The scope of Section 9 of the Arbitration and Conciliation Act, 1996 ("Act") is very broad. The Section empowers the Court to grant various "interim measures of protection" including orders for securing the amount in dispute, preservation of property, interim injunctions and appointment of receivers. The Section also empowers the Court to grant such other interim measure of protection "as may appear to the court to be just and convenient". The Amendments to the Act in 2015 ("2015 Amendments") introduced Section 9(2) and Section 9(3) of the Act. As per the 2015 Amendments, a petition can be filed for any interim measure of protection prior to commencement of arbitral proceedings. The 2015 Amendments not only specified the time period for when arbitral proceedings were required to commence after an order under Section 9 was passed but also expressly recognized the power of an arbitral tribunal to grant interim measures. The 2015 Amendments expressly state that after commencement of arbitral proceedings, the application under Section 9 can be entertained only if the Court finds that the remedy under Section 17 of the Act is not efficacious.
The Delhi High Court in the recent judgment of Avantha Holdings Limited v. Vistra ITCL India Limited1 examined the scope of Section 9 of the Act and the factors that must be considered by the Courts before granting any interim measures under Section 9 of the Act.
Avantha Holdings Limited borrowed ?1400 crores from a consortium of lenders comprising M/s KKR India Financial Services Pvt. Ltd. and KKR India Debt Opportunities Fund (collectively referred to as "KKR"), M/s L & T Finance Ltd., L & T Fincorp Ltd and Family Credit Ltd. (collectively referred to as "L&T"), and M/s BOI AXA Corporate Credit Spectrum Fund. Avantha Holdings was able to secure this amount by issuing non-convertible debentures on private placement basis vide debenture trust deeds dated January 05, 2017 and the respondent, M/s Vistra ITCL (India) Ltd. was appointed as the debenture trustee. Avantha Holdings also pledged the equity shares held by it in M/s Crompton Greaves Power and Industrial Solutions Ltd. ("CGP") and M/s Ballarpur Industries Ltd. ("BILT").
On account of failure to maintain the required security cover and default in payment of the amount on the due date, several notices were sent to Avantha Holdings by the respondent. The respondent thereafter issued a letter calling upon Avantha Holdings to, within ten days, pay the outstanding amounts, failing which the respondent reserved its right to invoke and sell the shares of BILT, pledged against the payment of the outstanding amounts by the petitioner. The said letter was treated as a notice under Section 176 of the Indian Contract Act, 1872. Subsequently, the pledged CGP shares were sold between July 2019 and November 2019 in the open market, which were purchased by KKR and L&T.
Avantha Holdings Ltd. then went on to filing an application under Section 9 of the Act for grant of interim measures before commencement of the arbitration proceedings, wherein it sought (i) the transfer of the pledged CGP shares back into its DEMAT account; (ii) restraining the sale of BILT shares; (iii) and restraining the respondent from taking any steps against Avantha Holding under the debenture deeds and pledge documents.
Etc. and the Scope
In order to grant the reliefs sought by Avantha Holdings, the Court examined the scope of Section 9 of the Act. The Court recognized that "interim reliefs are granted to serve the temporary purpose of protecting the plaintiff's interest so that the suit is not frustrated."2 The Court noted that Section 9 of the Act contemplates "interim measures, etc.", by the Court. The Court noted that the expression "etc.", was required to be interpreted by considering the words with which it is associated in Section 9. Given that Section 9 of the Act allows the Court to grant interim measures, therefore any relief under Section 9 of the Act would have to be in the nature of an interim relief and the expression "etc." could not be interpreted to have a wider meaning.
The 2015 Amendments substituted the then provisions on the interim measures granted by a tribunal under Section 17 of the Act and replaced it with language that is identical to Section 9 of the Act. As a result, Courts were restrained from usurping the jurisdiction of the arbitral tribunal. Further the Court noted that while Section 9 (3) of the Act was only applicable where an arbitral tribunal is constituted, the courts still have to walk a tight rope in granting interim measures. The Court recognized that while exercising jurisdiction under Section 9, even at a pre-arbitration stage, the Court cannot, usurp the jurisdiction which would, otherwise, be vested in the arbitrator, or the arbitral tribunal, yet to be constituted.
Necessary Conditions for Relief
The Court recognized that it has a duty to ensure that Section 9 of the Act is not misused by litigants who may feel that it is easier to obtain interim relief from a Court, rather than from an arbitrator or arbitral tribunal, to forum shop. Therefore, the Court reiterated that the ingredients for obtaining an interim measure under Section 9 of the Act that must be satisfied are (i) the existence of a prima facie case; (ii) the balance of convenience; and (iii) the possibility of irreparable loss or prejudice, if the interim relief is not granted. However, the Court held that the mere satisfaction of these ingredients does not automatically make out a case for ordering interim measures under Section 9 of the Act.
The Court held that it must also satisfy itself that (i) the applicant, before it, manifestly intends to initiate arbitral proceedings; and (ii) circumstances exist, which renders the requirement of ordering interim measures an emergent necessity, which cannot await a Section 17 proceeding, before the arbitrator, or arbitral tribunal. The Court held that while assessing whether such an emergent necessity exists, or not, the Court would, essentially, have to satisfy itself that failure to order interim measures, under Section 9 of the Act, would frustrate, or would render the recourse, to arbitration which is yet to take place a futility.
After examining the scope of its powers under Section 9 of the Act, the Court came to a conclusion that the reliefs prayed for by Avantha Holdings could not be granted under Section 9 of the Act as the respondent was merely enforcing its contractual rights. With respect to the transfer of CGP shares back to its DEMAT account, the Court held that the no interim relief could be granted because the shares had already been sold in the open market. The Court observed that while the scope of Section 9 may be broad, it could not be justified to use Section 9 of the Act to "set the clock back". While dismissing the prayer to restrain the sale of the BILT shares, the Court held that the respondent was merely enforcing its rights under the debenture trust deeds, and as such no relief under Section 9 of the Act could be granted.
2. Bank of Maharashtra v. M. V. River Oghese, AIR 1990 Bom 107
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