Source: Soumya and Tanya Bajpai at S&A Law Offices
INTRODUCTION
Section 9 (3) of the Arbitration and Conciliation Act, 1996 (Act) was inserted by the Arbitration and Conciliation (Amendment) Act, 2015. This amendment brought significant changes to Section 9 of the Act which deals with granting interim reliefs by courts. Post the 2015 amendment, the court’s powers to grant interim reliefs, once the arbitral tribunal has been constituted, has been curtailed. Section 9 (3) of the Act as inserted by the 2015 amendment provides that the court shall not entertain an application under Section 9 (1) unless it finds that circumstances exist which may render the remedy provided under Section 17 in-efficacious.
Prior to the 2015 amendment, parties were at liberty to approach courts to seek interim relief at any time i.e., before the commencement of the arbitration proceedings, during the arbitration proceedings, or at any time after making of the award but before it was enforced. Even though the arbitral tribunal had powers to order interim measures under Section 17 of the Act, the parties preferred to approach the court as the orders of the arbitral tribunal under Section 17 of the Act were not enforceable as orders of a court. However, this trend of the parties overburdened the courts with applications for interim reliefs under Section 9 which eventually led to insertion of Section 9 (3) by the 2015 amendment. Post the 2015 amendment, the power of the arbitral tribunal under Section 17 has been enhanced and the power of courts to grant interim measures during the pendency of the arbitration proceedings under Section 9 has been, simultaneously, curtailed.
INEFFICACIOUS REMEDY UNDER SECTION 17 OF THE ACT
In the circumstances where the court is convinced that the remedy under Section 17 is inefficacious, remedy under Section 9 (3) can be sought. The absence of any guidance by the provisions or codified laws creates a vacuum likely to be substituted by interpretation and ambiguity. With respect to efficacy of remedy under Section 17, the courts have over a period of time, vide legal jurisprudence filled the vacuum by evolving certain standards to identify whether the remedy under Section 17 would be efficacious or not.
INSTABILITY IN THE ARBITRAL TRIBUNAL
The period when the arbitral tribunal is non-functional or when the constitution of the tribunal is under challenge, the court considers the application under Section 9 for interim relief. Moreover, recusal of arbitrators rendering the tribunal non-functional when one party is in financial distress would warrant relief under Section 9 instead of waiting for disposal under Section 17.1
INTERIM MEASURE AGAINST THIRD PARTIES
Deriving from the consensus of judicial decisions, it is clear that the arbitral tribunal has a limited power when it comes to granting interim reliefs which affect the rights and interest of third party. An arbitral tribunal derives existence and jurisdiction from the intent of the parties as provided in the agreement. Consequently, the arbitral tribunal cannot pass interim measures so as to venture outside the agreement to interfere with the rights of third parties.2
SCOPE OF SECTION 9 (3) – LATEST POSITION
In the recent case of Arcelor Mittal Nippon Steel India Ltd. v. Essar Bulk Terminal Ltd.,3 the Supreme Court has held that once an application for interim relief has been “entertained“, i.e., taken up for consideration by the ccurt, and the Court has applied its mind, it can proceed to adjudicate the same even after the constitution of an arbitral tribunal.
In this case, the appellant had approached the High Court of Gujarat under Section 11 of the Act seeking the appointment of an arbitral tribunal. During pendency of the application, both the parties filed applications under Section 9 (1) of the Act seeking interim relief before the Commercial Court, Surat. After hearing both the parties extensively, the Commercial Court, Surat reserved its orders in June 2021.
Subsequently, in July 2021, the High Court of Gujarat appointed a three-member arbitral tribunal pursuant to Section 11 application. Thereafter, an application was moved by the appellant before the Commercial Court, Surat, seeking reference of applications filed by both the parties under Section 9 to the newly constituted arbitral tribunal. However, the same was dismissed. This was challenged by the appellant before the High Court of Gujarat. However, the High Court refused to interfere and held that the Commercial Court, Surat, has the power to consider whether the remedy under Section 17 of the Act is inefficacious and pass necessary orders under Section 9. Aggrieved by the same, the appellant approached the Supreme Court.
The Supreme Court considered the term “entertain” under Section 9 (3) of the Act and observed that this expression means consideration of the issues raised by application of mind. The apex court held that the court entertains a matter when it takes it up for consideration, and such process of consideration may continue till pronouncement of judgment. Accordingly, it was held that “On a combined reading of Section 9 with Section 17 of the Arbitration Act, once an Arbitral Tribunal is constituted, the Court would not entertain and/or in other words take up for consideration and apply its mind to an application for interim measure, unless the remedy under Section 17 is inefficacious, even though the application may have been filed before the constitution of the Arbitral Tribunal.”
Considering the above, it was held that the restriction under Section 9 (3) would not apply once an application under Section 9 (1) has been “entertained” like in the present case, where the hearing had been concluded, and the Commercial Court, Surat, had reserved its order. The apex court noted that the objective of interim relief applications is urgent disposal while at the same time ensuring that the arbitration proceedings are not rendered infructuous. In the present case, it was also observed that the question of examining the efficacy of the remedy under Section 17 would not arise since the application under Section 9 (1) had already been entertained and considered by the Commercial Court, Surat.
ANALYSIS AND CONCLUSION
The entertainment of an interim application by court would depend upon the factual matrix of each case, for instance any delay on the part of the arbitrator in granting the remedy rendering it ineffective should be taken into consideration. On a harmonious reading of the sub-sections of Section 9 of the amended Act, it is clear that sub-section 3 does not in any way bar the interference of court with reference to grant of interim measures post the constitution of arbitral tribunal.
Section 17 of the Act enunciates that the powers of the tribunal are same as that of the court. Moreover, Section 9 (3) of the Act gives primacy to the arbitral tribunals over the courts. During the continuance of arbitral proceedings, ordinarily the courts are of the opinion that the proper and expedient remedy for interim measures lies under Section 17 of the Act. If there exist circumstances, which lead to uncertainty as to the efficiency of the arbitral tribunal to provide an effective remedy under Section 17, such circumstances may be considered by the court to exercise the exception under Section 9(3). Consequently, if the alternative remedy is inefficacious, a party suffering loss and hardship can utilize the remedy available to it under Section 9.
Pertinently, the Act does not contain any express provision to deal with the status of pending interim applications under Section 9 (1) after the arbitral tribunal is constituted. Therefore, the case of Arcelor Mittal has resolved this issue regarding the applicability of Section 9 (3) to pending interim relief applications once an arbitral tribunal is constituted by clarifying the scope of the expression “entertain“.
While a practical approach has been adopted in the Arcelor Mittal case to ensure expeditious disposal of the interim relief applications, the aforesaid decision should be viewed in light of the peculiar factual scenario. In this case, the arbitral tribunal had been constituted after the court heard the Section 9 application at length (which was listed 36 times and argued for 11 full days). In view of this, it would have been impractical in the present case to direct the parties to approach the arbitral tribunal for seeking interim relief, since it would defeat the very purpose of granting interim relief.
The decision in Arcelor Mittal case should not be interpreted to mean that an arbitral tribunal cannot decide an interim application after such an application has been “entertained” by the court. While the bar under Section 9 (3) does not apply to interim applications under Section 9 (1) which have been “entertained” by the court, this must be decided on a case-to-case basis and the court must exercise its discretion and wisdom. This is because such applications may be at different stages of adjudication and accordingly, in cases wherein consideration of such application is at an early stage, for example, when the matter has been admitted, or the hearing has just commenced in the matter, it may be more effective to direct the parties to approach the arbitral tribunal for grant of interim reliefs. This would not only ensure expeditious disposal of interim relief applications but would also ensure minimal judicial interference in the arbitral proceedings, upon the constitution of the arbitral tribunal.
