Harmony or Discord? Decoding Sections 9 and 17 of the Arbitration Act

India aspires to become a pro-arbitration hub on the global stage. Interim measures form a fundamental aspect of arbitration proceedings, serving to protect the parties' rights and ensure that post-arbitration awards retain substantive enforceability. The criteria for awarding interim relief are tripartite: firstly, the applicant must establish a compelling prima facie case; secondly, the balance of convenience must favor the applicant; and thirdly, the denial of such relief should result in irreparable injury or loss to the applicant.

Under the Arbitration Act, 1996 (“the Act”), a party has the option to seek interim measures either from the court, or the arbitral tribunal. The procedure for the same operates in such a manner that the court retains the authority to grant interim measures until an arbitral tribunal is constituted. Subsequently, the authority transitions to the tribunal during the arbitral proceedings. However, once an award is granted, the tribunal becomes functus officio and the authority to grant interim measures reverts to the court until the award is enforced.

Sub-section (3) of Section 9 of the Act provides that if the court identifies circumstances where a remedy under Section 17 may not be efficacious, the court shall have the power to grant interim measures. This article sheds light on such circumstances where seeking an efficacious remedy is better done through court rather than the arbitral tribunal in the current circumstances. It further discusses necessary reforms that would equip arbitral tribunals with comparable powers, thereby advancing India's position as a global arbitration hub.

In the case of State Bank of India v. Ericsson (India) (P) Ltd, the apex court ruled that the arbitral tribunals are governed by the terms of the arbitration agreement. Thus, they have jurisdiction only over the parties to such an arbitration agreement. The Court stated that, “Arbitral Tribunal has no jurisdiction to affect the rights and remedies of the third party-secured creditors in the course of determining disputes pending before it.” Following this, the Delhi High Court, in the case of Asset Reconstruction Company India Ltd v. ATS Infrastructure Limited, held that the arbitral tribunal under Section 17 has no power to create security interest on a property over which a charge is created by any third party. This brings us back to the position taken by the Supreme Court in the case of MD, Army Welfare Housing Organization v. Sumangal Services Pvt. Ltd., wherein the apex court had categorically stated that the power of the arbitrator is limited to the agreement, and it cannot issue orders that go beyond the terms of reference or the agreement.

On the other hand, the power of the Court under Section 9 is not just limited to the signatories of the agreement but also can be exercised against third parties as well. The courts have taken a view that if the interim relief sought by a party incidentally affects any third party, then such relief is within the ambit of Section 9, but this power should be used cautiously. Particularly, if the third party is a complete stranger to the proceedings, then such relief should be granted only in extreme circumstances. The Delhi High Court in Blue Coast Infrastructure Development (P) Ltd. v. Blue Coast Hotels Ltd held that the arbitrator is a creature of the contract and it cannot pass interim measures against a non-party to the contract. For an efficacious remedy, it is best suited that such interim measure against third party should be granted under Section 9 of the Act.

From the jurisprudence stated above, it can be concluded that if any interim remedy is sought against a third party, then the courts have the power to pass an efficacious remedy. The courts under Section 9 have the proper jurisdiction to pass such a remedy. Before the issuance of any order in proceedings under Section 9, the courts are empowered to afford the third party, against whom the remedy is sought, an opportunity to represent themselves, thereby upholding the principles of natural justice. For a pro-arbitration environment, powers under Section 17 should be expanded to allow the arbitral tribunal to implead third parties into proceedings for interim measures. Granting such powers would enable the tribunal to provide effective remedies, saving the parties time and the cost of litigation.

Even after an arbitral tribunal has been constituted, there might come circumstances where such a tribunal cannot grant interim measures. In such an eventuality, to protect the rights of the parties, courts can issue interim measures under Section 9 of the Act. In the case of Energo Engineering Projects Ltd. v. TRF Ltd., an arbitral tribunal had been constituted under the agreement, but its appointment was under challenge. The Supreme Court had issued a stay on any tribunal proceedings in the matter. In this unique scenario, the Delhi High Court adeptly harmonized Section 9(1) with the amended Section 9(3), ensuring the protection of the parties' rights by considering the application for interim relief.

In circumstances, where for any reason, the proceedings of the arbitral tribunal are not functional only for a short period, a court-ordered interim measure is the effective remedy. In a pro-arbitration framework, an emergency arbitrator offers a vital remedy when the tribunal is incapacitated. As rightly suggested in the report of the high-level committee to review the Institutionalization of Arbitration mechanism in India, chaired by Justice BN Srikrishna, retired judge of the Supreme Court of India, the legislature should take a step forward by including provisions of emergency arbitration in the Act to empower the arbitrator to give emergency award when the arbitral tribunal is inoperative for any reason.

Attempts have been made where an emergency award by a foreign seated emergency arbitration has taken the course of Section 9 for enforcement.

For instance, the Delhi High Court has taken the view that “…emergency award passed by the Arbitral Tribunal cannot be enforced under the Act and the only method for enforcing the same would be for the petitioner to file a suit. ...Recourse to Section 9 of the Act is not available for the purpose of enforcing the orders of the Arbitral Tribunal; but that does not mean that the Court cannot independently apply its mind and grant interim relief in cases where it is warranted.”

Since there are no provisions for the enforcement of the foreign seated arbitral interim measure, Section 9 is the only remedy for a party to seek similar interim relief in India. An amendment is imperative to enforce any interim measure of a foreign seated arbitration in India without any difficulty just like an interim measure granted under Section 17 of the Act. This would ensure that the foreign arbitral proceeding holds paramount importance until its conclusion while simultaneously upholding the principle of minimal court intervention.

The Andhra Pradesh High Court, in the case of Velugubanti Hari Babu v. Parvathni Narasimha Rao, has categorically held that the power of the court to grant interim measure lies throughout the arbitral proceedings and even after the passing of the award. The Gujarat High Court, relying on the Velugubanti judgment, held that the operation of any order passed by the court under Section 9 would continue to remain in force till arbitral proceedings are over.

Typically, a Section 9 application seeking interim measure is transferred to the arbitral tribunal once the tribunal is constituted. However, in the recent judgment of Arcelor Mittal Nippon Steel India Ltd. v Essar Bulk Terminal Ltd, the Supreme Court clarified that once a court has deliberated on an application by applying its mind, i.e. the court has “entertained” such application, it retains the authority to issue an order even after the arbitral tribunal has been constituted. This judicial interpretation facilitates an efficient resolution process and provides a timely remedy to the party seeking interim measures.

To encapsulate, the courts under Section 9 have the power to grant interim measures even post-constitution of the arbitral tribunal. However, the said power is to be exercised sparingly and not as a matter of routine. Following the 2015 amendment to the Act, powers under Section 17 have come at par with those under Section 9. However, as previously noted, such power does not achieve the same impact as that of the courts, and in such circumstances, approaching a court under Section 9 garners an efficacious remedy.

India aims to establish itself as a global pro-arbitration jurisdiction, a goal underscored by the amendments to the Arbitration Act in 2015 and 2021. However, the persistent issue of judicial authority prevailing over arbitral tribunals demands prompt and meticulous resolution. Tribunals ought to be endowed with the authority to implead third parties in applications under Section 17, thereby enabling the issuance of interim measures after a comprehensive evaluation of representations from all involved parties. Moreover, the Act requires amendments to facilitate the enforcement of emergency awards issued in foreign-seated arbitrations. Implementing these modifications would significantly advance India’s ambition to become a preeminent center for arbitration.

About the author: Sonal Kumar Singh is the Managing Partner of AKS Partners. Ratik Sharma is a Principal Associate at the Firm.