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10 August 2017
In many domestic and international arbitrations it is vital for the claimant to secure or preserve the subject matter of its claim at the initial stage, lest the opposing party render the dispute resolution process infructuous. For this reason, the legal regime surrounding the jurisdiction to pass interim orders and their enforceability is important, especially in the context of international commercial arbitration.
This update examines the Indian position on various issues surrounding interim orders in international commercial arbitrations, with particular reference to the changes brought by the Arbitration and Conciliation (Amendment) Act 2015. By way of the amendment act, the Indian government has sought to reform the law in relation to international commercial arbitrations conducted in India and foreign-seated international commercial arbitrations. This update critically analyses the amendment act with reference to the United Nations Commission on International Trade Law (UNCITRAL) Model Law on international commercial arbitration as interpreted in recent judgments from the Delhi High Court(1) and the Bombay High Court.(2) Finally, this update suggests precautions that parties should take while drafting and negotiating arbitration agreements with regard to securing interim relief.
Interim relief in Indian arbitration law is known as 'interim measures of protection'. The interim relief regime is contained in Part I, Sections 9 and 17 of the Arbitration and Conciliation Act 1996. While Section 17 provides for interim measures to be ordered by the arbitral tribunal, Section 9 enables a party to approach the Indian courts for interim relief.
Although Section 17 gave the arbitral tribunal power to grant interim measures of protection, there was no provision for enforcement of such orders before passing of the amendment act. Therefore, unless the party against which the interim order was passed voluntarily complied with the interim order granted by the arbitral tribunal, the claimant had no effective way to enforce the interim relief secured by it.(3)
This also led to the high courts passing innovative orders to overcome this glaring oversight and secure compliance by parties to interim orders of arbitral tribunals. In Sri Krishan v Anand(4) the Delhi High Court held that any person failing to comply with an arbitral tribunal's interim order under Section 17 would be deemed guilty of contempt of the arbitral tribunal.(5) As a remedy, the aggrieved party could then apply to the arbitral tribunal to make a representation to the court to dispense the appropriate punishment. However, this was seen as an ineffective solution to the problem. The efficacy of Section 17 was therefore largely questionable and parties preferred approaching the courts directly for interim relief under Section 9 of the 1996 act.
Pertinently, Sections 9 and 17 are contained in Part I of the 1996 act, which regulates domestic arbitrations and international commercial arbitrations seated in India, but not foreign-seated international commercial arbitrations. This led to another issue, which constantly plagued foreign-seated international commercial arbitrations: could the parties to a foreign-seated international commercial arbitration secure interim relief by approaching the Indian courts under Section 9 of the 1996 act?
In Bhatia International v Interbulk Trading SA(6) the Supreme Court held that the 1996 act applied to all arbitrations, including those held outside India, unless the parties had expressly or impliedly excluded the applicability of all or any of its provisions. This judgment was prospectively overruled by Bharat Aluminium v Kaiser Aluminium,(7) in which it was held that Part I of the act (which contains Section 9) applies only to arbitrations where the seat of arbitration is India. Therefore, in the absence of any provision enforcing interim orders passed in foreign-seated international commercial arbitrations and the parties being deprived of the right to file before the Indian courts under Section 9 of the 1996 act, parties to foreign-seated international commercial arbitration were deprived of any efficacious and practicable remedy for interim relief.
To provide teeth to Section 17 of the 1996 act and enable parties to secure effective interim relief from the arbitral tribunal without court intervention, the amendment act now provides the arbitral tribunal with the same powers under Section 17 as given to the courts under Section 9. The amendment act specifically provides that arbitral tribunal orders under Section 17 are enforceable as orders of a civil court.
Further, Section 2(2) of the 1996 act has been amended to provide that subject to an agreement to the contrary, Sections 9 (interim measures by the court), 27 (court assistance in taking evidence), 37(1)(a) and (3) (appealable orders) will also apply to foreign-seated arbitrations, as long as the award under such an arbitration is enforceable under Part II of the 1996 act.
Despite the fact that these are recent amendments, the Delhi High Court and the Bombay High Court have both had the occasion to interpret the provisions relating to the grant of interim relief in foreign-seated international commercial arbitrations.
Raffles v Educomp
In Raffles Design International India Pvt Ltd v Educomp Professional Educational Limited the issue of emergency and interim orders passed by arbitral tribunals and the applicability of Part I, Section 9 read with the amended Section 2(2) of the 1996 act to foreign-seated international commercial arbitrations was tested at length for the first time following the amendment act's entry into force. In this case, the arbitration agreement provided that the agreement would be governed and construed in accordance with the laws of Singapore and the arbitration would be held in Singapore under the Arbitration Rules of the Singapore International Arbitration Centre (SIAC).
Pursuant to an emergency application filed by the claimants, the SIAC appointed an emergency arbitrator to consider the request. According to the claimants, the respondents were acting in contravention of the emergency award passed in the claimant's favour and therefore the claimants approached the Delhi High Court with a petition under Section 9 of the 1996 act.
The main issues in this case were whether:
In regard to the first issue, while the amendment act seeks to assist parties in international commercial arbitrations by making Section 9 of the 1996 act applicable to international commercial arbitrations "subject to an agreement to the contrary", Parliament's failure to adopt the words subject to an 'express' agreement to the contrary, as suggested by the Law Commission of India in its 246th Report, may open Pandora's box. This omission partially restored the Bhatia International judgment, under which the courts in foreign-seated international commercial arbitrations must now determine on a case-by-case basis whether the parties have impliedly or expressly excluded the applicability of Section 9 under their arbitration agreement. Pertinently, the question of whether Part I (now restricted in the context of foreign-seated international commercial arbitrations to Sections 9, 27, 37(1)(a) and (3)) was impliedly excluded was the subject matter of several fiercely fought legal battles(8) under the Bhatia International regime.
On review of Raffles, it is clear that the court heard lengthy arguments by both parties on the issue of whether the parties had impliedly or expressly excluded the applicability of Section 9 from their arbitration agreement. The court ultimately decided that in view of the SIAC Arbitral Rules, which permit parties to approach judicial authorities for interim relief, Section 9 had not been impliedly or expressly excluded by the parties under the arbitration agreement.
Further, on the question of enforcement of emergency awards and interim measures, the court ruled that as Section 17 of the 1996 act was contained in Part I, it clearly did not apply to international commercial arbitrations seated outside India. The court noted that although the UNCITRAL Model Law contained express provisions for enforcement of interim measures under Article 17H, there was no provision para materia to Article 17H for the enforcement of interim orders granted by an arbitral tribunal outside India under the 1996 act. Therefore, the only manner in which a party could enforce an emergency order or interim measure would be to file a suit.
Obviously, the other more practicable option available to a party, as was adopted in this case, would be to file a petition under Section 9 of the 1996 act. However, under Section 9, the court will reappraise the case for interim relief on the merits and not merely recognise and enforce an order passed by an emergency arbitrator or the arbitral tribunal, as the case may be.
Aircon Beibers FZE v Heligo Charters Pvt Ltd
In the more recent judgment of Aircon Beibers FZE v Heligo Charters Pvt Ltd(9) the Bombay High Court took a clear view with regard to the availability of the remedy under Section 9 of the 1996 act to foreign-seated arbitrations in light of the proviso to Section 2(2) of the 1996 act being subject to an agreement to the contrary.
The arbitration clause in question:
The respondent's counsel argued that the petition filed by Aircon under Section 9 of the 1996 act was not maintainable, as the proviso to Section 2(2) of the 1996 act was subject to an agreement to the contrary; here, there was clearly an agreement to the contrary, as the parties had chosen Singapore law and the SIAC Arbitration Rules.
While rejecting the respondent's argument, the court held that if the respondent's contention was to be accepted, it would defeat the purpose of the entire proviso to Section 2(2). Importantly, the court stated that for an exclusionary agreement to be construed, "the exclusion must be in specific words, saying that Part I (or some sections of it) will not apply to the arbitration between the parties". Therefore, despite the fact that the word 'express' was missing in the enacted proviso to Section 2(2), by this judgment, the Bombay High Court has read the same into the provision and brought it in line with what was originally recommended by the Law Commission in its 246th Report.
Ambiguity in the applicability of Section 9 to foreign-seated international commercial arbitrations, coupled with a lack of enforcement of interim orders passed by foreign-seated arbitral tribunals in India, could leave a party to an international commercial arbitration without remedy in terms of securing effective interim relief. To avoid any confusion, arbitration agreements should specifically state that Section 9 applies to the agreement so that the conundrum of whether Section 9 has been impliedly excluded does not delay grant of interim relief. Although the Law Commission of India suggested the inclusion of the words 'emergency arbitrator' in the definition of 'arbitral tribunal' under the 1996 act, this amendment was not carried out. Therefore, until an amendment is introduced to give formal recognition and enforcement to interim orders and orders passed by emergency arbitrators in foreign-seated international commercial arbitrations, to secure effective interim relief a party may approach the Indian courts directly under Section 9 of the 1996 act, which empowers the courts to grant interim measures of protection even before the arbitral tribunal has been constituted.
While the amendments are progressive and make Indian arbitration law more palatable to international commercial arbitrations seated in India and abroad, the parties to international commercial arbitrations should adopt certain safeguards in order to exercise some leverage and adequately protect themselves in case of a dispute.
For further information on this topic please contact Sanjeev Kapoor or Anushka Sharda at Khaitan & Co by telephone (+91 11 4151 5454) or email (firstname.lastname@example.org or email@example.com). The Khaitan & Co website can be accessed at www.khaitanco.com.
(3) In Sundaram Finance Ltd v NEPC India Ltd ((1999) 2SCC479) the Supreme Court observed that although Section 17 gives the arbitral tribunal the power to pass orders, the same cannot be enforced as court orders. In MD Army Welfare Housing Organisation v Sumangal Services Pvt Ltd ((2004) 9SCC 619) the court held that Section 17 of the 1996 act neither confers power on the arbitral tribunal to enforce its order nor provides for judicial enforcement thereof.
(8)Videocon Industries Ltd v Union of India (2011) 6SCC161; Hardy Oil & Gas Ltd v Hindustan Oil Exploration Company Limited (2006) 1GLR658; Yograj Infrastructure Ltd v Ssangyong Engineering Construction Ltd; Reliance Industries v Union of India 2014(4) CTC 75; Harmony Innvovation Shipping Ltd v Gupta Coal India Ltd, (2015) 9SCC172.
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