Courts Must Refrain From Interim Orders Once Arbitral Tribunal Is Constituted Unless Urgency Demands: Delhi High Court

The bench held that:

“. If party is able to convince the Court that by the time the application is taken up by the Arbitral Tribunal, the prejudice that may result would be irreparable, it may be justified for the Court to take up the matter even when the Arbitral Tribunal is in seisin of the disputes.”

Brief Facts:

The matter pertained to a dispute which arose from a Construction, Procurement of Materials, and Equipment Contract between Welspun Enterprises Ltd (“Petitioner”) and Kasthuri Infra Projects Pvt Ltd (Respondent). The Petitioner alleged that the Respondent committed several defaults which constituted material breaches of the contract. The Petitioner approached the Delhi High Court under Section 9(1) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) and sought pre-arbitral interim reliefs also sought to prevent the Respondent from hindering or obstructing the usage of equipment, plant, and machinery at the contract site. These contentions were noted by the High Court when it issued a notice and restrained the removal of equipment at the site.

Later, the High Court was informed that both parties had appointed their respective Arbitrators, although the Presiding Arbitrator was yet to be appointed. Yes Bank then moved an application under Section 151 of the CPC in the High Court claiming that some properties at the site were hypothecated to Yes Bank and sought to exclude these from the Court's injunction. The application was pending consideration.

Subsequently, the High Court appointed a retired Supreme Court Judge as the Presiding Arbitrator since the appointed Arbitrators could not reach a consensus. A three-member Arbitral Tribunal was thus in place and pleadings were completed before it.

Observations by the High Court:

The High Court held that once an arbitral tribunal is in place, the Court should generally refrain from dealing with the matter, even for the purposes of passing interlocutory orders, unless there is an imminent threat that cannot wait for the Arbitral Tribunal's consideration. The High Court noted that examples of such imminent threats might include the invocation of a bank guarantee or the risk of dispossession. If a party can convince the Court that waiting for the Arbitral Tribunal would cause irreparable harm, the Court may take up the matter despite the Tribunal's involvement.

The High Court referred to the decision of the Supreme Court in Arcelor Mittal Nippon Steel India Ltd v. Essar Bulk Terminal Ltd LL 2021 SC 454, where it was held that the Court would not entertain an application for interim measures once the Arbitral Tribunal is constituted unless the remedy under Section 17 is inefficacious.

The High Court noted whether it had already “entertained” the petition before the Arbitral Tribunal was constituted. However, it noted that it was for the Respondent to convincingly demonstrate that emergent orders on the application are necessary and cannot wait for the Tribunal's decision.

The High Court held that the situation did not justify parallel adjudication by the Court and that interim relief considerations should be left to the Arbitral Tribunal to avoid influencing the Tribunal's proceedings.

The High Court disposed of the petition with a request to the Arbitral Tribunal to decide the petition as an application under Section 17 of the Arbitration Act and to address Yes Bank's intervention application expeditiously.

Case Title: Welspun Enterprises Ltd Vs Kasthuri Infra Projects Pvt Ltd

Case Number: O.M.P.(I) (COMM.) 124/2023 and IA 19447/2023

Advocate for the Petitioner: Mr Dayan Krishnan, Senior Advocate with Mr Aman Gandhi, Mr Parthsarathy Bose and Ms Panchi Agarwal

Advocate for the Respondent: Ms Sunita Ojha and Ms Vasudha Priyansha, Advocates for R1 Mr Rajat Katyal and Mr Mayank Punia, Advocates for Yes Bank

Date of Judgment: 15.07.2024

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