27 September 2021
Introduction
Recently, the Supreme Court in Arcelor Mittal Nippon Steel India Ltd. v. Essar Bulk Terminal Ltd.,[1] (“Arcelor-Essar Judgment”) held that the bar on the Court from entertaining interim applications under Section 9(3) of the Arbitration and Conciliation Act, 1996 (“Act”) was applicable only if the application had not been taken up for consideration at the time of the constitution of the Arbitral Tribunal. However, if the Court had heard the application even in part, and had applied its mind to it, it could decide to proceed with the adjudication of the same.
Facts
The Appellant and Respondent had entered into a Cargo Handling Agreement dated 21st February 2011 (“CHA”) for handling cargo at Hazira Port. The CHA provided that disputes were to be settled in Courts, in accordance with the provisions of the Act, and be referred to a sole Arbitrator mutually appointed by the parties. Disputes arose between the parties in December 2019. On 22nd November 2020, the Appellant issued a notice to the Respondent, invoking arbitration. The Respondent replied to this notice on 30th December 2020 contending that the disputes between the parties were not arbitrable.
The Appellant approached the High Court of Gujarat under Section 11 of the Act (“Section 11 Application”) for appointment of an arbitrator. Both parties also filed individual applications under Section 9 of the Act (“Section 9 Applications”) before the Commercial Court for interim reliefs pending the constitution of the tribunal. The Section 9 Applications were finally heard and reserved for orders, pronouncement of which was scheduled for 18th June 2021. However, orders could not be pronounced on the said date and the matter was adjourned to 3rd July 2021 and thereafter to 20th July 2021.
Meanwhile, on 9th July 2021, the Hon’ble High Court of Gujarat allowed the Section 11 Application on the written consent of parties, appointing a three-member tribunal to adjudicate the disputes. On the basis of the order passed in the Section 11 Application, the Appellant approached the Commercial Court seeking the reference of both the Section 9 Applications to the Arbitral Tribunal. The Commercial Court dismissed the said application on the ground that the Section 9 Applications had already been “entertained” by it and therefore the bar in Section 9(3) was not applicable in the present case.
Proceedings before the Gujarat High Court
The Appellant challenged the order of the Commercial Court before the Gujarat High Court by filing an application under Article 227 of the Constitution of India. The Gujarat High Court dismissed the said application by way of an order dated 17th August 2021 (“Impugned Order”).
Appeal before the Supreme Court
The Appellant challenged the Impugned Order before the Supreme Court. The short question of law before the Supreme Court was whether the Court had the power to entertain an application under Section 9 of the Act once an Arbitral Tribunal had been constituted, and if yes, what the purport of the expression ‘entertain’ was under Section 9 of the Act. Additionally, the Supreme Court needed to ascertain whether the Court was obliged to examine the efficacy of the remedy under Section 17 of the Arbitration Act before passing an order under Section 9(1), even when an Arbitral Tribunal had been constituted.
Supreme Court’s Findings
Scheme of Section 9 and Section 17
The Supreme Court examined the provisions of the Act and observed that Section 9(1) of the Act enables a party to an arbitration to apply to a Court for interim measures for protection before/during the arbitral proceedings or any time after the making and publishing of the award but before the enforcement of the final arbitral award under Section 36 of the Act. This is qualified by Section 9(3), which has two limbs: (a) the Court cannot entertain an application after the constitution of the Arbitral Tribunal (b) unless the Court finds that circumstances exist which may render the remedy under Section 17 inefficacious.
To discourage the filing of applications for interim measures in Courts, the Arbitral Tribunal has been clothed with the same powers as the Court to grant interim measures under Section 17 under Section 9(1). An order of the Arbitral Tribunal is deemed to be an order of the Court for all purposes and is enforceable as an order of the Court. Therefore, there is no reason for the Court to continue to take up applications for interim relief once the Arbitral Tribunal is constituted and is in seisin of the dispute between the parties, unless there is some impediment in approaching the Arbitral Tribunal or the interim relief sought cannot expeditiously be obtained from the Arbitral Tribunal. This is the backdrop for the prescriptions contained in Section 9(3).
Meaning of the term ‘entertain’ in Section 9(3)
The Supreme Court observed that the word ‘entertain’ means to “consider by application of mind to the issues raised.” A Court entertains a case when it takes a matter up for consideration. Once an application is entertained in the sense it is taken up for consideration, and the Court has applied its mind to the matter, it can certainly proceed to adjudicate the application. The process of consideration could continue till the pronouncement of judgment. However, that would make no difference – the question is whether the process of consideration has commenced, and/or whether the Court has applied its mind to some extent before the constitution of the Arbitral Tribunal. If so, the application can be said to have been entertained before constitution of the Arbitral Tribunal.
A combined reading of Section 9 with Section 17 of the Act suggests that once an Arbitral Tribunal is constituted, the Court would not entertain and/or in other words take up for consideration and apply its mind to an application for interim measure, unless the remedy under Section 17 is inefficacious, even though the application may have been filed before the constitution of the Arbitral Tribunal. However, the bar of Section 9(3) would not operate once an application has been entertained, as in the instant case, where hearing was concluded and judgment had been reserved. It could never have been the legislative intent behind Section 9(3) to turn back the clock and require a matter already reserved for orders to be considered in entirety by the Arbitral Tribunal under Section 17.
Even if an application under Section 9 has been entertained prior to the constitution of the Arbitral Tribunal, the Court has the discretion to direct the parties to approach the Arbitral Tribunal, if necessary by passing a limited order to interim protection. The Court may pass such an order particularly when there has been a long gap between hearings and the application, for all practical purposes, deserves to be heard afresh, or if the hearing has just commenced and is likely to consume a lot of time.
Examining the efficacy of the remedy under Section 17
In view of the findings above, the Supreme Court held that when an application under Section 9 has already been taken up for consideration, is in the process of being considered or has already been considered, the question of examining the efficacy of remedy under Section 17 would not arise.
Applicability to other fact situations
The Arcelor-Essar Judgment has been passed in a fact situation where the Section 9 Petitions had been finally heard and reserved for judgment when the Arbitral Tribunal was constituted. However, there are other fact situations which could emerge in the context of a Section 9 petition.
Petitions under Section 9 follow a common trajectory of getting heard for ad-interim reliefs upon filing. In some cases, having passed an ad-interim order, the Section 9 Court itself appoints an arbitrator by consent of parties so that the matter is finally heard and decided by the arbitrator as a Section 17 application. The Section 9 petition is accordingly disposed of on these terms. In other cases, upon the passing of an ad-interim order, the Section 9 petition remains pending to be taken up for final hearing and disposal in normal course.
In the backdrop of the Arcelor-Essar Judgment, it would be interesting to examine – (i) whether the Court having heard a Section 9 petition for ad-interim reliefs can be said to have ‘entertained’ the Section 9 petition; and (ii) whether the bar under Section 9(3) would be triggered upon the constitution of the Arbitral Tribunal.
A Court hearing a Section 9 petition at the ad-interim stage is required to consider and apply its mind to whether or not the Petitioner has made out a prima facie case for final reliefs against the Respondent. Additionally, the Court is also required to satisfy itself that the balance of convenience is in favour of the Petitioner and that irreparable harm and injury would be caused to the Petitioner if the ad-interim relief sought for is not granted. To arrive at a finding on these issues at the ad-interim stage, the Court has to consider and apply its mind to the contentions raised by both parties. In the circumstances, it can be said that at the ad-interim stage of a Section 9 petition, the Court considers the issues raised in the petition to some extent. Therefore, by applying the principle enunciated in the Arcelor-Essar Judgment, a Court having heard a Section 9 petition at the ad-interim stage can be said to have ‘entertained’ the Section 9 petition.
At this stage i.e. post deciding the ad-interim application in a Section 9 petition, if the Arbitral Tribunal is constituted, would the bar under Section 9(3) get triggered? As stated above, a Court which has heard a Section 9 petition at the ad-interim stage can be said to have ‘entertained’ it. The bar under Section 9(3) operates only when the Section 9 petition has not been ‘entertained’ before the constitution of the Arbitral Tribunal. Therefore, the bar under Section 9(3) would not operate in such a case and the Section 9 Court would have the right to finally hear and decide the Section 9 petition.
Whilst there exists no legal bar under Section 9(3), in cases where the Court has entertained or is entertaining a Section 9 petition in the form of an ad-interim application or otherwise, the Arcelor-Essar Judgment refers to discretion available to the Court where, if deemed fit, it can direct parties to approach the Arbitral Tribunal while passing a limited order of interim protection. Some reasonable grounds on which such discretion can be exercised by the Court would be when it has not heard a Section 9 petition at length thereby necessitating a fresh hearing or when the Section 9 petition would need a detailed hearing, which would consume a substantial amount of the court’s time, etc. The principles that the Court may be guided by while exercising this discretion would be to avoid unnecessary expenditure of judicial time on Section 9 petitions once the Arbitral Tribunal is constituted[2]. This would be in line with the object of Section 9(3), which is to reduce the role of Courts once the Arbitral Tribunal is constituted. The Courts would also look to avoid turning back the clock resulting in the matter being considered entirely afresh by the Arbitral Tribunal when it has already been heard at length by the Section 9 court.
Conclusion
This judgment of the Supreme Court is a welcome clarification on the scope of Section 9 and Section 17 of the Act and the interplay between the two. The judgment has clearly set out the extent of the restriction on the Court’s powers under Section 9(3), a question which had not reached the Supreme Court yet. While emphasising the full extent of the Arbitral Tribunal’s powers under Section 17, the judgment ensures that parties are not forced to argue an advanced dispute afresh merely because they appoint an arbitrator while the dispute is sub judice. At the same time, the judgment retains the discretion of the Court to refer an application under Section 9 to the Arbitral Tribunal then constituted even if the matter has been ‘entertained’ by it. The judgment also provides a useful reference for instances where a remedy by an Arbitral Tribunal may be considered inefficacious, given that the powers of the Arbitral Tribunal have been brought at par with the Court. By balancing the interests of parties with the legislative intent of the Act, the judgment furthers the cause of speedy resolution of disputes, while reaffirming the power of the Arbitral Tribunal to grant interim relief at the same footing as the Court.
For further information, please contact:
Vineet Unnikrishnan, Partner, Cyril Amarchand Mangaldas
vineet.unnikrishnan@cyrilshroff.com
[1] 2021 SCC OnLine SC 718
[2] Amazon.com NV Investment Holdings LLC v. Future Retail Limited 2021 SCC OnLine SC 557
