Interim relief by courts in an Arbitration: The battle of Section 9

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.”

The above quote from the Art of War is not superlative in the context of Section 9 of the Arbitration and Conciliation Act, 1996, which grants the power of courts to grant interim measures of protection. Section 9 is one of the most crucial and widely invoked provisions under the Act . Such measures become necessary to prevent damage to or loss of, the subject matter of the dispute in the interim period, i.e. before the final adjudication of the dispute by an arbitral tribunal.

As a matter of common strategy, a Section 9 relief is often considered critical to get a head start, and very often, half the fight is won with such a relief being granted by the court.

The Firepower: Scope of Section 9

Under Section 9, the court has wide powers to grant interim measures of protection as may appear to the court to be just and convenient, including for preservation, interim custody or sale of goods which are the subject matter of arbitration, for securing the amount in dispute, interim injunction, appointment of a receiver or guardian, etc.

In Leighton India Contractors Private Ltd. vs. DLF Ltd. decided on May 13, 2020, the Delhi High Court has reiterated that the scope of Section 9 of the Act is very broad and that it is an expansive provision which does not curtail the powers of the court.

However, though the court has wide powers, its authority is not unbridled and the ‘well-recognised principles’, that govern the court in the grant of interim orders would apply to petitions under Section 9.

Insofar as an injunction against invocation of bank guarantees is concerned, the Delhi High Court has recently, in Halliburton Offshore Services Inc v. Vedanta Limited, decided on May 29 that if fraud, irretrievable injury or special equities are not proved, no injunction can be granted.

As far as securing the amount is concerned, the Delhi High Court’s judgment in Goodwill Non-Woven (P) Limited v. XCoal Energy & Resources LLC on June 9, has recently held that the mere fact that the petitioner is unable to invoke arbitration due to the COVID-19 pandemic will have no bearing on the merits of the case. Since the petitioner was not able to satisfy the Court on the various tests laid down for grant of interim relief, no relief could be passed.

Section 9 vis-à-vis Section 17: the choice that matters

By the 2015 amendment to the Act, Section 9 was amended to recognise the power given under Section 17 (which was put at par with Section 9) and reduce the role of courts in the grant of interim protection once the tribunal was constituted.

However, despite the 2015 Amendment, the power of the courts to grant interim protection remains to be of great significance.

Firstly, before the constitution of the tribunal and after the passing of the award, the power to grant interim protection lies only with the court [The words "or at any time after the making of the arbitral award but before it is enforced in accordance with section 36" were omitted from Section 17 by the 2019 amendment].

Once the arbitral tribunal has been constituted, as per Section 9(3), the court ‘shall not’ entertain an application under sub-section (1), unless it finds that circumstances exist which may not render the remedy provided under Section 17 ‘efficacious’.

As is evident from the section itself, the Delhi High Court has held that Section 9(3) of the Act does not operate as an ouster clause insofar as the court's powers are concerned and the court's jurisdiction under Section 9 is not reduced or curbed. It has further held that if an application is filed under Section 9, the court is required to examine if the applicant has an efficacious remedy under Section 17 of getting immediate interim relief from the arbitral tribunal.

Even otherwise, there maybe instances when though constituted, it may not be effacaious to obtain interim relief from the tribunal. In Bhubaneshwar Expressways Pvt. Ltd. v. NHAI, though the tribunal was constituted, it could not function because one of the co-arbitrators had recused. Therefore, the Delhi High Court held that the remedy under Section 17 was not efficacious and it would be necessary for it to entertain the petition under Section 9 of the Act.

Lastly, while under Section 9 of the Act, it is settled that the court has the power to pass direction against third parties, the power of the tribunal to pass directions against a third party is not clear. Therefore, in cases where interim relief is also sought against a third party, it may be preferable to approach the court under Section 9.

However, in a recent judgment, Hero Wind Energy Private Limited v. Inox Renewables Limited and Ors, a Section 9 petition was filed before the Delhi High Court after the arbitral tribunal was constituted. One of the grounds taken by the applicant to maintain the Section 9 petition (despite the constitution of the tribunal) was that relief was prayed for against a non-signatory or third party to the arbitration agreement. The Court rejected the contention based on the principles laid down in Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. and Ors.

Section 9 vis-à-vis relief by Emergency Arbitrator

Most arbitration institutes (both Indian and International) provide for an Emergency Arbitrator in their rules. The purpose is for adjudicating on urgent interim relief which cannot wait till the constitution of a tribunal. Therefore, instead of filing a petition under Section 9 of the Act, the parties can approach the Emergency Arbitrator for relief.

Enforcement of interim relief passed by such Emergency Arbitrators, particularly in case of foreign seated arbitration, remains uncertain. As on date, there is no provision in the Act for enforcement of an interim order passed in a foreign seated arbitration.

However, Section 2(2) of the Act states that subject to an agreement to the contrary, the provisions of sections 9 apply to foreign seated arbitrations. In two cases, viz. Raffles Design International India P. Ltd.v. Educomp Professional Education Ltd. and HSBC PI Holdings (Mauritius) Ltd. v. Avitel Post Studioz Ltd & Ors., after approaching the Emergency Arbitrator, the parties filed a petition under Section 9 of the Act for the same relief as was sought before the emergency arbitration.

In both these cases, the Delhi High Court and the Bombay High Court respectively entertained the Section 9 petitions, on the basis that there was no prohibition from approaching the court under Section 9 for the same relief as was sought before the Emergency Arbitrator; and the that the court can independently apply its mind and grant interim relief in cases where it is warranted.

Recently, this issue again arose in the case of Ashwin Minda & Anr v. U-Shin Ltd. decided on May 12. After failing to obtain any interim relief from the Emergency Arbitrator appointed under the Japan Commercial Arbitration Association (JCAA) Rules, the petitioner in this case approached the Delhi High Court under Section 9 seeking the same relief.

The Delhi High Court held that the Section 9 petition was not maintainable since the parties had excluded the provisions of Part I of the Act, including Section 9. It further held that even otherwise, having consciously elected to approach the Emergency Arbitrator, it was no longer open to the petitioner to approach the court under Section 9 merely because it was unsuccessful before the Emergency arbitrator; and that the court in a petition under Section 9 of the Act cannot sit as a court of appeal to examine the order of the Emergency Arbitrator.

The Court also distinguished the Raffles judgment on two grounds, i.e. firstly, in the Raffles case, there was no clause in the Dispute Resolution Mechanism by which the parties had excluded the applicability of Section 9 of the Act. Secondly, unlike in the present case, the rules governing the arbitration were SIAC Rules, which permit the parties to approach the Courts for interim relief and therefore, in that case, parties had agreed that it would not be incompatible for them to approach the courts for interim relief.

In view of the Ashwin Minda judgment, the practice of first approaching the Emergency Arbitrator and then filing a Section 9 petition (even in cases where Section 9 is not excluded), may no longer be permissible.

In case of Indian seated arbitrations, though there is no precedent as yet, since orders passed by the tribunal can be enforced like an order of the court more so after the amendment in the Act, it is likely that orders passed by Emergency Arbitrators would also be enforceable.

Conclusion

From the above discussion, it is clear that the provisions of section 9 of the Act remain to be of considerable importance and an essential remedy in arbitration proceedings. Though the legislature, courts, and parties in India are attempting to reduce the tendency to resort to Section 9 once the tribunal is constituted, it may take some time before the remedy under Section 17 becomes completely efficacious.

The wide discretion under Section 9 has been very cautiously used so far and with India emerging as an arbitration friendly jurisdiction the conservative approach of our courts in giving injunctive relief will go a long way in this endeavour.

However, court granted interim measures will always remain necessary. Most reputed international arbitration institutional rules have legitimized seeking interim protection from national courts. Therefore, the strategic weapon of Section 9 will remain powerful as ever and can be very effective if used in the right set of facts backed by compelling evidence.

Shashank Garg is a Partner at Advani & Co. Pragya Chauhan is a Principal Associate at J. Sagar Associates.