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Indian court interference in arbitration: interim measures and urgent reliefs

Friday 4 March 2022

Prashant Mara
BTG Legal, Mumbai
​​​​​​​prashant@btg-legal.com

Aishwarya Kaushiq 
BTG Legal, Mumbai
​​​​​​​aishwarya@btg-legal.com

Indian jurisprudence on court interference in arbitration has gone through a long and painful, almost soul-searching journey. It started out with courts regularly interfering in arbitration proceedings which often made arbitrating in India ineffective as one party could at any time go to the court and agitate the same dispute, notwithstanding an exclusive contractual arbitration provision. Fortunately, common sense prevailed and successive cases have now curtailed interference to more traditional grounds such as public order or demonstrable bias. 

However, there is one area of interference – interim measures and urgent reliefs - which still retains quite a punch if a party to a contract intends to use dispute resolution as a strategic tool in a contractual relationship. Experience indicates that many courts in India are used as ‘interim relief courts’.  One of the parties to a contract applies to the court for interim relief (such as an injunction), the party who secures an order for such an interim relief in its favour is placed in a better bargaining position, and this party then uses this interim order to create a skewed balance going forward into the arbitration. 

Therefore, it is of interest to analyse provisions in India’s Arbitration and Conciliation Act, 1996 ('the 1996 Act') - as reinforced by judicial precedents - that allow for such judicial interventions and contrast them with the increasing judicial recognition that doing so is detrimental to the chosen dispute resolution procedure.

Interim reliefs granted

Section 9 of the 1996 Act provides the legal framework for a party to seek interim or urgent relief through the court’s intervention 'before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced', while Section 17 of the Act provides a competing provision that in an ongoing arbitration case, interim relief should be sought before the arbitral tribunal.  

However, sub-section 3 of Section 9 of the 1996 Act specifies that if the interim relief that is sought to be granted by a party is beyond the jurisdiction of the arbitral tribunal or where such circumstances have arisen which can not be remedied efficaciously by the arbitral tribunal while acting within its powers under Section 17, the courts are empowered to intervene in such a case, even during the pendency of the arbitration process. This is admittedly a broad provision and leaves much to the discretion of the court which can, on a case-to-case basis, decide whether the tribunal has the ability to pass an effective remedy. If in its opinion, this is not the case, the court is allowed to intervene, and courts have done so regularly, given that an arbitral tribunal’s order cannot bind third parties (i.e. parties which are not signatories to the arbitration agreement) and, therefore, directions passed by an arbitral tribunal cannot be enforced against them. By contrast, a civil court has judicial powers over all parties within its territorial jurisdiction, and its orders can be enforced upon any party within the territory of India. 

Sub-section (1) (ii) of Section 9 of the 1996 Act further empowers the courts to entertain an application for an interim injunction or for an interim measure to secure the interim custody or sale of any goods which are the subject matter of the arbitration agreement, to secure the amount in dispute in an arbitration, or for any other interim measure that may appear to the Court to be necessary to secure the interests of the parties. 
The 1996 Act was further amended by the Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act of 2015”), which empowered the courts in India to entertain applications for interim and urgent reliefs in cases of international commercial arbitrations, i.e. arbitral disputes where along with the Indian party/ parties, at least one party to the arbitration is a foreign national or is a foreign country based entity, even in a case where the place of arbitration may be outside India.This amendment also introduced a provision, which allowed parties to contractually agree to divest Indian courts of this power. This provision is dealt with in subsequent paragraphs of this article. 

In Raffles Design International India Private Limited v. Educomp Professional Education Limited [(2016) 234 DLT 349], the Delhi High Court was confronted with a situation where one of the parties sought the court’s involvement for interim relief and the other party contested this request on the ground that the contract was governed by the laws of Singapore and the Arbitration was seated in Singapore. Consequently, the Delhi High Court had no jurisdiction to entertain the petitioner’s request for interim orders under Section 9 of the 1996 Act. The court held that the 2015 amendment to Section 2 of the 1996 Act empowers the court to issue interim measure orders in relation to arbitral proceedings irrespective of the seat of such arbitration.  

In Bishnu Kumar Yadav v. M/s. M.L. Soni [AIR 2016 Cal 347] as well as in SREI Equipment Finance Ltd. v. Ray Infra Services Private Ltd. [GA No. 589 of 2016], the Calcutta High Court has observed that it is empowered to entertain applications for interim relief even after the constitution of an arbitral tribunal if it is found that the arbitral tribunal, while acting within its limited scope of power, cannot provide an efficacious remedy to the parties. 

Interim reliefs not granted

Among the key aims of arbitration as an effective medium of dispute resolution is to reduce the parties’ dependence on the rather lengthy civil procedure in a court, including that of interim relief. This is nowhere more relevant than in India, where courts are over burdened with petitions for interim relief.  

Section 5 of the 1996 Act follows Article 5 of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, which allows only limited court intervention in any arbitration. This is followed through in Section 17 of the 1996 Act, which provides that upon the commencement of an arbitration, it is the arbitral tribunal that must decide whether any interim or urgent relief sought by a party should be allowed. Courts in India have increasingly started enforcing these provisions and are consciously desisting from interfering in arbitrations, where possible.  

The Gujrat High Court, in the case of Manbhupinder Singh Atwal v. Neeraj Kumarpal Shah, [R/Misc. Civil Application No. 90/2019], further restricted the ability of one of the parties to apply for interim relief under Section 9 by stating that 'once the Arbitral Tribunal is constituted by the parties, application under Section 9 would not be entertainable by the Court since the remedy of similar kind under Section 17 of the Act is provided for by the legislature to be resorted to before the Arbitral Tribunal'.

In a recent judgment by the Delhi High Court in Hero Wind Energy Pvt. Ltd v. Inox Renewables Ltd. [O.M.P.(I) (Comm.) 429 of 2019], this position was reinforced when the court held that during the pendency of the arbitration proceedings, the parties, as a general rule, ought to approach the arbitral tribunal under Section 17 of the 1996 Act for the grant of any interim reliefs. 

In Planet M. Retail v. Select Infrastructure Pvt. Ltd., [2014 (4) Arb.LR 348 (Delhi)], it was held by the Delhi High Court that in the absence of a prima facie case, no interim relief shall be granted to the party. In addition, the court observed that, where the interim relief would amount to the grant of final relief at the interim stage itself, such interim order cannot be passed by the court.  

Interim reliefs specific to international commercial arbitrations

This reluctance to interfere in the interim stage continued in a number of cases, where courts held that in an international commercial arbitration, seated outside of India, Section 9 of the 1996 Act will not apply and therefore, parties cannot pray for interim reliefs before an Indian court.

The seminal case on this issue was Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., [(2012) 9 SCC 552] ('BALCO case') where the Supreme Court held that in international commercial arbitrations, Section 9 (and the whole of Part I) shall not apply to foreign seated arbitrations, irrespective of whether the parties specifically excluded the applicability of Section 9 of the 1996 Act. 

However, the judgment in BALCO was followed by the introduction of a ‘proviso’ to Section 2 Sub-Section 2, which curtailed the position outlined in the BALCO case cited above, and extended the applicability of Section 9 (and other provisions of Part 1) to all arbitrations, including international commercial arbitrations seated outside of India, unless there is an agreement to contrary between the parties.

Following the introduction of the proviso, which once again required parties to exclude Part I, courts in India have once again tried to find ways to increase the flexibility available to parties to avoid the applicability of Section 9 where they have not specifically excluded Part I.  

The latest case to reflect this position is Ashwani Minda & Anr. v. U-Shin Ltd. & Anr. [OMP (I) (Comm.) No. 90 of 2020] ('Ashwani Minda case') where the Delhi High Court opined that if the parties had impliedly excluded the applicability of Part I of the 1996 Act (which includes Section 9) by seating the arbitration in Japan and agreeing to the application of the rules of the Japan Commercial Arbitration Association, an application for interim relief before an Indian court is not maintainable.  

In its most recent judgment dated 20 April 2021, passed in Pasl Wind Solutions Pvt. Ltd. Vs. GE Power Conversion India Pvt. Ltd. [Civil Appeal No. 1647 of 2021], ('Pasl Wind case') the Supreme Court clarified that two Indian parties can choose a neutral forum for arbitration outside India and can also choose a foreign law as the law governing the arbitration between them. The arbitral award from such arbitration would be considered an ‘international commercial arbitration’ and can be enforced in India, under the provisions of Part II of the 1996 Act. 

On balance

In domestic arbitration, Indian courts rely on Section 9 of the 1996 Act and frequently intervene to grant interim reliefs on the request of a party to an arbitration. It is open to the parties to agree that Section 17 will apply to the exclusion of Section 9 and that the arbitral tribunal will grant interim reliefs. Even in this case, if one of the parties (in seeking the court’s intervention) is able to demonstrate that the tribunal will be unable to grant an ‘efficacious remedy’, the courts will then intervene. 

In international commercial arbitrations, the contractual autonomy of parties with respect to interim relief under Section 9 of the 1996 Act is dealt with under the proviso to Section 2(2), which requires an 'agreement to the contrary', without which Section 9 will apply. However, we are increasingly observing a trend where courts are further extending the principle of contractual autonomy by allowing parties (who were both Indian in Pasl Wind case), to choose a foreign governing law/ foreign seat and fall into the category of international commercial arbitration. Taken together with the position that it is possible to impliedly exclude the applicability of Section 9 (in the Ashwani Minda case), this provides a significant possibility for Indian courts to consciously pare down interference in arbitration. 

On balance, and until such position is accepted as a precedent, we continue to recommend that parties specifically exclude, in writing, the applicability of Section 9 (and Part I in entirety) with the added advantage that this position is now available to two Indian parties.

Having said the above, in all cases we continue to also recommend that parties carefully analyse whether they require the provisions of Part I to be available to protect their position during an arbitration. For example, interim injunctions to secure properties that form the subject matter of the arbitration may be available more quickly under Part I rather than, under Part II of the 1996 Act. Similarly, compelling document production and recording of witness statements may be more efficaciously enforced if the parties have agreed to the applicability of Part I of the 1996 Act. Therefore, drafting arbitration agreements has become ever more important, keeping in mind the specific facts in each case, rather than a boiler plate exercise.