Facts: Aditya Birla Housing Finance Ltd. (Petitioner) sought interim measures under Section 9 of the Arbitration and Conciliation Act, 1996, against Axis Bank (Respondent No. 1) and the borrowers (Respondent Nos. 2 to 5). The Petitioner had sanctioned a loan to the borrowers to take over their existing credit facilities (CC and OD) with Axis Bank, secured by a mortgage on a property. After the Petitioner disbursed funds to Axis Bank to clear the borrowers' dues, Axis Bank allegedly failed to release the title deeds of the mortgaged property. Furthermore, Axis Bank permitted the borrowers to continue operating their OD account, even after the Petitioner's disbursal, leading to further encumbrances. The borrowers defaulted on their loan repayment to the Petitioner, who then invoked arbitration.
Procedural Posture: The Petitioner filed a Commercial Arbitration Petition in the Bombay High Court seeking a direction for Axis Bank to hand over the title deeds of the subject property pending the arbitral proceedings. The Court had previously issued interim orders directing Axis Bank to deposit the title deeds with the Registry, which Axis Bank complied with. Axis Bank challenged the order in appeal, but the appellate court only stayed the direction for filing an affidavit, not the deposit of title deeds.
Issue: Whether the Court can direct interim measures against Axis Bank, a third party to the arbitration agreement between the Petitioner and the borrowers, to preserve the subject matter of the arbitration, specifically the title deeds of the mortgaged property.
Holding: Yes, the Court can direct interim measures against Axis Bank. The Court ordered that the title deeds of the subject property shall remain deposited with the Registry of the Court during the pendency and conclusion of the arbitral proceedings between the Petitioner and the borrowers.
Reasoning: The Court found a prima facie case of Axis Bank acting in collusion with the borrowers, taking advantage of a small outstanding amount in the OD account to allow further operation of the account and disbursement of additional funds, despite knowing that the Petitioner had taken over the loan facilities. The Court emphasized that Section 9 of the Arbitration Act allows for interim measures against third parties to preserve the subject matter of arbitration. The Court noted that Axis Bank's actions jeopardized the Petitioner's security and frustrated their claim against the borrowers. The Court distinguished the present case from situations where interim measures against third parties are disfavored, finding a direct link between the credit facilities disbursed by the Petitioner and Axis Bank to the same borrowers. The court held that preventing Axis Bank from dealing with the title deeds was necessary to protect the Petitioner's interests pending arbitration.