There are many aspects associated with the right to interim relief under section 9 of the Arbitration and Conciliation Act, 1996 have been the subject of diverse interpretations by the courts in India. This has created uncertainty about the meaning and scope of section 9 proceedings. One such aspect has been the availability of the right to interim relief to an award debtor (i.e. the losing party in the arbitration proceedings) post the award.
The Bombay High Court has held that such a right is available only to the award-creditor; the Delhi High Court has recently held that such a right is equally available to an award-debtor as well. The author through the present article tries to make a case for the availability of section 9 relief to the award-debtor by critically analyzing the judgments of the Bombay and the Delhi High Courts. In the process the author would try to highlight the possible options available to a party until there is a final determination of the issue by the Supreme Court.
In order to make India an arbitration friendly jurisdiction, it is essential to have clarity with respect to one of the most crucial sections of the arbitration proceedings – the right to interim relief under section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter ‘Act’). The author by way of the present article tries to highlight one aspect of proceedings under section 9 where there is a need for final word from the Supreme Court due to inconsistent judgments of the Delhi High Court and the Bombay High Court. This section pertains to the availability of interim measures to the party who loses in the arbitration Proceedings, i.e. the award-debtor. This protection becomes important, as highlighted in the following parts, to ensure that the award debtor has a suitable security to protect his interests, in the event the arbitral award, after being set-aside, ultimately results in a favorable outcome for him.
The inconsistent judgments, which have been rendered with respect to post-award interim orders, are that of the division bench of The Bombay High Court in Maharashtra State Electricity Generation Company Ltd. v. Dirk India Pvt. Ltd. and that of The single judge bench of the Delhi High Court in Organising Committee Commonwealth Games v. M/s Nussli (Switzerland) Ltd.
BACKGROUND OF SECTION 9 OF THE ACT
Among various dispute resolution mechanisms, arbitration has emerged as the preferred mechanism for the resolution of commercial disputes. One of the reasons for the proliferation of arbitration has been the flexibility provided to parties to conduct arbitral proceedings as per the law selected by them, arbitrators of their choice and at a venue and place convenient to parties, as opposed to a proceeding before a court. Moreover, party autonomy being the thumb rule in arbitral proceedings, parties are also generally permitted to agree upon the procedure governing the resolution of disputes.
The nature of interim relief sought by the parties may vary based on the facts and circumstances of the dispute. In certain situations the effective provision of interim reliefs may involve directions to third parties also. With the recent changes in the Arbitration and Conciliation Amendment Act, 2015 (“Amendment Act”) and wider powers vested with arbitral tribunals, interim reliefs should be made easy and accessible to parties to secure the ultimate arbitral award. In this backdrop, it is of paramount importance to understand the nature of interim reliefs which can be granted by courts and arbitral tribunals and their respective limitations.
DIRK INDIA – POST AWARD INTERIM RELIEF ONLY FOR AWARD CREDITORS
FACTS: An agreement containing an arbitration clause was entered into between Maharashtra State Electricity Board [hereinafter as “MSEB”] and Dirk India Private Limited [hereinafter as “DIPL”]. The agreement envisaged that Pulverized Fly Ash [hereinafter as “PFA]” that was generated from MSEB’s Thermal Power Station at Nasik would be transported to four hoppers, which were to be constructed by DIPL at site. DIPL was to utilize PFA in its PFA handling plant for the manufacture of concrete. Subsequently, a dispute arose between the parties that was referred to arbitration and the arbitral tribunal by its award came to the conclusion that DIPL had failed to discharge its contractual obligation of erecting the requisite hoppers and of transporting the agreed quantity of PFA to its PFA plant. The Tribunal came to the conclusion that the termination of the contract by MSEB was valid and lawful.
After the award, DIPL filed an application for interim protection under Section 9 of the Act. The learned Single Judge hearing the application gave limited interim protection, leaving the question of maintainability of the Section 9 application open. The matter came before the Division Bench through cross-appeals against this order.
JUDGMENT OF THE BOMBAY HIGH COURT
The Bombay High Court proceeded to discuss the scheme of Section 9 before disposing off the appeal. The Court noted that there are primarily two facets that are envisioned under the scheme of Section 9.
First, the Bombay High Court rightly observed that there exists an immediate and proximate nexus between the interim measure of protection under Section 9 and securing the subject matter of dispute in the arbitral proceedings. In other words, the orders envisaged are intended to preclude the claim in the arbitration from being frustrated. Secondly, the Bombay High Court held that there is proximate nexus between the interim order sought and the arbitration proceeding itself. As per the Court, when an interim measure of protection is sought before or during the arbitration proceedings, such a measure is a step in aid to the fruition of the arbitral proceedings. When sought after an arbitral award is made but before it is enforced, the measure of protection is intended to safeguard the fruit of the proceedings until the eventual enforcement of the award. The interim order post the award as per the Bombay High Court is intended to ensure that enforcement of the award results in a realizable claim and that the award is not rendered illusory.
The Bombay High Court in order to give support to its above reasoning, gave purposive interpretation to the words, “at any time after the making of the arbitral award but before it is enforced in accordance with section 36 occurring in Section 9 of the Act. Under Section 36 of the Act, an arbitral award can be enforced under the Code of Civil Procedure, 1908 [hereinafter as “CPC]” in the same manner as if it were a decree of the court. As per Section 36, the arbitral award can be enforced where the time for making an application to set aside the arbitral award under Section 34 has expired or in the event of such an application having been made, it has been refused. As per the Court, the enforcement of an award accrues to the benefit of the party who has secured an award in the arbitral proceedings and that is why the enforce ability of an award under Section 36 is juxtaposed in the context of above two time frames.
The Bombay High Court, therefore held that, “contextually the scheme of Section 9 postulates an application for the grant of an interim measure of protection after the making of an arbitral award and before it is enforced for the benefit of the party which seeks enforcement of the award”. Thus, as is evident from the above italicized words, the Bombay High Court came to the conclusion that the object and purpose of an interim measure after the passing of the arbitral award but before it is enforced is to secure the property, goods or amount for the benefit of the party which seeks enforcement, i.e., the award creditor and is not available to an award-debtor.
SECTION 9 IS NOT AVAILABLE TO A THIRD PARTY
On a plain reading of the judgment in Dirk, it is evident that the Bombay High Court did not consider a situation where an arbitral award affects the rights of the third party. Consider a situation where an arbitration agreement is between three parties and dispute arises between two parties, which ultimately results in an arbitral award affecting the rights and interests of the third party. As per Section 9 of the Act, the third party has the right to file an application under Section 9 to safeguard his right and interest after the award has been passed. Whereas, applying the interpretation given by the Bombay High Court, only a party in whose favor the award has been passed can approach the court for interim relief, which basically means that such third party would not be entitled to any protection under Section 9 of the Act. This will make it plainly inequitable for the third party to be not provided with a right to protect its interests under Section 9 of the Act even when it was not a party to the arbitration proceedings.
Thus, it is respectfully submitted that the interpretation by the Bombay High Court is not only against the spirit of Section 9 and the legislative intention behind it, but is also highly inequitable and impractical with respect to third parties.
ORGANISING COMMITTEE – RELIEF FOR AWARD-DEBTORS
FACTS: The Delhi High Court has elucidated the rationale behind allowing Section 9 for Award-Debtors in the Organising Committee case. In 2010, the Respondent was awarded a turnkey contract by the Petitioner for providing overlays on rental basis for the Commonwealth Games, 2010 (“Games”). In order to secure the contract’s performance, the Respondent was required to furnish a ‘performance bank guarantee’ (“PBG”) equivalent to the 10% of the contract value (which Respondent furnished). Following the conclusion of the Games, disputes arose between the parties and the matter was referred to arbitration. From time to time, the Respondent was restrained to encase PBG; first, as a result of a Section 9 petition filed by the Petitioner and then because of a direction issued by the Arbitral Tribunal. The Petitioner’s claims in the arbitration were rejected by the tribunal and thus, the Petitioner was the losing party in the arbitration proceedings. The Petitioner in the Organising Committee had not yet filed its objections to the award under Section 34 of the Act and had petitioned the court under Section 9 to stay the discharge issued by a bank at the behest of the respondent, and to seek a direction to the respondent to keep the bank guarantee alive till the conclusion of proceedings under Section 34 of the Act. Interestingly, the respondent placed reliance on the judgment of the Bombay High Court in Dirk to negate the stance of the petitioner. Thus, the respondent contended that since Section 9(ii) of the Act is intended to protect the fruits of successful arbitration proceedings, a party whose claim has been rejected during the course of the arbitration cannot have the arbitral award enforced in accordance with Section 36 and can, therefore, not seek any interim relief under Section 9 of the Act.
JUDGMENT OF DELHI HIGH COURT
Justice Sanghi in Organising Committee held that the case of Dirk cannot be relied upon by the Respondent as it was rendered in an entirely different factual context. In Dirk case, DIPL was seeking an interim measure for continuing to perform the contract even after the termination of the agreement had been held to be valid by the arbitral Tribunal. The Division Bench of the Bombay High Court, in that context, held that DIPL could not maintain a petition under Section 9 of the Act as the Award was not in its favour, and could not seek enforcement of the Award. The Delhi High Court rightly pointed out that the Bombay High Court was not concerned with a situation like the one present before it, wherein the Respondent was a foreign corporation having no assets or presence in India. The Respondent being a foreign corporation, was a significant factor in this case, as, if the PGB of the foreign corporation would not have been kept alive, then the Petitioner would not have had any possible remedy to secure his future claims in case of successful pursuit of setting-aside proceedings under Section 34 of the Act.
The Delhi High Court also took liberal assistance from the provision of Order XXV, Rule 1 of the CPC although clarifying that the said provision is not squarely applicable to the facts present before it. Order XXV, Rule 1 of CPC provides that where the plaintiff is a foreign party, i.e. residing outside India, and does not possess sufficient immovable property within India, he would be required to furnish security for costs. Another important principle which found reason with the Delhi High Court was that the counter claim of the petitioner had been partially allowed, leaving the scope for the Petitioner to assail the arbitral award within the statutory period of limitation. In case the Petitioner succeeded in its objections that may be preferred by it, it would be entitled to re-pursue its counter claim in appropriate proceedings. As per Justice Sanghi, the said right of the petitioner would be defeated by permitting the respondent to allow the PBG to lapse in the meantime. Thus, it appears that the Delhi High Court took equitable considerations into account while delivering its judgment in the case of Organising Committee.
CONCLUSION
The Delhi High Court seems to have come to the right conclusion that Section 9 is not only available to an Award-Creditor but also to an Award-Debtor. The Delhi High rightly relied on the principle that the factual situation before it was different from that before the Bombay High Court and that Dirk’s ratio is pertinent with respect to its own peculiar facts. This is because it is an established principle in Indian jurisprudence that a decision is a precedent with respect to its own facts and the words used by the judges in their judgments are not to be interpreted like the words of an act of the Parliament. Although, the Delhi High Court also relied on the fact that the counter-claim of the petitioner was partially allowed in the facts before it, it fell short of distinguishing the Dirk case on the tenable legal principles like that of literal construction, intention of the legislature, instances of remitting back the award under section 34(4) of the Act or of non-filing of challenge under section 34 by the Award debtor.
Thus, even though the Organising Committee case is still subject to the possibility of two rounds of appeal before the Delhi High Court and Supreme Court respectively, and the Dirk case is sub-judice in Supreme Court, it seems plausible that the Section 9 interim relief is available even to Award-Debtors in certain situations which are considered equitable. The author believes that such relief being available to the Award-Debtors is in line with the intention of the legislature and also with the scheme of the Act which specifically deviated from the Model Law while providing for post-award reliefs. So the circumstances by which such a relief should not be provided to an Award-Debtor before filing the challenge to award under Section 34 should be only limited to those circumstances which a court may consider inequitable. An authoritative pronouncement by the Supreme Court is certainly required as the final word on this issue to elaborate on the circumstances wherein a post-award interim order is available or is not available to an Award-Debtor.
However, it must be emphasized that the Award-Debtor should try and immediately file its objections to the award under Section 34 of the Act at the first instance as such filing of objections would operate as immediate stay on the award and would obviate the need for filing an additional application by way of Section 9.
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