Missing Scale Of Justice To Weigh The Grant Of Interim Relief In Arbitration Proceedings

Section 9 and Section 17 of the Arbitration Act empower the Courts and Tribunals to grant interim relief to parties in an arbitrable dispute. The aim of securing interim relief is to not only protect and preserve the rights of the parties but also prevent the arbitration from being rendered a fruitless procedure. The arbitrator's powers to grant interim measures under Section 17 is pari passu with the Court's powers under Section 9 of the Arbitration Act.

Typically, the scale of justice used for granting interim measures is the balance of equities between the parties on consideration of prima facie case, balance of convenience, and irreparable damage. However, certain judicial decisions call for stricter compliance with the standards laid under the Code of Civil Procedure, 1908 (Code) for granting certain interim relief. On the other hand, some pragmatic and forward-thinking judicial pronouncements sway in the direction of wide exercise of powers while granting interim relief under the scheme of the Arbitration Act to secure the ends of justice.

This dichotomy points towards a lacuna of a standardized test that can assist in guiding arbitrators while hearing applications for interim relief. Such a lacuna has plagued the arbitral proceedings with an element of chance, where parties are left at the mercy of the arbitrator's discretion to follow the Code or not. In order to bridge this gap, there is a need for a defining judicial pronouncement that settles the position with regard to the factors to be considered by the arbitrators while deciding applications for interim relief.

Ordinarily, the parties seek interim relief such as temporary injunction, interlocutory injunction, attachment before judgment, and arrest of the defendants among others. While the Courts under original proceedings are governed by Order XXXVIII and Order XXXIX of the Code along with Sections 38 and 39 of the Specific Relief Act, 1963 for grant of the interim relief, the arbitration proceedings are not so bound.

The arbitral proceedings are not alien to the above interim relief which are often sought by the parties in these proceedings as well. Section 9 and Section 17 of the Arbitration Act confer wide powers upon appropriate Courts and Tribunals respectively (depending on whether the arbitral proceedings have commenced, concluded, or continuing) for grant of interim relief. Though the Arbitration Act is a self-contained code in itself, the Courts and Arbitrators seek guidance from the Code and judicial pronouncements for granting relief to the parties.

Even though some courts are of the view that grant of interim relief under the Arbitration Act should be made following a liberal exercise of powers and not unduly bound by the words of the Code, the courts have unconsciously observed that the principles under the Code will be a guiding factor. This view has been interpreted by various arbitrators in a way that encourages strict application of the Code on the strength that the underlying principles of the Code apply to the arbitral proceedings. However, there are court rulings that support a counter view also. As a result, the Courts and Arbitral Tribunals are unable to follow a consistent approach for the grant of interim relief.

The Bombay High Court in Jagdish Ahuja^[1] has held that the scope of Section 9 of the Arbitration Act is very broad, and the Court has discretion to grant a wide range of interim measures of protection “as may appear to the court to be just and convenient”. However, the Court cautions that this discretion must be exercised judiciously and not arbitrarily. The Bombay High Court further mandates that the Courts seek guidance from Order XXXIX Rules 1 and 2 of the Code. Similarly, the Delhi High Court in Ajay Singh^[2] has taken a view that the courts should follow the 'underlying principles' rather than being unduly bound by the text of the Code.

The inconsistency is starkly apparent from cases where parties are looking to secure the disputed amount at the interim stage. An order for securing the amount claimed prior to an arbitral award is essentially in the nature of 'attachment before judgment'. The Delhi High Court^[3] has held that the principles underlying grant of such orders under Order XXXVIII Rule 5 of the Code are applicable for grant of relief under Section 9(1)(ii)(b) or 17(1)(ii)(b) of the Arbitration Act as well. In the same judgment, the Delhi High Court also recognizes that the orders under the Arbitration Act are discretionary in nature and therefore, equitable considerations would apply. It is relevant to note that while laying out the standards, the High Court has not pressed on stringent and mechanical application of the provision, but has instead mandated that (i) the plaintiff establishes a reasonably strong prima facie case; and that (ii) the court is prima facie satisfied that the defendant is acting in a manner so as to defeat the realisation of the decree, an ingredient specific to Order XXXVIII Rule 5 of the Code. The Madras High Court relies upon M/s. I.T.I. Ltd. v. M/s. Siemens Public Communications Network Ltd^[4] to state that the principles underlying the provisions of the Code will be applicable.

The Supreme Court has also not been able to provide a guiding settled judicial pronouncement to put a rest to the controversy. In the judgment of Essar House Case^[5] delivered on 14 September 2022, the Supreme Court of India ruled that in deciding an application for interim relief in the nature of attachment before judgment, all that the court is required to see is (i) whether the applicant for interim measure has a good prima facie case, (ii) whether the balance of convenience is in favour of interim relief as prayed for being granted, and (iii) whether the applicant has approached the court with reasonable expedition. Proof of actual attempts to remove or dispose of the property with a view to defeat or delay the realisation of an impending arbitral award (as in Order XXXVIII Rule 5) is not necessary for grant of relief under Section 9/ Section 17 of the Arbitration Act.

However, immediately after the above judgment, on 30 September 2022, the Supreme Court in the case of Sanghi Industries Ltd.^[6] declared that Order XXXVIII Rule 5 of the Code applies to any application filed under Section 9, which seeks interim relief against the defendant in the nature of an attachment before judgment, serving as a counterview to Essar House Case.

Thus, due to the continuing lack of a standardized test qua the grant of interim relief, the arbitrators find it easy to rely upon the strict rigours of the Code to adjudicate applications for interim relief. This has resulted in a cumbersome, inconvenient, time-consuming and unfair process.

The object of arbitration is alternate resolution of disputes between parties and it is for this reason, an application under Section 9 of the Arbitration Act does not function as a lawsuit.^[7] The plain language of the provision confers extensive and residuary powers upon the Courts to grant “(e)…such other interim measure of protection as may appear to the Court to be just and convenient…”.

Therefore, applying the standards under the Code would be excessively restrictive and undermine the purpose of the Arbitration Act, which is to avoid the formalities, technicalities and complexity of litigation.

It is imperative to preserve and maintain the efficacy of arbitration. In order to achieve this, the Courts/ Tribunals must duly exercise the powers under the Arbitration Act to mould the relief in appropriate cases to secure the ends of justice and to preserve the sanctity of the arbitral process. Application of any stricter rigours and technicalities of the Code more than what has been held in Essar House Case would destroy the efficacy of the Arbitration Act in securing the ends of justice. The institutions such as Delhi International Arbitration Centre (“DIAC”) may consider publishing guidelines in line with Essar House Judgment,. This would go a long way in fulfilling the objective of preserving the efficacy of arbitration as an alternate form of dispute resolution.

Views are personal.