Interim Orders of an Arbitral Tribunal: Contempt, Execution and Beyond

[Guest Post by Swastika Chakravarti, a 5th year law student at National Law University Odisha]

The Indian judiciary created a unique mechanism for the enforcement of interim orders passed by an arbitral tribunal by holding that a party that does not comply with such orders can be held liable for contempt of court. The Supreme Court in the judgment of Alka Chandewar v. Shamshul Ishrar Khan (July 6, 2017) held that non-compliance with interim orders of a tribunal could be punished under section 27(5) of the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”) which otherwise provides for punishment for failing to attend proceedings before the tribunal, or for any other default. The Court read beyond the marginal note of the section (“Court assistance in taking evidence”) to hold that contempt of the tribunal is within the scope of the section and the court can punish for contravention of orders of a tribunal in the same way as it would in suits before itself.

It must be noted that the judgment related to proceedings that were initiated before the 2015 Amendments were effected to the Arbitration Act and was done to give tooth to section 17 that empowers the tribunal to pass interim orders, which prior to the amendment did not provide for a mechanism for enforcement of such orders. The Supreme Court had noted in the case of Sundaram Finance Ltd. v. NEPC India Ltd. (1999) that “though Section 17 gives the arbitral tribunal the power to pass orders the same cannot be enforced as orders of a Court. It is for this reason that Section 9 admittedly gives the Court power to pass interim orders during the arbitration proceedings.”

While the move of the judiciary to provide an enforcement mechanism through contempt mechanism can be appreciated, it remains doubtful whether judicial intervention in the form of contempt proceedings is warranted at such an early stage of the arbitral proceedings.

The Contempt of Courts Act, 1971 (the “Contempt Act”) provides the punishment for disobedience of a judgment, decree, order or other process of a court under section 12. Civil contempt is punishable with simple imprisonment up to six months or a fine of upto two thousand rupees. Additionally, under the Contempt Act, the court may forego such punishment if an apology is tendered to its satisfaction and the decision of the court under contempt proceedings is also appealable.

There are two problems with using this as a method for enforcing interim orders passed by an arbitral tribunal. First, the penalty that the court can impose under contempt proceedings is wholly inadequate, as is evident from the maximum value of fine imposable. It is also unlikely that the court would deem it fit to order imprisonment for disobeying orders of a private tribunal adjudicating a commercial dispute. Secondly, and more importantly, it strips the interim relief of its most important characteristic, i.e., that of being an immediate remedy for the preservation of the subject matter in dispute in arbitration. The involvement of courts through contempt proceedings would let in through the backdoor what the legislature has tried to deliberately keep out of arbitration proceedings – judicial interventions and their characteristic delays.

The 2015 Amendments have amended section 17 significantly[1] and states that an interim order passed by the tribunal shall be deemed to be an order of the court and is enforceable under the Code of Civil Procedure, 1908 (the “CPC”) like an order of the court. This means that the court on an application of a party can enforce the execution of the order. Under section 51 read with order XXI of the CPC, the court is empowered to execute an order through delivery of property, attachment or sale, appointment of receiver or in any other manner deemed fit by the court.

The Kerala High Court observed a limitation on the power of the tribunal in Pradeep K N v. Station House Officer, Perumbavoor Police Station and Ors (2015), where it was held that a tribunal could order a party to return certain assets, but had no power to ask the police to confiscate the property. Thus, the statute does not confer power on a tribunal to enforce its own orders, as such power is vested in a court, as an exercise of sovereign function and the use of public functionaries like the police lies in the realm of public law.

Needless to say, the court has extensive powers to execute an order or decree and may order attachment of bank accounts, attachment of third party property, and sequestration of assets at the execution stage, which cannot be ordered by a tribunal, as it is a creature of contract and cannot affect the rights of third parties. Thus, the amendment to section 17 widens the scope of measures that may be taken under interim orders while the arbitration proceedings are ongoing. However, the court, in ordering execution, applies its judicial mind, which would amount to a review of the orders passed by the tribunal, and the execution court may sit in appeal over the orders passed by the tribunal. A delay in passing such judicial order may defeat the purpose of such interim measures, i.e., immediacy.

Evidently, an application to court to enforce interim orders or initiation of contempt proceedings will lead to delays in the arbitration proceeding. With the 2015 amendments providing for strict timelines for the completion of the entire proceeding within a year from the date of the tribunal entering into reference, distractions such as court proceedings for enforcement of orders will not serve the parties or the tribunal well. The suggestion that an arbitral tribunal ought to be vested with the right to punish a party for ‘contempt’ straightaway for any infraction of its orders was rejected by the 176^th Law Commission Report (2001) on the grounds that these are powers of the State. However, it would be incorrect to say that, under arbitration jurisprudence, a tribunal has no power to ensure compliance with its orders. It has been understood that if a party fails to comply with the orders of a tribunal, the tribunal only has the power to draw adverse inference and reflect the same when it makes its final award on the merits of the case. But this would again fail to provide any immediate relief to the aggrieved party. One possible solution would be to bring in a quasi self-enforcing regime, as under the English Arbitration Act, 1996, where the tribunal is given power to issue some limited forms of sanctions for non-compliance with its orders.

Under section 41 of the English Arbitration Act, 1996, a tribunal can pass a peremptory order, also known as an ‘unless order’ when a party fails to comply with an interim order passed by it. Such peremptory order prescribes a time limit for compliance. If the party fails to comply with such peremptory order as well, there are several options before the tribunal, such as making an award on the basis of material before it, denying the defaulting party from relying on material which was the subject matter of such order, order for payment of costs incurred due to non compliance (sanctions through costs) and most importantly, where the order relates to providing security for costs, the tribunal may dismiss the claims for non-compliance. Additionally, the party or the tribunal may approach the court for the enforcement of peremptory orders passed by it. However, this route is available only when all other modes of making a party comply have been exhausted.

A similar medial path may be adopted in India, where tribunals are given some powers to ensure that a party complies with their interim orders. The power of a tribunal to order sanctions in the form of costs, or denying a party the right to raise certain claims, or to rely on some material may be effective ways by which a tribunal could ensure that its orders are complied with. Under some jurisdictions such as Swiss and German law, it has been observed that where courts are approached for the enforcement of orders, the courts have in some cases recast the provisional relief ordered by the tribunal. Under Swiss law, in the event of non compliance with the interim orders of the tribunal, the tribunal may apply to the judge, and the judge may apply his own law.

This may become the case with section 17(2) as well. However, since a court is not empowered to pass interim orders after the tribunal has been constituted (unless the tribunal is not empowered to make such orders), the courts must resist the urge to review the orders of the tribunal when an application is made for the enforcement of order at the behest of the tribunal or the party to the dispute. The 246^th Law Commission Report noted that the Arbitration Act is in need of a ‘complete solution’ for enforcement of interim orders of a tribunal. While the present form of enforcement is an improvement over the previous method of enforcement through contempt proceedings, power to issue limited forms of sanctions by the tribunal for non-compliance with its orders may prove to be necessary additions in order to truly achieve a ‘complete solution’ in light of the objectives of the Arbitration Act.

– Swastika Chakravarti

[1] Section 17(2) after amendment reads: “Subject to any orders passed in an appeal under section 37, any order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were an order of the Court.”