Seeking interim arbitral reliefs in arbitration proceedings under section 9 of the Arbitration and Conciliation Act, 1996 after the constitution of the arbitral tribunal: A perspective – By Advait Ghosh

I. INTRODUCTION

The success of an arbitration proceeding is often determined by the interim reliefs taken before, during and after the arbitration proceedings. An interim relief taken at the appropriate time can secure assets, the amount in dispute and a host of other tangible benefits to the successful party. 

Interim reliefs in arbitration proceedings can be referred to the Court having jurisdiction over the arbitration proceedings or it can be preferred before the arbitral tribunal or sole arbitrator once constituted or appointed. The subject-matter of reliefs which can be given by the Court, and the arbitral tribunal are identical. 

Section 9(3) of The Arbitration & Conciliation Act, 1996 places an embargo over approaching the Court for seeking of interim relief when the arbitral tribunal has already been constituted. The section stipulates that after the constitution of arbitral tribunal, interim relief will lie with the Court only if circumstances exist which may not render the remedy under Section 17 as efficacious.  

This article will make an attempt to understand whether application for interim relief can be entertained by the Court once the arbitral tribunal is formed, as under Section 9(3) of The Arbitration & Conciliation Act, 1996 there is a restriction put in place. It shall also attempt to explain the exceptions to this rule, that is when Courts deem it fit to entertain application for interim relief after tribunals have been formed. 

II. The meaning of Interim Relief: Interim relief is defined by the Oxford English Dictionary as a grant of something to give short-term help, or an order by the court before a full trial to preserve the current situation until the trial.

III. The approach of the National Courts when dealing with a Section 9 application under The Arbitration and Conciliation Act when an arbitral tribunal or sole arbitrator has been appointed:

We shall analyse the approach of the National Courts in Section 9 petitions preferred under The Arbitration and Conciliation Act, 1996 when arbitral tribunal or sole arbitrator has been appointed. 

A) HERO WIND ENERGY PVT LTD VS INOX RENEWABLES LTD & ANR  (1)

Petitioner intended to set up a 40 MW Wind Power Project comprising of 20 WTGS, each having 2 MW capacity in Jaisalmer. Since they wanted to have a fully operational wind power project they entered into various agreements with Respondent No.2 for supply, operations, and maintenance of WTGS.  Respondent No.2 and its sister concerns including Respondent No.1 took up the responsibility of setting up the project, operating & managing it. As per the Shared Services Agreement,Petitioner was entitled to use certain shared services as per the agreement. 

Petitioner and Respondent along with certain other group entities entered a Wrap Agreement dated 24.07.2014in which Respondent No.2 assumed the obligation of performance of obligations in the Shared Services Agreement.

Asper Clause 3 of the Shared Services Agreement, shared services inter alia mean internal approach roads, utility services, common office facilities etc. As per Clause 4 of the Shared Services Agreement Petitioner is entitled to use shared services, Petitioner has also made payments regarding the same.

On November 19, 2019 Respondent No.1 blatantly and in blatant violation of obligations under the Shared Services Agreement they stopped Feeder No.14, which were connected to the Wind Turbine Generators of the Petitioners. Respondent has submitted that this was due to the failure of the Petitioner to pay charges under the “Operations & Maintenance Agreement”.Several meetings were held between the parties but the issues could not be resolved. Disputes were referred to arbitration, the arbitral tribunal was constituted in which the Petitioner played an proactive role.

The Petitioner preferred an application under Section 9 of The Arbitration & Conciliation Act, 1996 & sought a direction from the Hon’ble Court that Respondents be directed to restart the feeder. 

The Respondents made a preliminary objection that the petition is not maintainable because of the bar under Section 9(3) of The Arbitration & Conciliation Act, 1996. Respondents contended that the disputes pertaining to Shared Services Agreement & Operations & Maintenance Agreement are already pending before the Arbitration Tribunal and application for interim relief can be preferred before the Tribunal under Section 17 of The Arbitration & Conciliation Act, 1996. 

The Delhi High Court opined that since the relief sought before it was pertaining to the Shared Services Agreementand an Arbitral Tribunal had already been constituted to look into disputes arising under that particular agreement, the bar under Section 9(3) of The Arbitration & Conciliation Act would apply, as the Petitioners have not been able to demonstrate why the remedy rendered by the Tribunal will not be efficacious in terms of Section 17 of The Arbitration & Conciliation Act, 1996.  

B) MANBHUPINDER SINGH ATWAL VS NEERAJ KUMARPAL SHAH (2)

A Limited Liability Partnership was set up between the respondent Nos.1 and 2 pursuant to agreement dated 10th February, 2015. The present applicant became a Partner of the Limited Liability Partnership (LLP) on 27th February, 2015 upon execution of the addenda agreement. applicant and the respondents, thus are the Partners of the Limited Liability Partnership. It was stated by the applicant that at the time of execution of the agreement, the valuation of the Firm was Rs.05.00 lakhs only wherein amount of Rs.02.25 lakhs was to be contributed by respondent No.1 and the balance amount was to be contributed by respondent Nos.2 and 3. It is the case of the applicant that he brought substantial amount in the partnership firm.

The applicant who introduces himself as a retired army officer and a non-resident Indian based in country of Oman, stated that when in the month of December, 2014 he had come to India upon being invited by his business associates, the applicant came in contact with respondent No.1. It is the case of the applicant that respondent No.1 painted a rosy picture of him as the owner of business -empire and that he had large stake in the business company Kinetrics. According to the applicant, he was unaware about the actual financial capacity and credibility of respondent No.1 and the Limited Liability Partnership Firm. It was stated that he joined as a Partner in the firm under agreement dated 10th February, 2015 read with addendum dated 27th February, 2015.

The business of the firm in which the parties became partners was of techno-marketing financial consultation for the clients of different fields. According to statement of the applicant, the firm was used to enter into any agreement on Turn-Key Projects involving technical, civil, financial, administrative, marketing, plant and merchandise etc. applicant stated that he was required to contribute Rs.45.00 crores in the firm which would be his 20% shareholding and that the contribution of the applicant enhanced the value of the firm substantially. applicant stated that from March, 2015 he started remittance of his capital contribution in the firm. On 18th May, 2016 second addendum to the Limited Liability Partnership (LLP) agreement was signed.

The applicant alleged that between March, 2015 and October, 2015, respondent No.1 misappropriated and siphoned off money from the bank account of the firm without knowledge of the applicant and other partners through fund transfer and cash withdrawals from the account of the firm. Several commissions and omissions were alleged against respondent No.1 to be contrary to the agreement of LLP. It was also alleged by the applicant that respondent No.2 who was one of the founding partners started to connive with respondent No.1 and resorted to malicious conduct against the interests of the firm as well as of the applicant. It was alleged that only money which came to the firm was the sum of Rs.45.00 crores contributed by the applicant, besides the initial contribution of Rs.05.00 lakhs made by the other Partners. In the memorandum of application averments are made to allege as to how the funds were misused or siphoned off to the detriment of the financial interest of the firm. It was alleged that respondent No.1 in collusion with respondent No.2 siphoned off large amount of Rs.21.18 crores. In this order, those allegations are not detailed so as not to burden the narration.

Respondent No.1 came to be expelled as Partner from the firm by Resolution-cum-letter dated 24th October, 2016 by applicant and respondent Nos.2 and 3 on the allegation that respondent No.1 had acted fraudulently and had embezzled the monies from the bank account of the partnership firm. The expulsion of respondent No.1 came to be recorded in the Minutes of the Meeting of the partnership firm dated 25th October, 2016. Applicant sought recourse to arbitration and appointed an arbitrator.

Respondent Nos.1 and 2 had in response to the nomination of arbitrator by the applicant as above, had appointed a retired Chief Justice of the Bombay High Court as their nominee arbitrator. This nominee arbitrator withdrew himself from arbitration proceedings on or around 16th January, 2017. Applicant called upon on 17th January, 2017 respondent No.1 to appoint another co-arbitrator. On 16th February, 2017 respondent No.1 appointed a retired Judge of the Supreme Court as co-arbitrator. Arbitrator nominated by the applicant and arbitrator nominated by respondent No.1 failed to appoint the Presiding Arbitrator within the stipulated period of 30 days.

Therefore, the applicant filed application under Section 11 of the Act before the Supreme Court. The Supreme Court by order dated 24th July, 2017 in Arbitration Petition No.14 of 2017 appointed retired Judge of the Supreme Court as the Presiding Arbitrator. It was in the said order dated 24 th July, 2017 that the arbitration was considered as international commercial arbitration by the Apex Court. Thus, the Arbitral Tribunal stood constituted with three members as above. It began hearing of the arbitration proceedings holding its first meeting on 29th August, 2017.

On the same day of the first hearing, that is on 29th August, 2017, the applicant – claimant moved an application for interim protection before the Arbitral Tribunal under Section 17 of the Act. Thereunder the applicant – claimant asked for various reliefs against respondent Nos.1 and 2. These reliefs were similar to one prayed in the present application under Section 9.

 Thereafter following pleadings were filed before the Arbitral Tribunal – (i) Application under Section 17 of the Act filed by the Claimant along with documents, (ii) Additional documents in support of the Section 17 application filed by the Claimant, (iii) Statement of Claim along with supporting documents filed by the Claimant, (iv) Application under Section 17 of the Act filed by the Respondent No.2, which the Respondent No.2 also sought to be treated as his reply to the Claimant’s Section 17 application, (v) Documents in support of the Respondent No. 2’s Section 17 application filed by the Respondent No. 2, (vi) Reply to Claimant’s Section 17 application filed by the Respondent No. 1 along with certain documents and (vii) Reply to the Claimant’s Statement of Claim filed by the Respondent No. 2.

Applicant has stated that hearings in the arbitration took place on 29th August, 2017, 03rd October, 2017, 15th October, 2017, 22nd October, 2017 and 23rd October, 2017 and the arguments on the applicant – claimant’s application under Section 17 were heard by the Arbitral Tribunal. The tribunal had reserved pronouncement of the order in the said Section 17 application.

It was on 25th January, 2019 that the present application came to be filed before this Court for interim measures of protection under Section 9 of The Arbitration & Conciliation Act, 1996. 

The Gujrat High Court held “Section 9 thus permits interim measures. A party to the arbitration may seek such interim protective measures either at the stage before the commencement of the arbitral proceedings or post- making of award before it is enforced. However, sub- section (3) is a provision in the nature of exception. There is a mandate not to entertain an application under sub-section (1) of Section 9 once the Arbitral Tribunal has been constituted. The words used are ‘the court shall not entertain’. The necessary implication is that once the Arbitral Tribunal is constituted by the parties, application under Section 9 would not be entertainable by the Court since the remedy of similar kind under Section 17 of the Act is provided for by the legislature to be resorted to before the Arbitral Tribunal. A rider is also provided in sub-section (3) of Section 9 that if such remedy under Section 17 could be said to be becoming inefficacious, then only the Court may entertain an application under Section 9. In other circumstances, a party has to file an application under Section 17 before the constituted Arbitral Tribunal.

The Hon’ble Court further said that the Arbitral Tribunal is well versed with the facts of the case and no grounds have been pleaded by the Petitioner in the application under Section 9 of The Arbitration & Conciliation Act, 1996 to show in what manner the interim relief granted by the Tribunal would not be efficacious. Hence the petition was dismissed. 

C) ASHWANI MINDA VS U-SHIN (3)

The applicant/petitioner in the said instant case entered into a joint venture agreement with the respondent, U-shin Ltd. The respondent is a Japanese corporation with the business of designing, developing and sale of control mechanisms for automative machines. Respondent No.2 is also a Japanese company. Respondent No.1 is a wholly owned subsidiary of Respondent No.2 . As per clause 5.1 and 5.2 of the JVA applicant no.1 was to have majority shareholding in the JV, and thus applicant would have complete control over the JV through day to day management activities as well as majority voting rights at directors and shareholders meetings. As per Article 7 of the said JVA-“Benefits and obligations under the agreement shall not be directly or indirectly transferred by any of the parties hereto without prior consent in writing, providing herein that nothing shall restrict right to transfer or assign benefits and obligations hereunder to any parent company or merged or subsidiary company”.

On 10.04.2019 Respondent No.1 informed applicants that business integration has been duly executed, and Respondent No.1 had become the group company of Respondent No.2, which meant that Respondent No.1 was the wholly owned subsidiary of Respondent No.2 . Thereafter Respondent No.1 was de-listed from the Tokyo Stock exchange and major changes were brought in Respondent No.1 by Respondent No.2, largely extending its control.

On 16.12.2019 Respondent informed applicants that Respondent No.2 was obliged to give an open offer under the provisions of the Takeover Code. The Applicant considered this as a breach of the JVA and sought interim injunctive relief to prevent Respondents from purchasing shares via open offer from the Emergency Arbitrator appointed under Japanese Commercial Arbitration Association rules. The Emergency Arbitrator heard the submissions of the parties in detail and declined to grant interim relief in favour of the applicants/petitioners. The applicants filed a petition under Section 9 of The Arbitration and Conciliation Act, 1996 seeking inter alia the same relief that was sought from the Emergency Arbitrator.

The Hon’ble Court said that the parties have consciously chosen to tread on a particular path and they cannot now turn back because they have been unsuccessful. The Court said that the Doctrine of Election will bar the applicant from seeking interim relief as the same issue has been raised before the Emergency Arbitrator. All the issues have been conclusively dealt by the arbitrator vide detailed order and applicants cannot be permitted to take a second bite at the cherry.

The Court considered the arbitration clause entered into between the parties which provided for disputes to be resolved by arbitration as per rules of the Japanese Commercial Arbitration Association with seat in Tokyo. It is settled Law that when seat of Arbitration is situated in a particular country, only that particular countries courts can grant interim relief, as designation of seat is akin to an exclusive jurisdiction clause. The Court contended that it was conclusively held in the BALCO case that when seat of arbitration is held to be outside India, then part-1 of the Arbitration and Conciliation Act, 1996 will stand excluded, and subsequently petition under Section 9 cannot be made in India. This position was somewhat altered by 2015 amendment to the arbitration act by virtue of Section 2(2) was amended and the applicability of certain provisions of the Arbitration Act like Section 9 was extended even to foreign seated arbitration, unless the parties have consciously decided to exclude Part 1 of The Arbitration and Conciliation Act,1996 by express or implied conduct.  The Hon’ble Court after analysing the facts in the present case held that parties have consciously decided to conduct arbitration as per the Japanese Commercial Arbitration Association rules, with arbitration seated in Tokyo. The Hon’ble Court opined that the Dispute Resolution Mechanism in the present case envisages conduct of arbitration in Japan as per JCAA rules. JCAA rules provide a detailed mechanism for seeking interim and emergency measures, which was known to the parties when entering into the agreement. A perusal of the arbitration clause clearly expresses the intention of the parties to exclude applicability of Part-1 of the Act. Article 77(5) of the JCAA rules deem emergency measures to be interim measures granted by the arbitral tribunal when it is constituted. Justice Jyoti Singh further noted that applicants on 13.03.2020 filed an application for emergency measures and on 19.03.2020, the Emergency Arbitrator was appointed. After hearing both the parties the Arbitrator passed a very detailed order on 2.04.2020, wherein the interim relief which was sought was declined. The Hon’ble Court remarked -“when the Petitioner has already invoked the mechanism of the emergency arbitrator and invited a detailed and well-reasoned order by the Emergency Arbitrator, it is not for them to take a second bite at the cherry. Therefore Part-1 of the Act has been ousted by the action of the parties themselves, and this petition is sans merit”.

Thus we see in the above illustrated Case-Laws that Courts are usually reluctant to entertain application under Section 9(1) of The Arbitration & Conciliation Act, 1996 due to the bar under Section 9(3) of the aforesaid Act. However we must not forget that the bar under 9(3) is not express in nature. The Court can permit an application, despite the constitution of the arbitral tribunal if circumstances exist which may not render the remedy under Section 17 efficacious. Let us see by way of case-illustration when the Court has allowed an application under Section 9(1) of The Arbitration & Conciliation Act, 1996 even after the constitution of the arbitral tribunal. 

D) RAFFLES DESIGN LTD VS EDUCOMP PROFESSIONAL EDUCATION (4)

Raffles Education Corporation Limited (hereafter ‘Raffles’), being parent company of the petitioners’ and Educomp Solutions Limited (hereafter ‘Educomp’), being parent company of the respondents’ entered into a Master Joint Venture Agreement(Master JVA) dated 16.05.2008. Pursuant to the Master JVA, Educomp Raffles Higher Education Limited(hereafter ‘ERHEL’) was incorporated as a joint venture company for providing educational courses in management and designing at various locations in India. Shares of ERHEL were held by Raffles and Educomp in equal proportion.

ERHEL took control over the management of a Society namely, Jai Radha Raman Education Society (hereafter ‘the Society’) to establish a college in NOIDA (hereafter the ‘Noida College’). Subsequently, Raffles increased its stake in ERHEL to 58.18%.

On 12.03.2015, the petitioners and the respondents entered into a Share Purchase Agreement (hereafter ‘the Agreement’) whereby, on fulfilling the conditions set out in the Agreement, shares of respondents in ERHEL were to be acquired by the Petitioners. The relevant clause of the Agreement reads as under:

On deposit of the 10% of the Purchase Price by the Purchasers to the Escrow Agent referred to in clause 3.1.1, the Sellers shall allow the Purchasers (i) to take control of the Company and JRRES, limited to the extent that the Purchasers shall have absolute say on the hiring and dismissal of employees (including existing employees); and (ii) to take charge of JRRES’ application to the Government of Uttar Pradesh, India for becoming a deemed university. For clarification, upon the Execution Date, funding of the operations of the Company, JRRES, MIDL and MSB shall be the exclusive responsibility of the Purchasers, details of which shall be shared with the Sellers from time to time till closing. In the event the Closing does not take place as envisaged in this Agreement and this Agreement is terminated, the Sellers shall within 30 (Thirty) days, introduce an amount equivalent to the total funding contributed by the Purchasers in JRRES for the operations of JRRES in this period as working capital.”

Certain disputes arose between the parties in relation to the Agreement. Clause 15 of the Agreement provides that the Agreement would be governed and construed in accordance with the laws of Singapore. Further the Arbitration would be held in Singapore under the Arbitration Rules of the Singapore International Arbitration Centre (hereafter ‘SIAC Rules’).

On 15.09.2015, the petitioners invoked the arbitration clause by filing a Notice of Arbitration with the Singapore International Arbitration Centre (hereafter ‘SIAC’) with a copy thereof to the respondents. Pursuant to Rule 26.2 of the SIAC Rules, a request for appointment of an Emergency Arbitrator was made by the petitioners to SIAC on 25.09.2015, which was opposed by the respondents. The respondents by a notice dated 25.09.2015, terminated the Agreement alleging that Petitioners were in repudiatory breach of the Agreement. Thereafter, on 28.09.2015, the Vice President of the Court of Arbitration, SIAC appointed Mr Michael Lee as the Emergency Arbitrator to consider the Emergency Application filed by the claimants (petitioners herein).

The Emergency Arbitrator passed an Interim Emergency Award dated 06.10.2015 (hereafter ‘ the Emergency Award’) wherein the Interim relief sought by the claimants was granted and respondents were restrained from taking any action that deprived the rights of the claimants in the Agreement in respect of (a) hiring and dismissal of employees of the Society; (b) functioning and management of the society. The respondents were also restrained from instigating the terminated employees of the Society, including Professor Mahesh Gandhi, to act contrary to their respective termination letters and/or to indulge in any forcible entry into the premises of the Society or the Noida College.

Thereafter, the petitioners filed an application being Case No 929/2015 before the High Court of the Republic of Singapore (hereafter ‘Singapore High Court’) under Section 12 of the International Arbitration Act (hereafter ‘IAA’) seeking enforcement of the Emergency Award against respondent no 2. It is stated by the respondents that petitioners have secured an enforcement order dated 04.02.2016 against respondent no 2. 4.8 The respondents filed an application under paragraph 7 of schedule 1 of SIAC Rules praying for setting aside of the Emergency Award. However, on 14.01.2016, a consent order was passed by the sole arbitrator, Mr Andrew Jeffries, wherein the operative first two paragraphs of the Emergency Award were reiterated but the parties also agreed that the said paragraphs of the Emergency award: (1) are negative or prohibitory in nature and not positive or mandatory in nature; and (2) do not require any member of the Society to act in breach of their fiduciary duty to the Society.

It is stated by the petitioners that despite passing of the Emergency Award, the respondents are acting in contravention of the rights of the petitioners under the Agreement inasmuch as respondents have refused to accept the appointment of Dr C.S Sharma, who was appointed by the petitioners to replace Professor Gandhi and further, respondent no 3 has also refused to sign the cheques for payment of salary to Dr Sharma. It is further stated the respondents are illegally and malafidely disrupting the functioning of the Society and the Noida College. It is under these circumstances, the petitioners have filed the present petition under Section 9 of the Act.

Preliminary objection was raised by the Respondents that the parties already had participated in Arbitration proceedings under SIAC rules and interim order had already been passed under by the arbitrator and by filing Section 9(1) application, Petitioner is re-agitating for same relief and there is also a bar under Section 9(3) of The Arbitration & Conciliation Act, 1996. It was also argued that since the parties have decided to be governed by SIAC rules, the seat of arbitration was Singapore, and petition could not be maintained in Delhi. 

The Hon’ble Court reproduced the rules of the SIAC of which Rule 23.3 is relevant herein-“A request for interim relief made by a party to a judicial authority prior to the constitution of the Tribunal, or in exceptional circumstances thereafter, is not incompatible with these Rules”.

The Hon’ble Court held that –“ The SIA Rules are clearly in conformity with the UNCITRAL Model Law and permit the parties to approach the Court for interim relief. As pointed out earlier, UNCITRAL Model Law expressly provides for courts to grant interim orders in aid to proceedings held outside the State. And, the proviso to Section 2 (2) of the Act also enables a party to have recourse to Section 9 of the Act notwithstanding that the seat of arbitration is outside India. Thus, the inescapable conclusion is that since the parties had agreed that the arbitration be conducted as per SIAC Rules, they had impliedly agreed that it would not be incompatible for them to approach the Courts for interim relief. This would also include the Courts other than Singapore. It is relevant to mention that IAA is based on UNCITRAL Model Law and SIAC Rules are also complimentary to IAA/UNCITRAL Model law.

Thus it was concluded that the Delhi High Court has the requisite jurisdiction to hear application under Section 9 of The Arbitration & Conciliation Act, 1996. The next question which arose for consideration is whether “the Petitioner can approach the Delhi High Court for relief when it has already approached the arbitral tribunal in Singapore & obtained an interim relief”?

Article 17 H of the UNICTRAL Model Law can be taken recourse to as it permits parties to enforce interim orders of the arbitral tribunal. Therefore the Court held that the only method for enforcing the emergency award rendered by the arbitral tribunal in Singapore is to file an application under Section 9 of The Arbitration & Conciliation Act, 1996. The Court also held that the Petitioners have satisfied the Court that circumstances exist which make it necessary for the Court to entertain the application under Section 9(1) of The Arbitration & Conciliation Act, 1996, notwithstanding the constitution of the arbitral tribunal.

IV. CONCLUSION

The above mentioned Case Laws help us understand the judicial intricacies which the Courts grapple with in regard to granting Interim Reliefs when an arbitral tribunal or sole arbitrator has been appointed. The purpose of arbitration is to reduce the burden on the traditional court system, which becomes somewhat stymied if the parties prefer applications for interim relief after appointment of sole arbitrator or after the arbitral tribunal has been constituted. Such application may even be barred by principles of Law such as the Doctrine of Election, as has also been illustrated above. The bar under Section 9(3) of The Arbitration & Conciliation Act, 1996 is however not absolute and the courts may allow application under Section 9(1) notwithstanding the constitution of an arbitral tribunal or appointment of sole arbitrator if such an application is imperative for the enforcement of the orders of an arbitral tribunal or in rare circumstances like the parties being unaware of the constitution of the arbitral tribunal. The important aspect to remember is that entertaining application under Section 9(1) of The Arbitration & Conciliation Act, 1996 after the constitution of the arbitral tribunal is the exception, and not the rule. 

****

Advait is an associate in the litigation team of Kesar Dass B & Associates. He deals with arbitration, civil suits and matters pertaining to the Insolvency and Bankruptcy Code, 2016.

___________

¹ O.M.P.(I) (COMM.) 429/2019

² C/MCA/90/2019

³ Omp (I) (Comm.) 90/2020

⁴ O.M.P.(I) (COMM.) 23/2015 & CCP(O) 59/2016

Disclaimer: The views or opinions expressed are solely of the author.