While litigation in India is a long-drawn and cumbersome process, the Arbitration and Conciliation Act, 1996 was enacted to provide speedy resolution of disputes and deviate from the rigours of the strict procedures. More often than not, the disputes referred to arbitration, are disputes between parties sharing a contractual relationship under works contracts, supply contracts, or any other contract where time is of the essence.
If a party to such contracts fails to comply with its contractual obligations, the other party suffers substantial loss and damage. In such event, to mitigate the extent of damages caused to the other party and/or to maintain the status quo, the Arbitration Act provides for resorting to the remedy of seeking interim relief anytime before, during, and after the arbitration proceedings but before execution of the arbitral award. In many such disputes, obtaining interim relief becomes more crucial for the parties as opposed to the final determination of rights and obligations under the contract.
Interim relief under the Arbitration Act
The Arbitration Act provides for the remedy of seeking interim relief under sections 9 and 17. The Court under section 9 can grant interim relief to the aggrieved party 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 of the Act. Similar powers exist with the Arbitral Tribunal under section 17 wherein interim relief can be granted by the Arbitral Tribunal only during the arbitral proceedings though the matters for which interim measures can be granted are pari materia with the Court's power under section 9. However, to minimise the intervention of the courts, once the Arbitral Tribunal is constituted, the Court cannot entertain an application under section 9 unless circumstances demand so. In such cases, the parties have to necessarily approach the Arbitral Tribunal to obtain interim relief.
Pre-requisites for obtaining interim relief under the Arbitration Act
It is a settled position that application under section 9 is filed before the constitution of Arbitral Tribunal and therefore filing a statement of claim is not a pre-requisite for seeking interim relief from the Court under section 9. However, the application under section 17 is filed before the Arbitral Tribunal which also has to decide the claim between the parties. This has led to a debate on whether filing a statement of claim is a condition precedent for seeking interim relief from the Arbitral Tribunal under section 17 of the Act.
The confusion in this regard has probably arisen as filing a suit under the Civil Procedure Code, 1908 is mandatory to seek any interim relief from the Court. However, section 17 is analogous to section 9 which does not require filing of a statement of claim as such. Further, the interpretation of section 17 read with section 21 of the Arbitration Act is such that the commencement of arbitration means giving notice of arbitration after which application under section 17 of the Arbitration Act can be filed. In this regard, the Delhi High Court and Bombay High Court have passed conflicting judgments.
Conflicting views of the High Courts
The Delhi High Court in the case of National Thermal Power Corporation v. Bharat Aluminium Co. Ltd., 2004 SCC OnLine Del 1309, held that powers of Courts and Arbitral Tribunal under sections 9 and 17 of the Arbitration Act are coextensive “in respect of the dispute”. It was also noted by the High Court that there is no indication in the language of two sections to the effect that an Arbitrator cannot pass an interim order in the absence of a statement of claim. This judgment was passed by the High Court even before the 2015 amendment to the Arbitration Act which widened the power of the Arbitral Tribunal under section 17. However, in BPL Limited v. Morgan Securities & Credits Private Limited, 2008 (101) DRJ 188, the Delhi High Court took a contradictory view and set aside the interim order passed by an Arbitrator under section 17 of the Arbitration Act on the basis that the same was passed in a preliminary hearing and no claim or counter-claim or reply had been filed.
After the 2015 amendment, in a landmark case of Sanjay Arora and Anr. v/s. Rajan Chadha & Ors. (2021 SCC Online Del 4619), the Delhi High Court again held that the Arbitral Tribunal has the authority to pass interim orders under section 17 of the Arbitration Act at any time and that, as of the 2015 amendment, filing the statement of claim before bringing a case before the Arbitral Tribunal under section 17 is no longer a sine qua non. This was also affirmed in the recent decision of the Delhi High Court in LA Lagos Sante Hospitality Pvt. Ltd. v. Suridhi Commercial Infra Private Limited 2024 SCC OnLine Del 1146, wherein it was held that the powers of the Arbitral Tribunal under section 17 are wide, and the interim order passed by the Arbitrator only requires adherence to the express and undisputed contractual terms. Hence, the relief under section 17 in appropriate circumstances can be granted even prior to the filing of a claim or counter-claim.
Contradicting the decisions of the Delhi High Court, the Bombay High Court in the case of Moser Baer Entertainment Ltd. v. Goldmines Telefilms Pvt. Ltd. 2013 SCC OnLine Bom165, opined that the Arbitral Tribunal could not have granted any interim relief as the entire pleadings including the statement of claim and documentary evidence were not filed for consideration of the Arbitrator. Furthermore, even after the 2015 amendment, the Bombay High Court again in the case of Tasty Korner v. Merwan's Confectioners Pvt. Ltd. 2020 SCC OnLine Bom 11671, held that section 17 Application cannot be disposed of or even taken up unless a statement of claim has been filed to begin with.
Though the Delhi High Court judgments were passed as a significant development and sought to clear some air in the uncertainty surrounding the requirement of filing a statement of claim prior to making an application under section 17, the reluctance of the Arbitral Tribunal to pass the interim order in the absence of a statement of claim is still very much prevalent. In such a scenario, where a party is unable to immediately file the statement of claim due to any reason like huge claims to be assessed by the external consultants, bulky documents to be filed along with the claim, etc., they may suffer irreparable injury. There may also be scenarios where the claims sought by the parties may be rendered infructuous if the interim relief regarding protection of the subject matter of the dispute is not granted immediately by the Arbitral Tribunal for the absence of a statement of claim.
To remedy this lacuna, the Arbitral Tribunals need to repose the faith of the parties in the arbitral proceedings and take a pro-arbitration approach by saving time and making the dispute resolution process effective. The Delhi High Court judgments in this regard may also compel the legislature for an amendment in the Arbitration Act to explicitly provide that if circumstances demand, the interim relief may be granted even in absence of a statement of claim. Such an amendment by the legislature would also give teeth to the legislative words contained in the verbatim of section 17 brought under the amendment of 2015.
Authors: Yogendra Aldak (Partner); Bhavya Shukla (Principal Associate) and Tamanna Sharma (Senior Associate) At Lakshmikumaran and Sridharan Attorneys. Views are personal.