Sunday, 30 August 2020

Under which circumstances application U/S 9 of Arbitration Act is maintainable in foreign seated arbitration before the Indian court?

Analysis

32. In the light of the facts and submissions recorded above, the primary question which requires consideration is whether the appellants ought to be permitted to proceed with their request for interim measures of protection under Section 9 of the Act, after having failed in obtaining similar relief from the emergency arbitrator under the JCAA Rules, and even after the constitution of the arbitral tribunal.

33. Although Section 9(3) of the Act is, on its terms, expressly relatable to India-seated arbitrations, as evidenced by the reference to Section 17 of the Act, we are of the view that the principle thereof is equally applicable when interim measures are sought in the Indian courts in connection with a foreign-seated arbitration. Resolution of disputes by a tribunal of the parties' choice, and reduced interference by courts, are amongst the central features of arbitration. Section 9(3) of the Act reflects that understanding, and manifests a legislative preference that the grant of interim measures ought to be considered by the arbitral tribunal, once constituted, rather than by the courts. It is only when the remedy before the tribunal lacks efficacy, that a party can seek interim measures from the court under Section 9. In the LC Report also, the following justification is provided for the insertion of Section 9(3) into the Act:

"[NOTE: This amendment seeks to reduce the role of the Court in relation to grant of interim measures once the Arbitral Tribunal has been constituted. After all, once the Tribunal is seized of the matter it is most appropriate for the Tribunal to hear all interim applications. This also appears to be the spirit of the UNCITRAL Model Law as amended in 2006.

Accordingly, section 17 has been amended to provide the Arbitral Tribunal the same powers as a Court would have under section 9.]"

(Emphasis supplied.)

34. Mr. Singh submitted on behalf of the appellants that the aforesaid principle is not applicable to foreign-seated arbitrations, as interim measures granted by India-seated tribunals alone are automatically enforceable in India under Section 17(2) of the Act. It is for this reason, according to Mr. Singh, that Section 9(3) refers only to the availability of a remedy under Section 17, and not to remedies that may be available before a foreign-seated arbitral tribunal. Mr. Singh pointed to this very difference as the rationale for the insertion of the proviso to Section 2(2) of the Act, as contained in paragraph 41 of the LC Report, wherein the Law Commission referred to the decision of the Supreme Court in Bharat Aluminium and Co. vs. Kaiser Aluminium and Co., MANU/SC/0722/2012 : (2012) 9 SCC 552, and observed as follows:-

"41. While the decision in BALCO is a step in the right direction and would drastically reduce judicial intervention in foreign arbitrations, the Commission feels that there are still a few areas that are likely to be problematic.

(i) Where the assets of a party are located in India, and there is a likelihood that that party will dissipate its assets in the near future, the other party will lack an efficacious remedy if the seat of the arbitration is abroad. The latter party will have two possible remedies, but neither will be efficacious. First, the latter party can obtain an interim order from a foreign Court or the arbitral tribunal itself and file a civil suit to enforce the right created by the interim order. The interim order would not be enforceable directly by filing an execution petition as it would not qualify as a "judgment" or "decree " for the purposes of sections 13 and 44A of the Code of Civil Procedure (which provide a mechanism for enforcing foreign judgments). Secondly, in the event that the former party does not adhere to the terms of the foreign Order, the latter party can initiate proceedings for contempt in the foreign Court and enforce the judgment of the foreign Court under sections 13 and 44A of the Code of Civil Procedure. Neither of these remedies is likely to provide a practical remedy to the party seeking to enforce the interim relief obtained by it.

That being the case, it is a distinct possibility that a foreign party would obtain an arbitral award in its favour only to realize that the entity against which it has to enforce the award has been stripped of its assets and has been converted into a shell company.

(ii) While the decision in BALCO was made prospective to ensure that hotly negotiated bargains are not overturned overnight, it results in a situation where Courts, despite knowing that the decision in Bhatia is no longer good law, are forced to apply it whenever they are faced with a case arising from an arbitration agreement executed pre-BALCO."


35. We are unable to accept Mr. Singh's contention. The primary purpose of Part I of the Act (which inter alia includes Section 2, 9 and 17) is to govern India-seated arbitrations. The reference in Section 9(3) to Section 17 alone, cannot therefore be dispositive of the question as to whether the same principle applies where the arbitration is seated outside India. In our view, the absence of a specific reference to foreign-seated arbitrations in Section 9(3) ought not to be construed as a widening of the Section 9 power, to cover cases where the arbitral tribunal has been constituted, and is capable of granting efficacious relief. Such an interpretation would not just extend the scope of Section 9, but would amount to the provision being available in the Indian courts in connection with foreign-seated arbitrations, but not in connection with India-seated arbitrations. We therefore hold that, although an application under Section 9 is maintainable in connection with a foreign-seated arbitration, an application thereunder would not lie after the constitution of the arbitral tribunal, unless the applicant demonstrates that it does not have an efficacious remedy before the tribunal. (We are not required in the facts of the present case to decide whether the availability of a remedy before an emergency arbitrator, or the seat court, would also dissuade the Indian court from granting relief under Section 9.)

36. In considering the aforesaid question, the Court would certainly have regard to the question as to whether the remedy before the arbitral tribunal would be efficacious or not. This caveat is incorporated in Section 9(3) also, and would turn upon the facts and circumstances of each case, including the amplitude of the power conferred upon the arbitral tribunal. In making this assessment, the manner in which the applicant has framed the relief sought cannot be determinative; the more appropriate test is whether the tribunal is sufficiently empowered to grant effective interim measures of protection. 

IN THE HIGH COURT OF DELHI

FAO (OS) (COMM) 65/2020

Decided On: 07.07.2020

 Ashwani Minda   Vs.  U-shin Limited


Hon'ble Judges/Coram:
Dhirubhai Naranbhai Patel, C.J. and Prateek Jalan, J.

Citation: MANU/DE/1348/2020.
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