In a recent judgment, in Arcelor Mittal Nippon Steel (India) Ltd. v. Essar Bulk Terminal Ltd.1, the Hon'ble Supreme Court has settled the law on the interplay between Section 9 and Section 17 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). The moot proposition was whether a court could entertain applications under Section 9 of the Arbitration Act once the arbitral tribunal had been constituted. The Apex Court held that the court would not take up a Section 9 application for consideration unless the remedy provided under Section 17 of the Arbitration Act were rendered inefficacious. However, the bar on taking up Section 9 applications would not operate when the court had already taken a Section 9 application and applied its mind. In this article, we discuss the facts and circumstances which lead to the aforementioned judgment of the Hon'ble Supreme Court.

Brief Facts

In the instant matter, the appellant and the respondent entered into an agreement for Cargo Handling at Hazira Port (Cargo Handling Agreement). The said Cargo Handling Agreement provided that all disputes would be settled under the provisions of the Arbitration Act by a mutually appointed sole arbitrator. Disputes arose amongst the parties as a result of which the appellant invoked the arbitration clause in November 2020. The appellant claimed that the respondent did not respond to the notice of arbitration.

Accordingly, the appellant approached the High Court of Gujrat at Ahmedabad (High Court) under Section 11 of the Arbitration Act for appointment of an arbitral tribunal. In December 2020, the respondent replied to the notice of arbitration, contending that the disputes amongst the parties were not arbitrable. In January 2021, the appellant filed an application under Section 9 of the Arbitration Act in the Commercial Court at Surat. Similarly, in March 2021, the respondent filed an application under Section 9 of the Arbitration Act before the Commercial Court.

The Commercial Court heard both the applications filed by the appellant and the respondent under Section 9(1) of the Arbitration Act and reserved the same for orders in June 2021. In July 2021, the application filed by the appellant under Section 11(6) of the Arbitration Act was disposed of by appointment of a three-member arbitral tribunal (Arbitral Tribunal). Consequently, in July 2021, the appellant filed an application before the Commercial Court praying for reference of both the Section 9 applications filed by the appellant and the respondent respectively to the Arbitral Tribunal.

On 16 July 2021, the Commercial Court dismissed the appellant's application. However, the appellant was granted 10 (ten) days to challenge the order of the Commercial Court if it so desired. The appellant filed an application in the High Court under Article 227 of the Constitution of India challenging the order of the Commercial Court. On 17 August 2021, the High Court dismissed the application filed by the appellant, holding that the Commercial Court had the power to consider whether the remedy under Section 17 was inefficacious and pass orders under Section 9 of the Arbitration Act. Aggrieved by the decision of the High Court, the appellant approached the Hon'ble Supreme Court by way of a special leave petition.

The moot propositions before the Hon'ble Supreme Court were as follows:

  1. Whether a court has the power to entertain an application under Section 9(1) of the Arbitration Act once the arbitral tribunal had been constituted, and if so, what is the true meaning and purport of the expression "entertain" in Section 9(3) of the Arbitration Act?
  1. Whether the court is obliged to examine the efficacy of the remedy under Section 17 before passing an order under Section 9(1) of the Arbitration Act, once an arbitral tribunal is constituted?

Contentions of the appellant

(i) On the scope and object of Section 9(3) of the Arbitration Act

The appellant at the outset argued that Section 9(3) of the Arbitration Act, as amended, restricted the scope of the court to entertain an application under Section 9(1) once the arbitral tribunal was constituted.2 The appellant stated that the purpose of insertion of Section 9 (3) of the Arbitration Act was to curtail the role of courts in the arbitral process.3 Even though Section 9(3) did not oust the jurisdiction of the Court under Section 9(1), it restricted the role of courts post constitution of an arbitral tribunal. The appellant submitted that it was only when a remedy under Section 17 would be rendered inefficacious that the court would entertain an application under Section 9 of the Arbitration Act.

The appellant referred to the 246th Report of the Law Commission, which observed that the insertion of Section 9(3) was to reduce the role of the courts in relation to grant of interim measures once the arbitral tribunal had been constituted.4 Similarly, the appellant referred to the report of the High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, chaired by Mr. Justice B.N. Srikrishna to contend that Section 9(3) of the Arbitration Act was introduced to minimise judicial intervention in the arbitral process.

Therefore, the appellant argued that Section 9(3) must be construed purposively, and any attempt to thwart the mandate of Section 9(3) must be discouraged.

(ii) On the scope of the word "entertain" in Section 9(3)

The appellant then referred to State Bank of India and Ors. v. S. N. Goyal5 to argue that the fact that an order was reserved did not mean that the district court had stopped entertaining a Section 9 application. A reference was then made to the decision in Deep Chand & Ors. v. Land Acquisition Officer & Ors.6 to submit that the term adjudication included hearing by a court. Thus, the term "entertain" in Section 9(3) of the Arbitration Act, is to be interpreted to mean and include adjudication and passing of an order or a judgment.7

The appellant then argued that a party that was trying to render the remedy under Section 17 inefficacious could not be permitted to approach the court under Section 9 of the Arbitration Act.8 It was the submission of the appellant that the respondent was trying to avoid the arbitration all throughout.

Thus, the appellant argued that the Commercial Court had erred in interpreting "entertain" as contained under Section 9(3) of the Arbitration Act.

Contentions of the respondents

(i) Maintainability of an application under Article 227 of the Constitution of India

The respondent at the outset challenged the maintainability of the application filed under Article 227. It was argued that the Arbitration Act being a self-contained Code providing the right of appeal at various stages, Article 227 could not be invoked to circumvent the procedure under Arbitration Act. The respondent submitted that an application under Article 227 of the Constitution of India lies where the lower court acts outside the bounds of its authority, without jurisdiction, in violation of principles of natural justice, or if the order suffers from patent perversity. Moreover, the respondent relied on Section 9(1) to state that a party can apply before, during or after the arbitral proceedings. Therefore, the respondent submitted that the courts did not lose jurisdiction upon the constitution of the Arbitral Tribunal.

(ii) On seeking recourse under Section 9 post the constitution of the Arbitral Tribunal

The respondent argued that Section 9(3) of the Arbitration Act restrains the court from "entertaining" an application under Section 9, unless circumstances exist which may not render the remedy provided under Section 17 efficacious. In this case, only the formality of pronouncing the order in the Section 9 applications remained. Since the application under Section 9 had been entertained, fully heard and arguments concluded, Section 9(3) of the Arbitration Act would not apply.

The respondent submitted that an application is "entertained" when the court applies its mind to it. Entertain means "admit into consideration" or "admit in order to deal with". In support of his submission respondent relied on a catena of cases.9 The respondent argued that the Commercial Court had admitted into consideration and applied its mind to the Section 9 applications, filed by the respective parties, and therefore, the Section 9 applications had gone past the stage of "entertainment". Moreover, the respondent stated that the Arbitration Act did not confer any power on the court to relegate or transfer pending applications under Section 9(1) to an arbitral tribunal the moment it was constituted.

Held

Upon hearing the parties, the Hon'ble Supreme Court observed that in this case there was no material on record to show that there were any lapses or laches on the part of the respondent, which delayed the constitution of the Arbitral Tribunal. The allegation that the respondent had disabled itself from availing the remedy under Section 17 remained unsubstantiated. Moreover, mere delay in agreeing upon an arbitrator did not dis-entitle a party from relief under Section 9 of the Arbitration Act.

The Apex Court then referred to several cases to hold that even after the constitution of an arbitral tribunal, the court is not denuded of the power to grant interim relief under Section 9(1) of the Arbitration Act.10 Further, the Hon'ble Supreme Court held that the expression "entertain" means considering the issues raised by application of mind. The court entertains a case when it takes a matter up for consideration. The process of consideration could continue till the pronouncement of judgment. Once an arbitral tribunal is constituted the court cannot take up an application under Section 9 for consideration, unless the remedy under Section 17 is inefficacious. However, once an application is entertained in the sense, it is taken up for consideration, and the court has applied its mind to the court can certainly proceed to adjudicate the application.

The Apex Court accepted the respondent's submission that the intent behind Section 9(3) was not to turn the clock back and require a matter already reserved for orders to be considered in entirety by the arbitral tribunal under Section 17 of the Arbitration Act. Even after an arbitral tribunal is constituted, there could be myriads of reasons why the arbitral tribunal may not be an efficacious alternative to Section 9(1).

The Hon'ble Supreme Court reiterated that applications for interim relief are inherently applications that must be disposed of urgently. Unless applications for interim measures are decided expeditiously, irreparable injury or prejudice may be caused to the party seeking interim relief. Therefore, the Apex Court concluded that it could never have been the legislative intent that even after an application under Section 9 is finally heard, relief would have to be declined, and the parties are remitted to their remedy under Section 17. Accordingly, the appeal was allowed only to the extent of clarifying that it shall not be necessary for the Commercial Court to consider the efficacy of relief under Section 17 since the Commercial Court had already entertained the application under Section 9.

Comments

The instant judgment plays a fine balance between protecting the interests of the party seeking interim reliefs and ensuring minimal intervention of the courts in the arbitral process. There is no doubt that when a party approaches a court for interim reliefs under Section 9, a lot of judicial time and cost of the parties are spent in agitating the Section 9 applications. Any unnecessary delay or expense caused due to the juggling of a matter between the court and the arbitral tribunal frustrates the very object of arbitration. Therefore, it would be in interest of justice that a court is allowed to continue adjudication of a Section 9 application. This is more so in the absence of any provision allowing the relegation of a pending application under Section 9(1) to the arbitral tribunal upon its constitution.

Footnotes

1. Arcelor Mittal Nippon Steel (India) Ltd. v. Essar Bulk Terminal Ltd., Civil Appeal No. 5700 of 2021.

2. Energo Engineering Projects Limited v. TRF Ltd., 2016 SCC Online Del 6560.

3. Amazon.com NV Investment Holdings LLC v. Future Retail Limited & Ors., 2021 SCC Online SC 557.

4. 246th Law Commission of India Report, Amendments to the Arbitration and Conciliation Act, 1996. Read more here.

5. State Bank of India and Ors. v. S. N. Goyal, 2008 8 SCC 92.

6. Deep Chand & Ors. v. Land Acquisition Officer & Ors., 1994 4 SCC 99; Lakshmi Rattan Engineering Works Ltd. v Asstt. Commissioner Sales Tax, Kanpur and Anr., (1968) 1 SCR 505; Kundan Lal v. Jagan Nath Sharma, AIR 1962 All 547; Hindustan Commercial Bank Ltd. v. Punnu Sahu, (1971) 3 SCC 124.

7. Sri Tufan Chatterjee v. Sri. Rangan Dhar, 2016 SCC Online Cal 483.

8. Manbhupinder Singh Atwal v. Neeraj Kumarpal Shah, 2019 GLH (3) 234.

9. Kundan Lal v. Jagan Nath Sharma, AIR 1962 All 547; Lakshmi Rattan Engineering Works Ltd. v Asstt. Commissioner Sales Tax, Kanpur and Anr., 1968 1 SCR 505; Anil Kunj Bihari Saraf v. Namboodas S/o Shankarlal and Ors., (1996) SCC Online MP 112.

10. Energo Engineering Projects Limited v. TRF Ltd., 2016 SCC Online Del 6560; Benara Bearings and Pistons Limited v. Mahle Engine Components India Private Limited, (2017) SCC Online Del 7226; M. Ashraf v. Kasim V.K., (2018) SCC Online Ker 4913; Srei Equipment Finance Limited (Sefl) v. Ray Infra Services Private Limited & Anr., (2016) SCC Online Cal 6765; Avantha Holdings Limited v. Vistra ITCL India Limited, (2020) SCC Online Del 1717.

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