17 is treated as co-extensive with that under Section 9, and Indian jurisprudence requires its exercise to be informed by the same principles that govern interim relief in civil proceedings, i.e., the applicant demonstrating a strong prima facie case, balance of convenience, and irreparable injury.
Historically, where pre-award monetary security is sought, a more demanding threshold, drawn from Order XXXVIII Rule 5 of the Code of Civil Procedure, 1908 (“CPC”) was applied. Order XXXVIII Rule 5 is India’s statutory mechanism for prejudgment attachment of assets. It permits security only where the applicant demonstrates that the defendant is attempting to remove or dispose of property with the intention of obstructing or defeating enforcement of a future decree.
The Supreme Court’s decision in Raman Tech v. Solanki Traders remains the foundational authority. In a passage that has been cited with approval in virtually every subsequent Section 17 dispute of this nature, the Court declared that “the purpose of Order 38 Rule 5 is not to convert an unsecured debt into a secured debt”, and that any attempt to use it “as a leverage for coercing the defendant to settle the suit claim should be discouraged”. What must be shown is an intention to obstruct or defeat enforcement.
This principle was carried forward by the Supreme Court in Evergreen Land Mark v. John Tinson, where a tribunal had directed deposit of disputed amounts under Section 17, despite acknowledging that there was “no evidence showing that the appellant is disposing of any part of its property much less removing itself or its assets out of India so as to create a possibility of frustrating the monetary award that may be passed”. The Supreme Court intervened, holding that where liability itself is “seriously disputed” and there is no evidence of dissipation, “no such order for deposit by way of an interim measure on applications under Section 17 of the Arbitration Act could have been passed by the Tribunal”. Evergreen thus established a clear principle: the absence of evidence of dissipation, coupled with a genuine dispute on liability, is fatal to a pre-award security application under Section 17. Together, Raman Tech and Evergreen established the substantive threshold – that there must be a genuine risk to enforceability of a future award, not mere financial adversity.
The Delhi High Court in Dinesh Gupta v. Anand Gupta offered a nuanced formulation – while Order XXXVIII Rule 5 cannot be “bodily incorporated” into Section 17, its governing principles must nonetheless “inform” the arbitrator’s discretion, demanding what the Court termed a “middling approach”. The residual content of this middling approach is significant. The ordinary triad of prima facie case, balance of convenience, and irreparable harm remains the formal test under Section 17. However, for a request to secure a disputed monetary sum, the irreparable harm and balance of convenience limbs must be anchored in a demonstrable risk to the enforceability of the eventual award as opposed to mere financial vulnerability (let alone mere allegations thereof). The structural reason is that granting security for a disputed claim effectively pre-empts the very relief sought in the arbitration, unlike an ordinary status-quo-preserving injunction. Order XXXVIII Rule 5’s underlying rationale – guarding against defeated enforcement rather than converting unsecured claims into secured ones – supplies the operative content of what irreparable harm must mean in this context. A tribunal need not replicate Order XXXVIII Rule 5’s procedural apparatus, but it cannot treat the balancing exercise as satisfied by allegations of financial distress alone.
The Delhi High Court’s decision in Manish Aggarwal v. RCI Industries further consolidated this position. The appellants sought to secure their counterclaims on the ground that the respondent’s financial position was “ruinous”, pointing to negative net worth and non-performing asset classifications. The arbitrator declined relief, reasoning that the counterclaims were “speculative, undetermined and disputed” and that the “alleged weak financial condition of the claimant alone cannot be a ground to justify the order directing the claimant to furnish security/bank guarantee”. The arbitrator observed that no overt or covert act of asset dissipation had been demonstrated, and granting security would amount to converting unsecured claims into secured ones. Approving the arbitrator’s reasoning, the Court dismissed the appeal.
More recently, in 2022, the Supreme Court in Essar House v. Arcellor Mittal diluted the strict application of the ‘intention of defeating enforcement of a future decree’ standard of Order XXXVIII Rule 5 to proceedings under Section 9, observing that “proof of actual attempts to deal with, remove or dispose of the property with a view to defeat or delay the realisation of an impending Arbitral Award is not imperative for grant of relief”. However, it reiterated that a strong possibility of diminution of assets must exist for grant of interim security. A crucial distinction is made clear: Essar House relaxed only the evidentiary burden under Order XXXVIII Rule 5 by removing the need to prove actual or overt dissipation and accepting a “strong possibility of diminution” of assets as sufficient. That said, it did not abandon the substantive threshold that Raman Tech and Evergreen established, namely that there must still be a genuine risk to enforceability as opposed to mere financial adversity. Although Essar House was decided under Section 9 (court-ordered interim relief), the 2015 amendment to the Arbitration Act made Sections 9 and 17 close to co-extensive. Section 17(1) mirrors Section 9(1) powers, and Section 17(2) renders tribunal orders enforceable as court orders. In practice, tribunals have begun invoking Essar House’s reasoning in Section 17 proceedings, so the evidentiary standard in Essar House has bled into Section 17 practice even though the doctrinal line between the two provisions remains theoretically intact.
Against this backdrop, Khurana assumes particular importance. The arbitrator had directed the appellant to deposit INR 3,00,000 during each month of pendency of the arbitration. The Delhi High Court held that the arbitrator had “ventured into the realm of adjudication and granted a relief which bears the trappings of a provisional decree, thereby transgressing the limited and preservative scope of jurisdiction under Section 17”. The Court further held that interim measures ought to maintain equilibrium between the parties. They cannot tilt the scales so decisively in favour of one side that the arbitral proceedings themselves stand prejudiced. The record, the Court found, disclosed “no material indicating dissipation of assets, imminent frustration of enforcement, or any circumstance warranting such intrusive financial directions”. This finding is, in fact, best read as an application of the post-Essar House standard to facts that still failed to meet even that lower bar – not a reversion to a stricter pre-Essar House standard. Khurana is therefore in conjunction with, and not in tension with, Essar House.
The monthly deposit order in Khurana failed the balance of convenience inquiry for three reasons. First, it quantified a disputed sum without evidentiary scrutiny. Second, it imposed an open-ended periodic payment obligation untethered to any dissipation finding. Third, it risked itself precipitating the very financial distress invoked, since forcing contested monthly payouts during a pending arbitration can itself impair solvency. Balance of convenience is also comparative – a diffuse, unparticularized credit risk on the one hand cannot outweigh a concrete, ongoing cash-flow burden on a party whose underlying liability is seriously disputed. The quantification of disputed monetary claims at an interim stage, without evidentiary scrutiny, would transform an interlocutory order into an adjudication, thereby trenching upon the domain reserved for final award. In this sense, Khurana draws a line between two fundamentally different functions: first is the preservation of arbitral efficacy, which is a legitimate and necessary objective; and second is the securitization of contested claims before adjudication, which is not.
The Indian position on this question also finds functional resonance in the United States, although the doctrinal architecture differs fundamentally. The Supreme Court in Grupo Mexicano v. Alliance Bond held that federal courts lack the authority to issue preliminary injunctions freezing a defendant’s unencumbered assets pending adjudication of a contractual monetary claim. Of course, the holding in Grupo Mexicano rested on the historical scope of federal equity jurisdiction as fixed by the Judiciary Act of 1789, where the majority reasoned that a prejudgment freeze of unsecured legal claims was unavailable in the English Court of Chancery at the founding and so fell outside the equity power Congress conferred – a limitation Justice Ginsburg’s partial dissent criticized as a constraint on modern commercial practice. The authors acknowledge that the Indian position rests on an entirely different foundation with the express statutory discretion under Sections 9 and 17, informed by Order XXXVIII Rule 5 and the UNCITRAL Model Law’s own conception of interim measures preserving assets for eventual award satisfaction. The Indian question has never been whether the power exists (it plainly does by statute) but how it should be exercised. This comparison is drawn for its functional resonance rather than any shared doctrinal pedigree. Both systems, albeit through unrelated routes, independently decline to let a court or tribunal convert a contested unsecured monetary claim into a secured one before merits adjudication, and both are wary that doing so could precipitate debtor insolvency or induce a race to the courthouse. The Court in Grupo Mexicano cautioned that such a remedy “could radically alter the balance between debtor’s and creditor’s rights” and “might induce creditors to engage in a ‘race to the courthouse’ in cases involving insolvent or near-insolvent debtors, which might prove financially fatal to the struggling debtor”.
In 2024, a U.S. Bankruptcy Court in In re Nexgenesis Holdings applied Grupo Mexicano to deny recognition of a prejudgment asset freeze. It noted that a creditor could only obtain a right to property after having obtained a judgment establishing a debt. Therefore, what is required is evidence of deliberate conduct designed to defeat the creditor’s claim. Mere financial distress alone would be insufficient.
In international arbitration more broadly, the grant of interim asset preservation measures has always been an exceptional remedy, governed by principles of proportionality and necessity. The UNCITRAL Model Law on International Commercial Arbitration, which forms the basis of the Act, contemplates interim measures to maintain or restore the status quo, prevent actions that would cause harm to the arbitral process, or preserve assets out of which a subsequent award may be satisfied. But the requirement of demonstrating irreparable or substantial harm, as commentators such as Julian Lew have emphasized, ensures that interim measures are not granted where “the final award offers the means of remedying any harm, reparable or otherwise, once determined”. The transnational consensus is that interim measures must not be used to prejudge the merits or to impose substantive liability before adjudication. The Indian position, as reaffirmed in Khurana, is aligned with this global standard.
What emerges from Khurana is a coherent and doctrinally disciplined framework. The nature of a court or arbitrator’s power to grant interim relief is preservative and protective. It is neither intended to prejudge contentious issues nor to fasten substantive monetary liability where the foundational entitlement itself remains seriously disputed. Arbitration cannot become a mechanism for premature debt securitization merely because one party perceives commercial risk. Financial distress or solvency apprehensions cannot, by themselves, constitute a demonstrable threat to the arbitral process that would justify the extraordinary remedy of pre-award security.
A legitimate concern remains, however, at the intersection of Section 17 and the insolvency regime. A claimant unable to demonstrate enforcement risk sufficient for interim security may find that by the time an award issues, the respondent has entered the Corporate Insolvency Resolution Process (“CIRP”). Under Section 14 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), the moratorium bars institution or continuation of proceedings, including arbitration, against the corporate debtor and stays execution of any decree or award. Thereafter, the claimant’s award becomes merely a claim in the CIRP distribution waterfall under Section 53 of the IBC, ranking behind secured creditors and other priority dues, with unsecured creditors often recovering only a fraction of what is owed. Khurana does not address this risk at all, having been decided entirely within the four corners of the dissipation and ‘balance of convenience’ inquiry with no occasion to consider intervening insolvency.
This does not, however, justify a general relaxation of the Section 17 standard. The existing framework under the IBC already accommodates the concern that may be flagged. A claimant who can point to concrete indicia that CIRP is imminent, perhaps by way of a pending Section 7 or Section 9 IBC application, sustained default classifications, or other objective and clear signs of an approaching filing, is not relying on generalized financial distress but on a specific, identifiable enforcement risk that Essar House’s standard already permits. What Khurana corrects is only the practice of treating ordinary commercial adversity (and related ‘allegations’) as equivalent to such a showing. Moreover, a general relaxation would not fully solve the insolvency-timing problem. The IBC’s moratorium and distributional scheme, reinforced by the overriding effect of Section 238 of the IBC and the preferential and undervalued transaction provisions in the IBC, exist precisely to prevent any single creditor, arbitral or otherwise, from gaining an advantage over the collective insolvency process, and security obtained shortly before CIRP can itself be unwound as a preference. The more defensible response lies in sharper evidentiary standards for concrete insolvency risk and not in diluting the general threshold for interim security under Section 17 of the Act.
Khurana is a timely contribution to Indian arbitration jurisprudence. As commercial arbitrations grow in complexity and value, the temptation to weaponize interim measures as instruments of financial pressure will only increase. It serves as a reminder that the power to grant interim relief under Section 17 carries with it a corresponding duty of restraint. The line between protecting the subject matter of arbitration and converting the arbitral process into a debt recovery mechanism is one that courts and tribunals must guard with vigilance.
* Pavitra Singh is a Principal Associate in the arbitration and dispute resolution practice at Shardul Amarchand Mangaldas & Co., New Delhi. She is a dual qualified lawyer in India and England & Wales and holds a Master of Laws from University College London.
Sambhav Sharma is a Senior Associate in the arbitration and dispute resolution practice at Shardul Amarchand Mangaldas & Co., New Delhi and a former Law Clerk-cum-Research Associate to Hon’ble Justice Sanjiv Khanna, 51st Chief Justice of India.