INTRODUCTION
Arbitration is a method of alternate dispute resolution, where parties to a commercial transaction enter into an agreement to resolve the disputes arising between them by appointing impartial persons referred to as Arbitrators. The Arbitration and Conciliation Act of 1996 aims to cut down judicial intervention in arbitration proceedings i.e. to minimize the burden on civil courts and ensure speedy resolution of disputes.
Interim relief under the Act may be passed either by civil courts u/s 9 or by Arbitral Tribunal u/s 17. Interim relief becomes vital when one party tries to endanger the assets of another party, and such relief is essential to protect the interest of the parties.
Evolution of section 17 of the Act, places it at par with the powers of a civil court to grant interim relief under section 9 of the Act. Section 17 of the 1996 Act empowers Arbitral Tribunal to pass interim orders in arbitral proceedings The article focuses on the scope of the Arbitral Tribunal to grant interim measures under section 17 of the 1996 Act, enforceability, and appeals from the interim orders in consonance with amendments to the Act.
SECTION 17 OF THE ARBITRATION AND CONCILIATION ACT, 1996
Section 17 of the Act provides arbitral tribunal with a power to pass interim orders, during the pendency of arbitral proceedings but not any later. Any order issued by the arbitral tribunal pursuant to this section shall be deemed to be an order of the Court for all purposes and shall be enforceable in accordance with the Code of Civil procedure, 1908 in the same manner as if it were an order of the Court, subject to any orders passed in an appeal under section 37.
2015 AMENDMENT ACT
Prior to the Arbitration and Conciliation Amendment Act 2015, an arbitral tribunal was like a toothless tiger as its powers to pass orders were restricted in comparison to the wide powers vested to courts under Section 9 of the Act. However, this changed and the following amendments were brought in place –
On October 23, 2015, the 2015 Amendment Act went into effect, amending Section 17 of the Act. the appointment of a guardian, ensuring the amount of the dispute in the arbitration, preservation, interim custody, or sale of any assets or property that are the subject of the arbitration agreement were among the forms of relief that were defined in the amended Section.
The purpose of altering Section 17 of the Act was to provide the tribunal the same authority under Section 9 of the Act regarding the granting of interim measures as a civil court. Regarding this, the High Court of Judicature at Madras in the case, observed that the authority to pass interim measures imposes a discretion vested in the tribunal which has to be exercised in accordance with the well-established principles governing the grant of such reliefs by the civil court.
An additional provision in the 2015 Amendment Act states that an order made by the arbitral tribunal under Section 17 of the Act would be considered to be a court order and will be enforceable in accordance with the Code of Civil Procedure, 1908. (“CPC”).
Additionally, it should be emphasized that Section 17(1) of the Act gave the arbitral tribunal the authority to issue an interim judgment even after it had issued the award but before it was put into effect by Section 36 of the Act. The tribunal, however, would become functus officio once the award was made and would therefore be unable to issue a temporary injunction.
2019 AMENDMENT ACT
Under the guidance of Justice B.N. Srikrishna, the High-Level Committee to Review the Institutionalization of Arbitration Mechanism in India identified this inconsistency and recommended that the phrase “or at any time after making the arbitral award but before it is enforced in accordance with Section 36” be removed from the text of Section 17 in 2018. The 2019 Amendment Act took effect on August 30, 2019, and it implemented this recommendation. The power under Section 17(1) of the Act, which is similar to Section 9(1) of the Act in text, is therefore subject to the constraint that it may be exercised by a tribunal only when actions are pending before it following the 2019 Amendment.
SCOPE OF SECTION 17 OF THE ACT
Madras High Court in Flywheel Logistics Solutions Pvt. Ltd. v. Hinduja Leyland Finance Ltd. & Ors.1 observed that an Arbitral tribunal must use its discretion in consonance with the wellestablished principles while dealing with a grant of interim relief:
- a. Existence of prima facie case
- b. To prevent irreparable damage to the applicant if such relief is not passed in his favour
- c. Balance of convenience in favour of the party seeking such relief
The Hon’ble court observed that these principles are mandated under Article 141 of the Indian Constitution, and both the Arbitral Tribunal and the courts are required to uphold them.
In L & T Finance Ltd. v. G.G. Granites2 the Madras High Court stated that these powers resemble those provided under Order XXXIX Rule 1 & 2 of the CPC and that the principles guide the exercise of power under Section 9 and post-2015 amendment these principles will apply to Arbitral Tribunals u/s 17 of the Act.
In Pearl Hospitality & Events Pvt. Ltd. v. OYO Hotels and Homes Pvt. Ltd3, it was noted that the principles governing Order XXXVIII Rule 5 are analogous to, and applicable, while considering a prayer for furnishing of security, under Section 9(1)(ii)(b) or Section 17(1)(ii)(b) of the Act. It is a guiding factor that the petitioner must convince the court that the respondent is intending to transfer or dispose of its assets with the object of defying the decision that may be issued.4
While deciding the dispute between the parties, the arbitration ribunal cannot issue an interim order against any third party who is not a party to the arbitration proceedings. In SBI v. Ericsson India Pvt. Ltd.5, Hon’ble Supreme Court held that no interim orders can be made to prejudice of the interests of the secured creditors in a situation where an arbitration dispute is between the debtors and the unsecured creditors.
ENFORCEABILITY OF INTERIM ORDERS PASSED U/S 17 OF THE ACT
Prior to the 2015 amendment, Arbitral Tribunal could not by its own force enforce the orders passed by virtue of section 17 of the Act, however, it had to approach civil courts u/s 27(5) to take action for contempt. This caused the resolution of these proceedings to be delayed needlessly. Subsequently, section 17(2) was inserted by way of the 2015 amendment, which provided for the enforcement of orders of the Arbitral Tribunal in the same way as orders of the court under CPC, 1908. As a consequence, defying the tribunal’s orders would constitute contempt of court and is punishable under the Contempt of Courts Act, 1971.
APPEALS FROM ORDERS PASSED U/S 17 OF THE ACT
Section 37 of the Act deals with orders which are appealable. The Hon’ble Supreme court in Amazon.com Investment Holdings LLC v. Future Retail Ltd.6 provided for clarification, where an emergency award obtained by the appellant was enforced by a single judge of the Delhi High Court as an interim order u/s 17(2) of the Act. Respondents desired to appeal against the order of Delhi High Court under Order XLIII, Rule (1)(r) of CPC, 1908, on the contention that section 17(2) equates such orders with orders of a court under CPC,1908. Court held that the order referred u/s 17 is appealable only u/s 37 of the Act, and it does not include awards passed by virtue of enforcement roceedings as appealable, Hence the order of a Single judge is not appealable, as the legal fiction created u/s 17(2) is only for enforcement, which cannot be applied to appeals.
CONCLUSION
Amendments to Section 17 of the Act has given the Arbitral Tribunal power to pass interim orders at par with civil courts u/s 9 of the Act, which minimizes the inference of court in arbitral proceedings, thereby providing for speeding disposal of the dispute and reducing the burden on courts. Once the tribunal is constituted, courts cannot entertain an application seeking interim relief u/s 9, nonetheless, if the application u/s 9 is filed before the constitution of the tribunal, the court may entertain it. One should consider whether to provide the arbitral tribunal the authority to award interim relief when drafting an arbitration clause. One need not go to court for such relief if the arbitration provision gives the arbitral tribunal such authority.
However, courts can only be approached if the requested interim relief is denied pursuant to section 37(2)(b), but not to enforce the interim relief awarded by the arbitrator.
Written by – Mr. Varun Ahuja
Partner, Ahuja Law Offices
New Delhi
1 O.P. 229 of 2020 and A. No. 968 of 2020
2 (2013) 5 LW 714.
3 O.M.P. (I) (COMM) 123/2020 & I.A. 4644/2020
4 Raman Tech & Process Engineering Co. & Ors. v. Solanki Traders, (2008) 2 SCC 302.
5 Civil Appeal Nos. 3613-3615 of 2018
6 Civil Appeal Nos. 4492-4493 of 2021