In yet another pro-arbitration move, the Supreme Court of India in its verdict in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited dated September 14 held that a court granting interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 (Act) is not strictly bound by procedural rigors and should not withhold such equitable relief on the mere technicalities of the Code of Civil Procedure, 1908 (CPC).
While this decision is founded on the respondent’s endeavour to secure favourable interim orders, it analyses important provisions of the CPC and the Act concerning the grant of interim relief under Section 9 of the Act.
The appeal before the Supreme Court arose against the common judgment and order dated February 1, 2021 passed by a Division Bench (Commercial Appellate Division) of the Bombay High Court under Section 37 of the Act read with Section 13 of the Commercial Courts Act, 2015.
By this order, the High Court dismissed an appeal against an order dated December 10, 2020 passed by the single-judge bench directing Essar to deposit ₹47.41 crore with the prothonotary and senior master of the High Court.
Essar's key contention before the Supreme Court in challenging the order was that, in order to grant discretionary interim relief under Section 9 of the Act, the Court would have to satisfy itself that the applicant for interim relief (Arcelor) had a bona fide and strong claim and that Essar was about to remove or dispose of whole or part of its property with intent to obstruct or delay the execution. In this context, it was argued that the High Court erred by failing to examine the requirements of Order XXXVIII, Rule 5 of the CPC while granting an interim relief. Strong reliance was placed upon the judgment in Raman Tech & Process Engineering Co & Anr v. Solanki Traders to state that the power under Order XXXVIII Rule 5 CPC is a drastic and extraordinary power which should not be exercised mechanically or merely for the asking.
Section 9 of the Act confers wide powers on the court to pass orders securing the subject-matter of the arbitration agreement, the amount in dispute in arbitration etc, whether before the commencement of the arbitral proceedings, during the arbitral proceedings or at any time after making of the arbitral award, but before its enforcement in accordance with Section 36 of the Act. All that the court is required to see and satisfy itself with are the settled principles while granting such equitable remedy: whether the applicant for interim measure has a good prima facie case; whether the balance of convenience is in favour of interim relief as prayed for being granted; and whether the applicant has approached the court with reasonable expedition (SREI Infrastructure Finance Limited v. M/s Ravi Udyog Pvt Ltd & Anr).
It is also important to note that an application under Section 9 of the Act for grant of interim relief is not to be judged as per the standards of a plaint in a suit. Mere procedural technicalities cannot come in the way of granting such relief, when the applicant has satisfied the court with relevant facts pleaded (read with the documents in support of the petition), that the application warrants the grant of interim relief. In such cases, interim relief ought not to be refused.
In, Essar v. Arcellor, the Supreme Court has rightly examined the scope of interim remedies under Section 9 of the Act by holding the following:
Court while granting such remedies is not strictly bound by the provisions of the CPC: The Supreme Court in this decision held that while awarding such remedies, a court cannot be constrained by the procedural technicalities of CPC, while basic principles of procedural law (as laid down in CPC) ought not to be ignored. Rightly so, since it is well established that procedural safeguards intended to promote the cause of justice cannot be read in such a way that justice is defeated. (see: Saiyad Mohd. Bakar El-Edroos v. Abdulhabib Hasan Arab; Sardar Amarjit Singh Kalra v. Pramod Gupta)
Wider power vis-à-vis Section 9 of the Act: The Supreme Court while observing that Section 9 of the Act confers wider powers on the court while granting interim relief, relied on the decisions of several High Courts, which have held that powers of a court under Section 9 of the Act are wider than powers under the provisions of the CPC. In this regard, the Supreme Court relied upon the decisions of Ajay Singh & Ors v. Kal Airways Private Limited and Ors , Jagdish Ahuja & Anr v. Cupino Limited, Valentine Maritime Ltd v. Kreuz Subsea Pte Ltd & Anr.
In line with these decisions, the Supreme Court held that if a strong prima facie case is established and the balance of convenience favours granting interim relief, the Court exercising jurisdiction under Section 9 of the Act should not withhold relief on the mere technicality of the absence of averments incorporating the grounds for attachment before judgment under Order XXXVIII Rule 5 of the CPC.
Strong possibility of diminution of assets would suffice for granting relief: The Supreme Court also held that proof of actual attempts to trade with, remove, or dispose of the property with the intent of defeating or delaying the realization of an anticipated arbitral award is not imperative for remedy under Section 9 Act. A substantial possibility of asset diminution would suffice. The Court further held that to assess the balance of convenience, a court is required to examine and weigh the consequences of refusal of interim relief to the applicant in case of success in the proceedings, against the consequence of grant of the interim relief to the opponent in case the proceedings should ultimately fail.
The extent to which the provisions of the CPC apply to proceedings under Section 9 of the Act remained unclear in view of the varied decisions of several High Courts. Furthermore, although acknowledging that there were varied judgments by several High Courts, the Supreme Court previously in the decision of Arvind Constructions v. Kalinga Mining Corporation and Others left this subject open to be examined in an appropriate case. The 2015 Amendment to the Arbitration Act does not address this gap and remains vague on the principles that may apply when courts give interim relief under Section 9 of the Act. In light of the aforesaid decision, the Supreme Court has settled the two approaches previously adopted by different courts while dealing with the aforesaid issue. The same has been discussed below:
The first line of reasoning finds proceedings under Section 9 of the Act to be analogous to procedures under Order XXXVIII Rule 5 and Order XXXIX Rule 1 and 2 of the CPC, and hence the principles included therein must be considered for the grant of interim relief. The Supreme Court concluded in ITI v. Siemens Public Communication that, while the Act included no reference of the CPC's application to arbitral procedures, the provisions of the CPC might be read in by a court exercising its powers during any proceedings arising under the Act. The same was iterated by numerous High Courts (see: Om Sakthi Renergies Limited v. Megatech Control Limited; Goel Associates v. Jivan Bima Rashtriya Avas Samiti. Similarly, in Anantji Gas Service v. Indian Oil Corporation, it was held that the jurisdiction under Section 9 of the Act is analogous to Order XXXIX Rules 1 and 2 of the CPC, thereby highlighting the need to fulfil all requirements under the CPC.
According to the second line of reasoning, the rigors of every provision in the CPC cannot be used to defeat the grant of relief through Section 9 of the Act. Maintaining an exclusive approach, the Bombay High Court in the decisions of National Shipping Company of Saudi Arabia v. Sentrans Industries Ltd and Delta Construction Systems Ltd, Hyderabad v. M/S Narmada Cement Company Ltd, Mumbai declared that the court would not be constrained by the terms of Order XXXVIII Rule 5 while providing relief under Section 9 of the Act. Further, the Delhi High Court in Steel Authority of India v. AMCI Pty Ltd and Ajay Singh v. Kal Airways Private Limited has maintained that the principles outlined in Order XXXVIII Rule 5 would only serve as guidelines for the court's use.
Further, the approach taken by the Bombay High Court and approved by the Supreme Court in Essar House is pursuant to well-established principles for deposit of security/providing bank guarantee in a Section 9 application. Firm Ashok Traders and Arvind Construction laid down principles regarding a court’s powers under Section 9 of the Act.
Further, Supreme Court ‘approved’ the view taken by the Bombay High Court and Delhi High Court in respect of the matters referred:
Kal Airways - Supreme Court extended time for making deposit and bank guarantee etc. on July 31, 2017 (see Delhi High Court judgment dated July 3, 2017, para 24-27 on the scope of a court’s powers under Section 9)
Cupino Ltd – Supreme Court dismissed the SLPs on September 4, 2020 (see Bombay High Court judgment dated August 3, 2020, para 6 on the scope of a court’s powers under Section 9)
Valentine Maritime – Supreme Court dismissed the SLPs on March 26, 2021 (see Bombay High Court judgment dated January 22, 2021, para 61-121 on the scope of a court’s powers under Section 9)
The Supreme Court in its present decision has finally settled the ambiguous position of law with respect to the applicability of CPC provisions to Section 9 of the Act. The Court, while adopting an exclusive approach, has furthered its endeavour to promote a pro-arbitration regime.
Sameer Bindra is a Senior Associate in the Dispute Resolution practice group of Khaitan & Co in the Mumbai office. Views are personal.