Delhi High Court dismisses petition seeking injunction on sale of pledged shares at pre-arbitration stage

I.  Brief facts:

1. Avantha Holdings Limited (“AHL”) filed a petition under Section 9 of the Arbitration & Conciliation Act, 1996 (“Act”) against Vistra ITCL (India) Ltd. (“Vistra”)[1] seeking pre-arbitration interim reliefs. The disputes primarily arose out of debenture trust deeds (“DTD”) executed between AHL and a consortium of lenders (KKR, L & T and BOI[2]) (“consortium”) whereby Vistra was appointed as the debenture trustee. AHL borrowed monies from the consortium and issued non-convertible debentures and pledged equity shares held by it in M/s Crompton Greaves Power and Industrial Solutions Ltd. (“CGP”) and M/s Ballarpur Industries Ltd. (“BILT”).

2. On account of failure to maintain the required security cover in-spite of several notices and default in payment of the amount on the due date, Vistra issued a notice under Section 176 of the Indian Contract Act, 1872 for sale of CGP shares in March, 2019 and in June, 2020 for sale of BILT pledged shares. Since AHL did not make payment of the amount, Vistra invoked the pledge and subsequently sold the pledged shares in the market. Shares of CGIP were sold in the open market between July to November 2019 and shares of BILT were sold in July 2020. The shares were purchased by KKR and L&T at the prevailing market rate.

3. Pursuant to the notice sent by Vistra in June, 2020, AHL filed a petition under Section 9 of the Act seeking (a) transfer of the CGP shares in the demat account of AHL; (b) restraint on sale of BILT shares and; (c) directions to Vistra to not take any steps under the DTD and pledge agreements.

II. Analysis:

After considering the submissions made on behalf of the parties, the Court held that the petition filed by AHL is “nothing more than a shot in the dark and bereft of any cause of action”.

1.   Scope of Section 9 of the Act

A.  Purpose of Section 9 and meaning of “etc.” in the definition clause “Section 9 – Interim measures, etc. by Court”:

The measures / reliefs granted under Section 9 must be in the nature of “interim measures” which are granted to serve temporary purpose[3] and the term “etc.” is required to be interpreted by considering the words with which it is associated.

B.  Powers under Section 9 vis-à-vis Section 17

While exercising power under Section 9 of the Act, Court has to be conscious of the power vested in the arbitrator / arbitral tribunal under Section 17 of the Act. It is for this reason that Section 9 (3) provides for grant of interim measures by the Court consequent to the constitution of the arbitral tribunal except where remedy under Section 17 of the Act may not be efficacious. Therefore, even at the pre-arbitration stage the Courts cannot usurp the jurisdiction of the arbitrator / arbitral tribunal.

C.  Principles for grant of interim relief

It is also important to ensure that the remedy under Section 9 of the Act is not misused by the litigants and therefore the ingredients required for obtaining relief under Order XXXIX of the Code of Civil Procedure, 1908 must be satisfied being prima facie case; balance of convenience; and irreparable loss, in addition to the fact that the relief claimed under Section 9 cannot await the constitution of the arbitral tribunal.  The Court referred to the judgment of the Supreme Court in “Adhunik Steels Ltd. v. Orissa Manganese and Minerals Ltd.”[4] wherein the Scope of Section 9 and the factors to be considered while granting interim reliefs before constitution of an arbitral tribunal was examined in detail.

D. Ambit of Section 9(1)(ii)(e) of the Act

Section 9 (1)(ii)(e) provides for the Court to “grant such other interim measure of protection as may appear to the court to be just and convenient”. The jurisdiction of the term ‘just and convenient clause’ is wide in amplitude. However, the Court must exercise the powers under Section 9 with restraint and interim measures should not be not be granted by the Court when such relief will effectively frustrate the object of arbitration.

III. Findings:

In view of the clear position under law, the Court held that none of the prayers can be granted due to the following reasons:

Prayer (a): transfer of CGP shares in demat account of AHL

Since the pledge was invoked in in March, 2019 and subsequently the CGP shares were dematerialized, sold in the open market and purchased by KKR & L&T later, interim orders cannot be passed under Section 9 of the Act since it is not justifiable to set the clock back to the pre-invocation stage.

Prayer (b): Restraint against the Respondent from selling shares of BILT

On the merits of the case, the Court held that AHL never denied the allegation of failure to maintain the required security cover and default in payment of outstanding amounts on the due date. It was therefore held that there was no occasion for the Court to interdict the invocation and sale of the BILT shares and any such direction will be in the nature of forbidding the Respondent from exercising the rights as per the transaction documents and such reliefs cannot be granted under Section 9 of the Act.

Prayer (c): Restraint on Vistra from taking any steps under the DTD and pledge agreements

The Court cannot put an embargo on a party from exercising its rights under the transaction documents, and even otherwise AHL has never denied the allegation of default made by Vistra, therefore this prayer was also not granted. The Court rejected the stand of AHL that the DTD and pledge agreements stand rescinded.


The judgment of the Delhi High Court emphasizes the scope of Section 9 of the Act and factors which must be considered by the Courts before granting interim relief to a party so that the remedy available under Section 9 is not misused by the litigants and on the other hand the jurisdiction of the arbitral tribunal is not usurped by the Courts.

AZB & Partners represented KKR before the Delhi High Court.


Raghav Chaddha, Senior Associate


[1] OMP (I) Comm 177 of 2020
[2] M/s KKR India Financial Services Pvt. Ltd. and KKR India Debt Opportunities Fund (“KKR”), M/s L&T Finance Ltd., L&T Fincorp Ltd. and Family Credit Ltd. (“L&T”) and M/s BOI AXA Corporate Credit Spectrum Fund (“BOI”)
[3] Bank of Maharashtra v. M. V. River Oghese AIR 1990 Bom 107
[4] (2007) 7 SCC 125

Date: September 18, 2020