Section 9 Arbitration Act Will Apply To Foreign Arbitration Unless Expressly Excluded By Parties In Arbitration Agreement: Calcutta HC

The Calcutta High Court on Wednesday held that choosing foreign law to govern an arbitration would not in itself exclude the application of Section 9 of the Arbitration and Conciliation Act, 1996 (Act) unless parties specifically exclude its application in the arbitration agreement. Section 9 permits parties to approach Indian courts for interim protection or reliefs.

Justice Moushumi Bhattacharya was adjudicating upon a plea wherein the issue before the Court was whether the 'governing law' clause contained in the agreement for referring disputes between the petitioner and the respondent to arbitration before the International Chamber of Commerce (ICC) excludes the operation of section 9 of the Act.

In the instant case, the petitioner (Medima) had received an award amounting to USD 30,35,249.87 (equivalent to INR 22,08,75,133/-) in its favour. The award had been passed by the ICC in proceedings governed by British law with the seat of arbitration in London, United Kingdom. Accordingly, Medina had moved the instant application under Section 9 of the Act seeking protective orders to secure the dues payable by the respondent (Balasore Alloys).

However, the respondent contested the maintainability of the plea on the ground that the applicability of Section 9 was excluded since the parties were governed by English law and since the arbitration took place before the ICC.

Reliance was also placed by the respondent on Clause 23 of the agreement (dealing with the governing law i.e. English law) to contend that it would exclude the application of Section 9 of the Act or any Indian law. Further, it was also submitted that parties can only approach courts in England or the ICC to take any legal recourse

Another submission made by the respondent was that Section 9 of the Act does not allow the grant of any form of interim relief after the arbitral award has already been made in a foreign arbitration.

Justice Bhattacharya noted that the proviso to Section 2(2) of the Act stipulates inter alia that Section 9 under Part I of the Act, which ordinarily applies if the place of arbitration is in India, would also apply to international commercial arbitration, even if the place of arbitration is outside India, unless there is "an agreement to the contrary."

The Court observed that an 'agreement to the contrary' as mentioned under Section 2(2) of the Act must be express and not implied. Unless an arbitration agreement expressly excludes the application of Section 9 of the Act, the provision would apply to foreign seated arbitration as well, it was noted.

Opining further on the meaning of 'agreement to the contrary' under Section 2(2) of the Act, the Court stated, "the contracting parties must evince and articulate an intention not to subject the arbitration agreement to the application of section 9 of the Act"

"Simply put, there must be something more to an arbitration agreement governed by a foreign law and with a foreign seat; the agreement must indicate in clear and express terms that the parties intend to exclude the operation of section 9 from the purview of the said arbitration agreement (underlined for emphasis). Hence, an arbitration agreement which merely chooses the law governing the underlying agreement, the arbitration and the conduct thereof without anything more cannot be seen as excluding the application of Section 9 by implication and closing the gates to Section 9 or the scope of the proviso to 2(2) of the Act", the order read.

Furthermore, the Court rejected the argument that the omission of the word 'express' in the proviso to Section 2(2) of the Act would entail that the application of Section 9 of the Act can be implicitly excluded from international arbitration proceedings.

The argument that the deletion of the word 'express' in relation to 'agreement to the contrary', as recommended by the Law Commission to the proviso to 2(2) would indicate that an implied agreement is included in the proviso has to be seen through the same prism as the other sections of the Act which contemplate an agreement by the parties.

"The argument that the deletion of the word 'express' in relation to 'agreement to the contrary', as recommended by the Law Commission to the proviso to 2(2) would indicate that an implied agreement is included in the proviso has to be seen through the same prism as the other sections of the Act which contemplate an agreement by the parties. In other words, dropping the word 'express' in the final cut means little; the structure of the proviso as it exists today is that there must be a clear, unequivocal and unambiguous articulation by the parties to exclude the application of section 9 from the arbitration which is to take place outside India"

In regards to the argument of the respondent that Section 9 of the Act would not apply once the arbitral award has already been rendered in an international arbitration, the Court observed that Section 2(2) of the Act contains the phrase 'an arbitral award made or to be made' and coupled with the proviso to Section 9 it is evident that Section 9 of the Act would be applicable even after an award has been rendered.

"There is every chance that an award-holder of an arbitration which took place outside India would be rendered remediless if prompt and effective interim measures are not granted to the award-holder in the interregnum in relation to the assets of the award-debtor which are located in India. In other words, if suitable interim measures are not granted to a foreign award-holder and the award is made to pass the tests for enforcement under Part II, the award-holder may be denuded of its rights. The Act, together with the amendments, intends to facilitate quick resolution of disputes through alternative means. Hence, asking an award-holder to wait until the award is recognised and enforced is antithetical to the very objective of the Act. The Law Commission in its 246th Report noticed the aforesaid as also the lack of an efficacious remedy in furtherance of the award", the Court opined.

Accordingly, the Court held that the instant application under Section 9 of the Act is maintainable and that the petitioner is entitled to seek interim measures against the respondent award debtor.

The matter is slated to be heard next on August 11.

Case Title: Medima LLC v. Balasore Alloys Limited

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