Interim Relief against Third Parties under the Arbitration Act: A Never-Ending Saga

[Ayushi Dubey and Yash Jain are final year B.A. LL.B. (Hons.) students at Institute of Law, Nirma University, Ahmedabad]

The Arbitration and Conciliation Act, 1996 (the “Act”) empowers the courts and the arbitral tribunal to grant interim relief under sections 9 and 17 of the Act respectively. The powers of the court under section 9 are wider than that of the tribunal under section 17. Section 9 of the Act is primarily based on Article 9 of UNCITRAL Model law that also provides for interim measures. However, section 9 of the Act provides for interim measures at three stages, i.e., (i) before the commencement of the arbitral proceedings, (ii) during the proceedings, and (iii) following the grant of the arbitral award but before its enforcement. Further, the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Amendment”) has put an end to the dispute whether the powers of the court are narrow under section 9 of the Act. Thus, the court has broad powers to grant interim relief and section 9 does not curtail it in any way.

Under section 9 the court is empowered to grant interim relief against both the parties to the contract. Nonetheless, there are instances when relief was granted against non-signatories to agreements involving banks or subsidiary companies. This gives rise to the debate whether the courts under section 9 of the Act can grant interim reliefs against third parties or non-signatories to an agreement.

Through this post the authors endeavour to analyse the dicta of various High Courts on the scope of section 9 in granting interim relief against a third party. Further, the post introduces a contrast by discussing the powers of the tribunal in granting interim relief against third parties in light of the scheme of the Act.

The Saga

The controversy on whether courts are empowered under section 9 to grant interim relief against third parties dates back in time. Different High Courts have taken contrasting views on this issue; however, notably, the lack of Supreme Court’s opinion on the issue has exacerbated the debate nature of the issue even more. While addressing this issue, the Delhi High Court in Arun Kapoor v. Vikram Kapoor observed that the application under sections 9 and 17 of the Act are very distinct in nature. A section 17 application before the arbitrator concerns only a party to the proceedings, whereas a section 9 application before the court does not necessarily need to be against a party to the proceedings and can concern a third party. Interestingly, a rather contrary view was taken by the Delhi High Court in Mikuni Corporation v. UCAL Fuel Systems, wherein it was noted that section 9 application will not lie against any such party against whom arbitration proceedings cannot be initiated. A similar view was taken by the Kerala High Court in Shoney Sanil v. Coastal Foundations, wherein the Court held that the scheme of the Act clearly suggests that the court’s power under section 9 cannot interfere with the rights of third parties. Thus, interim measures under section 9 can only be granted against the parties to the agreement or any party claiming under it.

Supporting its view laid down in Arun Kapoor, the Delhi High Court in Value Advisory Services v. ZTE Corporationrecognized that laying down a general rule that a section 9 application cannot lie against the third party will only hamper the efficacy of the section. The Court discerned that the nature of proceedings before the court and tribunal are different and, even when both the proceedings are between the parties to the transaction, the practice of the court issuing orders against third parties exists. The Act does not suggest limiting the power of the court while granting interim relief and rather provides under section 9 that “the court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.” Along these lines, the Court concluded that if the courts have the power to make an order against a third party for a proceeding before it, then it will have the same power under section 9 of the Act.

The issue yet again surfaced before the Delhi High Court in Blue Coast Infrastructure Development Pvt. Ltd. v. Blue Coast Hotels Ltd wherein it was found that while the powers of the tribunal under section 17 are limited, the court under section 9 has broad powers and is empowered to grant interim reliefs against third parties as well. The Court held that under section 17 the tribunal is bound within the four corners of an arbitration agreement. Accordingly, it cannot issue any direction to the parties outside the purview of the contract, but this is not the case with section 9 of the Act. The limitations of the contract do not apply to section 9 and hence the courts have ample powers enabling them to issue directions against third parties. However, while clarifying the contours of section 9, the Court made some confounding remarks about the powers of the tribunal under section 17, thereby, leading to our examination of the tribunal’s power to grant interim relief against third parties.

Is the Scope of Section 17 Limited?

The Supreme Court in MD Army Welfare Housing Organisation v. Sumangal Services Pvt. Ltd. observed that the powers of the tribunal under section 17 cannot go beyond the arbitration agreement. An interim measure under section 17 must address the subject matter of the dispute and be addressed only to the parties of the arbitration. Furthermore, while discussing the ambit of the court’s power to issue interim reliefs against the third party under section 9, the Delhi High Court in Blue Coast reiterated the view propounded in Gatx India v. Arshiya Rail Infrastructure, wherein it was observed that section 17 specifically allows the direction to be issued only against the parties to the agreement.

It is necessary to note that the judgments in MD Army and Gatx India cases were delivered before the 2015 Amendment, which made significant changes in section 17 of the Act by adding the words “the arbitral tribunal shall have the same power for making orders, as the court has for the purpose of, and in relation to, any proceedings before it” (“the phrase”). The 2015 Amendment expounded the metric of tribunal’s power under section 17 to bring it at par with the powers of the court before any proceedings. Additionally, the same phrase was also added to section 9 empowering the court to have the same powers while granting relief that it would otherwise have exercised in any proceedings before it. Therefore, the intent of the drafters to empower both the tribunal and court to exercise the same powers while granting relief is evident from the 2015 Amendment.

Moreover, the 2015 Amendment under sections 17 and 9 grants both the tribunal and the court respectively the same powers as a civil court. Pertinently, relying on the phrase added to section 9 of the Act by the 2015 Amendment, Blue Coast gave a wider import to section 9 and held that that the courts under section 9 can make directions against a third party. At the same time, the existence of the very same phrase was ignored by the Court while examining the scope of the tribunal’s power under section 17, leading to a flawed conclusion. Now and then the courts have given contradictory meanings to the same phrase while dealing with the powers of the tribunal and the courts to grant interim relief against third parties under sections 17 and 9 respectively of the Act, even though the Act grants them identical powers at par with the civil courts.

Conclusion

Numerous High Courts have taken varied views upon the court’s power to grant interim relief against third parties that have given rise to equivocacy in the scope of the power of both the courts and the tribunal. However, there is sufficient clarity on the issue that, if the courts are empowered to grant interim relief against third parties, then the tribunal would also be. The interpretation of the said phrase has to be drawn similarly in both sections 9 and 17 of the Act. The aim and objective of the Act are to facilitate speedy trials and eliminate the interference of the courts. If the nature of interim relief given by the tribunal and courts are likely to be different, it will defeat the very purpose of the Act. Moreover, the 2015 Amendment brought significant changes in section 17 to eliminate the interference of courts after the constitution of the tribunal.

The erroneous reasoning in Blue Coast has made the already existing ambiguous jurisprudence on the subject matter more complex. The judgment seeks to create a difference between the powers of the tribunal and the courts by limiting the scope of section 17, thereby, making the parties take a turn towards the courts. The Supreme Court must venture to untangle the knotty issue surrounding interim relief against third parties both under sections 9 and 17 of the Act.

Ayushi Dubey & Yash Jain

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