Interim Reliefs under the Arbitration and Conciliation (Amendment) Ordinance, 2015

There are four major changes with respect to the interim reliefs made to the Arbitration Act after the promulgation of the Arbitration and Conciliation (Amendment) Ordinance, 2015 (the, “Amendment Ordinance”). Interim reliefs are one of the first provisions where changes made by the Amendment Ordinance will be caused to parties initiating arbitrations.

Interim reliefs are contained under Sections 9 and 17 of the Arbitration and Conciliation Act, 1996 (the, “Arbitration Act”). Both are contained in Part – I of the Arbitration Act and were applicable to domestic arbitrations, i.e. arbitrations seated in India. While Section 9 contains the power of a court to grant interim measures, Section 17 is a similar power conferred to an arbitral tribunal. Interim measures are generally granted to preserve the status of the property in dispute, or to prevent prejudice to any party before the commencement or during the pendency of the arbitration. Several defects were noticed in the practical implementation of these remedies that resulted in several amendments being made to them.

The changes to these provisions include, (1) extension of interim measures under Section 9 to international commercial arbitrations; (2) fixed timelines for initiating an arbitration after obtaining an interim relief under Section 9; (3) bar on parties to approach a court for interim reliefs during the pendency of the arbitration; (4) interim reliefs are now enforceable as decrees of courts. Each change with its intended effect is explained below.

Interim Measures under Section 9 now extend to International Commercial Arbitrations

Amendment

A proviso has been added to section 2 of the Principal Act, which now makes Section 9 of the Arbitration applicable to international commercial arbitration even if the place of arbitration is not in India.

Reasoning

Section 2(2) of the Arbitration and Conciliation Act, 1996 mentioned in Part I of the Act, earlier used to state that, “[t]his Part shall apply where the place of arbitration is in India.” In comparison, article 1(2) of the UNCITRAL Model Law, which had been mentioned in the preamble of the Act, stated that “the provisions of this Law…apply only if the place of arbitration is in the territory of this State.” The preamble of the Act mentions that it is expedient to frame laws regarding arbitration and conciliation keeping the Model Law in regard.

The fact that the word “only” was not included in the Indian statute despite being mentioned in the Model Law, which the Indian statute seeks to implement, has raised some confusion whether this leads to a conclusion that the Indian Act is applicable for even those arbitration proceedings for which the seat is not India. This issue has been dealt with in two significant Supreme Court cases. These areBhatia International vs. Interbulk Trading SA [(2002) 4 SCC 105] and Bharat Aluminum and Co. vs. Kaiser Aluminium and Co. (BALCO) [(2012) 9 SCC 552].

The Supreme Court in Bhatia, held that Part I mandatorily applied to all arbitrations held in India. In addition, Part I applied to arbitrations conducted outside India unless it was expressly or impliedly excluded. This position was followed in several cases until the BALCO judgment. The Supreme Court inBALCO decided that Parts I and II of the Act are mutually exclusive of each other and the intention of Parliament was that the Act is territorial in nature and sections 9 and 34 will apply only when the seat of arbitration is in India.

Though the BALCO judgment was although for the favourable purpose of reducing judicial interference but it also led to certain unwanted results. The Law Commission has provided certain instances to illustrate this point. For example, when the assets of a party are located in India, and there is likelihood that that party will dissipate its assets in the near future, the other party will lack an efficacious remedy if the seat of the arbitration is abroad. It is a possibility that a foreign party would obtain an arbitral award in its favour only to realize that the entity against which it has to enforce the award has been stripped of its assets and has been converted into a shell company. Due to this the Amendment Ordinance has made changes and now parties to arbitration proceedings taking place outside of India will be able to approach Indian courts for interim measures even before the commencement of arbitration proceedings.

Fixed timelines for initiating arbitration after interim measures under Section 9

Amendment

The amendment has inserted sub-sections (2) and (3) to the original section 9 which has been renumbered as section 9(1) now. Section 9(2) states that if a court passes an interim order under section 9(1) before the commencement of arbitral proceedings, the arbitral proceedings shall commence within a period of 90 days of the passing of such order.

Reasoning

Prior to the amendment there was no express duty on a party approaching a court for interim relief (usually prior to the commencement of the arbitration) to initiate arbitration. This resulted in a situation that a party would obtain interim reliefs and would prolong intiating the arbitration given that its interests were protected. This would not only pose risks of abuse of process but also delay the initiation and the determination of the dispute through arbitration. The insertion of timelines is a positive change made overall in the scheme of the act to ensure discipline and speedy resolution of disputes through arbitration.

Section 9 cannot be availed during the conduct of the Arbitration

Amendment

The insertion of Section 9(3) reduces the amount of intervention by the judiciary in terms of interim measures. It states that the after the arbitral tribunal has been constituted, the court shall not entertain any application under section 9(1) unless there are circumstances which can render remedy provided under section 17 ineffective.

Reasoning

The position in the amended statute was largely being followed by courts however there still remained a fear of forum shopping by parties. This danger was given the powers under Section 9 and 17 could be exercised concurrently. Given an express change ordinarily Section 9 proceedings now will not be available to parties during the pendency of the arbitration. Such measures though may be resorted to when Section 17 proceedings are ineffective. This will now be required to be specifically pleaded by a party which prefers such an application seeking interim measures from the Court under Section 9. One instance where such an application can be made, and such an exemption may be availed is when the interim measure concerns a third party which is not before the Arbitral Tribunal. Given that the Arbitral Tribunal is a creature of specific agreement between parties, it can only pass interim orders under Section 17, which bind persons before it. This limitation of jurisdiction does not apply to interim measures that can be granted by Courts under Section 9.

Interim Measures under Section 17 now enforceable as decrees

Amendment

Section 17 of the principal Act has been replaced with a new section that gives more teeth to interim measures by arbitral tribunals. Under the old section, the tribunal could pass interim measures but such measures could not be implemented, as they were not treated at par with an order of court. The new section lays down that any order passed by the arbitral tribunal under section 17 will be deemed to be an order of the court for all purposes and be enforceable under CPC as if it were a on order of the court

Reasoning

Under section 17, the arbitral tribunal has the power to order interim measures of protection, unless the parties have excluded such power by agreement. But section 17 of the principal Act lacked effectiveness due to the absence of statutory mechanism for the enforcement of interim orders of the arbitral tribunal.

In Sundaram Finance Ltd v. NEPC India Ltd. [(1999) 2 SCC 479], the Supreme Court held that though section 17 gives the arbitral tribunal the power to pass orders, the same cannot be enforced as orders of a court. In M.D. Army Welfare Housing Organisation v. Sumangal Services Pvt. Ltd. [(2004) 9 SCC 619], the Court had held that under section 17 of the Act no power is conferred on the arbitral tribunal to enforce its order nor does it provide for its judicial enforcement.

The Delhi High Court tried to find a solution to this problem in the case of Sri Krishan v. Anand [2009) 3 Arb LR 447 (Del)]. The Court held that any person failing to comply with the order of the arbitral tribunal under section 17 would be deemed to be “making any other default” or “guilty of any contempt to the arbitral tribunal during the conduct of the proceedings” under section 27 (5) of Act. The remedy of the aggrieved party would then be to apply to the arbitral tribunal for making a representation to the Court to mete out appropriate punishment. Once such a representation is received by the Court from the arbitral tribunal, the Court would be competent to deal with such party in default as if it is in contempt of an order of the Court, i.e., either under the provisions of the Contempt of Courts Act or under the provisions of Order 39 Rule 2A Code of Civil Procedure, 1908.

The Law Commission in its report felt that the judgment of the Delhi High Court in Sri Krishan v. Anand is not a complete solution and recommended amendments to section 17 of the Act which would make orders of the Arbitral Tribunal enforceable in the same manner as the Orders of a Court. Keeping these suggestions in mind the Arbitration Ordinance remedies the enforceability of interim measures under Section 17.

Section 9- Provision for interim relief by courts

The section 9 of the Arbitration and Conciliation Act, 1996  (‘the Act’) provides for the making of orders for interim relief to parties in respect of arbitration. The order of the court should fall in the category of interim measures of protection as distinguished from an all-time or permanent protection. A petition for relief under section 9 becomes maintainable if there is prima facie finding that an arbitration agreement exists and a dispute must have arisen which is referable to Arbitration. The petition under this section can be filed before the arbitration proceedings have commenced or during arbitral proceeding or at any time after making of the arbitral award but before it is enforced in accordance with section 36.

A party seeking to obtain an interim measure (particularly before the arbitral tribunal has been constituted) must ensure that by taking steps in a court and thereby submitting to the jurisdiction of the domestic court it does not waive any rights it has under the arbitration agreement. The ability to obtain an interim measure will generally depend upon the procedural law governing the arbitration and the law in the jurisdiction in which the interim measure is sought to be enforced.Generally, an applicant party needs to establish the following factors:

a)There is an “urgent need” for the interim measure;b) Irreparable harm will result if the measure is not granted;
c)The potential harm if the interim measure is not granted substantially outweighs the harm that will result to the party opposing the measure if the measure is granted; andd) There is a substantial possibility that the applicant will ultimately prevail in the dispute.

When a party applies for interim relief under Section 9 of the Arbitration and Conciliation Act before the Arbitral Tribunal has been constituted, within how much time must the Arbitral Tribunal be constituted?          In Sundaram Finance Ltd. v. NEPC India Ltd. (AIR 1999 SC 565) the court expressed the view that relief can be provided in such cases though arbitration proceedings have not been commenced provided there is proof of the fact that the party seeking relief means to commence arbitration proceedings.What is apparent, however, is that the court is not barred from dealing with an application under section 9 merely because no notice has been issued under section 21 of the Act.

Section 9 does not permit any or all applications. It only permits applications for interim measures mentioned in clauses (i) and (ii) thereof. Thus there cannot be applications under section 9 for stay of arbitration proceedings or to challenge the existence or validity of arbitration agreements or the jurisdiction of the Arbitral Tribunal. All such challenges would have to be made before the Arbitral Tribunal under the Act.But in Shriram City Union FInance Ltd. v. HAji Abdul Samad (2003)4 RAJ 315 (Cal) it was held that an order could be granted under section 9 for protection of certain vehicles till the matter of setting aside under section 34 was decided and the award became enforceable under section 36.

An application for an interim relief under section 9 is maintainable by a firm not registered under section 69 of the Partnership Act because such an application is neither a suit nor a proceeding for enforcing a right arising under a contract though it is a proceeding of civil nature. It was  held by the Supreme Court in  Ashok Trading v. Gurumukh Das Saluja (AIR 2004 SC 1433).
The court has also been given the power to revise its interim orders. The party against whom an interim order has been made may show cause against it and the court may then pass any further order that may be necessary in the circumstances.

Now we can discuss about the applicability of section 9 of the Act in International Commercial Arbitration. Section 2(2) of the Arbitration and Conciliation Act, 1996 , contained in Part I of the Act, states that “This Part shall apply where the place of arbitration is in India.” In Article 1(2) of the UNCITRAL Model Law provides: “The provisions of this Law, except articles 8, 9, 35 and 36, apply only if the place of arbitration is in the territory of this State.” In the Bhatia International v. Bulk Trading S A , the Supreme Court, in 2002, had held that Part I of the Arbitration Act, dealing with the power of a court to grant interim relief, could be applied to arbitration disputes with a foreign seat unless the parties specifically opted out of such an arrangement. The court further hels that the word “only” was omitted from section 2(2) of the Act and such omission was not unintentional. Such an omission would be rendered redundant if the word “only” was to be read in to the Section. As a result, various High Courts had entertained appeals and were passing interim orders against such awards.

If Part I did apply to arbitrations conducted abroad, the most significant consequences would have been that Indian Courts would be competent to :

  1. Set aside foreign awards pursuant to Section 34 of the Act.
  2. Grant interim relief pursuant to Section 9 of the Act.
  3. Appoint an arbitrator pursuant to Section 11 of the Act.

In BALCO v. Kaiser Aluminium ( Judgment dated 6th Sep 2012) the Supreme Court held that “In a foreign seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the Arbitration Act, 1996, is limited to all arbitrations which take place in India. Similarly, no suit for interim injunction would be maintainable in India, on the basis of an international commercial arbitration with a seat outside India. Part I of the Arbitration Act, 1996, is applicable only to all the arbitrations which take place within the territory of India. Thus, in order to do complete justice, we hereby order that the law now declared by this Court shall apply prospectively to all the arbitration agreements executed hereafter.” The Constitution Bench judgment in BALCO case overrules the 2002 ruling.Therefore, the Part I of the Arbitration Act is applicable only to all the arbitrations which take place within the territory of India. The Supreme Court has also held that the doctrine laid down in this case shall apply prospectively and the doctrine laid down in Bhatia International shall hold good for the arbitration agreements entered prior to this ruling.

Section 9 of the Act allows parties to approach a court for interim relief . The corresponding provision granting competence to the tribunal to grant interim relief is Section 17 of the Act.Unlike section 17, which specifically allows for measures to be directed only against parties, Section 9 is silent on whom the court granted measures may be directed against.