Background
Interim measures act as significant procedural safeguards in ensuring the efficacy of the arbitration process. They serve to protect the rights of parties from the inception of the dispute till the execution of the final award. In India, interim measures may be granted in three stages i.e. before the commencement of arbitration proceedings, during the pendency of arbitration proceedings and after the passing of the arbitral award, but before its enforcement.[1]
Granting of interim measures ‘before the commencement of arbitration proceedings’ may in some cases lead to a unique set of unintended consequences. In such cases, what has been legally contemplated is a proximity between the grant of interim measures and the invocation of arbitration. However, in practice, parties typically tend to eternally sit on the interim order granted in their favour, without commencing arbitration proceedings at the earliest, thereby hindering the arbitration process and increasing the scope for judicial intervention. In this blog, we examine the efficacy and sufficiency of the prevailing legislative and judicial framework in addressing the aforesaid malpractice.
Section 9(2): An Ode to Judicial Foresight
The Hon’ble Supreme Court of India has observed the practice of parties sitting over their interim reliefs and unscrupulously delaying invocation of arbitration proceedings in two prominent rulings[2] [even before the enactment of Section 9(2) of the Arbitration and Conciliation Act, 1996 (the ‘Act’)], wherein it was held as under:
(a) At the outset, while filing an application for seeking interim measures, parties must demonstrate their ‘manifest intention to arbitrate’.
(b) Further, there is a ‘proximity’ contemplated between the passing of an interim order and the commencement of arbitration proceedings soon thereafter.
(c) Furthermore, while considering such an application for interim reliefs, courts are obliged to enquire from the applicant as to how and when the arbitration proceedings will commence and, if necessary, impose conditions/ terms facilitating timely commencement of arbitration. In addition, the court may also recall the interim order if a party commits a breach of such terms.
(d) Lastly, having secured an interim relief, a party cannot sit over its relief and must commence arbitration within “a reasonable time” so that the “proximity” contemplated in law is not severed.
Section 9(2): A Ticking Clock?
Pursuant to the pronouncement of the foregoing principles by the Hon’ble Supreme Court of India, in 2015, vide the Arbitration and Conciliation (Amendment) Act, 2015, Section 9(2) was inserted into the Act in order to address the issue of non-invocation of arbitrations in a timely manner, post the grant of an interim relief[3].
In terms of Section 9(2), arbitration proceedings shall be commenced within a period of 90 (ninety) days from the date of the interim order or within an extendable timeline as per the courts’ discretion. The usage of the word ‘shall’ in its ordinary meaning indicates that the obligation to commence arbitration within a period of 90 (ninety) days from the date of passing of the interim order is a mandatory one[4]. Here, the ‘commencement of arbitration proceedings’ refers to commencement of proceedings in terms of Section 21 of the Act.[5]
Section 9(2): One Step Forward, Two Steps Back
While the intent behind the insertion of Section 9(2) into the Act is laudable, it may be argued that the provision fails to achieve its intended purpose. Upon a bare perusal of Section 9(2) of the Act, it is apparent that the provision is silent on the following issues that remain open for interpretation:
(a) Consequences for non-invocation of arbitration within 90 (ninety) days;
Section 9(2) of the Act does not spell out the consequences of non-invocation of arbitration within the 90 (ninety) day period, from the date of passing of the interim order, and hence can be misused. Different High Courts have interpreted Section 9(2) differently. Whilst some High Courts have strictly interpreted this provision, a few other High Courts have reduced it to a mere procedural formality.
(i) Automatic Vacation of Interim Orders: A No-Nonsense Approach
Some High Courts are of the view that in the event that the party who has secured an interim order in its favour does not invoke arbitration within 90 (ninety) days from the date of passing of the interim order, the interim order shall automatically stand vacated and shall cease to operate[6]. The rationale behind the aforesaid finding, as laid down by the courts, is that Section 9(2) has been made ‘mandatory’ by the parliament in order to ensure that an order for any interim measure shall not continue in perpetuity, in the absence of invocation of arbitral proceedings, and any interpretation to the contrary will defeat the intention of the legislature.
(ii) Continuation of Interim Orders: (In)Correct Exercise of Discretion?
Per Contra, despite the non-invocation of arbitration, after the expiry of 90 (ninety) days from the date of the interim order, some courts have allowed the interim orders to continue[7], whether for securing the ‘interests of justice’ or by way of suo moto exercise of ‘judicial discretion’, to extend the timelines as laid down in the latter part of Section 9(2) of the Act.
(b) The Procedure for Extension of Time: Whether Suo Moto or upon an Application for Extension?
The latter part of Section 9(2) gives unfettered power to the court to extend the time for invocation of arbitration beyond the statutory period of 90 (ninety) days. However, the Act is silent on the grounds on which the court may grant such an extension or the procedure through which such an extension may be sought and/ or granted. This has again led to different interpretations from different courts.
In one of its judicial orders, the Hon’ble Bombay High Court had vacated an ad-interim relief on the ground that an application for enlargement of time under Section 9(2) of the Act was not filed.[8] Whereas, in a decision pronounced by the Hon’ble Madras High Court, it was opined that in cases wherein arbitration has not commenced within 90 (ninety) days of the passing of an interim order, or where the Court has not directed parties to go for arbitration within 90 (ninety) days, it should be deemed to have exercised its authority under the latter part of Section 9(2)[9]. In another ruling[10], the matter on Section 9(2) was remanded from the Hon’ble Kerala High Court to the district court (which granted the interim order) to hear arguments from both the parties and then decide whether the interim relief must be continued despite the lapse of the 90 (ninety) days statutory period.
(c) The Legal Effect of Non-invocation of Arbitration Proceedings on the constitution of the Arbitral Tribunal: An Unlikely Consequence
Section 9(2) of the Act does not clarify the effect of non-invocation of arbitration (within the period of 90 (ninety) days) upon the constitution of the arbitral tribunal and upon the invocation of arbitration itself. In a decision pronounced by the Hon’ble Madras High Court[11], it was argued that given that the constitution of the arbitral tribunal took place far beyond 90 (ninety) days from the date of passing of the interim order, the very constitution of the arbitral tribunal was anti-statute and incompetent. The court while rejecting the foregoing contention observed that Section 9(2) cannot be interpreted in a manner so as to reduce the limitation period provided under the Limitation Act, 1963, which applies to arbitrations by virtue of Section 43(1) of the Act.
Additionally, in various other judicial decisions, although the interim order had been vacated on the expiry of 90 (ninety) days, the arbitration proceedings remained untainted and the court in fact directed the parties to invoke arbitration within a certain period of time[12]. Therefore, what follows is that the non-invocation of arbitration under Section 9(2) of the Act within the prescribed period of 90 (ninety) days may not ipso facto affect the invocation of arbitration thereafter or the constitution of the arbitral tribunal.
(d) Applicability of Section 9(2) to ad-interim orders: A Separate Class in itself?
Section 9(2) is applicable to orders passed under Section 9(1) of the Act, which does not include a specific reference to ‘ad-interim’ orders. In one of the cases before the Hon’ble Kerala High Court, it was argued that the statutory period of 90 (ninety) days does not apply to ad-interim orders and only applies to interim orders passed while finally deciding an application under Section 9 of the Act. This argument was rejected by the Hon’ble Kerala High Court[13], which held that the Act is a self-contained code and provisions of Section 9(2) are equally applicable to ad-interim orders as well. Contrary to the approach followed by the Hon’ble Kerala High Court, recently, the Hon’ble Bombay High Court has held that the timelines set out under Section 9(2) of the Act do not apply to ad-interim reliefs.[14]
Ensuing Problems: When Silence is not Golden
The foregoing section of this article makes its amply clear that Section 9(2) leaves many questions unanswered, leading to certain unwanted consequences, including but not limited to (i) increased scope for judicial intervention and interference; (ii) major inconvenience to the party against which the interim order has been granted (more so when it is an ex-parte interim order); (iii) interim orders gaining the status of de facto permanency; (iv) delay and derailment of arbitration proceedings; (v) greater consequences of an ill obtained injunction order; (vi) wide discretion to courts leading to contradictory orders, thereby hindering the process of unification of laws in India. Given the objectives of the arbitration process, there is a dire need to suggest certain measures to disturb this silence of the legislation.
The Road Ahead: Resolving Problems under the Existing Framework
To adequately address the aforesaid unwanted consequences, firstly, applications under Section 9 of the Act must be scrutinised thoroughly and only upon the party demonstrating a manifest intention to arbitrate, should an interim relief be granted. Recent decisions seem to be a step in this direction.[15] Secondly, while passing interim orders, courts must impose specific terms and conditions directing the parties to invoke arbitration within a period of 90 (ninety) days, failing which the interim order shall automatically stand vacated. Thirdly, applications for extension of time ought to be entertained only if they are filed at the earliest possible opportunity, well within the 90 (ninety) days period, and sufficient cause for an extension is demonstrated. Fourthly, High Courts must frame rules indicating the procedure, grounds, timelines and consequences for non-invocation of arbitration, for ruling on matters falling under Section 9(2) of the Act. The Hon’ble Karnataka High Court has framed some rules in this regard.[16] Lastly, it should be the endeavor of the parties to institute arbitration at the earliest possible opportunity, treating the period of 90 (ninety) days as an outer limit at best. It is indeed the need of the hour to truly set the clock ticking.
For further information, please contact:
Kapil Arora, Partner, Cyril Amarchand Mangaldas
kapil.arora@cyrilshroff.com
[1] Section 9 of the Arbitration and Conciliation Act, 1996.
[2] M/s Sundaram Finance Ltd. v. NEPC India Limited 1999 (1) SCR 89 and Firm Ashok Traders and Anr. v. Gurumukh Das Saluja And Ors 2004 (1) SCR 40. These judgments have been relied upon in the case of Minoo Aspandyar Irani v. Deenyar Sheriar Jehan Arbitration Petition No. 1211 OF 2013, Bombay High Court
[3] Section 9(2): Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.
[4] PC Markanda,‘Law relating to Arbitration and Conciliation’, 9th edition, Lexis Nexis, page no. 375.
[5] Commencement of arbitral proceedings. —Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.
[6] Hinduja Leyland Finance Ltd. v. Avinandan Mukherjee, Calcutta HC, AP 165 OF 2017; Paton Construction v. Lorven , 2017 SCC OnLine Kar 3469; Velugubanti Hari Babu v. Parvathini Narasimha Rao 2017 SCC OnLine Hyd 469; Tata Capital Financial Services v. Harjit Singh, Calcutta HC, AP 461/2017.
[7] Epimoney Private Limited v. Manidhari Oils Pvt. Ltd. And 3 Ors, 2019 SCC OnLine Bom 4861; Abdul Vaheed v. Srei Equipment Finance Limited & Anr 2018 SCC OnLine Cal 1529.
[8] Borivali Anamika Niwas Coop Hsg Soc Ltd v. Aditya Developers & Ors, Bombay HC,COMM Arbitration Petition No. 989 of 2019.
[9] Shri Chaudhary Avadhesh Kumar v. Volleyball Federation of India 2017 SCC OnLine Mad 19117.
[10] MC Paulose v. Shibi Abraham & Anr., Kerala HC, Arb. A No.83/2017.
[11] Shri Chaudhary Avadhesh Kumar v. Volleyball Federation of India 2017 SCC OnLine Mad 19117.
[12] M/s Vatika Limited v. Hemant Gandhi and another, High Court of Punjab and Haryana, FAO No. 4552 of 2019, Tata Capital Financial Services v. Harjit Singh, Calcutta HC, AP 461/2017.
[13] Manosh Elias Constructions Pvt Ltd. v. Manuel John, 2018 SCC OnLine Ker 6383.
[14] Aditya Birla Finance Ltd vs Airen Metals Pvt. Ltd, COMM. ARBITRATION PETITION (L) NO. 6754 of 2021, Bombay High Court
[15] Shriram Transport Finance v. P Kalidoss & Ors, Application No. 9466 of 2019, Madras High Court, Avantha Holdings Limited v. Vistra ITCL India Limited, O.M.P. (I) (Comm.) 177/2020, Delhi High Court, Innovative Facility Solutions vs M/S Aec Digital Studio Private, FAO No. 2917 of 2020, Punjab and Haryana High Court
[16] Rule 9(4) of High Court of Karnataka Arbitration (Proceedings before the Courts) Rules, 2011. These Rules have been interpreted in Shri M Rajesh v. M/s Metro Cash and Carry India Private Limited, Division Bench of Karnataka High Court, M.F.A No. 7207/2017
