Section 9, Sub-Section 2 of the Arbitration & Conciliation Act, 1996 allows any party to the arbitral proceedings to seek an interim measure of protection in respect of any of the following matters before or during arbitral proceedings or at any time after making the arbitration award but before it is enforced:
- Preservation or Interim Custody or Sale of any Good that is the subject matter of the arbitration agreement (Clause A).
- Securing the disputed Amount in the arbitration (Clause B).
- Preservation or Detention or Inspection of any Property that is the subject matter of the arbitration disputed, wherein the order may authorize any person to enter upon any land or building in possession of any party, including the authority to take any samples, to make any observations, to try any experiment, providing the authorized act is necessary or expedient for obtaining full information or evidence in relation to the arbitration (Clause C).
- Interim Injunction (Clause D).
- Any other Interim Order as may appear just and convenient to the court of law with the same authority as it has for other proceedings before it (Clause E).
The arbitral proceedings are commenced within a period of ninety days from the date of the interim measure of protection (Sub-Section 2).
A two-judge bench of Justice J. K. Maheshwari and Justice Indira Banerjee held in the case of Arcelor Mittal Nippon Steel India Ltd. v. Essar Bulk Terminal Ltd. (2021) C.A.No. 5700/ 2021 that the application for an interim measure of protection by a party cannot be entertained by any court of law after the constitution of the arbitral tribunal under Section 9, Sub-Section 3.
The Appellant and the Respondent entered into a Cargo Handling Agreement at Hazira Port, West Bengal, wherein Article 15 of the agreement provided for arbitration as an alternate dispute resolution mechanism with a sole arbitrator being appointed mutually by the said parties to the agreement. On November 22, 2020, the Appellant invoked the arbitration clause owing to certain differences and disputes arising out of the agreement; however, the Respondent failed to respond to the notice of arbitration from the Appellant; consequently, the Appellant moved to the Gujarat High Court under Section 11 of the Arbitration & Conciliation Act, 1996 to seek the constitution of an arbitral tribunal. The Respondent responded to the arbitration notice on December 30, 2020, by saying that the said differences and disputes between the two were allegedly outside the arbitration purview of the agreement while directing the Appellant to pay the total dues of Rs. 673.24 crores, inclusive of the interest of Rs. 51.11 crores.
On January 15, 2021, the Appellant filed an application under Section 9 of the Arbitration & Conciliation Act, 1996 in the Commercial Court and the 12th Additional District Judge, District & Sessions Court, Surat, wherein a similar application was filed by the Respondent on March 16, 2021. The two applications were collectively heard on June 7, 2021, wherein a three-member arbitral tribunal was appointed on July 09, 2021, comprising of three retired judges of the District & Sessions Court Surat. In the midst of the arbitration process between the Appellant and the Respondent, the Appellant filed an interim application with the Commercial Court where it asked the court to refer the aforementioned Commercial Civil Miscellaneous Applications filed by the Appellant and the Respondent to the aforementioned tribunal; however, the Commercial Court rejected the application of the Appellant.
The Appellant filed a petition under Article 227 of the Indian Constitution with the Gujarat High Court to challenge the aforementioned order of the Commercial Court, wherein the High Court listed the final arguments for August 2, 2021, while asking the Commercial Court to defer the announcement of orders for the aforementioned applications under Section 9 of the act till August 9. 2021; however, the said timeline was pushed by the High Court to August 9, 2021 (listing of the final arguments) and August 31, 2021 (deferring the announcement by the Commercial Court) respectively. The High Court held that the Commercial Court has the authority to weigh in on the efficacy of the arbitration remedy under Section 17 of the act whilst passing orders under Section 9 of the act.
In the petition before the Supreme Court to challenge the judgement of the High Court, Justice Indira Banerjee held that a court of law can entertain an application made under Section 9 of the act after the constitution of an arbitral tribunal as long as remedy being offered by the tribunal under Section 17 of the act is inefficacious; additionally, the upholding of the said application by the court for its consideration allows the said court to adjudicate the said application, wherein Justice Indira Banerjee added that an evaluation of the efficacy of the aforementioned remedy under Section 17 after the court has upheld the application for the consideration of the court.
In the present context, the bench was tasked with answering the question of entertaining an application made before the court of law once an arbitral tribunal has been constituted under Section 9, Sub-Section 3 of the act, wherein the elaboration of the word “entertain” was asked before the bench. The bench held that the word entertain in the aforementioned provision directs to the “application of mind by the court of law to the subject matter of the issue,” wherein the bench added that the consideration of the facts and merits of a given case by a court of law till the pronouncement of judgement for the case amounts to “entertain.” In a hypothetical example, if an arbitral tribunal has been constituted and if any party to the arbitration feels that the remedy under Section 17 of the act is inefficacious (including the cases where the party feels that the interim relief sought cannot expeditiously be obtained from the arbitral tribunal), then the said party can make application to a court of law and the court can entertain the said application under Section 9, Sub-Section 3 as long as the court of law finds that there may be certain circumstances which may render the remedy being offered under Section 17 as inefficacious (ex: temporary unavailability of any one of the arbitrators to the arbitral tribunal owing to their illness, the arbitrators to the arbitral tribunal are located far away from each other and convening immediately at a single location might be difficult, etcetera); additionally, once an application is entertained by means of consideration by the court of law applying its mind to it, the court of law can proceed to adjudicate the application, wherein once an application has been taken up for consideration and is either in the process of consideration or has been considered, then the examination of the efficacy of the remedy under Section 17 shall not be upheld and the requirement for such an examination lies only when the application is being taken up for consideration.
Justice Indira Banerjee held that a given arbitral tribunal has the same power to grant interim relief under Section 17 of the act as a court of law, wherein the bench directed that a court of law should refrain from taking applications for interim relief once an arbitral tribunal has been constituted unless the parties to the arbitration face certain impediments in approaching the said tribunal.
It is worth noting that interim relief is a temporary and urgently provided relief in aid to the final relief, wherein the basic objective behind granting interim relief is three-fold:
- Protection of property which is the subject matter of the arbitration proceedings.
- Protection of the arbitration proceedings from becoming pointless.
- Avoidance of the arbitration award from becoming an award on paper with no real value.
The principles of granting an interim relief rest on three key principles:
- Case should be good in prima facie.
- Balance of convenience in favour of granting interim relief.
- Expeditious decisions regarding interim relief applications to avoid causing an irreparable injury or prejudice to the party seeking an interim relief owing to any delays.
Hence, the bench added that the party is rightfully entitled to an interim relief under Section 9 without being remitted to their remedy under Section 17 after the application for the same has been heard by a competent court of law.
It is worth mentioning that Section 9, Sub-Section 3 seeks to reduce the load of interim relief applications on the courts of law, wherein the provision discourages the court of law from interfering in arbitration proceedings. The bar within the aforementioned provision operates where an application for interim relief under Section 9, Sub-Section 1 has not been entertained till the constitution of the arbitral tribunal. In situations where the said application is entertained before the constitution of an arbitral tribunal, the court of law entertaining the application has the sole discretion to direct the parties to an arbitral tribunal by passing a limited order of interim protection, if deemed necessary.
In a nutshell, the bench upheld the decision of the Gujarat High Court of directing the Commercial Court to complete the adjudication between the Appellant and Respondent, wherein the bench added that it shall not be necessary for the said Commercial Court to consider the efficacy of the interim relief under Section 17 of the act because the application was already made under Section 9 and entertained and considered by the said Commercial Court.
