Applicability Of Section 17 To Foreign Seated Arbitrations

The Delhi High Court in the judgment of Shanghai Electric Group Company Ltd v. Reliance Infrastructure Ltd.^[1] held that Courts under Section 9 of the Act are not barred from granting interim reliefs against an Indian party having bulk of its assets situated in India and when the arbitration is seated outside India. While deciding so, the Court noted that, “in arbitrations seated outside India, the party does not have an efficacious remedy for seeking interim reliefs from the arbitral tribunal, as an order passed by it would not be directly enforceable by Indian Courts. Unlike Section 17 of the Act, there is no corresponding provision under the Act for enforcement of interim orders passed by a foreign tribunal, as the Act only contemplates enforcement of foreign awards and not foreign interim awards.”

However, seeking interim reliefs under Section 9 (for even arbitrations seated outside India) may not be very time effective or efficacious in all situations and circumstances. As per the bar under Section 9(3) of the Act, the Courts can sometimes be reluctant to grant interim reliefs when the tribunal is already constituted. This again gives rise to the question that, when an arbitration is seated outside India, what remedy is available to the party holding an order of interim reliefs to enforce the same in India when the assets of the opposite party are located in India?

Interim Reliefs under the Arbitration and Conciliation Act, 1996 (“Act”):

Usually, in circumstances when the arbitral tribunal is yet to be constituted, or the proceedings before the tribunal are underway, or even for that matter, time before the award is enforced, losing or parties expecting a loss tend to use dilatory tactics. These can be in the form of either disposing or interfering with the assets or the subject matter of the dispute, to the detriment of the opposite parties' interests. Such tactic are usually done with an intention to delay the arbitral proceedings or to prejudice the interests of the winning party, or sometimes even to render the award infructuous. Due to this, the final award granted by the arbitral tribunals tend to become infructuous as the losing party has already dissipated with its assets or sometimes the subject matter of the arbitration. Hence, it is of paramount importance to protect the rights of the parties on the subject matter of the dispute over the course of pendency of the arbitral proceedings.

Interim Measures or Interim Injunctions are generally sought by the parties with an intention to preserve their rights and maintain the status quo during the course of arbitral proceedings. A party may approach the court or the arbitral tribunal for an interim measure which would bind both the parties until the final award is passed. The 1996 Act provides for interim measures to be granted by courts as well as the arbitral tribunal under Section 9 and 17, respectively.^[2] Depending on the stakes and the nature of the subject matter of the dispute, applications for interim relief are usually required to be disposed of urgently. Interim relief is granted in aid of final relief. The object is to ensure protection of the property being the subject-matter of arbitration and/or otherwise ensure that the arbitration proceedings do not become infructuous and the arbitral award does not become an award on paper, of no real value.^[3]

The principles for grant of interim relief are (i) good prima facie case, (ii) balance of convenience in favour of grant of interim relief and (iii) irreparable injury or loss to the applicant for interim relief.^[4] Unless applications for interim measures are decided expeditiously, irreparable injury or prejudice may be caused to the party seeking interim relief.^[5] Thus, it is very necessary that the interim reliefs are decided expeditiously and that the proceedings does not become infructuous.

Enforcement of Interim Reliefs under the Act:

Since the enactment of the Act, there have been substantial amendments brought in Section 17 to enable the arbitral tribunals to pass orders which can be effectively enforced. Earlier, the Supreme Court had pointed out that the orders passed by the arbitral tribunal cannot be enforced as orders of the Court and, therefore, the parties have to resort to Section 9 of the Act.^[6] However, with the passage of time, the Courts attempted to find suitable legislative basis for enforcing the orders by reading Section 27(5) of the Act in a manner so as to hold a person violating interim orders, guilty of contempt.^[7] Finally, Section 17 was then amended by 2015 Amendment Act^[8] –which inserted sub-sections (2) and (3) to Section 9– so that Section 17(1) would be a mirror image of Section 9(1), making it clear that an Arbitral Tribunal is fully clothed with the same power as a court to provide for interim relief. Also, Section 17(2) was added so as to provide for enforceability of such orders, again, as if they were orders passed by a court, thereby bringing Section 17 on a par with Section 9.^[9] Hence, the cumbersome procedure of an Arbitral Tribunal having to apply every time to the High Court for contempt of its orders is no longer necessary. Such orders would now be deemed to be orders of the court for all purposes and would be enforced under the Civil Procedure Code, 1908 in the same manner as if they were orders of the court.^[10]

However, this is the settled enforcement framework only for arbitrations seated in India and to which Part I of the Act applies. The issue –and the lacunae– arises, while dealing with interim reliefs or emergency awards rendered in arbitrations seated outside India.

Enforcement of Interim Reliefs granted in Arbitrations seated outside India:

Article 17H of the UNCITRAL Model Law contains express provisions for enforcement of interim measures. However the Act does not contain any provision pari materia to Article 17H for enforcement of interim orders granted by an Arbitral Tribunal outside the India.^[11] Section 17 of the Act is clearly not applicable in respect of arbitral proceedings held outside India.^[12] Even under Emergency Arbitration, which is a procedure that offers a disputing party an option to obtain urgent interim relief from an arbitrator / tribunal constituted solely for this purpose. This is usually done before an arbitral tribunal is constituted to adjudicate the dispute on merits. Because of this emergency arbitrations, even in international arbitrations seated outside India, the parties do not have to resort to court proceedings for seeking interim reliefs. An Emergency Arbitrator's “award” i.e. order, is an order that furthers the objective of decongesting the court system and to give the parties urgent interim relief in cases which deserve such relief.^[13] Given that the definition of “arbitration” in Section 2(1)(a) means any arbitration, whether or not administered by a permanent arbitral institution, when read with Sections 2(6) and 2(8), would make it clear that even interim orders that are passed by Emergency Arbitrators under the rules of a permanent arbitral institution would, on a proper reading of Section 17(1), be included within its ambit.^[14] Interim reliefs passed by the Arbitral Tribunal seated outside India cannot be enforced under the Act and the only method for enforcing the same would be for the petitioner to file a suit.^[15]

The underlying problem under the existing framework for enforcing interim reliefs passed by the Arbitral Tribunal seated outside India was raised in the 246^th Law Commission Report ^[16], as follows:

“Where the assets of a party are located in India, and there is a likelihood that that party will dissipate its assets in the near future, the other party will lack an efficacious remedy if the seat of the arbitration is abroad. The latter party will have two possible remedies, but neither will be efficacious.

1. The latter party can obtain an interim order from a foreign Court or the arbitral tribunal itself and file a civil suit to enforce the right created by the interim order. The interim order would not be enforceable directly by filing an execution petition as it would not qualify as a “judgment” or “decree” for the purposes of sections 13 and 44A of the Code of Civil Procedure (which provide a mechanism for enforcing foreign judgments).
2. In the event that the former party does not adhere to the terms of the foreign Order, the latter party can initiate proceedings for contempt in the foreign Court and enforce the judgment of the foreign Court under sections 13 and 44A of the Code of Civil Procedure.

Neither of these remedies is likely to provide a practical remedy to the party seeking to enforce the interim relief obtained by it. That being the case, it is a distinct possibility that a foreign party would obtain an arbitral award in its favour only to realize that the entity against which it has to enforce the award has been stripped of its assets and has been converted into a shell company.”

Moreover, the party cannot approach the seat court for seeking such interim reliefs as there is no provision for execution of an interim order passed by a foreign court under the Civil Procedure Code, 1908 - which only contemplates execution of foreign decrees under Section 13 read with Section 44A.^[17]

As observed by the Calcutta High Court, that an award holder of an arbitration seated outside India would be rendered remediless if prompt and effective interim measure is not granted to such award holder in relation to the assets of the award-debtor which are located in India.^[18] Thus, if suitable interim measured are not granted to a foreign (interim / emergency) award-holder and the award is made to pass the tests for enforcement under Part II, the rights of the award holder can be prejudiced, which goes antithetical to the very objective of the Act.^[19]

Thus, for arbitrations –categorically seated outside India– the interim reliefs granted in such arbitrations cannot be enforced in the same way as they happen in India seated arbitrations. As of now, there exists no efficacious remedy in order to enforce such awards to ensure that their enforcement does not become infructuous and to make sure that the objective for which they are sought, is upheld.

Suggested Remedy:

The Supreme Court in Bhatia International,^[20] had held that in international commercial arbitration, Part I would apply unless the same was excluded by the parties vide an agreement. This position in Bhatia was subsequently overruled in BALCO,^[21] wherein the SC held that Part I of the Act would have no application in cases where the seat of arbitration is outside India. Later, this position was amended by virtue of the 2015 Amendment Act, through which a proviso was added to Section 2(2) which expressly provided that Section 9, 27, & 37(1)(b) and 37(3) would also apply to international commercial arbitrations even if the place of arbitration is outside India and the arbitral award is enforceable under the provisions of Part II of Act.^[22] Thus –the position as it stands today– Part I of the Act shall apply only to arbitrations seated in India, however, subject to an agreement to the contrary, the following provisions from Part I shall also apply to arbitrations seated outside India:

1. Section 9: Interim Measures by Court
2. Section 27: Court Assistance in taking evidence
3. Section 37(1)(b): Appeal against order granting or refusing to grant any measure under Section 9
4. Section 37(3): No second appeal from an order passed under Section 37, except appeal to the Supreme Court.

The rationale behind this amendment was to enable the Indian Courts to exercise jurisdiction with respect to these provisions even where the seat of the arbitration is outside India.^[23]

In addition to this existing framework, there can also be an efficacious remedy made available for expeditious enforcement of interim reliefs granted in arbitrations seated outside India. This can be done by making Section 17 –provision regarding interim measures ordered by Arbitral Tribunal– of the Act applicable even to arbitrations that are seated outside India. As discussed above, after the 2015 Amendment Act, Section 17(1) is a mirror image of Section 9(1) and the Arbitral tribunal is fully clothed with the same power as a court to provide for interim relief. Additionally, since Section 9(3) and Section 17 form part of one single scheme, it is clear that an “Arbitral Tribunal” as defined under Section 2(1)(d) would not apply, and the Arbitral Tribunal as spoken of under Section 9(3) would be like the “Arbitral Tribunal” spoken of in Section 17(1) which would also include an Emergency Arbitrator appointed under the institutional rules.^[24]

By and large, what this means is that any arbitral tribunal (including Emergency Arbitrator) constituted in an arbitration seated outside India –with assets of the parties or the subject matter located in India– would be construed to fall within Section 17 per se, and hence, any interim reliefs granted by such arbitral tribunals can directly be enforced under Section 17(2). This brings it at par with the framework for enforceability of interim reliefs granted in arbitrations seated in India. Additionally, earlier a person guilty of not following the interim orders of the arbitral tribunal seated in a foreign country could not be proceeded against for the contempt under Section 27 of the Act. But if Section 17 is made applicable to international commercial arbitrations even if the place of arbitration is outside India, the person not following the interim orders can be held guilty of contempt under Section 27 of the Act. Further, providing for applicability of Section 37(2)(b) becomes a corollary amendment.

Hence, under Section 2(2) –along with the applicability of Section 9, 27, & 37(1)(b) and 37(3)– Section 17 and 37(2)(b) can also be made applicable to international commercial arbitrations even if the place of arbitration is outside India.

It is thus evident that an active legislature which regularly updates arbitration legislation to reflect best practices and resolve ambiguities in judicial precedent is essential for creating a supportive arbitral seat where arbitral institutions can flourish. ^[25]As we know that main purpose of the 1996 Act is to encourage an ADR method for resolving disputes speedy and without much interference of the Courts. Therefore, it becomes necessary to remove the difficulties and lacunas in the Act so that ADR method may become more popular and object of enacting Arbitration law may be achieved. As India looks forwards to emerge as an hub of International Arbitration, it is of paramount interference that the objective of speedy resolution of dispute is upheld and the legal framework should be such, that is supplements the same.

Currently, many leading arbitration hubs / developed arbitration jurisdictions such as Singapore and Hong Kong which have recognised the enforceability of orders given by an emergency arbitrator or orders granting interim measures in arbitrations seated outside their respective countries. By applying Section 17 to arbitrations seated outside India, India shall move a step ahead in ensuring that the assets or subject matter of the dispute located in India are secured expeditiously, and no party can play any kind of dilatory tactics to render such foreign seated interim awards infructuous.

Views are personal.

[1] 2022 SCC OnLine Del 2112.