Issues Cropped up during Hearing on Arbitration matter

The law that was deliberated was the one laid down under Section 9 and Section 17 of the Arbitration and Conciliation Act, 1996 (The Act). 

Two fundamental issues which came up for discussion during this Court Hearing were:

1. Whether the Court can entertain the petition for granting interim relief even after the constitution of the Arbitration Tribunal?
2. Whether the Interim directions can be issued against Third Parties?

 Section 9 and Section 17 of the Act

I reproduce both these sections as they stand after the amendments carried out in these Sections in 2015 and 2019:

9. Interim measures, etc., by Court. —1 [(1)] A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court— 

• for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
• for an interim measure of protection in respect of any of the following matters, namely: —
• the preservation, interim custody, or sale of any goods which are the subject matter of the arbitration agreement;
• securing the amount in dispute in the arbitration; 
• the detention, preservation, or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; 
• interim injunction or the appointment of a receiver;
• such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it. 

2 [(2) Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.

(3) Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1) unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious.]

1 [17. Interim measures ordered by arbitral tribunal. — (1) A party may, during the arbitral proceedings, apply to the arbitral tribunal— (i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or 

(ii) for an interim measure of protection in respect of any of the following matters, namely: — 

• the preservation, interim custody, or sale of any goods which are the subject matter of the arbitration agreement;
• securing the amount in dispute in the arbitration; 
• the detention, preservation, or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party or authorising any samples to be taken, or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
• interim injunction or the appointment of a receiver;
• such other interim measure of protection as may appear to the arbitral tribunal to be just and convenient, and the arbitral tribunal shall have the same power for making orders as the Court has for the purpose of, and in relation to, any proceedings before it.

 (2) Subject to any orders passed in an appeal under section 37, any order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure,1908 (5 of 1908), in the same manner as if it were an order of the

Court.]

It may be mentioned here that sub-section (2) and sub-section (3) have been introduced to Section 9 by Amendment 2015 (based on the Recommendation of Law Commission in the 246^th Report).

 Sub section (3) to Section 9 provides that the Court will not entertain an application for interim relief once the Arbitration Tribunal has been constituted unless the circumstances render the remedy under section 17 inefficacious.

Further, Section 17 was amended to make it pari materia with Section 9 of the 1996 Act. 

Basic Issues which one should considered while applying relief under Section 9

• WHICH COURT NEEDS TO BE APPROACHED FOR INTERIM RELIEF UNDER SECTION 9?

Section 9 empowers the ‘Court’ as defined by Section 2(1)(e) to grant interim measures of protection. Accordingly, it confines the jurisdiction to the Principal civil Court and includes those High Courts which exercise original jurisdiction. Further, as observed by Apex Court, if the arbitration agreement confers the exclusive jurisdiction on a particular court, all applications under Section 9 would be required to be filed only before that Court, and the jurisdiction of the other Courts would be barred^[1].

It may be pertinent to mention that after the Supreme Court judgment in Bharat Aluminium Company vs. Kaiser Aluminium (BALCO),^[2] the Court of the Seat of Arbitration will have jurisdiction under the Act. Thus Indian Court will not grant interim remedies under Section 9 to the foreign-seated arbitration. 

• WHO CAN APPLY FOR THE INTERIM RELIEF UNDER SECTION 9?

As mentioned in Section 9 quoted above, a Party to the Arbitration Agreement may apply to the Court for Interim relief. A Party can move to the Court for interim measures of protection, either before the arbitral tribunal is constituted or during the pendency of the arbitral proceedings, if the remedy under section

17 is not effective or efficacious, and after the making of the award before it is enforced. In this regard, it would be helpful to refer to the judgment of the

Hon’ble Supreme Court in Firm Ashok Traders V. Gurumukh Das Saluja, (2004) 3 SCC 155, wherein it is held as follows:

“the right conferred by Section 9 cannot be said to be one arising out of a contract. The qualification which the person invoking the jurisdiction of the Court under Section 9 must possess is of being a “party” to an arbitration agreement. A person not a party to an arbitration agreement cannot enter the Court for protection under Section 9. This has relevance only to his locus standi as an applicant. This has nothing to do with the relief which is sought for from the Court or the right which is sought to be canvassed in support of the relief.”^[3]

Thus, as per the above dictum of the Hon’ble Supreme Court, only the party as defined under Section 2(1)(h) of the 1996 Act can invoke the jurisdiction of the Court seeking interim relief under Section 9 of the said Act. When the applicant is not capable of referring the matter for arbitration, it cannot seek remedy under Section 9, which is an interim measure contemplated under the Act before or during the course of the Arbitral proceedings or after making of the Arbitral Award, but before it is enforced^[4].

It is pertinent to mention here that once the arbitral award is made only the successful party, who is entitled to approach the court for enforcement of award can apply to the court for protection in terms of section 9(ii) of the Act.

• CAN AN AWARD DEBTOR INVOKE SECTION 9?

This issue has been examined by the Division Bench of Bombay High Court in the case of Dirk India Private Limited v. Maharashtra State Generation Company Ltd⁵. The Court, after consideration, held that the interim orders are intended to safeguard the subject matter of the dispute. However, after the Arbitration Award has been issued, the application under section 9 is made with the intention to protect the subject matter of the award till the enforcement takes place. Under the circumstances, the award-debtor cannot make an application to obtain interim order after the award was passed. 

• WHICH INTERIM RELIEF CAN BE SOUGHT UNDER SECTION 9 ?

Under Section 9 (1)(i) of the Act, a Party may apply to the Court for an interim measure of protection in respect of any of the following matters, namely: —

• the preservation, interim custody, or sale of any goods which are the subject matter of the arbitration agreement;
• securing the amount in dispute in the arbitration; 
• the detention, preservation, or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; 
• interim injunction or the appointment of a receiver;
• such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it. 
• CRITERIA FOR GRANTING INTERIM RELIEFS BY THE COURT

The Act has not specified any standard or principles to be followed for granting interim relief under Section 9 of the Act. However, the Supreme court in Gujarat Bottling Co. Ltd.& others vs. Coca-Cola Co.& Ors. held that the power to grant an interlocutory injunction is discretionary and would be granted if the plaintiff has made out a prima facie case; the balance of convenience is in favour of the plaintiff, and the plaintiff has to suffer an irreparable injury if his prayer for interlocutory injunction is disallowed. In addition, some courts have sought to apply standards under the Code of Civil Procedure, 1908, such as Order XXXVIII24 and Order XXXIX, to consider the Application under Section 9 of the Act. But few Courts do not favour strictly applying these standards though they are of the view that these standards do need to be kept in mind while deciding the application under section 9. 

The Supreme Court, in ITI v Siemens Public Communication, held that though there was no mention of applicability of the CPC to arbitral proceedings in the Act, the provisions of the CPC could be read in by a court exercising its powers during any proceedings arising out of the Act.

• ENFORCEMENT OF INTERIM RELIEF GRANTED UNDER SECTION 9 OF THE ACT

When the Court grants the Interim relief under section 9 of the Act, the same is enforceable like any other order of the Court. The Parties may initiate the Contempt proceedings in case of non-compliance with this order. 

• WHETHER THE ORDERS PASSED UNDER SECTION 9 OF THE ACT APPEALABLE?

 The order passed by the Court granting or refusing to grant an interim measure under Section 9 of the Act is amenable to one Appeal. Such an appeal can be made before the Appellate Court under Section 37(1) (b) of the Act. However, sub-section 37(3) bars the second Appeal. 

Author : Nasim Chandani