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India – Un-Enforceability Of Interim Measures Granted By The Arbitrator Under The Arbitration Act.

25 March, 2014

 

Legal News & Analysis – Asia Pacific – India – Dispute Resolution

 

The Arbitration and Conciliation Act, 1996 (“the Act”) was enacted seeking to consolidate and create a uniform code in line with the UNCITRAL Model Law on International Commercial Arbitration, 1985 (“Model Law”). The Model Law is designed to assist States in reforming and modernizing their laws on arbitral procedures so as to take into account the particular features and needs of international commercial arbitration. One of the basic tenets which was given due emphasis while framing the Act was that of party autonomy. The Courts were, however, empowered to intervene in certain situations. One such provision is contained in Section 9 of the Act which allows parties to seek interim relief from the Courts. The other provision is Section 17 of the Act which also provides for grant of interim relief from the Arbitral Tribunal itself, thereby minimizing the cost and prevent litigation.


The need to bring in interim measures of protection in the realm of arbitration was to protect the rights of the parties during the pendency of the disputes. Keeping this objective, the Model Law contains provisions for interim measures to be granted by the Courts and Arbitral Tribunal. In 2006, the Model law has been further amended and new chapter IV A was introduced to have a more comprehensive legal regime dealing with interim measures in support of arbitration. On similar lines, Section 9 and Section 17 of the Act also provides for interim measures of protection for the parties. The objective of these provisions is to preserve the prevailing situation till the final adjudication of the disputes. Interim measures such as attachment of property, issuing of commissions, protection of assets, injunctions etc. are effective remedies for achieving the ideals of true justice.

 

Section 17 Of The Act


Section 17 of the Act is essentially based on the Model Law with very few departures and contains two conditions – Firstly that the Arbitral Tribunal must regard the interim measure of protection as necessary, and secondly, the relief had to be in respect of the subject matter of the dispute. The Arbitral Tribunal is empowered by Section 17 to order a party to take any interim measures of protection in respect of the subject matter of the dispute, and also direct the party in whose favour the order has been passed to provide appropriate security as provided in Section 17(2) of the Act. The expression ‘interim measure of protection’ in Section 17 is wide enough to include all those measures which the parties themselves could have achieved by agreement. The protection envisaged is in relation to some tangible property and not an indeterminate monetary claim.


Limitations Under Section 17


However, there are various limiting factors. Firstly, a party has to wait for the creation of the Arbitral Tribunal before it can claim relief from it and secondly, there is no mechanism to enforce any order of the Arbitral Tribunal. As far as the first limitation is concerned, the solution lies within the 1996 Act itself. Section 9 of the Act provides power to the Court to grant interim relief to any party. The powers under Section 9 are much wider inasmuch as they extend to the period “pre” and “post” the award as well as with regard to the subject matter and nature of the orders. Further, the pendency of an application under Section 17 does not denude the Court of its powers to make an order for interim measures under Section 9 of the Act1.


In the case of Sundaram Finance Ltd v. NEPC India Ltd.2, the Supreme Court further held that Section 9 is available even before the commencement of the arbitration with the only precondition that there exists a valid arbitration agreement. The Court under Section 9 is only formulating interim measures so as to protect the right under adjudication before the Arbitral Tribunal from being frustrated. This dictum of the Court was also upheld in the case of Firm Ashok Traders v. Gurumukh Das Saluja3.


The second limitation, however, is still contentious. Though Section 17 gives the Arbitral Tribunal the power to pass orders, the same cannot be enforced as orders of a Court. The Act nowhere provides for the consequences of breach of an order of the Arbitral Tribunal under Section 17 of the Act. Section 37(2)(b) of the Act only provides for an appeal with respect to grant or refusal to grant an interim measure by the Arbitral Tribunal under Section 17.


Unenforceability Of Section 17


The enforceability of interim order passed by the Arbitral Tribunal was considered to be of great importance even by UNCITRAL, whose working groups comprising of all state members took up this issue for consideration4. The working group reviewed and sought an extensive revision of Article 17 which was eventually incorporated in Amendment of 2006. Apart from a wider range of powers, Article 17 H of the amended Model Law inter alia now states that “an interim measure should be recognized as binding, unless stated by the tribunal and it may be enforced upon an application to a competent Court”.


In India, Section 17 of the Act still incorporates the provisions of old Model Law. This aspect was also recognized by the Supreme Court on a number of occasions. In Sundaram Finance Ltd v. NEPC India Ltd, the Supreme Court observed that “though Section 17 gives the arbitral tribunal the power to pass orders, the same cannot be enforced as orders of a Court and it is for this reason only that Section 9 gives the Court power to pass interim orders during the arbitration proceedings”. In the case of M.D. Army Welfare Housing v. Sumangal Services Pvt. Ltd.5, the Supreme Court held that “Even under Section 17 of the 1996 Act, no power is conferred upon the Arbitral Tribunal to enforce its order nor does it provide for judicial enforcement thereof.”

 

However in the case of Sri Krishan v. Anand,6 while dealing with whether a petition under Section 9 seeking the same relief granted under Section 17 was maintainable, the Delhi High Court held that an order under Section 17 was indeed enforceable. The High Court relied on Section 27 (5) of the Act which states “Persons failing to attend in accordance with such process, or making any other default, or refusing to give their evidence, or guilty of any contempt to the arbitral tribunal during the conduct of arbitral proceedings, shall be subject to the like disadvantages, penalties and punishments by order of the Court on the representation of the arbitral tribunal as they would incur for the like offences in suits tried before the Court.” The High Court held that this provision provides the remedy for the breach and any person failing to comply with the order of the arbitral tribunal would be deemed to be ‘making any other default’ or ’guilty of any contempt to the Arbitral Tribunal during the conduct of the proceedings’. Thus the remedy available to the other party would be to apply to the Arbitral Tribunal to make a representation before the Court. Reliance was also placed by the High Court on various rulings to the effect that a person can be punished for contempt of the Arbitral Tribunal which shows that the Arbitral Tribunal discharges inherent judicial functions of the State7 and that the power to punish for any Contempt of the Arbitral Tribunal has been vested with the Court on a representation made by the Arbitral Tribunal.8


Analysis Of Section 27


At this stage, it would be relevant to analyze Section 27 of the Act. The scope of the powers granted to the Court under Section 27 was dealt with extensively by the Supreme Court in the case of Delta Distilleries Limited v. United Spirits Limited & Ors9, which held that Section 27 would be available to the Arbitral Tribunal to seek assistance from the Court where any person who is not cooperating with the Arbitral Tribunal or where any evidence is required from any person, be it a party to the proceedings or others. However, this case dealt mainly with the powers of the Court to assist in taking evidence and calling witnesses, without referring to the aspect of unenforceability of orders passed by the Arbitral Tribunal.


However, the same reasoning can be applied to ensure that any interim order passed by the Arbitral Tribunal under Section 17 is not wilfully disobeyed by the parties.


Conclusion:


By virtue of Article 141 of the Constitution of India, all lower Courts are bound by the decisions of the Supreme Court. Therefore, the position that the orders passed by the Arbitral Tribunal are un-enforceable still stands since the Supreme Court has not taken cognizance of Section 27 of the Act and its impact while dealing with the scope of enforceability of orders passed by the Arbitral Tribunal. It is submitted that widening the powers available to Arbitral Tribunals with regard to interim relief will only strengthen the position of arbitration in India. Without the ability to enforce the orders passed by Arbitral Tribunal, the parties are often forced to resort to litigation which is essentially an anathema to the purpose of arbitration itself.

 

End Notes:

 

1 N.H.A.I v. China Coal Construction Group Corp., 2006 (1) Arb LR 265
21999(2) SCC 479.

3 (2004) 3 SCC 155.
4 Report of the U.N. Secretary-General, Settlement of Disputes, A/CN.9/WP.108 5(2004) 9 SCC 619.

6 (2009) 3 ArbLR 447 (Del).
7 Anuptech Equipments Private Ltd. v. Ganpati Cooperative Housing Society Ltd., AIR 1999 Bombay 219.
8 Maharashtra State Electricity Board Vs Datar Switchgear Ltd , MANU/MH/1187/2002. Saurashtra Chemicals Ltd. v. Hon’ble Mr. Justice K. Ramamoorthy (Retd.), MANU/GJ/0329/2005.
9 2014(1)SCC 113

 

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