Contributed by: Samvad Partners
Recently, in Arcelor Mittal Nippon Steel India Ltd. v. Essar Bulk Terminal Ltd.[2021 SCC OnLine SC 718] (“Arcelor”), the Supreme Court of India delineated the scope of Section 9(3) of the Arbitration and Conciliation Act, 1996, (“Act”) and its interplay with Section 17 of the Act. Section 9 is concerned with interim measures by a Court, and Section 17 provides identical powers to an arbitral tribunal to order interim measures. Section 9(3), which was added by an amendment to the Act in 2015, stipulates 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 existence of circumstances which may not render the remedy provided under Section 17 efficacious.
After the 2015 Amendment, some courts were taking the view that in view of section 9(3), they could no longer entertain or decide a pending section 9 application if an arbitral tribunal was constituted in the meanwhile. In Arcelor, the Supreme Court addressed two questions. First, whether a Court has the power to entertain an application under Section 9(1) once an arbitral tribunal has been constituted, and if so, what is the true meaning of the expression ‘entertain’ in Section 9(3)? Second, whether a Court is obliged to examine the efficacy of the remedy under Section 17 before passing an order under Section 9(1) once an arbitral tribunal has been constituted.
In order to appreciate the Supreme Court’s ruling, an examination of the factual matrix is necessary. The dispute between the parties arose out of a cargo handling agreement. Appellant served notice of arbitration on 22.11.2020, but the Respondent did not reply to the same. The Appellant instituted a proceeding under Section 11 of the Act for appointment of an arbitral tribunal. On 15.01.2021, the Appellant filed an application under Section 9 of Act, and the Respondent also filed one on 16.03.2021. Both these applications under Section 9 were heard and reserved for orders on 07.06.2021 by the commercial court.
On 09.07.2021, the Section 11 proceeding was disposed off and an arbitral tribunal was appointed. On 16.07.2021, Appellant filed an application to refer both applications under Section 9 (which were already heard and reserved for orders) to the arbitral tribunal. This application was dismissed. This dismissal was challenged by the Appellant before the Gujarat High Court under Article 227 of the Constitution of India. This challenge too, was dismissed on 17.08.2021. The Gujarat High Court held that the commercial court seized of the Section 9 applications could adjudicate the efficacy of the remedy under Section 17, and directed the commercial court to pass appropriate orders. This decision was challenged before the Supreme Court.
The Appellant argued that Section 9(3) curtails the power of the Court to proceed with an application under Section 9 once an arbitral tribunal is constituted. The underlying rationale of Section 9(3) to restrict judicial intervention was also emphasized, relying on the decisions of the Supreme Court in Amazon.com NV Investment Holdings LLC v. Future Retail Limited[2021 SCC Online SC 557]
The scope of the phrase ‘entertain’ was discussed at length. The Appellant argued that ‘entertain’ is akin to ‘adjudication’ and implies all acts including passing of an order/judgment.
The Respondent pointed out that Section 9(3) does not oust a Court’s jurisdiction under Section 9(1) once an arbitral tribunal has been constituted. Respondent submitted that ‘entertain’ means to “admit into consideration,” and an application is entertained when the Court applies its mind to it. Respondent argued that in the present case, the Section 9 applications were fully heard, and that they were entertained, and therefore the restriction under Section 9(3) would not apply.
The Supreme Court discussed a string of decisions to demarcate the scope of Section 9(3), and in particular of the expression, ‘entertain.’ First, the Supreme Court held that ‘entertain’ means to ‘consider by application of mind to the issues raised’ and the test to be applied is “whether the process of consideration has commenced, and/or whether the Court has applied its mind to some extent before the constitution of the arbitral tribunal.”
If the application under section 9 had been filed after the constitution of the arbitral tribunal, the bar under section 9(3) would clearly apply. Where an application under section 9 had been filed prior to constitution of the arbitral tribunal, but the court had not applied its mind to the facts in issue and ‘entertained’ it in this sense, the court could not proceed with adjudication once an arbitral tribunal had been constituted, unless the remedy under Section 17 was shown to be inefficacious. However, the Supreme Court categorically stated that the bar under Section 9(3) would not operate, once an application has been entertained, as was the situation in the present case, where hearing had concluded and judgment had been reserved by the commercial court. Even where an application under section 9 had been entertained prior to constitution of an arbitral tribunal, it was possible for a court to exercise its discretion to direct the parties to approach the arbitral tribunal, while affording some limited interim protection, if necessary.
Where an arbitral tribunal was in place prior to a section 9 application being entertained, the Supreme Court held that it was necessary to examine whether the remedy available under Section 17 was efficacious. It was observed that there could be a number of situations under which the remedy available under section 17 would not be efficacious. For instance, if the members of the tribunal were unavailable or located in far-away places, or if the tribunal could not assemble immediately, the remedy under section 17 would not be efficacious, whereas the interim measure sought under section 9 would usually be urgent in nature. However, if an application had already been taken up for consideration, and was in the process of consideration, or had already been considered, prior to the constitution of an arbitral tribunal, the question of whether the remedy under Section 17 was efficacious or not, would not arise.
The decision in Arcelor Mittal Nippon Steel v Essar Bulk Terminal is a nuanced decision taking into account various fact situations that could arise when a section 9 application is filed. It offers much needed clarity on the scope of Section 9(3), and is likely to prevent unnecessary confusion with respect to the question of the appropriate forum to seek interim measures. However, this decision also firmly cements the role of courts vis-à-vis the grant of urgent interim measures, both before and after the constitution of the arbitral tribunal. The mere constitution of an arbitral tribunal may no longer be sufficient for a court to decline to proceed with an application for interim measures. It remains to be seen whether the courts in India exercise their jurisdiction under section 9 with caution and whether the role of arbitral tribunals in grant of interim measures would be restricted by this decision.
Contributed by Samvad Partners
The above article has been authored by Mr. Arjun Krishnan(Partner) and Mr. Shourya Bari(Associate)