INTRODUCTION

The process of arbitration, even though fruitful, can consume a considerable amount of time for the parties. It is possible that during such time, situations may arise where an immediate and effective measure needs to be taken to secure one's assets. However, judicial intervention in an arbitral process where parties enjoy wide autonomy, even for interim reliefs, is far from simple. Time and again, questions have been raised regarding the need for intervention by courts, when parties have, by themselves, conferred an arbitral tribunal with decision-making powers.

As an answer to the above, it can be said that certain demanding situations can arise between parties where interim relief is required, but a tribunal might not have been constituted for adjudication of disputes between the parties. Or it may so happen that despite its existence, the tribunal might not possess the necessary powers for enforcing an order. In such an event, either or both parties to the dispute can seek interim relief by courts. While this concern may appear to be settled, several others, regarding when a party may approach an arbitrator or a court for an interim relief continue to create interesting discourses.

ANALYSIS OF SECTION 9

The S. 91 of the Arbitration and Conciliation Act serves as a provision that empowers the courts to issue interim orders in matters of arbitration.

WHO CAN APPLY?

It permits any person who is a party to the arbitration agreement to apply to the court for interim relief, either before or during the arbitration proceedings or after the award is made but not yet enforced under S. 362. The party can either be the claimant or the respondent since the provision enunciates the phrase "A party may...". However, after the award is made only the party in whose favor the award is passed can apply under S. 9. The purpose is to avoid any hindrance in the execution of the arbitral award3 and to allow a measure of protection offered to the successful party for securing the property.4

REQUIREMENTS

  1. There must be an arbitration agreement in existence prima facie. It is within the powers of the arbitral tribunal under S. 165 and not the court to scrutinize the legality of the agreement.6
  2. The relief sought should not lie outside the scope of the agreement and should pertain to the subject matter.7
  3. It should not be as such to frustrate the entire object of the arbitration.8

STANDARD FOR GRANTING INTERIM RELIEF

The Act does not prescribe any standard to be followed by courts while exercising the power under S. 9. The opinion of the High Courts across the country is divergent and well acknowledged by the Supreme Court but is still unanswered9. The Amendment Act 2015 does not deal with this loophole and is silent in terms of standards that should be applied by the courts in granting interim relief.

In broader terms there exist two approaches - Exclusive Approach & Inclusive Approach.

  1. The inclusive approach proposes that proceedings under S.9 are analogous to the proceedings under Order 38 Rule 5 and Order 39 Rule 1 & 2 of Code of Civil Procedure (CPC),1908, therefore, the principles enclosed therein must be followed. The Supreme Court has held that the court can read into the sections of CPC even if there is no clear mention of the applicability.10 Consequently, the petitioner is required to satisfy the court that there exists a prima facie case, the balance of convenience, and irreparable loss if the interim relief is not granted as has also been required by the dictum of the High Court.

The exclusive approach proposes that stringent CPC should not be considered as it would defeat the purpose of S. 9 leading to refusal of grant. It was held that rather than adhering to the standard of CPC, the petitioner must establish a clear case with respect to the merits of the claim and prove the injustice caused by denial of the same.11

The Supreme Court articulated that while granting interim relief the well-known principles of CPC would have to be kept in mind.12

LIMITS OF JUDICIAL INTERVENTION

Interference of courts is restricted to the extent of assessing whether prima facie there subsists an arbitration agreement among the parties, whether there exists a reasonable connection between the arbitration agreement, the dispute, and subject matter in relation to which the interim relief is being sought.13 It is not required by the court to go into the merits of the case as it will render the arbitration clause insignificant. The court must also refrain from enunciating such observations that influence the arbitral tribunal while adjudicating the dispute.14

A prima facie assessment solves two purposes - firstly, it caters to the optimum utility of S.9, and secondly, it respects the intention of the parties of choosing a private dispute resolution process instead of the usual judicial process15.

INTERIM MEASURE BY COURT VIS-A-VIS INTERIM MEASURE BY THE ARBITRAL TRIBUNAL

The concept of interim relief is indispensable to the smooth functioning of any dispute resolution mechanism. S.17 of the Act, providing for interim measures ordered by the tribunal, existed prior to the 2015 Amendment Act, albeit as a "toothless tiger".16 The 2015 Amendment Act did away with all the shortcomings that came with the disparity of powers between arbitral tribunal and courts of law to grant interim reliefs.

As per the scheme of the new S. 17, an arbitral tribunal is vested with the same powers as the court under S. 9. The wordings of both the provisions have been made alike to avoid any confusion. As a result, the entire arbitration process is more likely to become integrated since now, when the parties require any interim relief, they can be granted the same by the tribunal itself. The complicated, and sometimes, staged digression that parties had to make in their road to relief will be substantially reduced, while simultaneously reducing the burden on the courts. The only difference that now exists between S. 9 and S. 17 is that of the time frame. While under S. 9, parties to a dispute can seek interim relief at any point between the arbitration agreement and enforcement of an award under S. 36, the time frame under S. 17 begins "during the arbitral proceedings" and continues till the enforcement of the award under S. 36.17 This difference exists merely because an arbitral tribunal cannot grant any relief before its constitution.

S. 9(3) of the Indian Arbitration and Conciliation Act adopts the court subsidiarity principle to the extent that it clearly specifies that an application under S.9 would be entertained by courts only if it is found that remedy under S. 17 is not efficacious. While no attempt is made to define "efficacious", it is expected that judicial dicta would do the same. Nonetheless, this provision shows respect towards the parties' choice of arbitration for dispute resolution and the principle of non-interference by courts.

An additional prerequisite was interpreted as an intrinsic part of Section 9 in the case of Avantha Holdings Ltd v. Vistara ITCL (India) Ltd18, which is discussed as follows:

BRIEF FACTS

Avantha Holdings Ltd (Avantha) was in a need of funding in the year 2016-17; consequently, the Board of Directors (BOD) had agreed to the issuance of nonconvertible debentures. Vistra ITCL (India) Ltd was thereafter appointed as the Debenture Trustee. Meanwhile, additional two debenture trust deeds were executed by a consortium of lenders comprising M/s. KKR India Financial Services Pvt. Ltd. and KKR India Debt Opportunities Fund (collectively, as KKR), M/s. L & T Finance Ltd., L & T Fincorp Ltd., Family Credit Ltd., and M/s. BOI AXA Corporate Credit Spectrum Fund.

As per Clause 3.4 of the Debenture Trust Deed entered, Avantha had to maintain a 'security cover' which required it to repay all outstanding amounts in full and that it should ensure that a minimum level of 'required security cover' is always maintained. This required security cover is twice the number of pledged shares.

Avantha had failed to maintain the security cover. The Debenture Trustee sent it several notices highlighting the requirement of Clause 3.4 of the Debenture Trust Deed. Further, the Debenture Trust Deed elucidated that all outstanding amounts are payable on the final redemption date. This covenant was also defaulted by Avantha.

To this Avantha contended that that KKR (who was representing other Debenture Holder) would continue hold the pledged shares as security, despite them being removed from the DEMAT account of the Debenture Trustee. These pledge shares were subsequently sold and Avantha alleged that it was victim of market manipulation.

Due to these 'extraordinary circumstances', Avantha approached the hon'ble Delhi High Court seeking interim relief under S. 9 of the Arbitration and Conciliation Act 1996. The relief sought by Avantha under this was to restrain the sale of the pledged shares by the Debenture Holders and Trustee.

DELHI HIGH COURT'S INTERPRETATION OF PREREQUISITES FOR GRANT OF INTERIM MEASURES

S. 9 states "interim measures, etc. by Court..." The hon'ble Delhi High Court deployed various rules of statutory interpretation to interpret this 'etc.' The court used noscitur a sociis or otherwise known as the 'immediate context rule', which essentially states that two or more words derive meaning from each other when they are associated together.19 Along with this, the court used the principle of ejusdem generis, meaning when specific terms are followed by a general term, then the general term has to be interpreted in the light of the specific term.20 Therefore, it was interpreted that the measures taken by the court are to be interpreted in the light of interim reliefs. This interim measure which is ascribed to S. 9 (interim measures by court) is the same as that can be ordered by an arbitral tribunal under Section 17 of the Arbitration & Conciliation Act, 1996. In this light, it was held that "...Court, while exercising jurisdiction under Section 9, even at a pre-arbitration stage, cannot, therefore, usurp the jurisdiction which would, otherwise, be vested in the arbitrator, or the arbitral tribunal, yet to be constituted. The Court is also required to ensure that Section 9 is not employed, by litigants, who feel that it is easier to obtain interim relief from a Court, rather than from an arbitrator or arbitral tribunal to forum shop..."

The mere satisfaction of the criteria mentioned in Order 39 does not indicate that interim measures can be claimed as a matter of right under S. 9. "Emergent necessity, of ordering interim measures is, therefore, an additional sine qua non, to be satisfied before the Court proceeds to grant relief under Section 9 of the 1996 Act."

Keeping these principles in mind, the hon'ble Delhi High Court decided that there was no emergent necessity to grant interim measures to Avantha. The arbitral tribunal was better fitted to assess the facts of the present judgment and arrive at a conclusion.

ANALYSIS

The ambit of interim measures under S. 9 is different as compared to that under Order 39 of CPC. The legislative intent behind doing so is that courts generally tend to operate an arbitration-friendly approach. If parties have inserted arbitration as a dispute resolution mechanism in their contract, then it is prima facie inferred that they have an intention to honour the same. Therefore, an additional threshold is put forth for the courts to grant an interim measure under S. 9. This threshold is held to be a sine qua non of S. 9 and therefore would have to be primarily satisfied. This in turn indicates that interim relief under S. 9, despite fulfilling the prerequisites of Order 39, cannot be demanded as a matter of right by a party.

Footnotes

1. Arbitration and Conciliation Act 1996, S. 9.

2. Arbitration and Conciliation Act 1996, S.36.

3. Wind World (India) Ltd. v. Enercon GmbH and others 2017 SCC OnLine Bom 1147.

4. Dirk India Private Limited v. Maharashtra State Electricity Generation Company Ltd. 2013 (7) Bom.C.R 493.

5. Arbitration and Conciliation Act 1996, S. 16.

6. Kohli Brothers v. Atlantis Multiplex Pvt. Ltd. (2008) 2 Arb LR 18.

7. Baby Arya v. Delhi Vidyut Board (2011) 4 RAJ 121.

8. V Sekhar v. Akash Housing AIR 2011 Mad 110.

9. Arvind Constructions v. Kalinga Mining Corporation and Others (2007) 6 SCC 798.

10. ITI v Siemens Public Communication (2002) 5 SCC 510.

11. K. Sood Engineers and Contractors v. Northern Railways 2017 SCC Online Del 9211.

12. Adhunik Steels Ltd. v. Orissa Manganese and Minerals Pvt. Ltd AIR 2007 SC 2563.

13. Anirudh Wadhwa, Law on Arbitrations and Conciliation (Vol 1, 6th edn. LexisNexis, 2018) 781.

14. Sanrachna (India) Inc v. AB Hotels Ltd. (2006) 2 RAJ 511 (Del).

15. Arvind Constructions v. Kalinga Mining Corporation and Others (2007) 6 SCC 798.

16. PC Marakanda, Law relating to Arbitration and Conciliation (9th edn, Lexis Nexis, 2016) 375.

17. Arbitration and Conciliation Act 1996, S. 17.

18. Avantha Holdings Ltd v. Vistara ITCL (India) Ltd. O.M.P.(I) (COMM.) 177/2020 & I.As. 5463-65/2020, I.As. 5664-67/2020.

19. 'Noscitur a sociis', Merriam-Webster, available at (https://www.merriamwebster.com/legal/noscitur%20a%20sociis ), last seen on 20.11.2020.

20. 'Ejusdem Generis', Merriam-Webster, available at (https://www.merriamwebster.com/legal/ejusdem%20generis%20rule ), last seen on 20.11.2020.

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