The Evolving Jurisprudence Of Enforceability Of Interim Arbitral Awards

Let us understand the changes which have been made and the implications of such changes on the existing legal landscape. Section 17 of the Act before it was amended read as under:

"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 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)"

After due amendments, now the same provisions reads as under:

"17. Interim measures ordered by arbitral tribunal.—(1) A party may, during the 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 the arbitral tribunal—

• for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
• 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 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 arbitral tribunal to be just and convenient, and the arbitral tribunal shall have the same power for making orders, as the court has for the purpose of, and in relation to, any proceedings before it.

(2) Subject to any orders passed in an appeal under section 37, any order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were an order of the Court.]"

Challenges Relating To Enforceability :

As evident, there has been drastic changes made in the aforesaid provision to afford more power in regard to its enforcement. However, when such amendment was made in the existing legislation, the adaptability of the same, particularly in a country like India where arbitration as a mechanism for dispute resolution was still a nascent concept, met with various challenges. The Apex Court in Alka Chandewar Vs. Shamshul Ishar Khan [2017 (6) CTC 38] vindicated the legitimacy of the aforesaid amendment. It could be safely inferred from the aforesaid judgment that there should not be any iota of doubt as to the nature of the power which is now vested with the arbitral tribunal in wake of the clarity provided under section 17(2) of the Arbitration Act, 1996 which now clearly states that any such interim order has to be treated at par with the order of the Court and shall be enforceable under CPC, 1908 (hereinafter referred to as 'CPC, 1908').

Even after the aforesaid clarification rendered by the Apex Court, time and again, more clarity was needed on the ambit & extent of such power which could be exercised by the Arbitral tribunal. The High Court of Madras in Sundaram Finance Ltd Vs. P Sakthivel [CRP (MD) No. 2013 of 2018] had to address two issues: First, Whether the Arbitral Tribunal under section 17 is empowered to attach properties which were not the subject matter of arbitration? Second, Whether the District Court to which the order of attachment has been sent for enforcement can sit in appeal over it?

The High Court of Madras, while deciding the first issue held that the Power of the Arbitral Tribunal to grant interim relief is not less than that of a regular court, which has the power to grant the interim relief under section 9. Moreover, the court resorted to the purposive rule of interpretation when it emphasised that section 17(1) of the Act, 1996, should be read with section 94 of the CPC, 1908 which empowers the court to direct the defendant to furnish security or order attachment of "any property". Accordingly, it was decided that the ambit of the provision under section 17(1) extends to attaching the property even though it is not the subject matter of the arbitral proceedings.

As far as the second issue is concerned, it has been held by the High Court of Madras in the aforesaid case that whenever the arbitral tribunal passes an interim order under section 17 of the act, it has to follow the procedure laid down under section 136 of the CPC, 1908 which provides for the procedure to be followed when person to be arrested or property to be attached is outside the district. Section 136 categorically states that the Court in which application has been made for an order of attachment of the property or issue a warrant of arrest and when the property is not situated within the jurisdiction of such Court or person is not residing within the jurisdiction of such court, then such court is empowered to make an order to that extent and send the same to the District Court within the local limits of whose jurisdiction such person resides or property is situated. Since, the Arbitral Tribunal cannot enforce the interim Order on its own and the order of the Arbitral Tribunal has to be considered at par with the Court, therefore, even for order passed under section 17, the procedure prescribed under section 136 has to be followed and no judicial order is warranted from the District Court in implementing the Interim order. To further clarify, it was also held that while dealing with section 136, the district court is only discharging a ministerial responsibility and cannot sit in appeal over the order passed by Arbitral Tribunal as interim order is appealable in view of section 37(2)(b) of the Act.

Challenges Relating To Its Misuse:

After the aforesaid judgment, when there has been clarity afforded by the Court in regard to the enforceability of the interim award in the same manner as that of the court, there were issues raised in regard to the misuse of this provision. One such issue was addressed by the the High Court of Bombay in Godrej Properties Ltd Vs. Goldbricks InfrastructurePvt. Ltd in Commercial arbitration petition (L) No. 23500/2021. The issue which came before the court was about the validity of the ex-parte order by the sole arbitrator under section 17 of the Act. While deciding the matter, it was observed by the Court that the provisions of the Act not only require the parties to be dealt with equality but also, each party should be afforded with an opportunity to present his case. Emphasis was laid on section 24(2) of the Act, which mandates the parties "shall be" given sufficient advance notice of "any hearing". It was further observed that the fairness of procedure would not permit the arbitral tribunal to pass an ex-parte order on a section 17 application without showing any extreme urgency without issuance of a notice and hearing being granted. Relief part of such petition was also considered wherein the court observed that the relief sought in the application were not of such nature that in case such relief is not granted, the applicant would be placed in a prejudicial position that no restitution of such position was possible.

After going through the above decision of the High Court of Bombay, it is obvious to have this doubt that if the legislature itself by virtue of aforementioned amendment in section 17 of the Act has afforded the status of court to the arbitral tribunal for the purposes of passing any interim order under section 17 then can't the arbitral tribunal exercise the power of the civil court similar to order 39 for passing temporary injunctions without giving notice to the other party?

The Bombay High Court in the aforesaid Godrej Properties case has cleared this doubt by categorically stating that the arbitral tribunal cannot exercise such power in view of the provisions of section 24(2) read with section 18 of the Act, as it prescribes that a party shall be given sufficient advance notice of any hearing and further qualified with an obligation of the tribunal to treat all parties equally and that each party should be given full opportunity to present its case, which is required to be recognised to be applicable at all stages of the proceedings before the arbitral tribunal.

Enforcement Of Interim Arbitral Award: A Developing Jurisprudence

It is interesting to note how the Indian jurisprudence on the interim award of the arbitral tribunal has developed in India by virtue of the aforementioned judgments. Firstly, there was a need felt by the legislature to give due recognition to the interim award of the arbitral tribunal and accordingly, amendment was made in section 17 of the arbitration and conciliation act, 1996. Secondly, the law still needed clarity as to how the enforcement has to be made of such interim award which was given the status of the order of the court. Thereafter, the need was felt to provide much needed clarification on the issue of its misuse by passing of the 'ex-parte' interim orders by the Arbitral Award and the same was clarified by the Bombay High Court judgment in Godrej Properties case.

It is the last part of the developing jurisprudence which is most important here as to the safeguard which should be adopted to stop its misuse. As the arbitration regime is growing at a fast pace in India across all sectors, chances are that its misuse would also be rampant. Now, more and more agreements are incorporating arbitration as a mode of dispute resolution rather than litigation, chances of its abuse by the institutions sitting in a position of authority increases accordingly. Now, arbitration as a mode of dispute resolution is not only adopted in the agreements involving large scale commercial transactions but also, in agreements involving small transactions such as personal loans. It is important to safeguard the rights of the small borrowers who have no alternative but to sign the standard form of agreements of the financial institution having mandatory arbitration clause where the party autonomy goes for a toss.

In order to understand the relevance of the Godrej properties judgement of the Bombay High Court which seeks to safeguard the rights of such vulnerable parties, let us take an example. As already stated above, there are many financial institutions who offer loans to public in general. In the loan agreement, there is a clause regarding arbitration by the sole arbitrator. The customer may not always be aware about the implications of the Arbitration clause since he is left with no option but to sign the agreement as it is in the Standard form. The customer makes a default or there arises a dispute in such agreement with regard to repayment or quantum of interest. Ideally, the Financial institution should send a prior notice to the customer before passing an interim arbitral award. However, considering the large number of such transactions, considering the cost benefit analysis, it may not be practically feasible for such institution to give such prior notice and conduct separate arbitration for each case. Therefore, such financial institution might involve itself in the collusive practise of sending such ex-parte interim arbitral award to other financial institutions/banks where such customer is maintaining the savings account to freeze such account. If such ex parte notices are complied by such financial institutions/banks and freeze the savings account of the customer then such customer is not left with any other choice but to comply with the directions without even getting the opportunity of being heard and that defeats the very purpose of the Act which seeks to not only guarantee the party autonomy but also, fairness in procedure and conduct while dealing with arbitration process.

It is in this context that the Judgment of the High Court in Godrej Properties Case assumes significance. It is the not only the duty of the financial Institutions/Banks or the Courts receiving such kind of orders but also, all the parties including the big financial institutions & corporations to not to resort to any kind of misuse. All the parties who intend to opt for arbitration as a mode for dispute resolution need to ensure that such clause is not incorporated mechanically but in the right spirit so as to instil confidence in the eyes of the common people to use it rather than instilling apprehensions in respect of its misuse. It is the collective responsibility that needs to be discharged with utmost diligence and integrity which would further the mandate of the Act and reduce the heavy burden of litigation that the courts have been bearing since long period of time.

Raghav kumar Singh is a Law Officer at State Bank of India and Utkarsh Pandit is student at Institute of Law, NIRMA University. Views are personal.