Scrutinizing the “Inefficacious Remedy” in Arbitration Proceedings

[Raushan Kumar is a 3rd year B.A. LL.B. (Hons.) student at Damodaram Sanjivayya National Law University, Visakhapatnam.]

Prior to the 2015 amendment to the Arbitration and Conciliation Act, 1996, parties were at liberty to approach courts to seek interim relief at any time before the commencement of the arbitration proceedings, during the arbitration proceedings, or at any time after making of the award but before it was enforced. Though the arbitral tribunal had powers to order interim measures, parties preferred to approach the court as the orders of the arbitral tribunal under section 17 of the Act were not enforceable as orders of a court. This trend overburdened the courts with applications for interim reliefs under section 9 of the Act. This situation was finally remedied by the 2015 amendment to the Act with the incorporation of Section 9(3).

Post the 2015 amendment, the power of the arbitral tribunal under section 17 has been enhanced and the power of the court to grant interim measures during the pendency of the arbitration proceedings under section 9 has been correspondingly curtailed. Section 9(3) now requires that after constitution of the arbitral tribunal, the court “shall” not entertain an application for interim measures under section 9(1) of the Act, unless it finds that circumstances exist which “may render the remedy provided under section 17 inefficacious”. Once the arbitral proceedings have commenced, courts are required to adopt a strict approach in entertaining applications under section 9(1).

As is evident, section 9(3) has left a window open for court intervention in circumstances where the court is convinced that the remedy under section 17 may be inefficacious. The Act nowhere provides express guidance as to such circumstances for the purpose of section 9(3). The absence of any elaborate court ruling on this issue creates a great deal of ambiguity and leaves open a wide room for interpretation. However, with evolving legal jurisprudence and the way the courts have dealt with this issue over the years, there exist some circumstances which would likely render the remedy under section 17 of the Act inefficacious.

Instability in the Arbitral Tribunal

In Energo Engineering Projects v. TRF Ltd., the division bench of the Delhi High Court held that in circumstances where the constitution of the arbitral tribunal was under challenge and further proceedings before the arbitral tribunal had also been stayed by the Supreme Court, the remedy under section 17 was not efficacious. Therefore, the Court had to consider the application under section 9 for interim reliefs. The Court observed that a harmonious reading of section 9(1) and section 9(3) of the amended Act makes it sufficiently clear that incorporation of section 9(3) into the Act does not deprive the Court of the power to grant interim relief after the constitution of the arbitral tribunal. An application under Section 9 for urgent interim relief has to be considered by the Court even if the arbitral tribunal is non-functional for a short period of time.

In Bhubaneshwar Expressways v. National Highways Authority of India, a section 17 application was pending before the arbitral tribunal but the tribunal was non-functional due to the recusal of one of the arbitrators without any substitution. Subsequently, the petitioner filed a section 9 application before the Delhi High Court for interim relief. In such circumstances, the court held that waiting for the disposal of the section 17 application would not be an efficacious remedy, especially when the petitioner was in a financial crisis and had been suffering irreparable harm.

It is a well settled principle of law that if the alternative remedy is inefficacious and a party is suffering loss and hardship, it can certainly utilize the remedy available to it, which in this case is a section 9 petition. While granting interim reliefs, relevant facts and circumstances of the case should be assessed, including instances like the lethargic manner of arbitrators in granting interim reliefs with regard to assets rendering the remedy ineffective. The efficacy of a remedy has to be decided on a case by case basis.

Interim Measure against Third Parties

Section 17 of the amended Act provides that the arbitral tribunal shall have the same power as the court for making orders in relation to any proceedings before it. The court is empowered to grant interim measures affecting third partiesunder section 9 of the Act. However, as compared to the courts, the power of the arbitral tribunal in this regard is limited, and the broad consensus of judicial decisions indicates that an arbitral tribunal cannot validly pass interim measures affecting the rights and interests of third parties.

This limited power of the arbitral tribunal to pass interim measures against third parties has been further reiterated by the Delhi High Court in Blue Coast Infrastructure v. Blue Coast Hotels, wherein the Court observed that since an arbitrator is a creature of the contract between the parties, it cannot venture outside the contract to pass directions against non-parties to the arbitration agreement. The power of an arbitral tribunal to order interim measures against third parties under section 17 is still not certain and therefore, the remedy under this section may prove to be inefficacious. Because of this uncertainty, it may be preferable to approach the court under section 9 in the event when interim relief is sought against a third party.

Interim Measure by a Foreign-Seated Arbitral Tribunal

In a progressive judgment, the Delhi High Court held that once the arbitral tribunal is constituted, an application under section 9 would not be maintainable even in the case of a foreign-seated arbitration, if an efficacious remedy is available before the tribunal. This is in line with the legislative intent behind the insertion of Section 9(3) into the Act. However, it is not the interim order by the tribunal but its enforcement that puts an additional burden on the parties, as enforcement of interim reliefs granted in foreign-seated arbitrations would require a fresh section 9 application to be filed in order to prove what has already been determined by the arbitral tribunal.

This hardship could be done away with by following an English decision where it was held that the court’s role is not to review or second-guess the arbitrator’s interim order, barring circumstances where the arbitrator has proceeded on a completely mistaken basis or the power exercised by him was fatally undermined in some fundamental respect. If Indian courts do not adopt a similar approach, seeking interim relief from a foreign-seated arbitral tribunal may remain an inefficacious remedy.

Acerlor Mittal v. Essar Bulk: Maintaining Balance of Power

Recently, in Arcelor Mittal V. Essar Bulk, the Supreme Court held that if the court has considered an application for interim relief before the constitution of the arbitral tribunal, the court can certainly proceed to adjudicate the application.

In this case, once the dispute arose, both parties filed applications under section 9(1) of the Act before the commercial court prior to constitution of the arbitral tribunal. After hearing both the applications, the court reserved orders to be pronounced on a later date. In the meanwhile, the arbitral tribunal was constituted by the High Court under section 11 of the Act. Thereafter, Arcelor Mittal filed an application before the commercial court praying reference of both the section 9 applications to the newly constituted arbitral tribunal. The same application was dismissed. Further, Arcelor Mittal approached the Gujarat High Court challenging the order of the commercial court. The High Court dismissed the application. Aggrieved by the decision, Arcelor Mittal approached the Supreme Court.

Keeping the legislative intent in view, the Supreme Court aptly emphasized on the interest of the parties and held that slow disposal of interim relief applications would cause irreparable harm or prejudice to the party seeking such relief. Taking into consideration the circumstances of the present case, the Supreme Court held that intent behind section 9(3) cannot be to turn back the clock and require the arbitral tribunal to decide a matter afresh under section 17 which has already been considered by the court and reserved for orders. Thus, the Supreme Court upheld the decision of the High Court which had directed the commercial court to proceed to complete the adjudication. This judgment by the Supreme Court demonstrates a fine balance between minimal court intervention in the arbitral process and the protection of interest of the parties seeking interim reliefs.

Concluding Remarks

The efficacy of a remedy highly depends on its enforceability. Realizing the defect, the Indian legislature has now given tooth to the arbitral tribunals by making a section 17 order enforceable as though they are orders of the court. Accordingly, section 9(3) of the Act gives primacy to the arbitral tribunals over the courts. Generally, the courts have also been of the view that during the arbitration proceedings and in all ordinary circumstances, the proper and expedient remedy for interim measures lies under section 17 of the Act. However, there exist circumstances, as has been discussed above, which still lead to uncertainty as to the efficiency of the arbitral tribunal to provide an effective remedy under section 17. In order to dispel the uncertainty, the courts will have to adhere to the principle of non-interference unless circumstances compel, and the general tendency of the parties to resort to section 9 even after constitution of the arbitral tribunal should be discouraged.

Raushan Kumar

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