Resolving the Tussle Between Section 9 and Section 17 of the Arbitration Act: The Path Forward

INTRODUCTION

The courts as well as the tribunals have been given the powers under section 9 and section 17 of The Arbitration and Conciliation Act, 1996 (herein referred to as Arbitration Act) respectively, to provide interim relief to the parties. Even though the Arbitration Act and several judgements have set the precedence under which the courts have power to pass interim orders, there has always been a confusion whether a court has the power to entertain an application under Section 9 of Arbitration Act, once an arbitral tribunal has been constituted. here has been a constant tussle between the two sections and clarity was needed regarding their applicability. In this article we shall be discussing and analyzing the recent case of Arcelor Mittal Nippon Steel India Ltd. v. Essar Bulk Terminal Ltd, in which the Hon’ble Supreme Court has explained the applicability of section 9 of Arbitration Act, post constitution of arbitral tribunal.

FACTS

Arcelor Mittal Nippon Steel India Limited (herein referred to as ‘Arcelor’) and Essar Bulk Terminal Limited/ Respondent (herein referred to as ‘Essar’) had entered into an agreement for cargo handling at Hazira Port (Agreement). As per Article 15 of the Agreement, if any disputes arose between the parties with regards to the Agreement, then it shall be settled via arbitration and the Arbitration Act shall be applicable. Later, disputes arose between the parties and Arcelor invoked the arbitration clause. But it was claimed by Arcelor that Essar did not respond to its arbitration notice and in consequence of which Arcelor approached the Hon’ble Gujarat High Court for appointment of arbitrators under section 11(6) of Arbitration Act.

Both the parties also approached the Commercial Court, Surat under Section 9(1) of the Arbitration Act to claim interim relief and the same was reserved for order by the Commercial Court. In the meantime, Hon’ble High Court of Gujarat had appointed a 3-member arbitral tribunal under section 11(6) application, with written consent of both the parties. Due to the constitution of the arbitral tribunal, Arcelor filed an application before the Commercial Court pleading that the section 9 applications filed before them by both the parties must be referred to the arbitral tribunal. This application was dismissed by the Commercial Court and subsequently by the Hon’ble Gujarat High Court stating that “In our opinion the trial court should be permitted to pronounce the order on both the applications under Section 9 pending before it keeping in mind the observations made by us in this judgment and taking into consideration the provisions of Section 9(3) of the Act.” In simple words, it was felt by the Hon’ble Gujarat High Court that the arbitral tribunal would not be able to provide an efficacious remedy under section 17 of Arbitration Act and therefore the Court must pass interim order under section 9 of Arbitration Act. Aggrieved by this judgement, Arcelor approached the Hon’ble Supreme Court.

ISSUES BEFORE THE HON’BLE SUPREME COURT

(i) Whether the court has the power to entertain an application under Section 9(1) of the Arbitration and Conciliation Act, 1996, once an Arbitral Tribunal has been constituted and if so, what is the true meaning and purpose of the expression “entertain” in Section 9(3) of the Arbitration Act?

(ii) Whether the court is obliged to examine the efficacy of the remedy under Section 17, before passing an order under Section 9(1) of the Arbitration Act, once an Arbitral Tribunal is constituted?

HON’BLE SUPREME COURT’S OBSERVATION AND INTERPRETATIONS

The Hon’ble Court dissected section 9(3) of the Arbitration Act. The first part of the section prohibited any application under section 9(1) to be ‘entertained’ if an arbitral tribunal is already constituted. The second part provided for an exception, stating that if the court observes that a situation or circumstance arises which indicates that an efficacious remedy may not be rendered by the tribunal, then the court is free to interfere and pass an interim order. It was also highlighted by the Hon’ble Supreme Court that post 2015 amendment, any interim order or relief passed by the arbitral tribunal is same as the interim order or relief by a court.

To further explain the exception that is carved out in section 9(3) of the Arbitration Act, the Hon’ble Supreme Court interpreted the term ‘entertain’. The Hon’ble Supreme Court looked at a catena of judgements which provided an explanation as to what amounts to entertaining of an application. In the case of Lakshmi Rattan Engineering Works Ltd v.Asstt. Commissioner Sales Tax, Kanpur and Anr. it was stated that “The expression ‘entertain’, it is stated, does not mean the same thing as the filing of the application or admission of the application by the court…. In our opinion these cases have taken a correct view of the word ‘entertain’ which according to dictionary also means ‘admit to consideration’.” In the case of Kundan Lal v Jagan Nath Sharma and Ors.,it was stated that “The use of the word ‘entertain’ in the proviso to R. 90 of Or. XXI denotes a point of time at which an application to set aside the sale is heard by the court. This appears to be clear from the fact that in the proviso it is stated that no application to set aside a sale shall be entertained ‘upon any ground which could have been taken by the applicant on or before the date on which the sale proclamation was drawn up.’ Surely, the question as to the consideration of the grounds upon which the application is based can only arise when it is being considered by the court on the merits, that is, when the court is called upon to apply its mind to the grounds urged in the application. In our view the stage at which the applicant is required to make the deposit or give the security within the mening of Cl. (b) of the proviso would come when the hearing of the application is due to commence.” Further in the case of Hindustan Commercial Bank Ltd. v Punnu Sahu, it was held that “the expression “entertain” in the proviso to clause (b) Order 21 Rule 90 means to ‘adjudicate upon’ or ‘proceed to consider on merits’ and not ‘initiation of proceeding’.” In Martin & Haris Limited v. With Additional Distt. Judge & Ors, it was held by the court that “Thus the word “entertain” mentioned in the first proviso to Section 21(1) in connection with grounds mentioned in clause (a) would necessarily mean entertaining the ground for consideration for the purpose of adjudication on merits and not at any stage prior thereto.”

Based on the observations made in these cases, the Hon’ble Supreme Court came to a conclusion that the term “entertain” meant the court has applied its mind to the issues that have been raised in its application and has taken it up for consideration. Further it was also highlighted by the Hon’ble Supreme Court that process of consideration continues till the judgement is pronounced. It is important for the court to observe whether consideration process has already begun and whether court has already applied its mind before arbitral tribunal is constituted. If all these conditions are satisfied, then it can be said that an application has already been ‘entertained’ by the court.

The Hon’ble Supreme Court did not deny the fact that there might be certain circumstances when efficacious reliefs might not be granted even after constitution of arbitral tribunal. The main purpose of interim reliefs or orders is to ensure that any property or subject matter is protected otherwise the whole purpose of arbitration gets defeated. It was remarked by the Hon’ble Supreme Court that the legislative intent would never have been to decline relief under section 9 of Arbitration Act and the parties be remitted to their remedy under Section 17 of Arbitration Act, if an arbitral tribunal is already constituted.

In the end it was also highlighted by the Hon’ble Supreme Court that “if an application under Section 9 had been entertained before the constitution of the Tribunal, the Court always has the discretion to direct the parties to approach the Arbitral Tribunal, if necessary by passing a limited order of interim protection, particularly when there has been a long time gap between hearings and the application has for all practical purposes, to be heard afresh, or the hearing has just commenced and is likely to consume a lot of time.”

Therefore, it was ruled by the Hon’ble Supreme Court that the Gujarat High Court was right in directing that the Commercial Court must complete its adjudication process and it was also clarified that the Commercial Court does not have to look into efficacious relief under section 17 of Arbitration Act as it has already entertained and considered the issue.

ANALYSIS AND CONCLUSION

In the absence of an express provision regarding the dealing of pending section 9 applications after constitution of arbitral tribunal and by explaining the interpretation of term ‘entertain’, the Hon’ble Supreme Court has provided a much-needed clarity while dealing with the tussle between section 9 and 17 of Arbitration Act. It has been highlighted in the case of Amazon.com NV Investment Holdings LLC v. Future Retail, that the main intention behind incorporation of section 9(3) of Arbitration act was to ensure that courts are not burdened with unnecessary section 9 applications by the parties even after constitution of arbitral tribunal. Further, it has also been highlighted in several cases such as Energo Engineering Projects Limited v. TRF Ltd., Benara Bearings and Pistons Limited v. Mahle Engine Components India Private Limited, M. Ashraf v. Kasim V.K.; Srei Equipment Finance Limited (Sefl) v. Ray Infra Services Private Limited & Anr. and Avantha Holdings Limited v. Vistra ITCL India Limited, that even after the arbitral tribunal is constituted, the court is not be restricted of its authority to grant interim relief to parties under Section 9(1) of the Arbitration Act. It is observed by the author that the Hon’ble Supreme Court has applied these principles laid down in the above stated judgements while dealing with the issue in hand. Further, Hon’ble Supreme Court has also balanced the interests of both the arbitral tribunals and the courts and ensured that they are kept at equal footing so as to avoid unnecessary conflicts in the future.