India: Can The Court Order Interim Relief In An Arbitration? The SC Clarifies

Introduction

In an appeal from a Gujarat High Court decision, a Supreme Court Division Bench comprising of J. Indira Banerjee and J. J.K. Maheshwari on the 14th of September 2021 held that subsequent to the constitution of an Arbitral Tribunal, Court would not consider and/or apply its judicial mind to any application for interim reliefs under the Arbitration and Conciliation Act, 1996 ("Act") unless and until it is established that the remedy from an application to the Tribunal is inefficacious.

The bench however qualified this conclusion by further stating, this bar on the jurisdiction of the Court ceases to operate when the application when filed before the Court has been entertained and the bench has applied its mind to the application.

According to the Act, interim measures can be applied for by a party to the arbitral proceedings either to a Court or the Arbitral Tribunal under Sections 9 and 17 respectively.¹ It is of importance in understanding this judgment that the scope of the Arbitral Tribunal in ordering interim measures has been significantly expanded to bring it in tandem with that of Courts. The deeming fiction as inserted by the Amendment² gives the Arbitral Tribunal the same powers as that of Courts and its orders the same veracity as well.

Factual and Procedural Background

Here, the Appellant, Arcelor Mittal Nippon Steel (India) Ltd. ("AMNS") and Respondent, Essar Bulk Terminal Ltd. ("Essar") found themselves in a dispute arising from a Cargo Handling Agreement. The Appellant invoked the arbitration clause to which Essar did not reply. AMNS then approached the Gujarat High Court for the appointment of Arbitral Tribunal.³

During this application's subsistence, both the parties filed their respective applications under Section 9(1) of the Act, for favourable interim measures, before the Commercial Court, hearing which the Court reserved the orders on the 7th of June 2021. Subsequently, the High Court appointed a three-member Arbitral Tribunal on the 9th of July 2021.

The Appellant filed an application to the Commercial Court praying for the Section 9 applications to be referred to the Tribunal, only for it to be dismissed. AMNS thus filed a petition before the Gujarat High Court under Article 227 for setting aside the Commercial Court's Order. The High Court dismissed the same concluding that the Commercial Court may decide whether remedy under Section 17 would be inefficacious and proceed to pass an order under Section 9 of the Act.

The Appellant, aggrieved, challenged this order before the Apex Court.

Questions before the Court

The judgment, authored by Justice Banerjee at the very outset highlighted the questions of law the dispute was concerned with. These were,

1. Whether a Court has the power to entertain an application under Section 9(1) after the constitution of the Arbitral Tribunal and if yes, how is the word "entertain" in Section 9(3) to be interpreted?
2. Whether a Court is obliged to determine the efficacy, or lack thereof, of remedy under Section 17 prior to passing an order under Section 9(1)?

Section 9 of the Act provides for interim measures ordered by a Court. Sub-section 1 permits a party to the arbitration to apply to Court seeking interim remedy at any point before or after the arbitral proceedings or after an award is made, but before the same is enforced as per Section 36 of the Act. Sub-section 3 prescribes that, once an Arbitral Tribunal has been constituted, the Court shall not entertain any application under Section 9(1) unless, it is satisfied of circumstances that would prove a Section 17 remedy to be inefficacious.

Section 17 of the Act, subsequent to the 2015 Amendment, affords the Arbitral Tribunal with the same scope as a Court when it comes to ordering interim measures in a proceeding.

Analysis

"Entertaining" a Section 9(1) Application

In response to the first question of law, on the Court's power to entertain an application under Section 9(1), Supreme Court first analysed Section 9(3) and its effect. Unquestionably, a disputing party is in a position to apply to the Court for interim remedy at any point before the arbitral proceedings up until the arbitral award is enforced in accordance with Section 36 of the Act.

However, subs-section 3 imposes a qualified restriction on the Court's power to order such interim relief. As such, it has two limbs; the first prohibiting an application under sub-section 1 from being entertained on the constitution of an Arbitral Tribunal and the second carving out an exception.⁴ If the Court is satisfied of the existence of circumstances that would make the remedy under Section 17 ineffective, it may so pass an order for interim relief.

Moreover, with an intention to discourage frequent applications under Section 9(1), the Legislature has expanded the scope of Section 17 to bring the powers of an Arbitral Tribunal vis-à-vis interim reliefs at the same pedestal as a Court.

Considering the exact same powers available to both, a Court and an Arbitral Tribunal, the bench in paragraph 68 found, "no reason why the Court should continue to take up applications for interim relief, once the Arbitral Tribunal is constituted and is in seisin of the dispute between the parties..."

The Court was pleased to sieve through a range of judicial precedents on the matter with the purpose of explaining the meaning and range of "entertain" as used in sub-section 3.⁶ In so doing, it concluded—

Thus, it would be of no consequence whether and to what stage the word "entertain" concerns itself with. The real question is whether the process of consideration has in fact commenced and/or whether the Court has applied its mind to some extent before the constitution of the Arbitral Tribunal. "If so, the application can be said to have been entertained before constitution of the Arbitral Tribunal."

Entertaining a Section 9(1) Application after Constitution of Arbitral Tribunal

The Court quoted a prior decision authored by Justice Banerjee—

Thus, it is a well-settled proposition that if the facts and circumstances of a case warrant discretionary exercise, the same ought to be done. An application for interim relief under Section 9 must be entertained and examined on merits once the Court is satisfied of circumstances that may not render the remedy under Section 17 efficacious.⁸

While largely approving the stance taken by the Delhi High Court in Avantha Holdings Limited,⁹ the Court differed when it came to the ratio that the Court in exercising jurisdiction under Section 9, even at the pre-arbitration stage, cannot usurp the jurisdiction that would otherwise lie with Arbitral Tribunal yet to be constituted. The Apex Court here held that the bar of Section 9(3) only comes into action after the Tribunal is constituted and there is no usurpation of jurisdiction pre-constitution.

However, the Court agreed with the Respondent's counsel, Mr. Kapil Sibal when he said that the intent behind sub-section 3 was not to turn back the clock and require a matter already reserved for orders to be considered in entirety by the Arbitral Tribunal under Section 17 of the Act.¹⁰

Thus, the Court resolved this concern by concluding that the bar of Section 9(3) would cease to operate in the event the application has been entertained and taken up for consideration, where hearing is concluded and final judgment is reserved, as was seen in the instant dispute.

Even subsequent to constitution of an Arbitral Tribunal, there is a possibility that the Arbitral Tribunal may not be effective in a Section 17 application, be it temporary unavailability or, illness or, the arbitrators are far apart etc. Applications seeking interim relief, by their very nature, need urgent disposal to prevent an arbitral award from being of no practical value.

It is therefore difficult to say that despite a Section 9 application being heard finally, necessary relief would have to be declined and parties would have to then again seek remedy under Section 17.

Determining Efficacy of Section 17 Remedy

Finding the above to be the correct position of law, the Supreme Court affirmed Gujarat High Court's decision in directing the Commercial Court to continue with its ongoing adjudication. However, it differed with the High Court on one point where it stated that the Court would not be obliged by law to weigh the efficacy of remedies under Section 17 before proceeding with ordering relief under Section 9, since the Section 9 application had already been entertained by the Commercial Court which had heard arguments and reserved order on the same.

The Court has explicitly said—

Conclusion

The Apex Court concluded by bringing to fore the fact that despite Section 9(3) acting as a bar on applications under Section 9(1) that are to be entertained after the constitution of the Arbitral Tribunal. It went on to state, even if such a Section 9 application is in fact entertained prior to the constitution of the Tribunal, as observed in the instant case, there is nothing preventing the Court from directing the parties to approach the Arbitral Tribunal, if necessary, by passing a limited order of interim protection.¹¹ This is so especially considering instances of long gaps between hearings or, if the application for all practice purposes would need to be heard afresh or, the freshly commenced hearing is likely to take significant time.

In the instant case however, the Supreme Court affirmed the Gujarat High Court's decision to direct the Commercial Court to conclude adjudication.

Thus, the Apex Court clarified the position of law in concluding that to entertain an application is to consider by application of mind the issues raised and that a Court entertains a matter when it takes a matter up for consideration. Further, the Court was cognisant of the bar posed by Section 9(3) whilst stating that such a bar would not operate when either the Arbitral Tribunal is constituted after the Section 9 application is taken up for consideration or, when the circumstances make a Section 17 remedy inefficacious. However, the Court is under no obligation to examine whether or not the Section 17 application is efficacious or otherwise, after a Section 9 application before it is in the process of consideration.

Footnotes

1. Sections 9 & 17, Arbitration and Conciliation Act 1961, Act No. 26 of 1996, India.

2. Section 10, Arbitration and Conciliation (Amendment) Act, 2015, Act No. 3 of 2016, India.

3. Section 11, Arbitration and Conciliation Act 1961, Act No. 26 of 1996, India.

4. ¶ 65-66, Arcelor Mittal Nippon Steel (India) Ltd.

5. ¶ 67, Arcelor Mittal Nippon Steel (India) Ltd.

6. ¶ 80-92, Arcelor Mittal Nippon Steel (India) Ltd.; Tufan Chatterjee v. Shri Rangan Dhar, 2016 SCC OnLine Cal 483; Banara Bearings & Pistons Ltd. Mahle Engine Components India Pvt. Ltd., 2017 SCC OnLine Del 7226; Srei Equipment Finance Ltd. v. Ra Infra Services Pvt. Ltd. & Anr., 2016 SCC OnLine Cal 6765.

7. ¶ 27, Energo Enginnering Projects Ltd. v. TRF Ltd., 2016 SCC OnLine Del 6560.

8. ¶ 29, ibid.

9. Avantha Holdings Ltd. v. Vistra ITCL India Ltd., 2020 SCC OnLine Del 1717.

10. ¶ 94, Arcelor Mittal Nippon Steel (India) Ltd.

11. ¶ 107, Arcelor Mittal Nippon Steel (India) Ltd.

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