Section 17 of the Arbitration and Conciliation Act, 1996 ("the Act") prescribes a mechanism for parties to an arbitration, to seek interim reliefs from the arbitral tribunal during the pendency of the arbitral proceedings.1 Parties to an arbitration may seek the said reliefs after invocation of the arbitration proceedings till the passing of the award. The present article discusses the applicability, principles for seeking interim reliefs and enforceability of orders under Section 17 of the Act, pursuant to the amendments to the Act in 2015 and subsequently in 2019.
2. Amendments to Section 17 of the Act
Before the amendment of the Act by the Arbitration and Conciliation (Amendment) Act, 2015 ("2015 Amendment Act"), an arbitral tribunal was like a toothless tiger as its powers to pass orders were restricted in comparison to the wide powers vested to courts under Section 9 of the Act. The limited scope of the unamended provision of the Act has been discussed by the Supreme Court of India ("SCI") in Managing Director, Army Welfare Organisation vs. Sumangal Services Pvt. Ltd.2, wherein the SCI states, "that the power of the arbitrator is a limited one as it cannot issue any direction which would go beyond the reference or the arbitration agreement. Furthermore, an award of the arbitrator under the 1996 Act is not required to be made a rule of court; the same is enforceable on its own force. Even under Section 17 of 1996 Act, an interim order must relate to the protection of subject matter of dispute and the order may be addressed only to a party to the arbitration. It cannot be addressed to other parties."
Section 17 of the Act was amended vide the 2015 Amendment Act and implemented on 23 October 2015. The amended Section 17 of the Act specified the types of reliefs which a party could seek, inter alia, appointment of a guardian, securing the amount of dispute in the arbitration, preservation, interim custody or sale of any goods or property which are the subject matter of the arbitration agreement.3 The objective of amending Section 17 of the Act was to empower the tribunal with the same powers as a civil court under Section 9 of the Act in relation to the grant of interim measures. In this regard, the High Court of Judicature at Madras ("MHC") in the matter decided on 17 September 2019, observed that the power to pass interim measures imposes a discretion vested in the tribunal which has to be exercised in consonance with the well settled principles governing the grant of such reliefs by the civil court.4
The 2015 Amendment Act further provides that an order passed by the arbitral tribunal under Section 17 of the Act would be deemed to be an order of the court and is enforceable under the provisions of the Code of Civil Procedure, 1908 ("CPC").5
It may also be noted that Section 17(1) of the Act empowered the arbitral tribunal to pass an interim order even after it has made the award but before it is enforced under Section 36 of the Act. However, upon passing of the award, the tribunal would become functus officio, and cannot pass an interim order.6
Noticing this incongruity, the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India under the chairmanship of Justice B.N. Srikrishna in 2018, recommended the deletion of the expression "or at any time after making of the arbitral award but before it is enforced in accordance with Section 36" from the text of Section 17(1). This recommendation was implemented vide the Arbitration and Conciliation (Amendment) Act, 2019 ("2019 Amendment Act") with effect from 30 August 2019.
Thus, the position post the 2019 Amendment is that the power under Section 17(1) of the Act, though identical to Section 9(1) of the Act in content, is subject to the restriction that it can be exercised by a tribunal only during the pendency of proceedings before it.
3. Principles governing exercise of powers under Section 17 of the Act
Section 9 of the Act allows a party to seek interim measures from the court before the invocation of arbitration, during the pendency or at any time after the award is passed, but before it is enforced in accordance with Section 36 of the Act. Similarly, Section 17 of the Act contains similar provisions for seeking interim reliefs before an arbitral tribunal during the pendency of arbitral proceedings. Further, Section 19 of the Act provides that the arbitral tribunal is not bound by the CPC, which is primarily to allow an arbitral tribunal certain flexibility in its operation. However, the principles governing the grant of injunctions, appointments of receiver etc. are a part of the substantive law of the country. By virtue of Section 28(1)(a) of the Act, the tribunal is bound to decide in accordance with the substantive law of India for the time being in force. The various types of reliefs under Section 17 of the Act and the interplay of provisions of the CPC have been in enunciated by MHC in Flywheel Logistics Solutions Pvt. Ltd. vs. Hinduja Leyland Finance Ltd. & Ors. (supra) and are discussed herein below:
- Interim injunctions– The principles governing grant of
interim injunctions are no longer res integra. The SCI in
Dorab Cawasji Warden vs. Coomi Sorab Warden &
Ors7 has set out the general guidelines
for granting interim injunctions:
- The plaintiff has a strong case for trial. That is, it shall be of a higher standard than a prima facie case that is normally required for a prohibition injunction.
- It is necessary to prevent irreparable or serious injury which normally cannot be compensated in terms of money.
- The balance of convenience is in favour of the one seeking such relief.
- Appointment of Receivers- The SCI in Parmanand Patel vs. Sudha A. Chowgule8 held that a receiver will be appointed under Order XL Rule 1 of the CPC when the applicant establishes a prima facie case and presents a case which would not only show the adverse and conflicted claims of property but also an emergency, danger or loss demanding an immediate action. The element of danger is an important consideration. A receiver would not be appointed unless a case has been made out which may deprive the defendant of a de facto possession. For the said purpose, conduct of the parties would also be relevant. The SCI in Dev Prakash and Ors. vs. Indra and Ors,9 held that the very purpose of a temporary injunction and receivership is to protect the property from acts of waste, damage and alienation during the pendency of the suit. The SCI in Adhunik Steels Ltd. vs. Orissa Manganese and Minerals Pvt. Ltd.10 has settled the law that the appointment of a receiver in exercise of powers under Section 9 of the Act can be done only if the case is brought within the accepted principles under the CPC. Similarly, the MHC in Flywheel Logistics (supra) noted that the above would be applicable to arbitral tribunals under Section 17 of the Act.
- Power to order sale of property - Section 9(1)(ii)(a) of the Act empowers the court to order the sale of the goods which are the subject matter of an agreement. An identical power is available to the arbitral tribunal under Section 17(1)(ii)(a). In L & T Finance Ltd. vs. G.G. Granites11 the MHC observed that these powers are akin to those granted under Order XXXIX Rule 6 of the CPC, and that the principles laid down therein must guide the exercise of power under Section 9. A fortiori, post the 2015 Amendment Act, these observations would apply equally to arbitral tribunals under Section 17 of the Act.
- Orders directing furnishing of security - The power under Section 9(1)(ii)(b) and Section 17(1)(ii)(b) of the Act is analogous to power under Order XXXVIII Rule 5 of the CPC. The applicability of the provisions of the CPC to an application to furnish security under Section 9(1)(ii)(b) is no longer res-integra. Recently, the High Court of Delhi in Pearl Hospitality & Events Pvt. Ltd. vs. OYO Hotels and Homes Pvt. Ltd12 noted that the principles governing Order XXXVIII Rule 5 would, generally, be applicable, while considering a prayer for furnishing of security, under Section 9(1)(ii)(b) or Section 17(1)(ii)(b). The principle, enunciated by the SCI in Raman Tech & Process Engineering Co. & Ors. vs. Solanki Traders13 that, before being entitled to a relief by way of furnishing of security of the amount in dispute in the arbitration, the petitioner has to satisfy the court that the respondent is attempting to remove, or dispose of its assets, with the intention of defeating the decree that may be passed, has, generally, been regarded as a guiding factor.
4. Enforceability of orders passed by the arbitral tribunal
Section 37 of the Act provides a recourse to parties in case an application under Section 17 of the Act is accepted or rejected by the arbitral tribunal. Prior to the 2015 Amendment Act, an order passed by an arbitral tribunal was not enforceable proprio vigore, however, the tribunal could always apply to the Court to take action for contempt under Section 27(5) of the Act. This view was also upheld by the SCI in Alka Chandewar vs. Shamshul Ishrar Khan.14 The SCI also observed that pursuant to the 2015 Amendment Act, Section 17(2) was added, so that the cumbersome procedure of an arbitral tribunal having to apply every time to the courts for contempt of its orders would no longer be necessary. Such orders would now be deemed to be orders of the court for all purposes and would be enforced under the CPC in the same manner as if they were orders of the court. Hence, failure to abide by the directions of the tribunal would amount to non-compliance of amounting to contempt and triable under the Contempt of Courts Act, 1971. However, such an order would be appealable under the requisite provisions of the Contempt of Courts Act, 1971.
In the author's opinion, the evolution of Section 17 of the Act makes it evident that the arbitral tribunals are now empowered to deal with interim measures independently without any intervention of the courts. This allows the parties to divulge in a pro-arbitration stance rather than referring their disputes and then seeking interim orders before the courts. Further, the interplay of provisions of the CPC show that while the arbitral tribunal has adequate power to operate independently, it may follow the underlying principles which would provide assistance to it for passing a decision. Considering the above, a sub-provision maybe inserted to Section 17 of the Act which shall allow the Tribunal to adjudicate the contempt thereby increasing the flexibility of the arbitrators and reducing the burden from the courts.
1. Section 17(1)
2. (2004) 9 SCC 619
3. Section 17(1)(i) and 17(1)(ii)
4. Flywheel Logistics Solutions Pvt. Ltd. vs Hinduja Leyland Finance Ltd. & Ors. MANU/TN/5417/2020
5. Section 17(2)
6. Section 32 of the Act
7. (1990) 2 SCC 117
8. (2009) 11 SCC 127
9. (2018) 14 SCC 292
10. (2007) 7 SCC 125
13. (2008) 2 SCC 302
14. (2017) 16 SCC 119
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.