INTERPLAY OF SECTIONS 9 AND 17 OF THE ARBITRATION AND CONCILIATION ACT, 1996
Updated: Jan 30, 2022
Author: Aliya Hussain, III year of B.A.,LL.B from ICFAI Law School, Hyderabad.
Arbitration in India acquired statutory recognition in the 1890s with the enforcement of the Indian Arbitration Act, 1899 which was rather technical and then gave way to the Arbitration Act, 1940. This particular Act had its own limitations as it only dealt with cases on the domestic front. When globalisation made its mark, it was time for the scope of arbitration to widen even in India and thus, was established the Arbitration and Conciliation Act, 1996 (“Act”) based on the UNCITRAL Model Law and dealing with all kinds of domestic and international arbitrations in India.
Interim measures are invoked to safeguard the rights of the parties and to avoid any wrongful interference in the arbitral proceedings. Under the present Act, sections 9 and 17 respectively provide for interim measures. When an application is made, section 9 allows courts to enable a party to seek interim measures or protection. In addition, unless the agreement prevents it, section 17 allows the Arbitral Tribunal the right to mandate interim measures. These sections have gained importance in order to protect the interests of one party over the interests of another if the latter's acts are unworthy of equity, fairness, or natural justice, or if they intrinsically breach the underlying agreement - by providing interim protection to the former.
A plain reading of section 9 indicates that a party may either before or during the arbitral proceedings or at any time after passing of the arbitral award but before it is enforced in accordance with section 36 of the Act, apply to the court for interim measures of protection. The kinds of interim measures to be granted, include :
Appointment of a guardian for a minor or person of unsound mind;
Preservation or interim custody or sale of goods, if goods are of perishable nature;
Securing the amount of claims;
Allowing inspection or interim injunction or appointment of receiver; or
Any other relief as the court may in its discretion may deem proper considering the circumstances of the case.
Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that such circumstances exist which may not render the remedy provided under section 17 as effective. The reason behind this provision was to avoid certain mischievous practices whereby the parties would obtain an interim order to get a status quo to their advantage and then would not commence with the arbitration proceedings. This was also to avoid any abuse of process.
The Factors that the courts consider before granting an interim measure under section 9
Parties to demonstrate the existence of a prima facie case in its favour ;
The balance of convenience is in favour of granting the interim measure that is being requested ;
Demonstrate that if the requested interim measure is not granted then irreparable injury would be incurred by the party.
In this context, public interest has also emerged as a new ground. This problem was emphasized in the case of Raunaq International Ltd. v. I.V.R. Construction Ltd.1, where it was determined that interim orders must be in the public interest and not to the disadvantage of the public.
Jurisdiction of Section 9
An important question had come before the court for consideration in the case of Sundaram Finance Ltd. v NEPC India Ltd.2 which was whether section 9 gives the court the power to grant interim measures before the arbitral procedures begin and an arbitrator is chosen.
As per section 9, one ought to interpret the expression “before or during arbitral proceedings”. This clearly speaks of two stages when a court is empowered to pass interim measures, i.e., during arbitral proceedings or before the arbitral proceedings. The arbitration proceedings can continue notwithstanding a party to the arbitration agreement having approached the court for an order for interim protection. However, in the case of Avantha Holdings Limited v Vistra ITCL India Limited,3 the court upheld that the powers under section 9, even at a pre-arbitration stage, do not have the liberty to arrogate the jurisdiction of the arbitral tribunal.
In the case of Dirk India v. Maharashtra State Electricity Generation Company Limited,4 the objective of an interim measure, according to the Bombay High Court, is to protect the dispute's subject matter during the arbitral procedures. When an interim measure of protection is requested before or during arbitral proceedings, it is a step toward the conclusion of the proceedings. When sought after an arbitral decision has been rendered but before it is enforced, the measure of protection is intended to safeguard the outcome of the proceedings until the award is finally executed.
As far as amendments made to section 9 are considered, the modified provision states that if the Court issues an interim measure of protection before the arbitral proceedings commence, then the arbitral proceedings must begin within 90 days of the date of the order or such other time as the Court may specify. Also, the Court will not consider any application under section 9 unless it is established that circumstances exist that make the remedy under section 17 ineffective.
The aforementioned section 9 modifications are clearly geared at ensuring that parties eventually resort to arbitration and have their disputes resolved on the merits. The exercise of power under section 9 after the tribunal's formation has been made more difficult, and it can now only be done in cases when the remedy under section 17 appears to be ineffective to the Court concerned.
This is an important provision, which is critical to the working of the arbitration system, since it ensures that even for the purposes of interim measures, the parties can approach the arbitral tribunal rather than await orders from a court. Either party can approach the arbitral tribunal for an interim measure either before or after the arbitral award has been passed but before the award gets enforced. Section 17 affirms that the amendments in 2015 contributed to it reflecting the same language as shown in section 9 of the Act in terms of the interim reliefs to be granted.
The change further emphasizes that, unless there are exceptional circumstances, the courts should not hear applications under section 9 if an arbitral tribunal has been established. A tribunal could not function in the case of Bhubaneswar Expressways Pvt. Ltd. v NHAI5 because one of the co-arbitrators had recused. As a result, the Delhi High Court determined that the remedy under section 17 was ineffective and that the case needed to be heard under section 9 of the Act.
The modification to section 17 would allow arbitral tribunals to offer interim relief after an award has been made, reducing the load on courts significantly.
Initially, as was held in the case of Sundaram Finance Ltd. v. NEPC India Ltd.6, the Supreme Court observed that though section 17 gives the arbitral tribunal the power to pass orders, the same cannot be enforced as orders of a court.
However, post amendments made to section 17, it affirms that an arbitral tribunal order delivering any of these interim measures will be deemed equivalent to a court order. It will, however, be enforceable in accordance with the rules of the Code of Civil Procedure, 1908, in the same way that a court order is. The same was reiterated in the case of Alka Chandewar v Shamshul Ishrar Khan7 that by the addition of sub-section (2) to section 17, the elaborate procedure of an arbitral tribunal having to apply every time to the High Court for contempt of its orders would no longer be necessary.
Jurisdiction of Section 17
In India, when a private company executes a contract with Public Sector Undertaking (PSU) or the State Government, the arbitral tribunal is constituted of arbitrators who are nominated by the Managing Director of the concerned PSU or the arbitral tribunal is governed under a special enactment. The Supreme Court in the case State of Gujarat v Amber Builders8 elucidated on the jurisdiction of such arbitral tribunals to pass interim orders under section 17 of the Act.
It was rightly held in the case of Manbhupinder Singh Atwal v Neeraj Kumarpal Shah9 by the Gujarat High Court that when a party intentionally tries to render the remedy under section 17 to be inefficacious, it cannot be permitted to approach the court under section 9 to secure interim reliefs which can be granted by the arbitral tribunal.
Enforceability of section 17
The effectiveness of section 17 was severely hampered by the lack of any statutory basis for enforcing arbitral tribunal interim orders. An arbitral tribunal's power is restricted, and any interim measure must necessarily merge with the final ruling in order to be enforceable. In terms of the enforceability element under section 17, formerly, an arbitral tribunal order had to be enforced by petitioning the court. When the position was challenged, the High Court of Delhi pointed to section 27(5) of the Act, which states that anyone who is in contempt of an arbitral tribunal throughout the course of the proceedings is susceptible to punishment.
Before the 2015 Amendment, the tribunal was like a toothless tiger when it came to its powers to pass orders in comparison to the powers conferred upon courts under section 9. However, this section today expressly provides that now an order passed by the arbitral tribunal is deemed to be an order of the court for all purposes and shall be enforceable in the same manner.
Emergency Arbitration which is also known as ‘e-arbitration’ is unknown in the Act but Indian courts/ arbitration institutions are familiar with the concept. E-Arbitration is a mechanism which enables parties to obtain an urgent interim relief before the arbitral tribunal is constituted. Only for a limited period of time can an emergency arbitration grant interim measures or conservatory relief.
An interim order or award made by an emergency arbitrator is not specifically mentioned in section 9(1) or section 17(1) of the Act. As a result, it's been unclear whether an award made by an emergency arbitrator in an India-seated arbitration would fall within the scope of the Act's legislative system, and if so, how it would be enforced. The primary function of emergency arbitration is to intervene when there is no arbitral tribunal in place or when sufficient time would be lost in establishing one, based on the requirements of an arbitration agreement or institutional rules. India takes an alternate enforceability approach to an emergency arbitration order. There are few judicial decisions on emergency arbitration. In the context of an award made by the emergency arbitrator under the Arbitration Rules of the Singapore International Arbitration Centre ("SIAC Rules") in an India-seated arbitration, the Supreme Court's decision in Amazon.Com NV Investment Holdings LLC v. Future Retail Limited & Others10, has now provided much-needed clarity on these questions.
The judgment has laid down that an award made by an emergency arbitrator under section 17(1) of the Act is enforceable by Indian courts under section 17(2) and that no appeal would lie against the enforcement of such an order enforced under section 17(2). Given that the order for enforcement of such emergency award would be final and non-appealable, parties can expect the enforcement proceedings to be more efficacious and less time consuming. This ruling of the Supreme Court is perceived as yet another step in the right direction to bring India’s arbitration regime in line with the international regime in arbitration-friendly countries.
Despite the fact that India is still waiting for statutory recognition of emergency arbitrator awards, e-arbitration is now valid in a few institutions across the country, as defined by section 18A of the Delhi International Arbitration Center (DIAC) or section 3 of the Mumbai Center for International Arbitration (Rules) 2016.
If you look at the Act, it has no mechanism to enforce decisions made by E-arbitrators which are quite frequent. So therefore courts have made use of creative mechanisms in the absence of direct provisions.
Interplay of sections 9 and 17
Section 9 and section 17 of the Act do overlap each other, however, the distinction they hold is crucial :
Courts have compulsory jurisdiction which arises if one of the parties resides in the jurisdiction of that court or has one’s place of work or with the existence of an agreement which confers such jurisdiction. It is not based purely on the consent of the parties as it is required under section 17.
Whereas, an arbitral tribunal is a product of the parties’ agreement. Once constituted, it decides on the disputes referred by the parties but after the award is passed, it is terminated. Therefore, only the parties here are bound by the decision of the arbitral tribunals.
As was held by the Hon’ble Supreme Court in the case of Firm Ashok traders And anr. Etc v Gurumukh Das Saluja and Ors. Etc.11, the power conferred on the arbitral tribunal under section 17 and the power conferred on the court under section 9 may overlap to some extent but the party seeking an interim measure of protection must approach only the court during the period prior to and following the arbitral proceedings.
In Arcelor Mittal Nippon Steel India Ltd. v. Essar Bulk Terminal Ltd.12, the Supreme Court discussed the interplay of sections 9 and 17, which states that once an arbitral tribunal has been constituted, the court shall not entertain an application for interim measure under section 9(1) unless the court finds the existence of circumstances that render the remedy provided under section 17 ineffective.
Impact of sections 9 and 17 on non-signatories to arbitration
An application under section 9 before the court can be extended to third parties as well unlike under section 17 which only pertains to a party of the proceeding. This view was taken up in the case of Arun Kapoor v Vikram Kapoor13 by the Delhi High Court. With no opinion of the Supreme Court in this context, this debate has gone in many directions. On the other hand, the Delhi High Court reiterated in the case of Mikuni Corporation v UCAL Fuel Systems14 that a section 9 application will not lie against any such party against whom arbitration proceedings cannot be initiated.
Further, in the case of Blue Coast Infrastructure Development Pvt. Ltd. v. Blue Coast Hotels Ltd15, while the tribunal's powers under section 17 are restricted, the courts’ powers under section 9 are considerable, including the ability to provide interim relief against third parties. Prior to this was the judgment held in the case of Gatx India Pvt. Ltd. v. Arshiya Rail Infrastructure Limited16, wherein section 17 cannot be used against non-parties to the arbitration. However, it is important to note that the Gatx Judgment was dealing with section 17 before it was amended in the year 2015. The 2015 Amendment to alter section 17 appears to be aimed at bringing the arbitral tribunal's powers up to level with those of the courts under section 9. This is because, once the arbitral tribunal has been established, seeking relief from the courts should be the exception rather than the rule.
The order of the emergency arbitrator will be in the form of an interim award, which the parties must comply with. If a party fails to comply with such an order, it may be enforceable in nature under the terms of various national laws, depending on the discretion of national courts and national legislation that may or may not include provisions for Emergency Arbitration. Despite the fact that Emergency Arbitration serves as a turning point in the global scene in light of injunctions in arbitration processes, India has yet to receive formal statutory recognition of the Emergency Arbitrator's awards.
The evolution of section 17 of the Act clearly demonstrates that arbitral tribunals are now competent to deal with interim remedies independently of the courts. This enables the parties to communicate in a pro-arbitration manner rather than submitting their issues to the courts and then obtaining interim orders. While the arbitral tribunal has sufficient ability to act independently, it may follow underlying principles that will enable it in reaching a conclusion. In light of the foregoing, a sub-provision to section 17 of the Act may be added to allow the tribunal to adjudicate the contempt, thereby boosting arbitrators' flexibility and minimising the load on the courts. Despite the fact that the arbitral tribunal has been given the authority to implement its orders, the Act is ambiguous on the subject. Nonetheless, the law commission has been taking steps in order to develop the Act and get closer to achieving its objectives for the further development of Arbitration in our legal sphere.
1. (1999) 1 SCC 492
2. (1999) 2 SCC 479
3. 2020 SCC OnLine Del 1717
4. 2013 (7) B.C.R. 493
5. (W.P. (CRL) 1347/2020)
6. (1999) 2 SCC 479
7. (2017) INSC 502
8. (2020) 2 SCC 540
9. 2019 GLH (3) 234
11. (2004) 3 SCC 155
12. (2021 SCC OnLine SC 718)
13. 2002(1) RAJ 285 (Del)
14. 2008 (17) ILR(DLH) 958
15. O.M.P. (I)(COMM) No. 35/2020
16. 2015 VAD (Delhi)