Courts Must Be Conscious Of Power Of Arbitral Tribunal While Exercising Discretion Under Section 9 Of The Arbitration Act: Gujarat High Court

The Bench comprising Justice JB Pardiwala and Justice Niral Mehta was hearing First Appeals (clubbed due to inter-related issues) challenging the order passed by the Commercial Court at Surat under Section 9 of the Act.

Background

In the instant case, the Appellant, EBTL and the Respondent, AMNS had executed a Principal Agreement relating to the cargo handling charges. AMNS, a steel manufacturing plant at Surat, required huge quantities of iron ore for its plant. EBTL which managed two Deep-Water jetties, was obligated with the task of maintaining a draft of 10 metres at the terminal for the transportation of this iron ore via vessels. By way of a third amendment in the Principal Agreement, it was stated that the cargo handling charges (CHC) shall be paid by AMNS in the INR equivalent of USD denominated tariff (USD 1= INR 54.2). EBTL, in June 2020, informed AMNS that it was unable to afford maintenance dredging to maintain channel dept at 12 metres and therefore, it would declare terminal draft at 10 metres due to non-payment of additional CHC. Pursuant to this difference, AMNS invoked the arbitration clause and filed an application for appointment of an Arbitrator under Section 11 of the Act. AMNS further filed an application under Section 9 of the Act seeking, inter alia, the discharge of vessels waiting at anchorage and pass a restraining order on EBTL from declaring terminal draft at 10 metres.

The second issue of contention was the dollarization of tariff. The parties had initially agreed that the CHC would be in accordance with INR denominated tariff. However, in 2013, the parties moved to a USD denominated tariff. The parties had agreed to suspend the dollar tariff till EBTL would draw loans in dollars. When EBTL drew the first tranche of dollar loans, AMNS refused to pay the dollar tariff terming the same as 'onerous.'

The commercial court under Section 9 application took the view that AMNS was obligated to pay dollarized cargo handling charges with the dollar rate as on 30.12.2020. It also directed EBTL to maintain a channel depth of 10 metres below the chart datum as an interim measure under Section 9(1)(ii)(e).

Thus, the two primary issues which were raised before the High Court were:

• whether the Commercial Court, in exercise of its power under Section 9 of the Arbitration Act, could have directed the EBTL to maintain a depth in the channel of 10 meters below the chart datum by way of an interim measure in favour of the AMNS?
• whether the Commercial Court was justified in directing the EBTL to continue to provide services without the AMNS required to pay the agreed "Dollar Tariff"?

Contentions

The Appellant ie, EBTL's contended that the court had exceeded its jurisdiction beyond the scope of Section 9 in directing EBTL to always maintain a channel depth of 10 metres. The only obligation on part of EBTL was to maintain a minimum depth of 10 metres at the terminal and a minimum depth of 10 metres below the chart datum in the channel. Further, EBTL undertook immense expenses to reach a depth of 12 metres and AMNS had declined to pay additional charges for the same.

Regarding the dollarization of tariff, the Appellants claimed that the agreement was binding and AMNS could not be permitted to resile from its liability. However, the Commercial Court, re-wrote the fundamental and most material term of the contract by changing the rate. This was in violation of the Union of India vs Kishorilal Gupta judgement [AIR 1959 SC 1362], as well.

Per contra, the Respondent, stated that the court had not committed any error by directing the Appellant to maintain the minimum depth of 10 metres. It has granted reliefs till the time the arbitral tribunal decided the issue as under Section 17. Further, regarding the issue of the dollar tariff, the Respondent averred that the commercial court, could not adjudicate a substantive issue of the dispute while granting interim measures.

Judgement

Primarily, the Bench observed that Section 9 of the Act contemplated 'interim measures' by the court and therefore, the exercise of jurisdiction must be in the nature of 'interim measures.' This view had been taken in the Bank of Maharashtra vs MV River Orghese judgement, as well [1990 AIR (Bom) 107]. Further, the Court while exercising its power under Section 9 must be conscious of the power vested with the arbitral tribunal by Section 17. The Bench enumerated the following principles for Section 9:

1. existence of a prima facie case
2. balance of convenience and the possibility of irreparable loss or prejudice if interim relief is declined
3. public interest.

The High Court also affirmed the view taken in Kiritkumar Futarmal Jain vs Valencia Corporation judge ment [(2019) 3 GLH 667]:

"once the jurisdiction of the court is invoked under Section 9 of the Arbitration Act for interim measures either before or during the pendency of the arbitral proceedings and such remedy is exhausted, similar interim measures cannot be claimed before the arbitral tribunal under sub-section (2) of Section 17 of the Arbitration Act as the same may give rise to a situation where there would be simultaneously two orders in existence in respect of the same cause of action; one, that may be passed by the court, and another, that may be passed by the arbitral tribunal."

Keeping these principles and precedents in mind, the Court opined that directing EBTL to maintain a channel depth of 10 metres below chart datum always, overlooked the balance of convenience and amounted to the adjudication of a substantive issue.

On the second issue of dollar tariff, the Court remarked that the commercial court had indeed decided the entire dispute by itself and had left nothing for the decision to be taken by the arbitral tribunal. It was impermissible for the court to come to the prima facie finding for granting relief which resulted in a substantive proceeding. This view had been affirmed by the CRSC Research and Design Institute Group Co. Ltd. vs. Dedicated Freight Corridor Corporation of India Limited and others judgement [2020 SCC Online Del 1526] where the Delhi HC had noted that any interpretation given by the court, even though a prima facie view, can influence the arbitral tribunal.

Accordingly, Justice Pardiwala and Justice Mehta, allowed the first appeal partly and quashed the order directing EBTL to maintain a channel depth of 10 metres at all times. The other three appeals were dismissed. AMNS requested the Court that EBTL continue to abide by the 10-meter limit at all times as AMNS wanted to take the matter before a higher forum. This request was declined by the Bench.

Case Title: Essar Bulk Terminal Limited vs Arcelor Mittal Nippon Steel India

Case No.: C/FA/3040/2021

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