Redefining the Extent of Section 9(3): A Case of “Efficacious Remedy”
Aditya Puri & Shubham Gandhi [i]
The Arbitration and Conciliation Act, 1996 (“the Act”) provides for the grant of interim measures vide Sections 9 and 17. Section 9 rests the power with the civil court, whereas section 17 empowers the arbitral tribunal to grant such measures to the parties. By the Amendment Act of 2015, the parliament bestows equal powers to both forums relating to interim measures.
A significant amendment was the insertion of Section 9(3), which restricts the court’s power to grant interim measures once an arbitral tribunal is constituted. However, the restriction to the court’s power comes with an exception wherein the court finds that the remedy provided by the tribunal will not be efficacious concerning the circumstances of the case.
In this article, the author(s) will highlight how the courts have interpreted the term ‘efficacious’ in light of the power of the court vis-a-vis tribunal to grant interim measures, whether an application under Section 9(3) can be maintained (even after the filing of an application for interim measures under Section 17), and will finally conclude by clarifying the current position of law.
Significance of Interim Measures
Interim measures sought before, during, and after the arbitral proceedings are of utmost significance. Such measures are provided in aid to final relief. These prevent irreparable damage or injury to any party that renders the award infructuous. The applications of interim measures are to be expeditiously disposed of to ensure that the arbitration award has some real value and does not remain a mere de-jure remedy.
The Arbitration and Conciliation (Amendment) Act, 2015
The Act prescribes that under Section 9(1), a party can file an application for interim measures in the court before, during, and after the passing of the award by the arbitral tribunal, till such an award is not enforced under Section 36 of the act. The court’s power to provide interim measures once the arbitration tribunal is constituted was felt to impede the arbitral proceedings and cluttered the overburdened courts. Therefore, an amendment was recommended by the Law Commission via the 246th Report titled ‘Amendments to the Arbitration and Conciliation Act 1996’, which states that-
“This amendment seeks to reduce the role of the Court in relation to grant of interim measures…after all, once the Tribunal is seized of the matter it is most appropriate for the Tribunal to hear all interim applications.”
In sync with the principle of judicial non-intervention and the law commission report, the Act was amended in 2015 to restrict the court’s power to provide interim measures. In this pursuit, Section 9(3) was added, which states that after the constitution of the arbitral tribunal, the court ‘shall’ not entertain the application for interim measures “unless the court finds that circumstances exist which may not render the remedy provided” by the tribunal under Section 17 of the act ‘efficacious.’
The division bench of the Delhi High Court in the case of Banara Bearings & Pistons Ltd. v. Mahle Engine Components cleared the air regarding the ouster of the jurisdiction of civil courts to grant the interim measures once the tribunal is constituted by stating-
“24.......Section 9(3) does not operate as an ouster clause insofar as the courts’ powers are concerned. It is a well-known principle that whenever the Legislature intents an ouster, it makes it clear. We may also note that if the argument…were to be accepted that the moment an Arbitral Tribunal is constituted, the Court which is seized of a Section 9 application, becomes coram non judice, would create a serious vacuum as there is no provision for dealing with pending matters.”
The restriction on the court’s power came along with the investment of massive power in the arbitral tribunal under Section 17. As per the amended Section 17, “the arbitral tribunal shall have the same power for making orders, as the court has for the purpose of, and in relation to, any proceedings before it.” Sub-section 2 of Section 17, in clear terms, states that “any order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes and shall be enforceable…in the same manner as if it were an order of the Court.”
Moreover, as per Section 37, an appeal from an interim order passed by the tribunal lies before a superior court; it can be deduced that a Section 17 proceeding does not flow any differently from a proceeding in court and has an equal competence and power as of the civil court under Section 9(1). For that matter, any challenge to the order of the tribunal under Section 17 can only be made in an appeal, and no recourse to Section 9(3) can be made since the principle of res-judicata will bar such a resort.
However, the courts can provide interim reliefs or measures even after filing the Section 17 application before an arbitral tribunal.
Interpretation of the term ‘efficacious’ under Section 9(3)
The exception provided by Section 9(3) of the Act lays the foundation for the court’s indulgence in cases where the court finds that the circumstances may not render the remedy given by the tribunal as efficacious. It is the argument of the author(s) that in the following circumstances, a party can approach a civil court under Section 9(3) even if the tribunal is constituted-
Firstly, when the application for interim measures was considered on merits and a lot of judicial time is invested in the matter by the court, and before the pronouncement of the order, the arbitral tribunal is constituted, the court in such cases has the discretion to proceed with the matter without deferring to the restriction of Section 9(3). This proposition of law has been upheld by a division bench of the Supreme Court in the case of Mittal Nippon Steel India Ltd. v. Essar Bulk Terminal Ltd.
Secondly, in the case of Srei Equipment Finance Limited (Sefl) v. Ray Infra Services Private Limited & Anr., the Supreme Court held that “...considering the lethargic manner in which the learned Arbitrator has been proceeding, the remedy of the Appellant under Section 17 of the Arbitration and Conciliation Act, 1996 does not appear to be efficacious.” Hence, if the arbitrator has been proceeding in a lethargic manner, the applicant can approach the court under Section 9(1) read with Section 9(3) even after filing the application before the tribunal under Section 17.
Thirdly, recourse to the court for the grant of interim measures can be made even after the filing of a Section 17 application “if the party against whom relief had been sought protracted the proceedings under section 17, by indulging in making bare, baseless allegations and insinuations against the Arbitrators of bias and impropriety and thereafter made allegations against the Arbitrators of alleged inaction.” This has been held in Manbhupinder Singh Atwal v. Neeraj Kumarpal Shah.
Lastly, in a case where the arbitral tribunal is non-functional for a brief period of time, an application for interim reliefs or measures should be entertained by the court under Section 9 of the Act, as held in Energo Engineering Projects Ltd. v. TRF Limited. The case involved a pending special leave petition challenging the constitution of the arbitral tribunal itself, thereby making the “remedy of the parties under Section 17 uncertain and not efficacious.”
It is to be noted that the last three situations (i.e., secondly, thirdly, and lastly) illustrate the cases wherein the filling of an application for grant of interim measures before the court (not just once a tribunal is constituted but also when an application of Section 17 before such tribunal is pending) can be recoursed.
Irreparable injuries like the invocation of an unconditional bank guarantee are bound to affect the parties in cases where no interim measures are granted. These measures are a sine qua non to realize the efficacy of the tribunal award. Therefore, the restriction under Section 9(3) has to leave space for the court’s interference in cases where it is impossible for the arbitrators to assemble immediately due to any reason whatsoever to provide an efficacious remedy.
Moreover, suppose one considers a situation wherein a party hinders the process of arbitral proceedings and consecutively reaches the court for the grant of interim measures. In that case, the application cannot be entertained due to the doctrine of clean hands- “he who seeks equity must do equity.” However, it is yet to be seen which way the higher courts would lean if such judicial non-intervention frustrates the prospective arbitral award.
It should be noted that even after the 2015 Amendment Act, the power of the tribunal and the civil court is still not at par, and there is always an option for the party to approach the court, which frustrates the very purpose of Section 5 of the Act and arbitration proceedings.
Aditya Puri and Shubham Gandhi are fifth-year law students at the National Law University, Jabalpur.