Table of Contents Table of Cases…………………………………………………………………………………………. 1
Arbitration Introduction........................................................................................................... Meaning & Scope................................................................................................... Advantages of Arbitration...................................................................................... Disadvantages of Arbitration.................................................................................
Interim Measures Introduction........................................................................................................... Interim Measures: The Concept............................................................................. Interim Relief u/s 9................................................................................................. Scope of the section......................................................................................... Factors influencing interim relief...................................................................... Purpose of interim Measures............................................................................ Effect of Interim Measures................................................................................ Drawbacks of the Provision............................................................................... Interim Relief u/s 17............................................................................................. Scope of the Section......................................................................................... Drawbacks of the Provision............................................................................... Comparison between Both the Sections.............................................................. Conclusion...........................................................................................................
Bibliography Books & Acts........................................................................................................ Web Links............................................................................................................
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Table of Cases Collins v. Collins………………………………………………………………………… 3 Daulatram v. Shriram……………………………………………………………… 17 Delta Construction Systems Ltd., Hyderabad v. Narmada Cement Company Ltd., Bombay…………………………………………………………… 17 Dominant Offset (P) Ltd v. Adamovske Strojirny SA…………….. 11 Firm Ashok Traders v. Gurumukh Das Saluja……………………. 14, 20 Marriott International Inc. v. Ansal Hotels Ltd. ……………………… 17 Sharma Prathishthanam v. Madhok Construction (P) Ltd. ……… 3 Sundaram Finance v. NEPC India Ltd. ……………………………… 12, 18
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Arbitration Introduction
Arbitration, a form of alternative dispute resolution (ADR), is a technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons by whose decision (the "award") they agree to be bound. It is a resolution technique in which a third party reviews the evidence in the case and imposes a decision that is legally binding for both sides and enforceable. Other forms of ADR include mediation (a form of settlement negotiation facilitated by a neutral third party) and non-binding resolution by experts.
Meaning & Scope
Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed, or legislation has decreed, will be final and binding. There are limited rights of review and appeal of arbitration awards. In the terms of section 2(1)(a) of the Arbitration & Conciliation Act, 1996, “arbitration means any
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agreement whether or not administered by permanent arbitral institution.” Law encourages parties, as far as possible, to settle their differences privately either by mutual concessions or by the mediation of the third person. When the parties agree to have their disputes decided with the mediation of a third person, but with all the formality of a judicial adjudication, that may be, speaking broadly, called arbitration. An arbitration, therefore, means the submission by two or more parties of their dispute to the judgment of a third person, called the arbitrator and who is to decide the controversy in a judicial manner.1 Arbitration has been defined by ROMILLY MR in the wellknown case of Collins v. Collins2. It was held that “………An arbitration is a reference to the decision of one or more persons, either with or without an umpire3, of a particular matter in difference between the parties………” 1 Dr. Avtar Singh, Law of Arbitration & Conciliation, 10th Ed., Eastern Book Company, Lucknow, 2013, p. 14.
2 28 LJ Ch 186.
3 The institution of umpire has been replaced by the 1996 Act with that of presiding arbitrator.
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In the recent case of Sharma Prathishthanam v. Madhok Construction (P) Ltd.4, Supreme Court held that “………An arbitration is the reference of the dispute or difference between not less than two parties for determination, after hearing both sides in a judicial manner, by a person or persons other than a court of competent jurisdiction………” Arbitration is often used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The use of arbitration is also frequently employed in consumer and employment matters, where arbitration may be mandated by the terms of employment or commercial contracts. The main characteristics of arbitration are as follows:1. 2. 3. 4. 5.
Arbitration is consensual. The parties choose the arbitrator(s). Arbitration is neutral. Arbitration is a confidential procedure. The decision of the arbitral tribunal is final and easy to enforce.
Advantages of Arbitration
Parties often seek to resolve their disputes through arbitration because of a number of perceived potential 4 AIR 2005 SC 214.
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advantages over judicial proceedings. Some of them are given below:1. When the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed (as one cannot "choose the judge" in litigation). 2. Arbitration is often faster than litigation in court. 3. Arbitration can be cheaper and more flexible for businesses. 4. Arbitral proceedings and an arbitral award are generally nonpublic, and can be made confidential. 5. In arbitral proceedings the language of arbitration may be chosen, whereas in judicial proceedings the official language of the country of the competent court will be automatically applied.
Disadvantages of Arbitration
1. Arbitration may be subject to pressures from powerful law firms representing the stronger and wealthier party. 2. If the arbitration is mandatory and binding, the parties waive their rights to access the courts and to have a judge or jury decide the case. 3. In some arbitration agreements, the parties are required to pay for the arbitrators, which add an additional layer of legal
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cost that can be prohibitive, especially in small consumer disputes. 4. There are very limited avenues for appeal, which means that an erroneous decision cannot be easily overturned. 5. Although usually thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays.5
Interim Measures Introduction
In arbitral proceedings, the need often arises for provisional remedies or other interim measures of reliefs because, in reality, arbitral proceedings are no less adversarial than litigation in public courts. When a dispute arises, aggrieved party is always concerned with protecting his interest either in movable or immovable properties. Party is always interested in taking timely action against another party or parties so that his or her interest in the properties is protected. This prompt and timely action makes other party or parties unable to play any sort of mischief by way of tampering with properties. Thus Arbitration 5 http://en.wikipedia.org/wiki/Arbitration#Advantages_and_disadvantages as accessed on 19/10/2013
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and Conciliation Act, 1996, under Section 9 gives parties power to approach Courts for seeking interim measures. Often it sounds against the basic philosophy of Arbitration for allowing Court’s intervention, but for many reasons such judicial interventions are inevitable.6
Interim Measures: The Concept
Interim Measures are granted during the pendency of adjudication of a dispute and are usually in the form of injunctions, specific performance, pre-award attachments etc. By definition, ‘interim reliefs’ are temporary or interim in nature and are granted in advance of the final adjudication of the dispute by the arbitral tribunal. Under the Arbitration Act, 1940, a party could commence proceedings in a court by moving an application under section 20 for appointment of an arbitrator and simultaneously it could move an application for interim relief under the Second Schedule read with Section 41(b) of the old Act. Under the New Act of 1996, Section9 empowers the court to order a party to take interim measure or protection when an application is made. Besides this
6 http://www.ophiuchus.co.in/global/relief.htm as accessed on 19/10/2013.
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section 17 gives power to the Arbitral Tribunal to order interim measures unless the agreement prohibits such power.7
Interim Relief u/s 9
Section 9 of the Arbitration and Conciliation Act, 1996 reads as follows: “9. Interim measures, etc., by Court .A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a Court: (i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or (ii) for an interim measure of protection in respect of any of the following matters, namely: (a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration; (c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in 7 http://www.caclubindia.com/articles/-analysis-of-interim-measures-u-s-9and-17-of-arbitration-and-conciliation-act-1996-17637.asp#.UmwPtCftuHC as accessed on 19/10/2013
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arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; (d) interim injunction or the appointment of a receiver; (e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it”.8
This section provides for the making of orders for interim measures to provide interim relief to the parties in respect of arbitrations. The power of the court includes an order in respect of the following matters: 1. The prevention, interim custody or sale of any goods which are the subject matter of the reference. 2. Securing the amount in dispute in the reference. 3. The detention, preservation or inspection of any property or thing which is the subject of the reference or as to which any question may arise therein and authorizing for any of the aforesaid purposes any person to enter upon or into any land 8 S. 9 of the Arbitration and Conciliation Act, 1996.
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or building in the possession of any party to the reference, or authorizing any samples to be taken, or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence. 4. Interim injunctions or the appointment of a receiver. 5. The appointment of a guardian for a minor or person of unsound mind for the purpose of arbitration proceedings.9
Scope of the section
It appears that the scope for application of an interim measure under section 9 of the Indian Act is as wide as the scope under Article 9 of the UNCITRAL (United Nations Commissions International Trade Laws) Model Law. Section 9 allows a party to seek those interim measure laid down under sub-clause (a) to (d) as well as ‘any other measures’ a court deems appropriate under sub-clause (e). Moreover, section 9 does not limit the grant of interim measures to the subject matter of the dispute and secondly, sub-clause (e) grants courts the discretionary power to grant such interim measures as appears just and convenient. 10 9 Dr. Avtar Singh, Law of Arbitration & Conciliation, 10th Ed., Eastern Book Company, Lucknow, 2013, p. 96.
10 http://www.ophiuchus.co.in/global/relief.htm as accessed on 19/10/2013
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Sub section (2) of section 2 of Act of 1996 provides in a clear and unambiguous language that Part I shall apply where the place of Arbitration is in India. However, the Delhi High Court, in Dominant Offset (P) Ltd v. Adamovske Strojirny SA,11 where the arbitration took place at London, held that Part I also applies to International Commercial Arbitration conducted outside India. As far as the position of the Indian Law is concerned, this decision seeks to clarify the scope of the powers of an Indian court to grant interim relief in international commercial arbitration. The rule that seems to emerge is that when the parties have specifically intended that: (a) the law governing the contract; (b) the rules governing the arbitration; and (c) the court’s jurisdiction and the place of arbitration are outside India, then it would signify that the Indian court’s jurisdiction and applicability of Part 1 of the Act (which contains the power of the Indian courts to provide interim measures) are excluded. One of the controversies that emerged after the passing of the Indian Act was with regard to the point of time when an application could be made to a court for granting interim relief. This controversy was finally settled by the Indian Supreme Court in its landmark mark judgment of Sundaram Finance Ltd. v. 11 1991 Arb LR 335 (Del).
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NEPC India Ltd12. The Supreme Court held that Section 9 is available even before the commencement of the arbitration. It need not be preceded by the issuing of notice invoking the arbitration clause. This is in contrast to the power given to the arbitrators who can exercise the power u/s 17 only during the currency of the Tribunal. Once the mandate of the arbitral tribunal terminates, Section 17 cannot be pressed into service. The period for purpose of appeal against orders granting of refusing to grant interim relief is 90 days from the date of decree or order as per article 116(a) of the Limitation Act.
Factors influencing interim relief
A party seeking to obtain an interim measure (particularly before the arbitral tribunal has been constituted) must ensure that by taking steps in a court and thereby submitting to the jurisdiction of the domestic court it does not waive any rights it has under the arbitration agreement. The ability to obtain an interim measure will generally depend upon the procedural law governing the arbitration and the law in the jurisdiction in which the interim measure is sought to be 12 AIR 1999 SC 565.
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enforced. Generally, an applicant party needs to establish the following factors: 1. There is an “urgent need” for the interim measure. 2. Irreparable harm will result if the measure is not granted. 3. The potential harm if the interim measure is not granted substantially outweighs the harm that will result to the party opposing the measure if the measure is granted. 4. There is a substantial possibility that the applicant will ultimately prevail in the dispute.
Purpose of interim Measures
The purpose of enacting section 9, read in the light of model law and UNCITRAL rules is to provide a relief in the nature of an interim measure of protection. The order of the court should fall in the category of interim measures of protection as distinguished from an all time or permanent protection. The purpose is to protect the rights of the parties which are under adjudication from being frustrated.13
Effect of Interim Measures
13 Firm Ashok Traders v. Gurumukh Das Saluja, (2004) 3 SCC 155.
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An interim measure does not put to rest the rights of the parties. The rights of the parties are required to be adjudicated finally when a reference is made. The court has the authority and jurisdiction to pass interim orders for protection and preservation of rights of the parties during the arbitration proceedings but that does not necessarily mean that if a party has availed of a benefit under this jurisdiction, the other party cannot put his claim in the main proceedings which is before the arbitrator. The interim arrangement made by the court has to e given the interim status.14
Drawbacks of the Provision
The Law Commission of India in its 176th report published in 2001 noted a number of loopholes in the provisions for interim relief in the 1996 Act which were exploited by the parties after the Act came into force.
Provisions contained in section 9 regarding the availability of interim relief even before the arbitration proceedings commence had been misused by parties. It so 14 Dr. Avtar Singh, Law of Arbitration & Conciliation, 10th Ed., Eastern Book Company, Lucknow, 2013, p. 109.
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happened that after obtaining an interim order from the court, parties did not take initiative to have an arbitral tribunal constituted. This allowed them to reap the benefits of the interim order without any time limit.
The Law Commission in its 176th report, observed that very often, in the past, Parties had used underhand means to destroy evidence which they felt could go against them during the Arbitral Proceedings or had attempted to concoct witnesses and tamper with evidence, in the possession of a third party. As a result, there is an immediate need to change the provisions of the existing section, so that the Tribunal could get more powers to deal with such situations.
Interim Relief u/s 17
Section 17 the Arbitration & Conciliation Act, 1996 reads as follows: “17. Interim measures ordered by arbitral tribunal .(1) Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measure of protection as the arbitral
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tribunal may consider necessary in respect of the subject-matter of the dispute. (2) The arbitral tribunal may require a party to provide appropriate security in connection with a measure ordered under sub-section (1)”.15
Section 17 of the Act has to read along with section 9 of the Act 1996 to have a clear picture. While section 9 provides for the taking of interim measures by the court in certain matters, section 17 provides for taking of interim measures in respect of the subject-matter of the dispute by the Arbitral Tribunal. The essence of section 17 is that the interim order u/s 17 must relate to the protection of subject-matter of dispute and the order may be addressed only to a party to arbitration. It cannot be addressed to other parties and no power is conferred u/s 17 of the Act of 1996 upon the arbitral tribunal to enforce its order nor does it provide for judicial enforcement thereof.16 This section of the act deals with the interim measures ordered by the Arbitral
15 S. 17 the Arbitration & Conciliation Act, 1996.
16 Kohli Hari Dev, New Case Law Reference on Arbitration & Conciliation Act, Universal Law Publication, New Delhi, 2008, p. 175.
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Tribunal with the consent and agreement of the parties in dispute within the arbitral jurisdiction of India and not outside India.17
Scope of the Section
In the absence of any power given to the arbitrator under the arbitration agreement, he had under the statute no power to pass any interim order by way of injunction. The M. P. High Court in the case of Daulatram v. Shriram18 held: “…….…The arbitrators have not been vested by the Act19 with any powers to grant interim orders for the protection and safety of the subject-matter of the dispute. Such powers had, therefore, to be vested in the court under s. 41(b) of the Act read with Second Schedule…………” After passing of Act of 1996, it was held in the case of Delta Construction Systems Ltd., Hyderabad v. Narmada Cement Company Ltd., Bombay20: “…………apart from the Court, under section 17, the Tribunal itself at the request of the party, may 17 Marriott International Inc. v. Ansal Hotels Ltd., AIR 2000 Del 377.
18 AIR 1964 MP 219.
19 Arbitration Act, 1940.
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order a party to take any interim measure of protection as the Tribunal may consider necessary in respect of the subjectmatter of the dispute and for that purpose, may require the party to provide appropriate security in connection with a measure ordered under sub-section (1)………” It will be seen that a Court has been given extensive powers u/s 9 of the Act to give directions by way of interim measures. A part of that power has been given to the arbitral tribunal u/s 17. That power is that an arbitral tribunal may order a party take any interim measure of protection, as it may be considered necessary, in respect of the subject-matter of the dispute.21 However it was held that though section 17 gives the arbitral tribunal the power to pass orders, the same cannot be enforced as orders of a court. It is for this reason that section 9 admittedly gives the court power to pass interim orders during the arbitration proceedings.22 20 (2002)2 Arb LR 47 Bom.
21 Chawla S. K., Law of Arbitration & Conciliation, 3rd Ed., Eastern Law House, New Delhi, 2012, p. 536.
22 Sundaram Finance Ltd. v. NEPC India Ltd., AIR 1999 SC 565.
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Drawbacks of the Provision
The contractual nature of arbitration gives rise to several unique difficulties. 1. Non-enforceable nature of interim measures granted by an arbitral tribunal is an accepted disadvantage that an Arbitral Tribunal faces when granting interim relief and without any coercive enforcement powers. 2. A common difficulty in arbitration occurs when resolution of the dispute involves a third party against whom no order of the Tribunal shall be valid for the reason of lack of jurisdiction. 3. When interim measures of protection are needed against one of the parties to the arbitration, issues arise as to the availability of such remedies when they are sought at early stages in an arbitral proceeding. 4. Parties to arbitration also face difficulties when one party seeks interim relief at an early stage of the proceeding. In arbitration, it is typically difficult to obtain such relief expeditiously, because the Arbitral Tribunal has not yet been constituted. Thus, most parties in need of this immediate assistance seek the aid of national courts for this emergency relief. If a party seeks to delay the opposing party’s request for
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an injunction or attachment, that party can slow the process considerably by taking a long time to select an arbitrator. 5. The Tribunal’s jurisdiction to grant interim measures may be limited by the governing law of the arbitration.23
Comparison between Both the Sections Analysis of both the sections would lead us to the following conclusions:1. The new arbitration act enables the arbitral tribunal to pass orders for giving interim relief while such power is not vested under the old act. 2. Powers u/s 17 can be exercised only after the arbitral tribunal is constituted and it starts functioning. 3. Powers of court u/s 9 are wide as the words “before, during or after” indicate so. A party can approach the court to seek interim measures of protection even before the arbitration commences. The Supreme Court in the case of Firm Ashok Traders v. Gurumukh Das Saluja24, held: “…………section 17 would operate only during the existence of the arbitral tribunal 23 http://www.ophiuchus.co.in/global/relief.htm as accessed on 19/10/2013.
24 AIR 2004 SC 1433
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and its being functional. During that period, the power conferred on the arbitral tribunal under Section 17 and the power conferred by the Court under Section 9 may overlap to some extent but so far as the period pre and post the arbitral proceedings is concerned the party requiring an interim measure of protection shall have to approach only the Court…………” 4. Court’s powers are wide and have supremacy in granting interim relief. However interference of court when Tribunal is constituted is minimum. 5. The Court can exercise power u/s 9 to grant interim measures even during the pendency of application u/s 17 before the Arbitral Tribunal. Remedy available to a party u/s 17 is an additional remedy and is not in substitution of section 9.
Conclusion While drafting arbitration clause, one should keep in mind whether the arbitral tribunal should be given the power to grant interim relief or not. If arbitration clause provides for such power to arbitral tribunal, then one need not approach the court for such relief. The system of dual agency for providing relief needs to be abolished or otherwise some enforcement mechanism be provided for enforcement of the interim measures of protections
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ordered by the Arbitral Tribunal. It would be better that application of interim measures is put to the Arbitral Tribunals as they are seized of the subject matter under dispute. Only when a party is not able to get relief from the Arbitral Tribunal, it should be allowed to knock the doors of the Court. This will be in line with the objectives of the Act to minimize the intervention of the Court in arbitral proceedings.
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Bibliography Books & Acts: Chawla S. K., Law of Arbitration & Conciliation, 3rd Ed., Eastern Law House, New Delhi, 2012. Kohli Hari Dev, New Case Law Reference on Arbitration & Conciliation Act, Universal Law Publication, New Delhi, 2008. Dr. Avtar Singh, Law of Arbitration & Conciliation, 10th Ed., Eastern Book Company, Lucknow, 2013. Basu N. D., Law of Arbitration & Conciliation, 12th Ed., Orient Publishing House, New Delhi, 2013. The Arbitration and Conciliation Act, 1996
Web Links: http://www.caclubindia.com/articles/-analysis-of-interimmeasures-u-s-9-and-17-of-arbitration-and-conciliation-act1996-17637.asp#.UmwPtCftuHC http://en.wikipedia.org/wiki/Arbitration
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