Interim Relief Arbitration

INTERIM RELIEF UNDER SECTION 9 OF THE ARBITRATION AND CONCILIATION ACT, 1996

SEMINAR PAPER ON ARBITRATION LAWS

SUBMITTED BY

Seminar on “Interim Measures under Section 9 of the Arbitration and Conciliation Act, 1996”

VIKAS KUMAR BLI 976

NATIONAL LAW SCHOOL OF INDIA UNIVERSITY BANGALORE TRIMESTER XII

Submitted by Vikas Kumar Page 2 of 42

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TABLE OF CASES..............................................................................................3 Introduction........................................................................................................ 5 Methodology.......................................................................................................7 Chapter I: Interim Orders under section 9 of the Act.......................................8 Chapter II........................................................................................................... 11 Chapter III

THE NATURE OF RELIEF AS PROVIDED UNDER SECTION 9 OF THE ACT 20

Chapter IV: Interim Orders in Foreign Arbitration......................................34 CHAPTER V:

CONCLUSION.........................................................................42

BIBLIOGRAPHY...............................................................................................44


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TABLE OF CASES



Alpine Industries v. Union of India, (1988) 1 Arb LR 363 Delhi.



Anton Piller K.G. v. Manufacturing Processes Ltd., (1976) Ch 55.



Ashok Chazvia v. Rakesh Gupta, (1996) 2 Arb LR 255 (Delhi).



Banwari Ial Radhey.Mohan v. Punjab State Co-op Supply and Mktg Fedn. Ltd., AIR 1983 Delhi 402.



Bhatia International v. Bulk Trading S.A. and Anr., MANU/SC/0185/2002.



Binny Ltd. v. Nizam sugars Ltd, (1997) 88 Comp Case 741 at 746 (AP).



Chandu Lot v. Brit-over Ltd., 52 CWN 451.



Channel Tunnel Group Ltd. v. Balfour Beatty Construction Ltd., 1993 1 All ER 664 at 683



Coppee-Lavalin SA/NV v. Ken-Ren Chemicals and Fertilizers Ltd. (in Liquidiation) (1994) 2 All E.R. 449 at 466 HL.



Coppie-Levalin SA/NV v. Ken-Ren Chemicals and Fertilizers Ltd, [1994] 2 All E.R. 449.



East Coast Shipping Ltd. v. M.J. Scrap Pvt. Ltd., AIR 1997 Cal 168.



Food Corporation of India v. P. A. Ahammed lbrahim, (1989) 1 Ker LT 251.



Global Co. v. National Fertilizers Ltd, AIR 1998 Delhi 397 at 400.



Gokuldas v. Union of India, Al R 198:3 Ker 169.



H.M. Kamatuddin Ansari & Co. v. Union of India., AIR 1984 SC 29.



Harbhajan Singh Kaur v. Unimode Finance, (1997) 2 Cal LT 414.



Hindustan Steel Works Construction Lid. v. Tarapore & Co., (1996) 87 Comp Case 344.



I.M. D. Syndicate v. L T Commr. New Delhi, AIR 1977 SC 1348.



Keventer Agro Ltd. v. Seagram Co. Ltd, AIR 1997 Cal 200.



Marriott

International

Inc.

&

Ors.v.

Ansal

Hotels

Limited

&

Anr,

MANU/DE/0013/2000. Submitted by Vikas Kumar Page 4 of 42

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

Mohinder Singh & Co. v. Executive Engineer, AIR 1971, J&K 130.



MVR Industries Ltd. v. Tribal Coop Mkg Development Federation of India Ltd., (1996) 1 Arb 1,R 393 (Delhi).



MVR Industries Ltd. v. Tribal Coop Mkg Development Federation of India Ltd., (1996) 1 Arb LR 393 (Delhi).



N.C. Bhall v. R.C. Bhalla (1990) 2 Arb.L.J. Delhi.



Narain Sahai Agrawal v. Santosh Rani, AIR 1998 Delhi 144.



National Building Construction Corpn. Ltd. v. IRCON Intl Ltd., (I998) 1 Raj 500



National Thermal Power Corpn Ltd. v. Flowmore P Ltd., AIR 1996 SC 445.



NEPC India Ltd v. Sundaram Finance Ltd, (1998) 2 Arb. LR 446 (Mad).



Newabgani Sugar Mills Co. lid. v. Union of India, AIR 1976 SC 1152.



R. K. Associates v. V Channappa, AIR 1993 Kant 247.



Ranjit Chandra Mitter v. Union of India, AIR 1963 Cal 594.



Rawla Constructions v. Union of India, AIR 1977 Delhi 205.



Roussel-Uclaf v. CD. Searle C5 Co. Ltd and G. D. Searle & Co. [1978] 1 Lloyd's Rep. 225



Sha Vaktavarmal Sheshmull v. Nainmull Umaji & Co., AIR 1962 Mad 436.



Subhash Chander Kakkar v. D. S. I. D. C., (1990) 2 DLT 21.



Sundaram Finance Ltd. v. NEPC India Ltd., (1999) 1 SLT 179 (SC)(1999).



Sundarlal Haveliwala v. Bhagwati Devi, AIR 1967 All, 400.



Taj Builders v. Indore Development Authority, AIR 1985 MP 146.



Tudor Accumulator Co. v. China Mutual, etc. Co., (1930) WN 201.



Union of India v. Om Construction and Supply Co., AIR 1994 All 334.



Union of India v. Raman Iron Foundry, (1974) Supp SCC 556 at pp. 561.



Vashdev Bheroomal Pamnani v. M. Bipin Kumar, AIR 1987 Bom 226. Submitted by Vikas Kumar Page 5 of 42

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Introduction An arbitration agreement is a contractual undertaking by which the parties agree to settle certain disputes by way of arbitration rather than by proceedings in court. When a dispute arises however one of the parties may nevertheless commence court proceedings either because he challenges the existence or validity of the arbitration agreement or because he means to breach it. This paper dwells therefore on the issues arising when a party approaches the courts for interim measures. Article 9 relates to the recognition and effect of the arbitration agreement by laying down the principle, disputed in some jurisdictions, that resort to a court and subsequent court action with regard to interim measures of protection are compatible with an arbitration agreement. It must be accepted that “negative effect” of an arbitration agreement, which is to exclude court jurisdiction, does not operate with regard to such interim measures. The main reason being that the availability of such measures is not contrary to the intentions of parties agreeing to submit a dispute to arbitration and the measures themselves are conducive to making arbitration efficient and to securing its expected results. The critical question with regard to interim relief in arbitration is – Who provides interim measures of protection? Shall it be the courts, the arbitrators or both? The answers given in national arbitration legislation and in arbitration rules have changed over the years. Some time ago it seemed to be a common understanding that only courts provide any provisional relief. This was reflected in international instruments such as the “1961 European Convention on International Commercial Arbitration” which in Article VI, paragraph 4 stated that a request for interim measures to the courts is not a waiver of the arbitration agreement. Similar provisions are found in arbitration rules. They ensure that a party can have recourse to the courts without fearing to chance the track of dispute settlement by making such an application. No mention was made of an arbitrator's competence to grant interim measures of protection. However, later, a trend in favor of such an arbitrator's competence emerged. This was first reflected in arbitration rules such as the “1976 UNCITRAL Arbitration Rules for International Commercial Arbitration” (henceforth UNCITRAL Rules), which provide for a choice of application. Article 26, paragraph 3 of the UNCITRAL Rules refers to court applications Submitted by Vikas Kumar Page 7 of 42

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and deems them to be compatible with the arbitration agreement. This reiterates the established view. But in paragraphs 1 and 2 of the article, the UNCITRAL Rules go further when making clear that arbitrators have contractual power to order certain special kinds of interim measures such as the sale of perishable goods. However, it is unfortunate that neither the New York Convention of 10 June 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (henceforth New York Convention) nor any other international instrument deals with interim measures of protection granted by the arbitrator or their enforcement. Probably the solution might be concretely provided suitably only by national legislation by providing decisive provisional remedies – namely within the framework of court assistance, fall-back statutory provisions and laying down the preconditions for the enforcement of arbitrator-granted interim measures of protection.

The issue in interim order further gets complicated when the interim measures are sought against International arbitrations or when the seat of arbitration falls outside the country where interim relief is sought. This issue is of considerable importance in India due to the conflicting judgements by various High Courts. Though the Supreme Court in India has decided this question finally yet it raises quite interesting propositions and is worth examining.


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METHODOLOGY The topic of this seminar paper is “Interim Relief under Section 9 of the Arbitration and Conciliation Act, 1996” (henceforth referred to as “the Act”) and accordingly dwells upon some of the various issues raised in the context of grant of interim orders by the courts with regard to the contractual disputes wherein the agreement also provides for a settlement through arbitration proceeding. The introduction to the paper provides the background to the concept of arbitration as has evolved in the jurisprudential framework, with regard to the specific needs of the commercial world. This seminar paper then broadly discusses the general law regarding interim orders given by the national courts, as contemplated under the Act. This section is illustrative in nature and brings out the various instances gleaned from the case laws. This paper also compares the position of English law in this regard. The scope and the ambit of the English law are of considered significance, since both the Indian and the English laws of arbitration are based on the UNCITRAL model law on arbitration. The last important section dwells upon the existing controversy in the Indian courts, on the point whether the national courts in India have the jurisdiction to grant interim orders with regard to foreign arbitral proceedings.


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Chapter I: Interim Orders under section 9 of the Act. The Arbitration and Conciliation Act, 1996 (“Act”) has provisions enabling a party to the arbitral proceeding to approach the court to request for interim measures. S.9. Interim measures, etc. by court - A party may before, or during arbitral proceedings or at any time after the make the arbitral award but before it is enforced in accordance with section 36, apply to a court-

(i)

for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or

(ii)

for an interim measure of protection in respect of any of the following matters, namely:

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration; (c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in Arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorizing any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver; (e) such other interim measure of protection as may appear to the court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it. The analogous provision on the court's power to grant interim measures of protection is contained in Article 9 of the Model Law which provides that – “Article 9.

Arbitration agreement and interim measures by court.


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It is not incompatible with the arbitration agreement for a party to request before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure.” Article 9 lays down the principle, which has been contested in some national jurisdictions, that resort to a court and a subsequent court action in respect of interim measures of protection are compatible with an arbitration agreement. Thereby, clarifying that effect of an arbitration agreement, which is to exclude court jurisdiction, does not operate negatively in respect to such interim measures. The chief reason is that the availability of such measures is not contrary to the intentions of parties agreeing to submit a dispute to arbitration and that the measures themselves are conducive to making the arbitration efficient and to securing its expected results.1 The range of interim measures of protection covered by article 9 is of considerable wider ambit than provided under article 17 2 of the Model Law, that deals with the limited power of the arbitral tribunal to order any party to take an interim measure of protection in respect of the subject matter of the dispute without dealing with issues of the enforcement of such orders. It is to be observed that the model law is silent about the possible conflict between an order by the arbitral tribunal under article 17 and a court decision under article 9 relating to the same object or measure of protection. However, it is submitted that there is little potential for such conflict in view of the disparity of the range of measures covered by the two articles. The UNCITRAL commentary on Model law provides that article 9 itself does not regulate which interim measures of protection were available to a party. It merely expresses the principle that a request for any court measure available under 1It has been commented by authorities like Russell that, “Article 9 expresses the principle of compatibility in two directions with different scope of application. According to the first part of the provision, a request by a party for any such court measures is not incompatible with the arbitration agreement, i.e., neither prohibited nor to be regarded as a waiver of the agreement. This part of the rule applies irrespective of whether the request is made to a court of State X or of any other country. Wherever it may be made, it may not be invoked or created as an objection against or disregard of, a valid arbitration agreement under “this Law”, i.e., in arbitration cases falling within its territorial scope of application or in the context of articles 8 and 36. However, the second part of the provision is addressed only to the courts of State X and declares their measures to be compatible with the arbitration agreement irrespective of the place of arbitration. Assuming wide adherence to the model law, these two parts of the provision would supplement each other and go a long way towards global recognition of the principle of compatibility, which, in the context of the 1958 New York Convention, has not been uniformly accepted.”

2“Article 17. Power of arbitral tribunal to order interim measures Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order any party to take such interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject-matter of the dispute. The arbitral tribunal may require any party to provide appropriate security in connection with such measure. Submitted by Vikas Kumar Page 11 of 42

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a given legal system the granting of such measure by a court of ‘this State’ was compatible with the fact that the parties had agreed to settle their dispute by arbitration.


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Chapter II PART A:SCOPE OF SECTION 9 OF THE ACT The scope of the section was examined in a vast survey of cases and authorities by the Madras High Court in NEPC India Ltd v. Sundaram Finance Ltd.3 This case arose out of a hire-purchase transaction, which carried an arbitration clause and the buyer defaulted with an installment. The owner moved the court and obtained an order under S. 9, without resort to the arbitration clause, for direct seizure of the machinery with the help of police. The order was set-aside in an appeal against it.

The Madras High Court was of the view that a request for

arbitration for substantive relief should be there before S. 9 could be used for interim relief whether or not an arbitrator has been appointed or proceedings commenced and not before that. In another case, Harbhajan Singh Kaur v. Unimode Finance, (1997) 2 Cal LT 414, the Court observed as follows – “Clause (ii) to section 9(a) of the said Act begins with a prefix, namely, for an interim measure of protection in respect of the measures that may be taken by the court and the same are catalogued in Clauses (a) to (d) of section 9(ii) of the Act. The court is made to ponder over the proposition used in the expression 'interim measure' by insertion of 'an' and, at the same time, a catena of matters has been elicited thereunder. The expression used is in the midst of pendency of an arbitral proceeding in between making of the arbitral award and enforcement in accordance with section 36. Therefore, the expression ‘an’ is one of the alternative; and it has to be rated as in the midst of possibility of many during the pendency of an arbitral proceeding as indicated in section 9 itself.”

This decision of the Madras High Court was reversed by the Supreme Court on appeal Sundaram Finance Ltd. v. NEPC India Ltd., 4 where the Supreme Court held that the court has jurisdiction under Section 9 to pass interim orders even

3 (1998) 2 Arb. LR 446 (Mad) To the same effect was National Building Construction Corpn.

Ltd. v. IRCON Intl Ltd., (I998) 1 Raj 500, 543 that foundation for arbitration must be laid before claiming relief under S.2. An interim measure cannot be provided where there is no prayer for some substantive relief, Ashok Chazvia v. Rakesh Gupta, (1996) 2 Arb LR 255 (Delhi). 4(1999) 1 SLT 179 (SC)1999) 1 JT 49 (SC) Submitted by Vikas Kumar Page 13 of 42

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before the commencement of arbitration proceedings and appointment of arbitrator. All that sufficed was that there must be satisfaction on the part of the court that the applicant will take effective steps for commencing arbitral proceedings. This was reflected in the following passage in the judgment5 “When a party applies under Section 9 of the 1996 Act it is implicit that it accepts that there is a final and binding arbitration agreement in existence. It is also implicit the a dispute must have arisen which is referable to the Arbitral Tribunal Section 9 further contemplates arbitration proceedings taking place between the parties when an application under Section 9 is filed before the commencement of the arbitral proceedings there has to be manifest intention on the part of the applicant to rake recourse to the arbitral proceedings if, at the time when the application under Section 9 is filed, the proceedings have not commenced under section 21 of the 1996 Act. In order to give full effect to the words “before or during arbitral proceedings” occurring in Section 9 it would not be necessary that a notice invoking the arbitration clause must be issued to the opposite party before an application under Section 9 can be filed. The issuance of a given case of a notice may be sufficient to establish the manifest intention to have the dispute referred to arbitral Tribunal but a situation may so demand that a party may choose to apply under Section 9 for an interim measure even before issuing a notice contemplated by Section 21 of the said Act. If an application is so made the Court will first have to be satisfied that there exists a valid arbitration agreement and the applicant intends to take the dispute to arbitration. Once it is so satisfied the Court will have the jurisdiction to pass orders under Section 9 giving such interim protection as the facts and circumstances warrant. While passing such an order and in order to ensure that effective steps are taken to commence the arbitral proceedings, the Court while exercising jurisdiction under Section 9 can pass conditional order to put the applicant to such terms as it may deem fit with a few to see that effective steps are taken by the applicant for commencing the arbitral proceedings. What is apparent, however, is that the Court is not debarred from dealing with an application under Section 9 merely because no notice has been issued under Section 21 of the 1996 Act.” Referring to the support, which the Madras High Court in NEPC India Ltd v. Sundaram Finance Ltd.6 had drawn from the 1940 Act in interpreting the 1996 Act, the Supreme Court said7-

5 (1999) 1 SLT at p. 180 (SC). 6 (1998) 2 Arb. LR 446 (Mad) To the same effect was National Building Construction Corpn.

Ltd. v. IRCON Intl Ltd., (I998) 1 Raj 500, 543 that foundation for arbitration must be laid before claiming relief under S.2. An interim measure cannot be provided where there is no prayer for some substantive relief, Ashok Chazvia v. Rakesh Gupta, (1996) 2 Arb LR 255 (Delhi).

7

(1991) 1 SLT at pp. 185, 188-189 (SC). Submitted by Vikas Kumar Page 14 of 42

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“The 1996 Act is very different from the Arbitration Act, 1940. The provisions of this Act have; therefore, to be interpreted and construed independently and in fact reference to 1940 Act may actually lead to misconstruction. In other words, the provisions of 1996 Act have to be interpreted being uninfluenced by the principles underlying the 1940 Act. In order to get help in construing these provisions it is more relevant to refer to the UNCITRAL Model Law rather than the 1940 Act. “Section 9 of the said Act corresponds to article 9 of the UNCITRAL model Law, this article recognizes, just like Section 9 of the 1996 Act, a request being made before a Court for an interim measure of protection before arbitral proceedings. It is possible that in some countries if a party went to the Court seeking interim measure of protection that might be construed under the local law as meaning that the said party had waived its right to take recourse to arbitration. Article 9 of the UNCITRAL Model law seeks to clarify that merely because a party to an arbitration agreement requests the Court for an interim measure ‘before or during arbitral proceedings’ such recourse would not be regarded as being incompatible with an arbitration agreement. To put it differently the arbitration proceedings can commence and continue not with standing one party to the arbitration agreement having approached the Court for an order for interim protection. The language of Section 9 of the 1996 Act is not identical to Article 9 of the UNCITRAL Model Law but the expression “before or during arbitral proceedings” used in Section 9 of the 1996 Act seems to have been inserted with a view to give it the same meaning as these words have in Article 9 of the UNCITRAL Model Law. It is clear, therefore, that a Party to an arbitration agreement can approach the Court for interim relief not only during the arbitral proceedings but even before the arbitral proceedings. To that extent Section 9 of the 1996 Act is similar to Article 9 of the UNCITRAL Model Law. It will also be useful to refer to a somewhat similar provision in the Arbitration Act, 1996 of England. Section 44 of this Act gives the Court powers, which are exercisable in support of the arbitral proceedings. Sub-section (3) of Section 44 permits, in the case of urgency, the Court to make an order contemplated by Sub-section (2) even on an application by a “proposed party to the arbitral proceedings”. The expression used in this Sub-section “party or proposed party to the arbitral proceedings” shows that where arbitral proceedings have commenced then the application will obviously be of a party to the said proceedings but where the arbitral proceedings have not commenced a "proposed party' has been given the right to approach the Court. A proposed party to the arbitral proceedings would, therefore, be one who is party to an arbitration agreement and where disputes have arisen but Submitted by Vikas Kumar Page 15 of 42

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the arbitral proceedings have not commenced. While referring to Section 44 of the English Act in dealing with the question of grant of interim injunctions in support of arbitral proceedings Russell On Arbitration 8, has stated as under: The Court may exercise its power to grant an interim injunction before there has been any request for arbitration or the appointment of arbitrators, provided that the applicant intends to refer the dispute to arbitration in due course. The power to grant an interim injunction under Section 44 of the Act extends to the granting of a Mareva injunction in appropriate cases. It may also include granting an interim mandatory injunction, although the Court will be slow to grant an injunction which provides a remedy of essentially the same kind as is ultimately being sought from the Arbitral Tribunal.” The Supreme Court opined that this view correctly represents the position in law, namely, that even before the commencement of arbitral proceedings the Court can grant interim relief. The said provision contains the same principle, which underlies Section 9 of the 1996 Act.9 Thus, under the 1940 act there was a difference of opinion as to whether relief could be granted under the section before reference had been made to arbitration. One view was that relief would not be given unless arbitration proceedings were pending before the arbitrator.10 The other view was that relief under the section could be granted before and in anticipation of any reference, and before an order of reference was made, 11 there reason why the word “pending” should be added before the words “arbitration proceedings" in section 41(b), 1940 Act.12 Now S. 9 of the Arbitration and Conciliation Act, 1996 makes it very clear that relief’s under the section can be granted either “before or during arbitral proceedings.”

8 [21st Edition] at page 380 9

The Court also considered the decision in Channel Tunnel Group and France Manche SA v. Balfour Beatty Construction Ltd., (1992) WLR 741 (CA), on appeal, 1993(2) WLR 262 (H12) wherein construing section 12 (6) of the UK Arbitration Act 1950, STRAUGHTON, LJ observed as under: “In my view this power can be exercised before there has been any request for arbitration or the appointment of Arbitrators, provided that the applicant intends to take the dispute to arbitration in due course. Whatever the meaning of “reference” to Section 12(6)(h) (and it is not always easy to determine the precise meaning of the word in arbitration statutes). I would hold that the power of the Court in such a case would be exercised for the purpose of and in relation to a reference.” 10 Ranjit Chandra Mitter v. Union of India, AIR 1963 Cal 594.

11 Gokuldas v. Union of India, Al R 198:3 Ker 169. 12 Chandu Lot v. Brit-over Ltd., 52 CWN 451. Submitted by Vikas Kumar Page 16 of 42

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PART B:POSITION UNDER ENGLISH LAW The general principle is stated in Part 1 of the English Arbitration Act 1996 as follows: “in matters governed by this Part [of the Act] the court should not intervene except as provided by this part.” This statement of principle in the very first section of the Arbitration Act 1996 is clear recognition of the need to limit and define the court's role in arbitration. The House of Lords has stated in this regard as under “Whatever view is taken regarding the correct balance of the relationship between international arbitration and national courts, it is impossible to doubt that at least in some instances the intervention of the court may be not only permissible but highly beneficial.”13 The English courts could easily justify their role where the parties are English and the arbitration is to follow the normal English rules of procedure. It is less easy to justify in a case, conducted under the rules of an international arbitration body. (for example the ICC), where the parties ,are foreign, and the only connection with England being the parties' choice, directly or indirectly, to hold their arbitration there. In Coppie-Levalin SA/NV v. Ken-Ren Chemicals and Fertilizers Ltd, 14 which was decided prior to the enactment of the English Arbitration Act 1996, a distinction was drawn between three groups of measures that involve the court in arbitration; the first being purely procedural steps which an arbitral tribunal cannot order or cannot enforce (eg. issuing subpoenas), the second being designed to maintain the status quo the granting of interlocutory injunctions) and the third being designed to ensure the award has its intended practical effect by providing a means of enforcement if the award is not voluntarily complied with. It was pointed out that the three groups entail differing degrees of encroachment on the tribunal's task of deciding the merits of' the dispute and that the extent of such intrusion should “condition to an important extent” the court's approach. Despite the changes made by the Arbitration Act 1996, the distinction remains valid.

13 Per Lord Mustill in Coppee-Lavalin SA/NV v. Ken-Ren Chemicals and Fertilizers Ltd. (in Liquidiation) (1994) 2 All E.R. 449 at 466 HL. 14 [1994] 2 All E.R. 449. Submitted by Vikas Kumar Page 18 of 42

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The English Courts may intervene while arbitration proceedings are pending and its powers to do so. They include power to extend time limits for commencing the arbitral proceedings and for making the award, power to appoint arbitrators, to decide disputes about the arbitrator's jurisdiction and to determine points of law. The court also has power to remove an arbitrator and to appoint a replacement. The court may also make other orders during the reference, and these are also examined. Under section 9 of the English Act, a stay must be granted unless the court is satisfied that the arbitration agreement is “null and void, inoperative, or incapable of being performed”. The court also has an inherent jurisdiction to grant a stay in certain circumstances like stay proceedings brought in breach of an agreement to decide disputes by arbitration.15 It is rarely necessary to invoke this power in view of the statutory jurisdiction. The inherent jurisdiction may be appropriate though where there is no arbitration agreement within the meaning of section 6 of the Arbitration Act 1996 or where the arbitration clause is not immediately effective 16 or for some other reason the Application falls short of the requirements for a stay under the Arbitration Act 1996. A stay based on the inherent jurisdiction may also be appropriate where there are two defendants to the court proceedings, one of whom is not a party to the arbitration agreement but claims through or under the other defendant by virtue of a contract of agency.17 This touches on a particularly difficult issue in relation to arbitration agreements. It most frequently arises in the context of groups of companies, where for example one in the group has signed a contract containing an arbitration clause or Group Company has performed the contract. Under the English Law there is no requirement that the reference to arbitration must have been started. Indeed, the fact that the dispute cannot

15 Channel Tunnel Group Ltd and Others v. Balfour Bveaty Construction Ltd and Others, [1993] 1 Lloyd’s Rep.291. 16 Id.

17

Roussel-Uclaf v. CD. Searle C5 Co. Ltd and G. D. Searle & Co. [1978] 1 Lloyd's Rep. 225 at 229 30. The court in that case was prepared to grant a stay based both on its inherent jurisdiction and on its finding that one of the group companies was claimine “through or under” the other Rithin the mcaning of s.1 of the Arbitration Act 1975. The words quoted do not appear in the Arbitration Act 1996 and the decision has been criticised. Submitted by Vikas Kumar Page 19 of 42

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immediately be referred to arbitration, because the matter is to be referred to arbitration only after the exhaustion of other dispute resolution procedures will not prevent the court from ordering a stay.18

18 Arbitration Act 1996, s.9(2) which followed the decision in Channel Tunnel Group Ltd and Olhers v. Balfour Beatty Construction Ltd and Others [19931 1 Lloyd’s 1 Rep. 291, HL. Submitted by Vikas Kumar Page 20 of 42

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Chapter IIITHE NATURE OF RELIEF AS PROVIDED UNDER SECTION 9 OF THE ACT The present chapter discusses threadbare the various kinds of relief contemplated under section 9 of the Act which the Courts are empowered to give to the applicant. As discussed earlier, there existed a difference of opinion as to whether relief could be given under this section before reference had been made to arbitration. Once view was that relief could not be given unless arbitration proceedings were pending before the arbitrator. The other view was that relief under the section could be granted before and in anticipation of any reference, and before an order of reference was made, there being no reason why the word “pending” should be added before the words” arbitration proceedings” in section 41(b), 1940 Act. Now the present section 9 of the Act makes it very clear that relief under the section can be granted either “before or during arbitral proceedings.”

PART A:

ORDER FOR SALE OF GOODS [SECTION 9(ii)(a)]

Under this heading the Courts are empowered to order sale of goods, the “goods” being defined under section 2 of the Sale of Goods Act, 1930 and moreover so, in case where the goods are of a perishable nature.

PART B:

ORDER FOR PROTECTION OF FINANCIAL INTEREST [SECTION 9(ii)(b)]

In Global Co. v. National Fertilizers Ltd., the Delhi High Court held that a petitioner cannot seek an interim order or the sole ground of protection of his financial interests. The awardee has to prove the respondent's intention to effect, delay or obstruct execution of the award. The court said19 “It is true that the said Arbitration Act, 1940 stands repealed by the Act of 1996 and the provisions contained in the Code of Civil Procedure are not applicable to the proceedings under the Act. Still, in the absence of guidelines how the power for grant of relief under section 9(ii)(b) is to be exercised by, the Court, the principles underlying the aforesaid sections are to be applied. It is only on adequate material being supplied by the petitioner that the Court can form opinion that unless the jurisdiction is exercised under the said Section 9(ii) there is real danger of the respondent defeating, delaying or obstructing the execution of the award made against it. On the basis of the only ground of protection of financial interest of the petitioner, the

19 AIR 1998 Delhi 397 at 400. Submitted by Vikas Kumar Page 21 of 42

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respondent, a Govt. of India Undertaking, cannot be legally directed to furnish security for the amount of US$ 88,250 together with interest @ 9% p.a.” It must be noted that the court has no power to direct an arbitrator to pass an interim award and that too for a specified amount. 20 However, the court is competent to pass an order of attachment before judgment by invoking the provisions of S. 9 of the 1996 Act.

In case of security for costs, the courts will usually require a claimant, if it is a foreign company out of India or a person out of India who does not possess sufficient immovable property in India, to furnish security for all the costs incurred or likely to be incurred by the respondent.21 The arbitral tribunal may ask for deposit by way of security for costs. The deposit in advance may be supplemented afterwards according to exigencies. A separate cost may be fixed linking it with the claim and counter claim. The deposit has to be paid by the parties in equal share, though one party may pay the share of the other in case of default. Where deposit is not made by a party in respect of a particular claim or counter-claim, the tribunal may suspend or terminate the arbitral process in respect thereof. At the end of the proceedings, the tribunal has to give an account of the money in deposit and return the unused amount to the parties. On of the effects of the provision is that the power of the court to order security for costs becomes vested in the arbitral tribunal to the exclusion of the court. This reform has been effectuated by the English Arbitration Act, 1996 also. There also earlier the power was vested in the court. 22 The English Arbitration Act, 1996 does not specify the basis on which the security for costs should or should not be granted. The tribunal has a broad discretion.

20 Union of India v. Om Construction and Supply Co., AIR 1994 All 334.

Such an order, if passed, mill

not be an interlocutory order, it would amount to case decided. 21 See, Order 25, Rule 1 of the Code of Civil Procedure.

22 For example, see Coppee-Lavalin SA v. Ken-Ren Chemicals & Fertilizers Ltd

(1994) 2 All ER 449. Where a party was directed to give a security for the other parties costs though the only connection with the English law was that the seat of arbitration was in England. Submitted by Vikas Kumar Page 22 of 42

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There is no express or implicit provision in section 9 for payment of an interim amount on account of damages, debt etc. If the parties have so agreed, the arbitral tribunal will have the power to order a provisional payment under section 17.

PART C:INJUNCTION RESTRAINING ALIENATION OF PROPERTY [Sec. 9 (ii) (c)] While an arbitration proceedings was pending before the court, a temporary injunction was granted preventing the defendant from alienating property.

An

application for the same was filled under S. 41(1)(b) read with Sch II, 1940 Act. Section 41, 1940 Act stated that the court had the same power of making orders in respect of any of the matters set out in Sch II as it would have in all civil proceedings. One of the matters set out in Sch II was interim injunction. Thus it was abundantly clear that the court had the power under S. 41(1)(b) read with Sch II, 1940 Act to issue interim Injunctions with only this restriction that such injunctions could be issued for the purpose and in relation to arbitration proceedings.

The

injunction was held to be rightly granted. 23 No injunction was allowed to prevent sale of stock at the instance of a party who had failed to take off the stock and pay for it in time.24 The word “property” is not defined in the Act. But in other relevant statutory provisions, it is defined broadly to include any land, chattel or other corporeal property of any description. The concept of property would appear to be wider than ‘goods’.. An order under this section was refused where the applicant sought inspection of an industrial process. The court said that such process could not be regarded as a property.25

INJUNCTION TO PREVENT SALE OF SEIZED PROPERTY

23 R. K. Associates v. V Channappa, AIR 1993 Kant 247. 24 MVR Industries Ltd. v. Tribal Coop Mkg Development Federation of India Ltd., (1996) 1 Arb LR 393 (Delhi). 25 Tudor Accumulator Co. v. China Mutual, etc. Co., (1930) WN 201. Submitted by Vikas Kumar Page 23 of 42

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Where a contract for sale of timber was cancelled and trees already felled were seized by the collector, an injunction was issued to prevent sale of such timber and to preserve status quo.26 The court referred to Mustill and Boyd, Commercial Arbitration27 and the decision in Food Corporation of India v. P. A. Ahammed lbrahim28 to find support for the proposition that the censor of the jurisdiction of the court on reference of the dispute to arbitration is only provisional and until a valid award is passed the court retains its underlying jurisdiction which in certain circumstances it will be entitled to assume. The court also had inherent power in the matter,29 which can be exercised in the absence of any express or implied prohibition in the underlying enactment.30 Hence the courts which are seized of applications under the Arbitration Act can in the exercise of inherent jurisdiction pass appropriate orders consistent with the procedural rules of CPC as may be necessary for the ends of justice. The court cited the following passage from Russell on Arbitrartion – “Quite apart from these express powers (ie. Statutory powers similar to those under the Arbitration Act) the court has always been willing to assist in this way in proper cases.” The court, in order to preserve the status quo, in a case where one of the parties to a contract had given a notice, purporting to dismiss the contractor, restrained the party from acting on the notice until judgment or further order, or until a references to arbitration provided for by the contract had been made.31

PART D:ORDERS FOR PRESERVATION OF EVIDENCE [Sec. 9 (ii) (c)] or ANTON PILLER ORDERS

26 Brahamagiri B. Estate v. Thoman Joseph Kalathur, (1990) 2 Arb LR (Ker). 27 P. 123 (1982). 28 (1989) 1 Ker LT 251. 29 Newabgani Sugar Mills Co. lid. v. Union of India, AIR 1976 SC 1152. 30 I.M. D. Syndicate v. L T Commr. New Delhi, AIR 1977 SC 1348. 31 Foster v. Hastings Corporation, (1903) 87 LT 736. Submitted by Vikas Kumar Page 24 of 42

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Section 9(ii)(c) permits the court to make orders for preservation of evidence. Such orders are frequently made for protection of intellectual property rights. Such an order is commonly known as Anton Piller order.32 This order is a type of search and seize order. It became necessary in the context of intellectual property rights because the offending material was often destroyed by the infringing parties in order to defeat the plaintiffs claim.

PRODUCTION OF DOCUMENTS In a dispute between partners regarding partnership business, there were claims and counter-claims between them about the custody of the documents. A partner applied to the court under S. 9 of the Arbitration and Conciliation Act, 1996 for an order for production of documents. The court refused to pass any such order because such an application is not maintainable under S. 9.33

PRODUCTION OF DOCUMENTS FROM THIRD PARTY Section 12(4) of the English Arbitration Act, 1950 [replaced by the Arbitration Act, 1996] empowered courts to issue summons for production of documents. It has been observed that when this power is being exercised for production of documents from the custody of a third party, the court should be vigilant to ensure that the power is exercised for a legitimate purpose. Where the cargo was found to be contaminated on discharge and the question as to the fitness of the ship for the cargo arose, the aggrieved party obtained an order for discovery of documents relating to the condition of the vessel from the association of ship owners. The order of production was set aside. The order of production was found to be too wide and not confined to legitimate purposes. As to third parties, although the concluding words of section 44(2)(c) of the 1996 Act [UK] limit the court's power to authorize entry of premises to those instances where the premises are in the possession or control of a party to the

32 Anton Piller K.G. v. Manufacturing Processes Ltd., (1976) Ch 55. 33 Narain Sahai Agrawal v. Santosh Rani, AIR 1998 Delhi 144. Submitted by Vikas Kumar Page 25 of 42

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arbitration, there would seem to be no reason to read the preceding elements of that sub-section as necessarily requiring that the properly of which detention or inspection, etc., is sought must be in the possession or control of a party. The DAC Report refers to the possibility of orders under section 44 of the Act having an effect on third parties, and so supports an extended construction of section 44(2)(c). As far as it may be relevant, it appears to have been assumed that the parallel provisions of the 1950 Act permitted orders to be made directed at third parties. But the position is not entirely clear, since in legal proceedings the power to make orders for the detention and inspection, etc., of property in the hands of third parties is exercisable only if the claim relates to personal injury or death; [see section 34(3) of the Supreme Court Act 1981 and RSC Order 29, r.7(A)(2)]. The power in relation to arbitration proceedings may be similarly confined.

PART E:INTERIM INJUNCTIONS [SECTION 9 (ii)(d)] This section merely enables the court to grant interim relief by way of injunction in a fit case.

There is nothing in the said section to warrant the

assumption that the well established principles governing the grant of temporary injunctions, like prima facie case, balance of convenience and irreparable injury are not applicable to the exercise of the power of under this section. In Binny Ltd. v. Nizam sugars Ltd34 on the facts and circumstances of this case, the High Court refused to grant an injunction in respect of bank guarantees.

The court in this

regard, relied upon the well established principles as reiterated by the Supreme Court in Hindustan Steel Works Construction Lid. v. Tarapore & Co.35 An injunction restraining encashment of bank guarantees can be granted by the court only in case of fraud or in case where irretrievable injustice would be done if the bank guarantee is allowed to be en-cashed. The apex court further held that the existence of a serious dispute on the question who had committed breach of the contract or that the contractor had a counterclaim against the beneficiary or that the disputes between the parties had been referred to the arbitrators, etc., are not valid grounds for granting an injunction restraining the enforcement of bank guarantees. It was also held that the contract of bank guarantee between the bank and the beneficiary

34 (1997) 88 Comp Case 741 at 746 (AP). 35 (1996) 87 Comp Case 344. Submitted by Vikas Kumar Page 26 of 42

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is independent of the primary contract between the party furnishing the bank guarantee and the beneficiary and, therefore, encashment of an unconditional bank guarantee does not depend upon adjudication of the dispute between the parties to the primary contract.36 Where claims and counter-claims of the appellant and the respondent for damages arising out of a contract were referred to arbitration, the court could during the pendency of the arbitration proceedings grant an injunction restraining the appellant from effecting recovery of the amounts claimed in the arbitration proceedings from pending bills for amounts due from the appellants to the respondent under other contracts. Such an order is negative not only in form but in substance. It has no positive content. 37 Following this ruling, the M P High Court held that even if an authority has terminated the contract wrongfully, it can not be prevented from inviting fresh tenders for the same project.

Its liability to

compensation for breach of contract is the appropriate remedy to be perused by the aggrieved contractor.38 The Supreme Court refused to issue an injunction to restrain the Government from withholding payments due to the contractor under other contracts. The court said that the injunctive power under the section is confined to matters, which are for the purpose of and in relation to arbitration proceedings. In this case, the matter complained of was not concerned with the contract under dispute.39 The court could not direct the appellant to pay the amounts due to the respondent under the other contracts, for such an order would not be for the purpose of and in relation to the arbitration proceedings. 40 The court may direct the detention of moneys lying in court 41 and other moneys42 pending the arbitration proceedings.

36 See also National Thermal Power Corpn Ltd. v. Flowmore P Ltd., AIR 1996 SC 445, effect upon the right of encashment where invocation has certain conditions to fulfill. 37 Union of India v. Raman Iron Foundry, (1974) Supp SCC 556 at pp. 561, 562.

38Taj Builders v. Indore Development Authority, AIR 1985 MP 146. 39 C Raghava Reddy v. Superintending Engineer, AIR 1988 AP 53.

The court considered Union of India V. Raman Iron Foundry, AIR 1974 SC 1265, [order for maintenance of status quo] and H.M.K. Ansari & Co. v. Union Of India, AIR 1984 SC 29: 1983 All LJ 1004. 40 Rawla Constructions v. Union of India, AIR 1977 Delhi 205.

41 Sundarlal Haveliwala v. Bhagwati Devi, AIR 1967 All, 400. 42 Sha Vaktavarmal Sheshmull v. Nainmull Umaji & Co., AIR 1962 Mad 436. Submitted by Vikas Kumar Page 27 of 42

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The relief by way of injunction cannot be claimed as of right. A builder of roads claimed that the Government should be prevented from allotting other works on the roads built by him to other contractors because that would confuse measurement of the work done by him. The court granted him the relief of ordering the measurement of the work done by him but did not grant any further injunction. The court said that good roads are a matter of public convenience and to hold up the work on roads till the arbitrator's decision would be against canons of justice. 43

43 Mohinder Singh & Co. v. Executive Engineer, AIR 1971, J&K 130.

See also Alpine Industries v. Union of India, (1988) 1 Arb LR 363 Delhi, the court did not interfere in the matter of reduction of rates in the future while the claim was pending before the arbitrator, the court found that the contractor had himself quoted reduced rates in other contracts. Submitted by Vikas Kumar Page 28 of 42

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INJUNCTION TO PREVENT REVOCATION OF CONTRACT Where during the pendency of the arbitration proceedings one of the parties revoked the contract itself and other obtained an injunction against it revision against the injunction was not allowed.44

INJUNCTION TO PREVENT BREACH OF CONTRACT

Injunction to prevent breach of contract or to order specific performance of the contract are generally not allowed.45 Where the agreement provided for renewal on mutually agreed terms, the termination or non-extension of the licence after the expiry of the agreement was not a matter for arbitration. The only remedy was to seek an order of specific performance for renewal. 46

PART F:APPOINTMENT OF RECEIVER [Sec. 9 (ii) (d)] A receiver can be appointed in all cases in which it would appear to the court to be just and convenient to do so.

A receiver may be appointed prior to the

commencement of legal proceedings and also prior to the commencement of arbitral proceedings Section 9 of the Arbitration and Conciliation, Act, 1996, only deals with the interim measure by die court. Obviously, it is not within the scope of the section to inquire into the claim and the counterclaim made by both the parties in regard to the custody of the articles beyond what has been admitted by the respondent. Although the petitioner had failed to make out a case for appointment of a receiver of the articles in possession of the respondent, still they need be protected being

44 Dashmesh Academy Trust v. V.K. Consttruction Works P. Ltd. (1988) 1 Arb LR 172 P&H.

The court showed its agreeemnt with the rulling of the Allahabad High Court in Sunderlal Haveliwala v. Bhawati Devi, AIR 1987 All 400 to the effect that a proceeding under S.20, 1940 Act (deleted from the 1996 Act) was a part of arbitration proceedings. 45 Vinit Manchandra v. Rishi Co-op Group Housing Society (1987) 2 Arb LR 10 Delhi, the allotment of contract was concelled on the allegation that it was a collusive affair 46 Indian Tourism Development Corpn. Ltd. v. Airport Authority of India (1997) 2 Arb LR 609, 620 (Delhi). Submitted by Vikas Kumar Page 29 of 42

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partnership property.

The respondent was, therefore, restrained from selling,

transferring or in any other way disposing them off pending dispute between the parties in regard to them.47 Under Section 41(b), 1940 Act [as now in Sec. 9(ii)(d) of 1996 Act], the court had power to pass an interim order of injunction or appointment of receiver. Where a suit was pending before the court the court had power to appoint a receiver or issue an interim injunction apart from the section.48 The power of appointing receiver could be exercised even in a case where references to arbitration had been made without the intervention of the court and no proceedings were pending in any court. The court said that it would not seem proper that the court after being satisfied on Prima facie evidence should be powerless in the matter of preservation or safety of the property in dispute. The court could simultaneously appoint a receiver and stay the suit under Section 34, 1940 Act [S. 8 of the 1996 Act].49 The fact that the arbitrator had no power to grant an injunction was a matter which the court could take into account in exercising its discretion to stay the suit under Section 34, 1940 Act.50 A car parking lot contractor whose term had expired wanted to remain in possession for recouping losses caused by the conduct of the owner.

He applied for references to arbitration and interim injunction for

maintenance of status quo. The court said that such injunction could not be allowed to him. The effect of such an injunction would be that the owner would be prevented from handing over the lot to the successful bidder, the contractor would enjoy quiet possession without having to pay anything, though his period had expired.51

PART G:ANY OTHER MEASURE: “JUST AND CONVENIENT” [S. 9 (ii) (e)]

47 Narain Sahai Agarwal v. Santosh Rani, (I 997) 2 Arb LR 322 (Delhi). 48 Sharma Ice Factory v. jewel Ice Factory, AIR 1975 JK 25. It was held in, Goodudll India Ltd v. Tonu Construction (1996) 2 Arb LR 602 (Delhi) appointment of receiver in a matter of hire-purchase agreement for seizure of property was refused where the parties had revised the terms of the original agreement and the right of seizure did not exist 49 Pini v. Ranocoroni, (1892) 1 Ch 633.

50 Willesford v. Watson, (1873) LR 8 Ch App 473. 51 Union of India v. Kishan Chand, (1990) 2 Arb LR 264 Delhi. Submitted by Vikas Kumar Page 30 of 42

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“The words 'just and convenient" employed in sub-clause (ii)(e) of section 9 of the Act, have been taken from sub-section (8) of Section 25 of the judicature Act 1873. The words in that Act are “Just or convenient” but they have been construed to mean just and convenient The words 'just and convenient' do not mean that the Court is to pass orders in respect of interim measures simply because the court thinks it convenient they mean that the court should pass the orders for the protection of rights or for the prevention of the injury according to legal principles. The order is discretionary and the discretion must be exercised in accordance with the principles on which the judicial discretion is exercised. These words were not the part of section 41 of the Arbitration Act, 1940. Therefore, a wider discretion has been given to the court under section 9 of the Act to pass interim orders.” 52 There was a dispute between the parties to a joint venture about the appointment of the managing director of their company. The appointment was going to be confirmed at the next meeting of the shareholders. One party to the joint venture contended that this meeting should be stayed because once the appointment was confirmed it would become unimpeachable. The party had already referred the matter for decision by arbitration in a foreign country. The court did not consider it necessary to stay the meeting because even if the appointment was confirmed, it would be subject to the decision of the arbitrator in the foreign country.53 Where a company was developing the facility of cellular mobile telephone service in a particular area, the court did not restrain, at the instance of the company, the Union of India from interfering with the project on the ground that the area belonged to the Punjab Telecom Circle. The mere fact of huge investment did not turn the balance of convenience in favour of the company. The court could not decide in such an application as to which telecom centre the area in question belonged.54 DIRECTION FOR PAYMENT

52 State of Rajasthan v. Bharat Construction Co-, 1998 3 RAJ 7 at p. 11. The court refused in this case to interfere in two orders, namely, that the State shall withhold the security deposit but shall not withhold payment of running bills. 53 Suzuki Motor Corp. v. Union of India (1997) 2 Arb LR 477 (Delhi).

54 Escotel Mobile Communications Ltd. v. Union of India, (IM) 3 RAJ 307 Delhi: (1998) 2 Arb LR 384. Submitted by Vikas Kumar Page 31 of 42

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An injunction against the Union of India directing it not to withhold an amount due to the contractor under some other pending bills amounts to a direction to make payment to the contractor. Such an order was beyond the purview of Section 41(b) of the Arbitration Act, 1940.55 USHA MEHRA J said:“To arrive at this conclusion support can be had from the observations of the Supreme Court in the case of H.M. Kamatuddin Ansari & Co. v. Union of India.56 While dealing with the power of the court to grant interim relief under Section 41 la) and (b) of the (1940) Act, the Apex Court observed that an injunction order restraining the Union of India from withholding the amount due to the contractor under other pending bills virtually amounts to a direction to pay the amount to the contractor/appellant. Such an order is beyond the purview of clause (b) of Section 41 of the (1940) Act.”

INJUNCTION AND STAY OF SUIT Where an interim temporary injunction was considered necessary and was granted, it was held that while staying the suit, the ad interim temporary injunction should not have been stayed. A court can deal with an application for a temporary injunction though it stays the suit.57 Appeals A Letters Patent Appeal did not lie against an injunction granted under S. 41(b) and Sch II of the Arbitration Act, 1940. Chances of appeal had to be probed under S. 39 of the 1940 Act. But there was no such provision under that section. 58 The court noted a decision of its own Bench 59 which rejected the argument that orders passed by a single judge are orders under CPC and that would make the

55 Mahanagar Telephone Nigam Ltd. v. Vichitra Construction Pvt. Ltd., (1995) 2 Arb LR 479 (Delhi). 56 AIR 1984 SC 29. Followed in Sant Ram & Co. v. State of Rajasthan, AIR 1997 SC 2557 (1997) 1 Arb LR 209. The applicant here was seeking to restrain the Government from adjusting amounts due to him under other contracts, relief not allowed. 57 Vashdev Bheroomal Pamnani v. M. Bipin Kumar, AIR 1987 Bom 226.

58 N.C. Bhall v. R.C. Bhalla (1990) 2 Arb.L.J. Delhi. 59

Subhash Chander Kakkar v. D. S. I. D. C., (1990) 2 DLT 21. Submitted by Vikas Kumar Page 32 of 42

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appeal maintainable. “ Bench observed that when the court passes an order under 39 of CPC during the pendency of any proceedings commenced under any of the provisions of the arbitration Act, 1940, the court was in effect exercising jurisdiction under S. 41 of t e Arbitration Act 1940 read with the Second Schedule, of that Act. Section 39 of the Arbitration Act 1940 clearly specified what were appealable orders. An order passed under S. 41 of the Arbitration Act, 1940 read with the Second Schedule and Order 29, Rules I and 2, CPC was not an appeal able order. 60 Revision was also not maintainable because interim orders did not finally adjudicate or dispose of any claim or dispute between the parties. The Arbitration and Conciliation Act, 1996 expressly provides in S.37 that interim orders under S. 9 shall be appeal able.

60 The Bench relied on Banwari Ial Radhey.Mohan v. Punjab State Co-op Supply and Mktg Fedn. Ltd., AIR 1983 Delhi 402. Submitted by Vikas Kumar Page 33 of 42

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Chapter IV: Interim Orders in Foreign Arbitration

PART A: THE SCHEME UNDER THE INDIAN ACT It is an interesting proposition to examine whether the Indian Courts have the power under the Arbitration Conciliation Act, 1996 to order interim measures in a case where the place of arbitration is outside India. The answer is of great importance to Indian businessmen, who in the wake of liberalization have entered into Joint Ventures with foreign Companies. More often than not, these agreements provide for arbitration at a venue outside India.

When disputes arise, the Indian businessman thinks of

approaching Indian Courts for interim relief. Do our Courts have this power under the new Act of 1996? This apparently simple question on has given rise to conflicting judgments of various High Courts.61

This article proposes to examine such decisions in the

background of the UNCITRAL Model Law and the Law in various other countries. First, though, it would be necessary to refer to the relevant provisions in the Arbitration & Conciliation Act, 1996. Under the English Law an application for a stay of legal proceedings is made under section 9 of the English Arbitration Act 1996, whose provisions are mandatory.62 Section 9 will apply even if the seat of the arbitration is abroad or no seat has been designated or determined.63 At this juncture, attention should be adverted to Section 2, contained in Part I of the Act and particularly to sub-section 1(f) that defines ‘international commercial arbitration’ as an arbitration relating to disputes arising out of legal relationships, whether contractual, or not, considered as under the law in force in India when at least one of the parties is –

61 Though the issue has now been settled by the Supreme Court, yet the propositions are indeed worth examining. 62 See section 4 if the Arbitration Act 1996 and Sch. 1 to the Act for the mandatory provisions.

63

Arbitration Act 1996, s.2(2) Submitted by Vikas Kumar Page 34 of 42

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

“an individual who is a national of, or habitually resident, any country other than India; or



a body corporate which is incorporated in any country other than India; or



a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or



the Government of a foreign country”.

Section 2(5) defines the scope of Part I of the Act. In view of the particular relevance of Sections 2(2) and 2(5), they are set out below: -



"2 (12) This Part shall apply where the place of arbitration is in India.



2 (5) Subject to the provisions of sub-section (4), and save in so far as is otherwise provided by any law for the time being in force or in any agreement in force between India and any other country or countries, this Part shall apply to all arbitrations and to all proceedings relating thereto."

Section 2(7), which is also relevant, reads as follows – 

"2(7) An arbitral award made under this part shall be considered as a domestic award."

It may be noticed that Section 9 titled 'Interim Measures etc. by Court' finds place in Part I of the Act. No such provision is to be found in any other Part of the Act. The question, which, therefore, arises, is whether or not Part I of the Act applies where the place of arbitration is outside India.

The answer to such a question would, in the

ultimate analysis, depend on the true construction of the provisions extracted above. However, before doing so, it is instructive to look at how the UNCITRAL Model Law, as also other countries, have tackled the issue.

PART B:THE UNCITRAL MODEL LAW The UNCITRAL Model Law on International Commercial Arbitration has 36 Articles. Article 1 is titled "Scope of Application". Article 1(2) reads as follows: Submitted by Vikas Kumar Page 35 of 42

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"The provisions of this Law, except articles 8, 9, 35 and 36, apply only if the place of arbitration is in the territory of this State". Article 9, which is referred to in Article 1.2, is also set out below: "Arbitration agreement and interim measures by court - It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measures of protection and for a court to grant such measures”. As a matter of history, it is interesting to note that Article 1.2 did not find place in the draft Model Law.64 There was wide support for the so-called ‘strict territorial criterion’, according to which the Law would apply where the place of arbitration was in that State.65 Even while so deciding, the Commission was clear that the Court functions envisaged in Articles 8, 9, 35 and 36 were to be entrusted to the Courts of the particular State adopting the Model Law irrespective of where the place of arbitration was located or under which law the arbitration was to be conducted. In view of this, Article 1(2) was adopted in its final shape. Thus, under the Model Law, i-n view of the specific exceptions to the principle of strict territoriality, a Court would have the power under Article 9 to give interim directions, irrespective of the place of arbitration.

64 The report of UNCITRAL on the adoption of the Model Law (paragraphs 72 to 81 of the Report) is set out in The Arbitration and Conciliation Act, 1996 - A Commentary – by P. Chandrasekhara Rao – at pages 349351 65 This also appears to be the genesis of Section 2(2) of the Indian Arbitration and Conciliation Act Act, 1996. Submitted by Vikas Kumar Page 36 of 42

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PART C:THE POSITION IN ENGLISH LAW In English Law, prior to the Arbitration Act, 19967 the House of Lords had held that an arbitration held abroad and governed by some other curial law was completely outside the legislation (Channel Tunnel Group Ltd. v. Balfour Beatty Construction Ltd. , 1993 1 All ER 664 at 683). However, later, Section 2 was enacted, along the lines of Article 1(12) of the Model Law and it reads as below – “2. Scope of application of provisions

(1) The provision of this part applies where the seat of the arbitration is in England and Wales or Northern Ireland.

(2) The following sections apply even if the seat of the arbitration is outside England and Wales or Northern Ireland or no seat has been designated or determined –

(3) sections 9 to 11 (stay of legal proceedings, &c.), and (4) section 66 (enforcement or arbitral awards). The powers conferred by the following sections apply even if the seat of the arbitration is outside England and Wales or Northern Ireland or no seat has been designated or determined. But the court may refuse to exercise any such power if, in the opinion of the court, the fact that the seat of the arbitration is outside England and Wales or Northern Ireland, or that when designated or determined the seat is likely to be outside England and Wales or Northern Ireland, makes it inappropriate to do so.

PART D:

JUDGMENTS OF VARIOUS COURTS IN INDIA

In a decision by Calcutta High Court in East Coast Shipping Ltd. v. M.J. Scrap Pvt. Ltd.,66 the Applicants moved the Calcutta High Court for Interim protection and other relief under section 8 and 9 of the 1996 Act.

The respondents took a preliminary

objection on the question of maintainability of the application in view of Section 2(2) of the Act, mentioned above.The Applicants submitted that the Court had jurisdiction to

66 AIR 1997 Cal 168. Submitted by Vikas Kumar Page 37 of 42

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hear the matter, placing particular emphasis on Section 2(5) of the Act. In reply, the Respondents urged that if such an interpretation were to be accepted, it would render section 2(2) otiose. Reference was made to the UNCITRAL Model Law to show that the legislature had thought it fit to deviate there from and exclude Sections 8 and 9 from operation of the Part I of the Act. The Learned Judge held that the interpretation as urged by the Applicants would render section 2(2) otiose and it was well settled that the Courts must always presume that the legislature in its wisdom intended that every part of statute should be given effect. The Learned Single Judge also noticed that the global scope of the relevant provision of the UNCITRAL Model Law was consciously omitted from the 1996 Act. It was held that deviation from the Model Law revealed the intention of the legislature to limit the scope of Part I of the Act to arbitration proceedings where the place of arbitration was in India. It was, therefore, held that as the place of arbitration was admittedly in London, the application was not maintainable in the Calcutta High Court. A similar conclusion was reached by a Division Bench of the Calcutta High Court in titled Keventer Agro Ltd. v. Seagram Co. Ltd67. That matter concerned a dispute between the parties arising out of a joint-venture agreement. The Court framed three issues. Issue No.3 related to the power of the Court to pass interim orders. The Court observed that power to pass in interim order in connection with a special Act must be derived from that statute itself. It was held that there was no provision in Part II, chapter I or any other portion of the 1996 Act applicable to foreign arbitration under the New York convention which gave the Court such a power. Sections 9 and 17 of the Act were held to be applicable to domestic arbitrations only, in view of Section 2(2). The Court justified such exclusion on the policy ground that the main objectives of the 1996 Act were “to minimize the supervisory role of the Courts in arbitral proceedings”.. The reliance by Keventer on Article 8(5) of the International Chamber of Commerce Rules was held to be- misplaced, since such rules had no statutory force and, in any case, jurisdiction could not be conferred by consent. In the circumstances, the Court was of the view that it did not have the power to pass any interim order in cases of foreign arbitration. A notable decision of the Delhi High Court that was later overruled by the Supreme Court, the latter decision being the current running view, is nevertheless discussed here.

67 AIR 1997 Cal 200. Submitted by Vikas Kumar Page 38 of 42

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In Marriott International Inc. & Ors.v. Ansal Hotels Limited & Anr68, the Delhi High Court upheld the contention of the respondents that as the arbitration proceedings were being held before the Kuala Lumpur Regional Centre for Arbitration in Malaysia, section 9 of the Act had no applicability and the petition of the apaplicant therefore was therefore, not maintainable.

This decision was upheld by the Supreme Court in Bhatia International v. Bulk Trading S.A. and Anr.69, wherein the SC held that in case of International commercial arbitration 70 an ouster of jurisdiction cannot be implied but expressed and that the Provisions of Part I of the Arbitration and Conciliation Act, 1996 are applicable also to international commercial arbitration which take place outside India unless the parties by agreement express or impliedly excluded it or any of its provisions. Such an interpretation does not lead to any conflict between any of the provisions of the Act- Thus Article 23 of the ICC Rules permits parties to apply to a competent judicial authority for an interim and conservatory measures and therefore in such cases an application can be made under Section 9 of the said Act.

68 MANU/DE/0013/2000. 69 MANU/SC/0185/2002. 70 The seat of arbitration in the present case was to be decided in accordance with the rules of International Chamber of Commerce and Paris was finally agreed upon the Parties as the seat. Submitted by Vikas Kumar Page 39 of 42

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CHAPTER V: CONCLUSION Towards the end it can be surmised that the powers of the Indian Courts with regard to providing interim relief under Section 9 of the Act are fairly wide and welldefined. The recourse to Courts for obtaining interim injunctions does not in any way undermine the arbitration provision contained in contractual agreements. The decision of the Supreme Court in Bhatia International case has also been quite relieving as it takes care of a lot of exigencies that might have made impossible for an aggrieved party to obtain interim relief. Mentioned below are some of the circumstances that might have created confounding situations.



The absence of an interim protection in cases of foreign arbitration gives rise to severe injustice – for example, such provisions come into play at the initial stages of an arbitration (e.g. a Mareva injunction to protect assets). For instance, it may sometimes take a few months under ICC Rules for arbitrators to enter into the which of course, the arbitrators may have powers to pass interim directions. By such time it may be too late for the party who seeks interim protection.



Another problem, which may arise, is that the agreement may not specify the places of arbitration but leave it to an institutional body such as the ICC to specify the venue. in such a situation, the party seeking interim protection is left helpless since it is unclear whether he can proceed under Section 9 which only applies where the place of arbitration is within India. It is for these reasons that the model law provided for interim protection irrespective of the venue. This is also the position in English Law.



The non-applicability of Part I of the 1996 Act to foreign arbitration gives rise to other piquant situations.

Part II of the Act only deals with “Certain Foreign

Awards” i.e. New York and Geneva Convention awards.

It is unclear what

happens to arbitration proceedings in foreign countries not party to those conventions. In such a case, a Plaintiff may file a Suit raising a dispute, which is covered by an arbitration clause (which specifies the place of arbitration as being in such a foreign country). As matters stand, there is no provision in the Arbitration Act whereby the Court can direct the parties to refer the matter to arbitration. Section 8 would be unavailable, being restricted to domestic arbitration, whereas Sections 45 and 54 would be restricted to convention countries. Submitted by Vikas Kumar Page 40 of 42

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

A highly anomalous situation may arise where an arbitration proceeding goes on in a foreign country and the Suit proceeds in India. The only solution in such a situation would he for the Court to exercise its powers under Section 151 of the Code of Civil Procedure.



Under the Model Law, Article 8 (corresponding to Section 8) is applicable regardless of the place of arbitration. Had the Model Law been adopted in its entirety, this problem would not have arisen.

Hence in light of the mentioned provisions, the decision in Bhatia International case is indeed a relieving one and needs to be welcomed.


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BIBLIOGRAPHY  Bachawat, R.S, Law of Arbitration and Conciliation, 3rd Ed.,Wadhwa and Co., Agra, 1997.



Carbonneau, T.E, Resolving Transnational Disputes Through International Arbitration, University Press of Virginia, Charlottesville, 1984.



David, Rene, Arbitration in International Trade, Kluwer Publications, Netherlands, 1985.



Lew, J.D.M, Applicable Law in International Commercial Arbitration, Oceeana Pub. Inc., New York, 1978.



Markanda P.C, Law Relating to Arbitration and Conciliation, 2nd Ed.,Wadhwa and Co., New Delhi, 1997.



Rao, P.C, Alternative Dispute Resolution, Universal Law Publishing Co., New Delhi, 1997.



Redfern, A. and M. Hunter, Law and Practice in International Commercial Arbitration, 2nd Ed., London, 1991.


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Interim Relief Arbitration

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