3/19/2018 Section 9 of the Arbitration Act: A Deeper Debate - Experts & Views - Legally India

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Experts & Views

25 Februar y 2016

An estimated 11-minute read

Section 9 of the Arbitration

Act: A Deeper Debate
Prithvi
Rohan
Kapur

by Prithvi Rohan Kapur

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In a somewhat belated realisation, the Arbitration and Conciliation (Amendment) Act

2015 has made changes that impact the ability of parties in international commercial
arbitrations seated outside India (o shore arbitrations) to seek interim remedies before
Indian courts. In a nutshell, the amended provision permits an Indian court to order
interim measures of protection in aid of an o shore arbitration.

The issue is not new, and the traditional debate has been centred on the applicability
of Section 9 of the Arbitration and Conciliation Act 1996 (Arbitration Act) to such
o shore arbitrations. Section 9 is found in Part I of the Arbitration Act (which is
applicable to domestic arbitrations), and empowers Indian courts to grant interim
measures in aid of arbitration proceedings. Until 2012, the Supreme Court had through
a series of judgements [including most significantly the case of Bhatia International vs
Bulk Trading S.A, (2002) 4 SCC 105] given an expansive reading to the jurisdiction of
Indian courts, by holding that Part I of the Act would be applicable to o shore
proceedings. It is now well known that this expansive interpretation came under severe

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criticism. When the Constitution Bench sat to hear the case of Bharat Aluminium v
Kaiser Aluminium (2012) 9 SCC 552 (BALCO), it considered the correctness of the law
laid down in the case of Bhatia International.  In an extremely positive move, the
Supreme Court held that Part I of the Arbitration Act was inapplicable to o shore
arbitrations.

While both the tenor and analysis of the BALCO judgement is noteworthy, the Supreme
Court did not deal with some important facets of interim protection in an impressive
way. During the course of arguments, it was asserted that Section 9 of the Arbitration
Act was sui generis, and that it ought to apply even if Part I (concerning domestic
arbitrations generally) was held inapplicable to o shore arbitrations. It was argued that
the provision was needed for the purpose of making e icacious orders in arbitration
proceedings, and that a vacuum would be created if no authority could make
e icacious interim orders with regard to Indian assets in an o shore arbitration. The
argument was rejected by the Constitution Bench. The Amendment Act attempts to
undo this position.

While it may seem that the amendment has resolved the impasse, it would be a
mistake to conclude that the underlying issue has been holistically resolved. The
changes introduced speak only to the power of Indian courts in such cases, and do
not deal with the enforcement of interim orders issued by foreign courts and tribunals.
Importantly, there has been no significant debate on the primacy of forum for the
purpose of making such orders. Put di erently, the amendment deals with the
secondary question of court assistance, leaving untouched the primary question
concerning the enforcement of foreign court/tribunal ordered interim measures. As an
additional point of interest, the wording of the amended provision is largely
unqualified, and could result in errors moving forward.

What was the problem?

The argument raised in BALCO followed the logic that if Section 9 was held not to
apply to o shore arbitrations, parties would be le without the remedy of conservatory
measures in relation to assets situated in India. There is no direct enforcement of
interim orders of foreign courts in India (the Code of Civil Procedure, 1908, does not
provide for this), and orders of foreign tribunals are not provided the benefit of the
New York Convention (which applies to awards and not orders). In other words, since
an interim measure ordered by a foreign court/tribunal would not ipso jure be
enforceable in India, a mechanism was required to make possible e ective relief in
relation to Indian assets. It was argued that Section 9 of the Arbitration Act was that
mechanism.

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In BALCO, the Supreme Court rejected the sui generis theory, and sided instead with a
textual interpretation of Sections 2 and 9 of the Arbitration Act. It went on to declare
that Section 9 of the Arbitration Act was no di erent than the remaining provisions in
Part I, and that it was accordingly inapplicable to o shore arbitrations.

It is not di icult to understand why this debate has come back to life. In o shore
arbitrations, the need to secure assets located in India could routinely arise. This need
would have gone unfulfilled under the blanket BALCOban on intervention, or would
have at best been dealt with in awkward ways. It is this need that has been engaged
with by the amendment.

A missed opportunity–the possible solutions

In theory, various solutions could have resolved the impasse. First, an amendment
could have been brought to the Code of Civil Procedure (or the Arbitration Act),
creating space for the direct enforcement of interim measures granted by foreign courts
(or arbitral tribunals) in aid of arbitration. Variants of these methods are presently used
in di erent countries, with no significant harmonisation. It will be found that many
common law countries do not enforce foreign judgements unless they are final and
conclusive, and this becomes a significant bar on the enforceability of interim orders
made by foreign courts.

The second solution, unsuccessfully mooted before the court in BALCO, was to follow
the method used by the House of Lords in the case of Channel Tunnel Group Ltd v
Balfour Beatty Construction Ltd ([1993] A.C. 334). Although the analogy is not perfect,
Channel Tunnel opens a possible line of argument. If it is conceded that Section 9 is a
necessary part of Part I, and that it is accordingly inapplicable to an o shore
arbitration, it can be argued that the inherent power of the court under Section 151 of
the Code of Civil Procedure, 1908, can be exercised for the purpose of granting interim
injunctions in the context of o shore arbitrations. Of course, the absence of a main
suit before the Indian court is an imminent objection to this mechanism. Moreover,
such an exercise would be awkward exercise of jurisdiction.

The final recourse would be to amend the Arbitration Act, by including within it an
express provision that helps overcome the blanket restriction BALCO imposes. This
would directly empower an Indian court to make orders in aid of o shore arbitration
proceedings. This is the route that has been taken by the present amendment.

It is important to note that these solutions are intricately related, and respond to the
same underlying question regarding the best method to ensure interim protection
during arbitration proceedings. Of course permitting domestic courts to make such
orders can be an advisable safety valve. However, this solution is not mutually
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exclusive to tribunal ordered injunctions; and they could very well have supplemented
each other.

The change brought about at the moment exclusively empowers Indian courts to make
e ective interim orders in o shore arbitrations in relation to assets situated in India.
The amendment does not provision for easier enforcement of interim orders made by
foreign tribunals/ courts. It bears mentioning that the amended provision is intricately
linked to Section 17 of the Arbitration Act (tribunal ordered injunctions in domestic
arbitrations), and conditions the grant of interim relief in domestic arbitrations by the
court upon the non availability of tribunal ordered remedies. Accordingly, the
Amendment Act accepts the in principal primacy of tribunals in domestic arbitrations
with regard to making of interim orders. 

It may well be the case that enforcement of interim measures ordered by tribunals is
a more complicated task (and will need su icient checking mechanisms). It is also true
that internationally, there is no homogenous system of enforcement of interim
measures ordered by tribunals. That said, it is a remedy that must be more carefully
be considered. There is merit in the suggestion that arbitral tribunals should be
primarily responsible for making such orders. In the absence of a debate on the
appropriate forum for making of such orders (and consequent absence of statutory
reform that would permit easier enforcement of interim orders by foreign
court/tribunal), it appears that the Amendment has missed a trick. In a heterogeneous
enforcement environment for interim measures, India could have taken an important
global step, by at the minimum instituting an important public debate.

Foreign court/tribunal ordered injunctions

There are good reasons to argue for a tribunal’s primacy in dealing with issues arising
from the disputes they adjudicate. These reasons also apply to interim measures of
protection.

First, an interim measure of protection is ex hypothesi issued at a time when the

court/tribunal has not come to any final determination on the merits of a case. Many
scholars have pointed to the uncertainties associated with the grant of interim
injunctions, and concluded that the guiding principle ought to be minimisation of harm
that might accrue as a consequence of an erroneous decision. In the language of
probability, this means that the authority should look to minimise the expected harm
as a consequence of its erroneous decision on the interim measure. Conceptually, this
may require an inquiry into the merits of a claim, which the tribunal seized of the
matter, shall conduct in any event.

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Second, the tribunal has a continuous mandate in relation to the matter, and is
ultimately responsible for making awards that are capable of being enforced. The
ability to make enforceable interim orders can be crucial in this regard.

Third, party autonomy in choosing institutional rules which provide for such interim
measures by tribunals is a significant factor that must be given due weight when
determining the natural forum for granting such reliefs.

These are strong reasons for tribunals to be granted a place of pride in the making of
such orders. Of course this does not, without more, imply that exclusive jurisdiction
ought to be granted to them. The appreciation of this position should however
translate into some form of direct assistance in enforcing interim orders of tribunals.
And even though parties may o en enough voluntarily comply with tribunal ordered
interim measures, a statutory framework is nonetheless required to ensure
e ectiveness. This framework may well come with its own set of protections
(mandatory requirements to be met for such orders to be enforced), thereby alleviating
concerns regarding due process requirements.

A problem for the wordsmith

In addition to the issues mentioned above, the phraseology of the amendment is

questionable in some parts. The amendment makes the following inclusion in Section 2
of the Arbitration Act: “Provided that subject to an agreement to the contrary, the
provisions ofsections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of
section37 shall also apply to international commercial arbitration, even if the place
ofarbitration is outside India, and an arbitral award made or to be made in such place
is enforceable and recognised under the provisions of Part II of this Act.”.

Essentially, the amended provision (in so far as it relates to Section 9) provides

jurisdiction to Indian courts to issue interim remedies in o shore arbitrations. The
qualification attached is that the award made (or to be made) must be enforceable
under Part II. Thus, for all practical purposes, if the place or seat of arbitration
happens to be a country that is a signatory to the New York Convention (most
countries are), an interim measure may be granted by an Indian court. On the face of
it, this is a return to the pre- BALCO Section 9 position.

It is understandable that with a change in attitude towards commercial arbitration

coming from the Supreme Court, there is reduced fear of unreasonable interference by
Indian courts in o shore arbitrations. Be that as it may, the present phraseology does
not in any significant way guide the exercise of discretion by courts in India. Nor does
it in anyway caveat the exercise of this jurisdiction, equitable as it might very well be.
A short comparison with other legislations may be helpful.
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Under the English Arbitration Act, courts have the power to issue interim remedies in
support of arbitration, even if the seat of the arbitration is outside England and Wales
or Northern Ireland. However, the court “may refuse to exercise any such power if, in
the opinion of the court, the fact that the seat of the arbitration is outside England
and Wales or Northern Ireland, … makes it inappropriate to do so” (Emphasis
Supplied).

The amended provision appears to rely entirely on the faith that domestic courts will
not issue Section 9 reliefs in ways that are contrary to the purpose of international
commercial arbitration seated outside India. It is here that an important step has been
missed. An ‘appropriateness’ analysis ought to be integral to the making of such an
order. Making such a test a necessary part of the statute would have occasioned such
an inquiry every time such an order was sought.

Conclusion

The new provision has not yet been tested fully. In the meanwhile, we must recognise
that di icult questions regarding interim protection in aid of arbitration by foreign
tribunals/courts are yet to be resolved holistically. Even within the scope of the
changes made, the inclusion of an appropriateness test would have been advisable.
Further, while it remains the case that there is no homogeneity globally on how such
orders should be enforced, it would be a welcome addition to the debate if we were
to consider Tribunal primacy in such matters. This framework could come with its own
set of protections (mandatory requirements to be met for such orders to be enforced),
thereby alleviating concerns. An opportunity for reform was presented, but this
important issue was le out discussion.

In any event, the spectre of Section 9 has risen to haunt again, and although positive
changes have been introduced, they do not appear enough to obviate the need for
further review at some stage in the future.

* This article has been written with Shobhit Nanda, Advocate.

Tagged in: arbitration

in Analysis

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