ARCELOR MITTAL NIPPON STEEL INDIA LTD. versus ESSAR BULK TERMINAL LTD.
[2021] 5 S.C.R. 1022, Supreme Court of India, 2021
Outcome: Case Partly allowed (Granted)
Segment: Arguments
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SUPREME COURT REPORTS
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   [2021] 5 S.C.R. 1022
1022
ARCELOR MITTAL NIPPON STEEL INDIA LTD.
v.
ESSAR BULK TERMINAL LTD.
(Civil Appeal No. 5700 of 2021)
SEPTEMBER 14, 2021
[INDIRA BANERJEE AND J. K. MAHESHWARI, JJ.]
Arbitration and Conciliation Act, 1996 – ss. 9, 11 and 17 –
Appellant and respondent entered into an agreement for cargo
handling – Disputes arose between the parties – Appellant invoked
arbitration clause and gave notice to respondent – Appellant filed
application u/s.11 of the Act, for appointment of an Arbitral Tribunal
before the High Court – Respondent replied to arbitration notice
stating that the dispute was not arbitrable and there was an amount
due and payable by the appellant – Both appellant and respondent
filed separate applications u/s.9 before the Commercial Court – In
pursuance to the earlier application u/s.11, the High Court appointed
three member Arbitral Tribunal – Thereafter, the appellant filed
application for reference of both the applications filed u/s.9 to the
Tribunal – The Commercial Court dismissed the application for
reference – The order of the Commercial Court was challenged
before the High Court – The High Court held that the Commercial
Court has the power to consider whether the remedy u/s.17 of the
Arbitration Act is inefficacious and pass necessary orders u/s.9 of
the said Act – Before the Supreme Court, the appellant contended
that s.9(3) of the Act restricts the power to entertain an
application
under sub-section (1) of s.9 of the Act once an Arbitral Tribunal
has been constituted – Held: s. 9(1) enables the parties to an
arbitration agreement to approach the appropriate Court for interim
measures before the commencement of arbitral proceedings, during
arbitral proceedings or at any time after the making of an arbitral
award but before it is enforced and in accordance with s.36 of the
Arbitration Act – The bar of s. 9(3) operates where the application
u/s. 9(1) had not been entertained till the constitution of the Arbitral
Tribunal – If an application u/s. 9 had been entertained before the
constitution of the Tribunal, the Court always has the discretion to
direct the parties to approach the Arbitral Tribunal, if necessary by
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passing a limited order of interim protection, particularly when there
has been a long time gap between hearings and the application has
for all practical purposes, to be heard afresh, or the hearing has
just commenced and is likely to consume a lot of time – The High
Court has rightly directed the Commercial Court to proceed to
complete the adjudication – It is clarified that it shall not be
necessary for the Commercial Court to consider the efficacy of relief
u/s. 17, since the application u/s. 9 has already been entertained
and considered by the Commercial Court.
Arbitration and Conciliation Act, 1996 – s. 9(3) – Expression
‘entertain’ – Held: the expression “entertain” means to consider by
application of mind to the issues raised – The Court entertains a
case when it takes a matter up for consideration.
Partly allowing the appeal, the Court
HELD: 1. The bar of Section 9(3) operates after an Arbitral
Tribunal is constituted. There can therefore be no question of
usurpation of jurisdiction of the Arbitral Tribunal under Section
17 before the Arbitral Tribunal is constituted. The Court is
obliged to exercise power under Section 9 of the Arbitration Act,
if the Arbitral Tribunal is yet to be constituted. Whether the Court
grants interim relief or not is a different issue, for that would
depend on the facts of the case - whether the Applicant has made
out a good prima facie case, whether the balance of convenience
is in favour of relief being granting to
the applicant, whether the
applicant would suffer irreparable injury by refusal of interim relief
etc. [Para 88][1049-G-H; 1050-A-B]
2. It is now well settled that the expression “entertain”
means to consider by application of mind to the issues raised.
The Court entertains a case when it takes a matter up for
consideration. The process of consideration could continue till
the pronouncement of judgment. Once an Arbitral Tribunal is
constituted the Court cannot take up an application under Section
9 for consideration, unless the remedy under Section 17 is
inefficacious. However, once an application is entertained in the
sense it is taken up for consideration, and the Court has applied
its mind to the Court can certainly proceed to adjudicate the
application. [Para 93][1052-D-E]
ARCELOR MITTAL NIPPON STEEL INDIA LTD. v. ESSAR
BULK TERMINAL LTD.
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3. On a combined reading of Section 9 with Section 17 of
the Arbitration Act, once an Arbitral Tribunal is constituted, the
Court would not entertain and/or in other words take up for
consideration and apply its mind to an application for interim
measure, unless the remedy under Section 17 is inefficacious,
even though the application may have been filed before the
constitution of the Arbitral Tribunal. The bar of Section 9(3) would
not operate, once an application has been entertained and taken
up for consideration, as in the instant case, where hearing has
been concluded and judgment has been reserved. Appellant may
be right, that the process of consideration continues till the
pronouncement of judgment. However, that would make no
difference. The question is whether the process of consideration
has commenced, and/or whether the Court has applied its mind
to some extent before the constitution of the Arbitral Tribunal. If
so, the application can be said to have been entertained before
constitution of the Arbitral Tribunal. [Para 95][1052-F-H; 1053-
A-B]
4. Even after an Arbitral Tribunal is constituted, there may
be myriads of reasons why the Arbitral Tribunal may not be an
efficacious alternative to Section 9(1). This could even be by
reason of temporary unavailability of any one of the Arbitrators
of an Arbitral Tribunal by reason of illness, travel etc. [Para
96][1053-B-C]
5. Applications for interim relief are
inherently applications
which are 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. [Para 97][1053-C-D]
6. 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. Unless applications for interim measures are decided
expeditiously, irreparable injury or prejudice may be caused to
the party seeking interim relief. [Para 98][1053-D-E]
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7. It could, therefore, never have been the legislative intent
that even after an application under Section 9 is finally heard relief
would have to be declined and the parties be remitted to their
remedy under Section 17. [Para 99][1053-E-F]
8. When an application has already been taken up for
consideration and is in the process of consideration or has already
been considered, the question of examining whether remedy
under Section 17 is efficacious or not would not arise. The
requirement to conduct the exercise arises only when the
application is being entertained and/or taken up for consideration.
As observed above, there could be numerous reasons which
render the remedy under Section 17 inefficacious. To cite an
example, the different Arbitrators constituting an Arbitral Tribunal
could be located at far away places and not in a position to assemble
immediately. In such a case an application for urgent interim relief
may have to be entertained by the Court under Section 9(1).
[Para 100][1053-F-H]
9. It is reiterated that Section 9(1) enables the parties to
an arbitration agreement to approach the appropriate Court for
interim measures before the commencement of arbitral
proceedings, during arbitral proceedings or at any time after the
making of an arbitral award but before it is enforced and in
accordance with Section 36 of the Arbitration Act. The bar of
Section 9(3) operates where the application under Section 9(1)
had not been entertained till the
constitution of the Arbitral
Tribunal. Ofcourse it hardly need be mentioned that even if an
application under Section 9 had been entertained before the
constitution of the Tribunal, the Court always has the discretion
to direct the parties to approach the Arbitral Tribunal, if necessary
by passing a limited order of interim protection, particularly when
there has been a long time gap between hearings and the
application has for all practical purposes, to be heard afresh, or
the hearing has just commenced and is likely to consume a lot of
time. In this case, the High Court has rightly directed the
Commercial Court to proceed to complete the adjudication.
[Para 107][1055-D-F]
ARCELOR MITTAL NIPPON STEEL INDIA LTD. v. ESSAR
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Amazon.com NV Investment Holdings LLC v. Future
Retail Limited & Ors. 2021 SCC Online SC 557; Chloro
Controls India Private Limited v. Severn Trent Water
Purification Inc (2013) 1 SCC 641 : [2012] 13 SCR 402;
Vidya Drolia and Ors. v. Durga Trading Corporation
(2021) 2 SCC 1 : 2021 (6) JT 460 – relied on.
State Bank of India and Ors. v. S. N. Goyal (2008) 8
SCC 92 : [2008] 7 SCR 631 AIR 2008 SC 2594; Deep
Chand & Ors v. Land Acquisition Officer & Others
(1994) 4 SCC 99 : [1994] 1 SCR 530 AIR 1994 SC
1901; A.V. Venkateswaran, Collector of Customs,
Bombay v. Ramchand Sobhraj Wadhwani & Anr AIR
1961 SC 1506 : [1962] SCR 753; Manbhupinder Singh
Atwal v. Neeraj Kumarpal Shah 2019 GLH (3) 234;
Firm Ashok Traders and Anr. v. Gurumukh Das Saluja
and Ors (2004) 3 SCC 155 : [2004] 1 SCR 404;
Lakshmi Rattan Engineering Works Ltd. v Asstt.
Commissioner Sales Tax, Kanpur and Anr. (1968) 1 SCR
505 : AIR 1968 SC 488; Hindustan Commercial Bank
Ltd. v Punnu Sahu (1971) 3 SCC 124; Martin & Harris
Ltd. v VIth Additional District Judge and Others (1998)
1 SCC 732 : [1997] 6 Suppl. SCR 380; Union of India
and Ors. v. Uttar Pradesh State Bridge Corporation
Limited (2015) 2 SCC 52 : [2014] 13 SCR 1180 –
referred to.
Energo Engineering Projects Limited v. TRF Lt 2016
SCC Online Del 6560; Tufan Chatterjee v. Sri. Rangan
Dhar 2016 SCC Online Cal 483; Benara Bearings and
Pistons Limited v. Mahle Engine Components India
Private Limited (2017)
SCC Online Del 7226; Kundan
Lal v. Jagan Nath Sharma AIR 1962 All 547; Anil Kunj
Bihari Saraf v. Namboodas S/o Shankarlal and Ors.
(1996) SCC Online MP 112; M. Ashraf v. Kasim V.K
(2018) SCC OnLine Ker 4913; Srei Equipment
Finance Limited (Sefl) v. Ray Infra Services Private
Limited & Anr. (2016) SCC OnLine Cal 6765; Avantha
Holdings Limited v. Vistra ITCL India Limited 2020 SCC
OnLine Del 1717 – referred to.
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Case Law Reference
[2008] 7 SCR 631
referred to
Para 29
[1994] 1 SCR 530
referred to
Para 32
[1962] SCR 753
referred to
Para 35
[2004] 1 SCR 404
referred to
Para 39
[1997] 6 Suppl. SCR 380
referred to
Para 44
[2014] 13 SCR 1180
referred to
Para 57
[2012] 13 SCR 402
relied on
Para 104
CIVIL APPELLATE JURISDICTION : Civil Appeal No.5700
of 2021.
From the Judgment and Order dated 17.08.2021 of the High Court
of Gujarat at Ahmedabad in R/Special Civil Application No.10492 of
2021.
Drius Khambata, Sr. Adv., Mihir Thakore, Manu Nair, Rishab
Gupta, Sairam Subramanian, Ms. Shreya Gupta, Neelabh Shreesh, Ms.
Juhi Gupta, Ms. Swagata Ghosh, Ms. Archismita Raha, Saloni Gupta, S.
S. Shroff, Advs. for the appellant.
Kapil Sibal, Mukul Rohatgi, Saurabh Soparkar, Sr. Advs., Mahesh
Agarwal, Keyur Gandhi, Ms. Amita Katragadda, Ms. Anuradha
Mukherjee, Raheel Patel, Rishabh Parikh, Kaustubh Rai, E. C. Agrawala,
Advs. for the respondent.
The Judgment of the Court was delivered by
INDIRA BANERJEE, J.
1. Leave granted.
2. The short question of law raised in this appeal is, whether the
Court has the power to entertain an application under Section 9(1) of the
Arbitration and Conciliation Act, 1996, hereinafter referred to as “the
Arbitration Act”, once an Arbitral Tribunal has been constituted and if
so, what is the true meaning and purport of the expression “entertain” in
Section 9(3) of the Arbitration Act. The next question is, whether the
Court is obliged to examine the
efficacy of the remedy under Section 17,
ARCELOR MITTAL NIPPON STEEL INDIA LTD. v. ESSAR
BULK TERMINAL LTD.
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before passing an order under Section 9(1) of the Arbitration Act, once
an Arbitral Tribunal is constituted.
3. The Appellant and the Respondent entered into an agreement
for Cargo Handling at Hazira Port. The said Cargo Handling Agreement
was amended from time to time.
4. Article 15 of the said Cargo Handling Agreement provided that
all disputes arising out of the Cargo Handling Agreement were to be
settled in Courts, in accordance with the provisions of the Arbitration
Act and be referred to a sole Arbitrator appointed mutually by the parties.
5. Disputes and differences having arisen under the said Cargo
Handling Agreement, the Appellant invoked the arbitration clause by a
notice of arbitration dated 22nd November 2020. According to the
Appellant, the Respondent did not respond to the notice of arbitration.
6. The Appellant approached the High Court of Gujarat at
Ahmedabad under Section 11 of the Arbitration Act, for appointment of
an Arbitral Tribunal. On or about 30th December, 2020, the Respondent
replied to the notice of arbitration, contending that the disputes between
the parties were not arbitrable and further contending that the total amount
due and payable by the Appellant as on 24th December, 2020 was
Rs.673.84 crores inclusive of interest of Rs.51.11 crores.
7. On or about 15th January, 2021, the Appellant filed an application
being Commercial Civil Miscellaneous Application No.2 of 2021 under
Section 9
of the Arbitration Act in the Commercial Court and the 12th
Additional District Judge, District & Sessions Court at Surat. On 16th
March 2021, the Respondent also filed an application being Commercial
Civil Miscellaneous Application No.99 of 2021 in the Commercial Court
under Section 9 of the Arbitration Act.
8. Section 9 of the Arbitration Act is set out hereinbelow for
convenience:-
“9. Interim measures, etc. by Court (1) A party may, before
or during arbitral proceedings or at any time after the making
of the arbitral award but before it is enforced in accordance
with Section 36, apply to a Court—
(i) for the appointment of a guardian for a minor or a person
of unsound mind for the purposes of arbitral proceedings;
or
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(ii) for an interim measure of protection in respect of any of
the following matters, namely:—
(a) the preservation, interim custody or sale of any goods
which are the subject-matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property
or thing which is the subject-matter of the dispute in
arbitration, or as to which any question may arise therein
and authorising for any of the aforesaid purposes any person
to enter upon any land or building in the possession of any
party, or authorising any samples to be taken or any
observation to be made, or experiment to be tried, which may
be necessary or expedient for the purpose of obtaining full
information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear
to the Court to be just and convenient,
and the Court shall have the same power for making orders
as it has for the purpose of, and in relation to, any proceedings
before it.
(2) Where, before the commencement of the arbitral
proceedings, a Court passes an order for any interim measure
of protection under sub-section (1), the arbitral proceedings
shall be commenced within a period of ninety days from the
date of such order or within such further time as the Court
may determine.
(3) Once the arbitral tribunal has been constituted, the Court
shall not entertain an application under sub-section
(1),
unless the Court finds that circumstances exist which may not
render the remedy provided under Section 17 efficacious.”
9. Section 9 as originally enacted, has been renumbered as Section
9(1) by the Arbitration and Conciliation (Amendment) Act (Act 3 of
2016) with effect from 23rd October 2015. The said 2015 Amendment
also incorporated sub-Section (2) and sub-Section (3) reproduced above.
10. Before the enactment and enforcement of the said 2015
Amendment, Section 17 read:-
ARCELOR MITTAL NIPPON STEEL INDIA LTD. v. ESSAR
BULK TERMINAL LTD. [INDIRA BANERJEE, J.]
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“17. Interim measures ordered by arbitral tribunal.- (1) Unless
otherwise agreed by the parties, the arbitral tribunal may, at
the request of a party, order a party to take any interim
measure of protection as the arbitral tribunal may consider
necessary in respect of the subject-matter of the dispute.
(2) The arbitral tribunal may require a party to provide
appropriate security in connection with a measure ordered
under sub-section (1).”
11. After enactment of the said 2015 Amendment, Section 17
reads:-
“17. Interim measures ordered by arbitral tribunal.- (1) A
party may, during the arbitral proceedings, apply to the
arbitral tribunal—
(i) for the appointment of a guardian for a minor or person
of unsound mind for the purposes of arbitral proceedings;
or
(ii) for an interim measure of protection in respect of any of
the following matters, namely—
(a) the preservation, interim custody or sale of any goods
which are the subject matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property
or thing which is the subject matter of the dispute in
arbitration, or as to which any question may arise therein
and authorising for any of the aforesaid purposes any
person to enter upon any land or building in the possession
of any party, or authorising any samples to be taken, or
any observation to be made, or experiment to be tried,
which
may be necessary or expedient for the purpose of
obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear
to the arbitral tribunal to be just and convenient,
and the arbitral tribunal shall have the same power for
making orders, as the court has for the purpose of, and in
relation to, any proceedings before it.
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(2) Subject to any orders passed in an appeal under Section
37, any order issued by the arbitral tribunal under this section
shall be deemed to be an order of the Court for all purposes
and shall be enforceable under the Code of Civil Procedure,
1908 (5 of 1908), in the same manner as if it were an order of
the Court.”
12. The Commercial Court and 12th Additional District Judge,
District & Sessions Court at Surat, heard both the applications filed by
the Appellant and the Respondent respectively, under Section 9(1) of
the Arbitration Act and reserved the same for orders on 7th June, 2021.
13. On 9th July 2021, the application filed by the Appellant under
Section 11(6) of the Arbitration Act was disposed of by appointing a
three-member Arbitral Tribunal, comprising of three retired Judges of
this Court, to adjudicate the disputes between the Appellant and the
Respondent.
14. On or about 16th July 2021, the Appellant filed an interim
application being Commercial Civil Miscellaneous Application No.2 of
2021, praying for reference of both the applications filed by the Appellant
and the Respondent respectively under Section 9 of the Arbitration Act,
to the learned Tribunal.
15. Paragraph 3 of the said application filed by the Appellant is
set out hereinbelow for convenience.
“3. I say and submit that this Hon’ble Court had heard the
AMNS Petition and the EBTL Petition extensively, and reserved
the petitions for pronouncement of orders. The matters are
listed
on 20 July 2021 for pronouncement of orders.”
16. By an order dated 16th July 2021, the Commercial Court
dismissed the said application filed by the Appellant. The Commercial
Court however granted the Appellant 10 days’ time to challenge the
order of the Commercial Court if it so desired.
17. The Appellant filed an application being R/Special Civil
Application No.10492 of 2021 in the Gujarat High Court under Article
227 of the Constitution of India challenging the order of the Commercial
Court.
18. The said application under Article 227 of the Constitution was
heard by a Division Bench of the High Court and listed for final arguments
ARCELOR MITTAL NIPPON STEEL INDIA LTD. v. ESSAR
BULK TERMINAL LTD. [INDIRA BANERJEE, J.]
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on 2nd August, 2021. In the meanwhile, the High Court directed the
Commercial Court to defer the pronouncement of orders in the applications
under Section 9 of the Arbitration Act till 9th August, 2021.
19. On 5th August 2021, the application under Article 227 of the
Constitution was heard again and reserved for orders on 9th August,
2011. The Commercial Court adjourned the pronouncement of orders in
the two applications for interim relief till 31st August, 2021.
20. In the meanwhile, by an order dated 17th August, 2021, which
is impugned in this Appeal, the High Court dismissed the application filed
by the Appellant under Article 227 of the Constitution of India, holding
that the Commercial Court has the power to consider whether the remedy
under Section 17 of the Arbitration Act is inefficacious and pass necessary
orders under Section 9 of the said Act. The High Court held:-
“24. Considering the submissions made before us as well as
the judgments cited before us by both the sides, though the
learned trial court has not given proper reasons for dismissing
the application filed by the petitioner, the trial court has
committed no error in not granting the prayer prayed for by
the petitioner in the interim application filed in CMA No.2 of
2021. In our opinion the trial court should be permitted to
pronounce the order on both the applications under Section
9 pending before it keeping in mind the observations made
by us
in this judgment and taking into consideration the
provisions of Section 9(3) of the Act.”
21. Mr. Darius Khambata, Senior Advocate appearing on behalf
of the Appellant submitted that Section 9(3) of the Arbitration Act, as
amended, restricts the power of the Court to entertain an application
under sub-Section (1) of Section 9 of the Arbitration Act once an Arbitral
Tribunal has been constituted.
22. Mr. Khambata argued that an Arbitral Tribunal having been
constituted, the Commercial Court cannot proceed further with the
application under Section 9 of the Arbitration Act.
23. Mr. Khambata argued that, the purpose of insertion of Section
9(3) of the Arbitration Act was to curtail the role of the Court. Even
though Section 9(3) does not oust the jurisdiction of the Court under
Section 9(1), it restricts the role of the Court, post the constitution of an
Arbitral Tribunal. Once an Arbitral Tribunal is constituted, the Court is
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not to entertain an application under Section 9 of the Arbitration Act
unless it finds that circumstances exist, which may render the remedy
under Section 17 of the Arbitration Act inefficacious.
24. Mr. Khambata submitted that the High Court rightly held that
the Commercial Court had erred in construing the word ‘entertain’
narrowly, observing that entertain would not mean admitting for
consideration, but would mean the entire process upto its final adjudication
and passing of an order on merits.
25. Mr. Khambata referred to the observations of the 246th Report
of the Law Commission of August 2014, that the insertion of Section
9(3) “seeks to reduce the role of the Court in relation to grant of interim
measures once the Arbitral Tribunal has been constituted.” Mr. Khambata
submitted that this also appears to be the spirit of the UNCITRAL Model
Law as amended in 2006. Accordingly, Section 17 has been amended to
infuse the Arbitral Tribunal with the same powers as a Court.
26. Mr. Khambata submitted the Report dated July 30, 2017 of
the High Level Committee to Review the Institutionalisation of Arbitration
Mechanism in India, chaired by Hon’ble Mr. Justice B. N. Srikrishna
also referred to the insertion of Section 9(3) and observed that the “2015
amendments, in two important respects, signal a paradigm shift towards
minimizing judicial intervention in the arbitral process. First, the
amendment to Section 9 of the ACA provides that Courts should not
entertain applications for interim relief from the parties unless it is shown
that interim relief from the Arbitral Tribunal would not be efficacious.”
In the aforesaid report, the Arbitration Act is referred to as ACA in
short.
27. Mr. Khambata cited Amazon.com NV Investment Holdings
LLC v. Future Retail Limited & Ors.1, where this Court, speaking
through Nariman J. held that the object of introducing Section 9(3) was
“to avoid Courts being flooded with Section 9 petitions when an Arbitral
Tribunal is constituted for two good reasons – (i) that the clogged Court
System ought to be decongested, and (ii) that an Arbitral Tribunal, once
constituted, would be able to grant interim relief in a timely and efficacious
manner.”
28. Mr. Khambata contended that Section 9(3) has been introduced
to reduce the burden on Courts. Therefore, Section 9(3) must be construed
1 2021 SCC Online SC 557
ARCELOR MITTAL NIPPON STEEL INDIA LTD. v. ESSAR
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purposively and any attempt to thwart the mandate of Section 9(3) must
be discouraged.
29. Mr. Khambata argued that Section 9(3) was a measure of
Negative Kompetenz-Kompetenz. This is substantiated by the
corresponding introduction of Section 17(2) which lends further efficacy
and enforceability to orders passed by the Arbitral Tribunal under Section
17. Mr. Khambata further argued that it is well settled that a Court
becomes functus officio, only after it pronounces, signs and dates the
judgment. Mere dictation of a judgment after it is reserved, does not
constitute pronouncement of a judgment. In support of the aforesaid
submission Mr. Khambata cited State Bank of India and Ors. v. S. N.
Goyal2.
30. Mr. Khambata argued that the fact that an order is reserved
does not mean that the District Court stopped entertaining the Section 9
petitions. Referring to State Bank of India v. S. N. Goyal (supra), Mr.
Khambata argued that a judge can make corrections to a judgment and/
or in other words continue to adjudicate and thus continue to entertain a
proceeding even after a judgment is pronounced, until it is signed.
31. Mr. Khambata argued that, in this case the Commercial Court
had not passed its orders in the Section 9 applications. It had not even
pronounced its orders. Thus, as on the date of the impugned order, the
Commercial Court was entertaining the Section 9 applications. Even
today the Commercial Court is
entertaining the applications under Section
9 of the Arbitration Act. The fact that orders were reserved on 7th June
2021 does not mean that the Commercial Court stopped entertaining the
said petitions.
32. Referring to Deep Chand & Ors v. Land Acquisition Officer
& Others3, Mr. Khambata submitted that the term “adjudication” means
“..formal giving or pronouncing a judgment or decree in a Court
proceeding..” and implies a hearing by a Court. Thus, the term
“entertain” in Section 9(3) of the Arbitration Act, is to be interpreted to
mean “adjudicate” and implies the passing of an order and/or judgment.
33. Mr. Khambata argued that the word “entertain” in Section
9(3) has to be interpreted in the context of Section 9(1) of the Arbitration
Act. Section 9(1) of the Arbitration Act provides for the “making of
2 (2008) 8 SCC 92 :  AIR 2008 SC 2594
3 (1994) 4 SCC 99 : AIR 1994 SC 1901
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orders” for the purpose of grant of interim relief. The internal aid to
construction provided under Section 9 of the Arbitration Act further
substantiates the Appellant’s submission that entertain would necessarily
mean all acts including the act of making orders under Section 9(1) of
the act.
34. Mr. Khambata submitted that while the Respondent’s nominee
Arbitrator has withdrawn, the Respondent has not nominated a new
Arbitrator. Instead of nominating a new arbitrator, the Respondent has
filed an application in the Commercial Court, stating that since the Arbitral
Tribunal is not functioning, the remedy before the Tribunal would be
inefficacious. The same submission has been advanced in this Court.
35. Relying on the judgment of this Court in A.V. Venkateswaran,
Collector of Customs, Bombay v. Ramchand Sobhraj Wadhwani &
Anr4, Mr. Khambata argued that it is well settled that a party cannot
allege inefficacy of a remedy when that party disables itself from availing
the remedy.
36. Mr. Khambata also cited Manbhupinder Singh Atwal v.
Neeraj Kumarpal Shah5, where the Gujarat High Court held that a
party which is intentionally trying to render the remedy under Section 17
inefficacious, cannot be permitted to approach the Court under Section
9 to secure interim reliefs which can be granted by the Tribunal. Mr.
Khambata submitted that the intention of the Respondent to avoid the
Arbitral Tribunal, is evident all through.
37. Mr. Khambata argued that even
though the Section 11
proceedings had finally been disposed of by consensus, the appointment
of the Arbitral Tribunal was delayed by reason of the conduct of the
Respondent. Moreover, after the Appellant issued notice invoking
arbitration on 22nd November, 2020, and called upon the Respondent to
mutually agree to the appointment of a sole Arbitrator, the Respondent
did not respond within 30 days as mandated in Section 11(4)(a) of the
Arbitration Act.
38. Mr. Khambata also submitted that the Respondent filed its
objection to the Section 9 application of the Appellant in the Commercial
Court on 16th March, 2021 and also initiated other proceedings against
the Appellant. The Respondent, however, refused to file a reply to the
4 AIR 1961 SC 1506 (para 11)
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petition under Section 11 of the Arbitration Act. The Respondent filed a
belated reply on 7th June, 2021, after the hearing of the applications
under Section 9 had concluded.
39. Mr. Khambata submitted that it is well settled that a party
invoking Section 9 of the Act must be ready and willing to go to arbitration.
In support of his submission Mr. Khambata cited Firm Ashok Traders
and Anr. v. Gurumukh Das Saluja and Ors.6. Mr. Khambata contended
that the Respondent had itself delayed the nomnation of the substitute
Arbitrator, but is now is taking the plea of inefficacy of the remedy
under Section 17 of the Arbitration Act.
40. Mr. Khambata submitted that the High Court had erred in
directing the District Court to pass orders in the applications under Section
9 of the Arbitration Act, despite the fact that no party had filed any
application in the Commercial Court, challenging the efficacy of the arbitral
proceedings. Mr. Khambata submitted that the High Court’s interpretation
of Section 9(3) of the Arbitration Act is in accordance with the prevalent
law as settled by this Court and the various High Courts.
41. Mr. Khambata referred to the meaning of “entertain” in Black’s
Law Dictionary (Bryan A. Garner, 8th edition, 2004), which is to “bear
in mind or”to give judicial consideration to”. Mr. Khambata also
cited the judgment of a Division Bench of the Calcutta High Court in
Sri. Tufan Chatterjee v. Sri. Rangan Dhar7,
authored by one of us,
(Indira Banerjee, J.). In Tufan Chatterjee (supra), the word “entertain”
was interpreted to mean “considering an application on merits, even at
the final stage”. Mr. Khambata argued that the interpretation of the
term “entertain” by the Gujarat High Court in the judgment and order
impugned, is consistent with the interpretation of the expression in Tufan
Chatterjee (supra).
42. Mr. Khambata argued that in Energo Engineering Projects
Limited v. TRF Ltd8, authored by one of us (Indira Banerjee, J.) the
Division Bench of the Delhi High Court observed that once an Arbitral
Tribunal is constituted, an application for interim relief should ordinarily
be decided by the Arbitral Tribunal. Moreover, a Court can only grant
interim relief under Section 9, if circumstances exist which might not
render the remedy under Section 17 of the Arbitration Act efficacious.
6 (2004) 3 SCC 155
7 2016 SCC Online Cal 483 (Paras 35, 43)
8 2016 SCC Online Del 6560 (Para 34)
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43. In Energo Engineering Project Limited v. TRF Limited
(supra), the Delhi High Court noted that the Tribunal was non-functional
because the challenge against the Appellant’s nominee arbitrator was
pending and the Supreme Court had stayed the arbitration proceedings
till the challenge proceedings were decided. In the circumstances, the
High Court held that the Court could pass orders under Section 9 as the
remedy under Section 17 was inefficacious.
44. Mr. Khambata submitted that in Lakshmi Rattan
Engineering Works Ltd. v Asstt. Commissioner Sales Tax, Kanpur
and Anr.9, this Court cited with approval the judgment of the Allahabad
High Court in Kundan Lal v. Jagan Nath Sharma10, and held that
‘entertain’ would mean adjudicate upon and consider for the purpose of
adjudication on merits. In support of the aforesaid proposition, Mr.
Khambata also cited Hindustan Commercial Bank Ltd. v Punnu
Sahu11, Martin & Harris Ltd. v VIth Additional District Judge and
Others12.
45. In conclusion Mr. Khambata submitted that the High Court
had erred in directing the District Court to pass orders in the petitions
under Section 9, even though it had interpreted the word ‘entertain’ to
mean “the whole gamut upto its final adjudication and passing of an
order on merits”. Mr. Khambata argued that, having observed that the
Commercial Court had erred in interpreting ‘entertain’ narrowly and
also that there was no challenge to the efficacy of the arbitral proceedings
before the
District Court as on the date of the impugned order, the High
Court should not have directed the Commercial Court to pass orders.
46. Mr. Kapil Sibal appearing on behalf of the Respondent
submitted that the question before this Court, of whether Section 9(3) of
the Arbitration Act would be applicable in respect of the aforesaid two
applications under Section 9 of the Arbitration Act, filed by the Appellant
and the Respondent respectively, has to be answered in the negative
since the applications were finally heard on merits and reserved for
orders on 7th June 2021, before the constitution of the Arbitral Tribunal
on 9th July, 2021.
9 (1968) 1 SCR 505 (Para 9) : AIR 1968 SC 488
10  AIR 1962 All 547 (Para 7)
11 (1971) 3 SCC 124
12 (1998) 1 SCC 732 (Paras 8-10)
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47. Mr. Sibal argued that the application under Article 227 filed in
the Gujarat High Court was not maintainable for the following reasons:
(i)
The Arbitration Act being a self-contained Code providing
the right of appeal at various stages, Article 227 cannot be
invoked to circumvent the procedure under Arbitration Act.
Power under Article 227 can only be exercised where a
party is left either remediless or where clear bad faith is
shown.
(ii)
An application under Article 227 of the Constitution of India
lies where the lower Court has acted outside the bounds of
its authority, without jurisdiction, in violation of principles of
natural justice, or if the order suffers from patent perversity.
(iii)
The application before the Gujarat High Court under Article
227 was premature and speculative, since the issue of
whether the Trial Court had acted outside the “bounds of
its authority” or “without jurisdiction” or whether the order
suffered from “patent perversity”, could only be determined
after an order had been passed by the Trial Court in the
Section 9 Applications.
48. Mr. Sibal argued that Section 9(1) of the Arbitration Act
provides that a party will apply to the court before, during or after the
arbitral proceedings. The Courts therefore do not lose jurisdiction upon
constitution of the Arbitral Tribunal.
49. Mr. Sibal argued that Section 9(3) of the Arbitration Act was
neither a non-obstante clause nor an ouster
clause, that would render
the courts coram non judice, immediately upon the constitution of the
Arbitral Tribunal.
50. Mr. Sibal argued that subject to the checks and balances
provided under the Arbitration Act itself, a Court would continue to have
powers to grant interim relief under Section 9. In support of his argument,
Mr. Sibal cited the judgment of Delhi High Court in Benara Bearings
and Pistons Limited v. Mahle Engine Components India Private
Limited13 and in Energo Engineering Projects Limited v. TRF Limited
(supra).
51. Mr. Sibal argued that Section 9(3) of the Arbitration Act
restrains the court from “entertaining” an application under Section 9,
13 (2017) SCC Online Del 7226 (Paras 24-25)
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unless circumstances exist which may not render the remedy provided
under Section 17 efficacious. In this case, only the formality of
pronouncing the order in the Section 9 Applications remained. Since the
application under Section 9 had been entertained, fully heard and
arguments concluded, Section 9(3) of the Arbitration Act would not apply.
52. Mr. Sibal argued that an application is “entertained” when the
court applies its mind to it. Entertain means “admit into consideration” or
“admit in order to deal with”. In support of his submission Mr. Sibal cited
Lakshmi Rattan Engineering Works Ltd. (supra), Anil Kunj Bihari
Saraf v. Namboodas S/o Shankarlal and Ors.14and Kundanlal v.
Jagan Nath Sharma (supra).
53. Mr. Kapil Sibal further argued that, whether a matter had
already been “admitted into consideration”, would depend on whether
the Trial Court had admitted into consideration and applied its mind to
the Section 9 Applications, filed by the respective parties, and therefore,
the Section 9 Applications had gone past the stage of “entertainment”,
as contemplated under Section 9(3) of the Arbitration Act. Mr. Sibal
argued that the High Court has erroneously held:
“The word ‘entertain’ occurring in sub-section (3) of section
9 would not merely mean to admit a matter for consideration,
but it also entails the whole procedure till adjudication, i.e.,
passing of final order.”
54. Mr. Sibal argued that the prayer in the application dated 16th
July, 2021
filed by the Appellant could never have been granted. Mr.
Sibal pointed out that the Appellant sought an order for referring all
disputes between the parties as mentioned in the two applications under
Section 9 of the Arbitration Act to the Arbitral Tribunal for adjudication.
However, the Arbitration Act did not confer power under the Arbitration
Act on the Court, to relegate or transfer a pending application under
Section 9(1) of the Arbitration Act to the Arbitral Tribunal, the moment
an Arbitral Tribunal were constituted.
55. Mr. Sibal submitted that the Special Leave Petition filed in this
Court was an abuse of process of Court and an attempt to stop the
competent Court from passing an order in an application under Section 9
of the Arbitration Act, which had been fully heard. He argued that if the
interpretation of the expression “entertain” as canvassed by the
14 (1996) SCC Online MP 112 (Paras 5-12)
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Appellant, were upheld, it would open a floodgate, where litigants who
wanted to deny urgent reliefs to another party, would protract litigation
by taking procedural defences and avoid the legislated remedy under
Section 9 of the Arbitration Act.
56. Mr. Sibal further submitted that a lot of judicial time, cost and
resources of the parties had been spent in agitating the Section 9
Applications. Both parties had approached the Commercial Courts and
the pleadings in the Section 9 Applications exceeded 2,200 pages. The
Section 9 Applications were listed before the Commercial Courts 36
times and were finally argued extensively for 11 full days. The Section 9
Applications were reserved for orders on 7th June, 2021, before the
Arbitral Tribunal was constituted.
57. As rightly argued by Mr. Sibal unnecessary delay or expense
frustrates the very purpose of arbitration as held by this Court in Union
of India and Ors. v. Uttar Pradesh State Bridge Corporation
Limited15 cited by Mr. Sibal.
58. Mr. Sibal submitted that since the filing of the Section 9
Applications, the contractual dues of the Appellant to the Respondent
for the interim period aggregate to Rs.255 crores. The Respondent is
suffering every day.
59. Mr. Sibal pointed out that an appeal from an order passed by
the Arbitral Tribunal in an application under Section 17, lies before the
Superior Court. It cannot, therefore, be said that Section 17 proceeding
flows any
differently from a proceeding in Court under Section 9 of the
Arbitration Act, or has any distinct hierarchy.
60. Mr. Sibal categorically denied that the Respondent has delayed
commencement of arbitration. He submitted that the disputes raised in
the notice of arbitration dated 22nd November, 2020 given by the Appellant
did not correspond to the disputes raised by the Appellant in its Section 9
Application in the Commercial Court. The question of arbitrability of the
disputes raised in the notice is still to be determined.
61. Mr. Sibal submitted that the Respondent was in contact with
the Appellant to agree on the name of the Arbitrator. Eventually the
parties consented to have a three member Arbitral Tribunal. On 25th
August, 2021, Justice G.T. Nanavati (Retired) resigned on the ground of
15 (2015) 2 SCC 52 (Paras 14-17)
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health, after which there is no functional Arbitral Tribunal. Even after
the Arbitrator appointed by the Respondent resigned, the Respondent
promptly commenced the process for appointment of substitute arbitrator,
and addressed a letter dated 27.08.2021 to the Appellant.
62. Distinguishing the judgments cited by Mr. Khambata, Mr. Sibal
emphatically argued that the word “entertain” in Section 9(3) of the
Arbitration Act would mean the first occasion when the Court takes up
the application for consideration, and would have no application to a
case where the application is fully heard and orders are reserved.
63. Section 9(1) of the Arbitration Act, as amended enables a
party to an arbitration agreement to apply to a Court for interim measures
of protection before or during the arbitral proceedings, or at any time
after an award is made and published, but before the Award is enforced
in accordance with Section 36 of the Arbitration Act.
64. A Civil Court of competent jurisdiction thus has the jurisdiction
to admit, entertain and decide an application under Section 9(1) of the
Arbitration Act, any time before the final arbitral award is enforced in
accordance with Section 36 of the Arbitration Act.
65. However, sub-Section (3) of Section 9 of the Arbitration Act,
on which much emphasis has been placed both by Mr. Khambata and
Mr. Kapil Sibal provides that once an Arbitral Tribunal has been
constituted, the Court shall not entertain an application under
sub-Section
(1), unless the Court finds that circumstances exist which may not render,
the remedy provided under Section 17 efficacious.
66. Sub-Section (3) of Section 9 has two limbs. The first limb
prohibits an application under sub-Section (1) from being entertained
once an Arbitral Tribunal has been constituted. The second limb carves
out an exception to that prohibition, if the Court finds that circumstances
exist, which may not render the remedy provided under Section 17
efficacious.
67. To discourage the filing of applications for interim measures
in Courts under Section 9(1) of the Arbitration Act, Section 17 has also
been amended to clothe the Arbitral Tribunal with the same powers to
grant interim measures, as the Court under Section 9(1). The 2015
Amendment also introduces a deeming fiction, whereby an order passed
by the Arbitral Tribunal under Section 17 is deemed to be an order of
Court for all purposes and is enforceable as an order of Court.
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68. With the law as it stands today, the Arbitral Tribunal has the
same power to grant interim relief as the Court and the remedy under
Section 17 is as efficacious as the remedy under Section 9(1). There is,
therefore, no reason why the Court should continue to take up applications
for interim relief, once the Arbitral Tribunal is constituted and is in seisinof
the dispute between the parties, unless there is some impediment in
approaching the Arbitral Tribunal, or the interim relief sought cannot
expeditiously be obtained from the Arbitral Tribunal.
69. There can be no dispute with the proposition as held in State
Bank of India and Ors. v. S.N. Goyal(supra), that when a judgment
is reserved, mere dictation does not amount to pronouncement. When a
judgment is dictated in open Court, that amounts to pronouncement. A
judgment not dictated in open Court, has to be pronounced in Open Court.
Even after pronouncement, the Judge can make corrections before signing
and dating the judgment. Once a judge pronounces, signs and dates the
judgment, he becomes functus officio. However, the law enunciated
by this Court in State Bank of India and Ors. v. S. N. Goyal (supra) is
not attracted in this case.The judgment does not interpret or explain the
expression “entertain”.
70. In Deep Chand & Ors v. Land Acquisition Officer (supra),
cited by Mr. Khambata, the question was, whether objections under
Section 49 of the Land Acquisition
Act 1894 to acquisition, on the premise
that the property proposed for acquisition was only part of the house,
manufactory or building amounts to an adjudication.
71. This Court referred to Black’s Law Dictionary (6th edition)
where “adjudication” has been defined as hereunder:-
“Adjudication.- The legal process of resolving a dispute. The
formal giving or pronouncing a judgment or decree in a court
proceeding; also the judgment or decision given. The entry
of a decree by a court in respect to the parties in a case. It
implies a hearing by a court, after notice, of legal evidence
on the factual issue(s) involved.”
72. This Court found that a reading of Section 49 of the Land
Acquisition Act showed that a right had been given to the owner of the
land to object to acquisition of part of any house, manufactory or other
building. Decision on the objection under Section 49(1) to acquisition of
only part of a house, manufactory or building would not amount to an
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adjudication on the question of whether the land proposed to be taken
was reasonably required for the full and unimpaired use of the house,
manufactory or building. The judgment is not of relevance to the issues
involved in this appeal.
73. There can be no dispute with the proposition in A.V.
Venkateswaran. Collector of Customs, Bombay v Ramchand Sobhraj
Wadhwani and Anr. (supra) that a party cannot allege inefficacy of a
remedy when that party disables itself from availing the remedy.
74. The judgment in Manbhupinder Singh Atwal v. Neeraj
Kumarpal Shah (supra) was rendered in facts and circumstances of
that case where proceedings had been pending before the Arbitral
Tribunal under Section 17, but the party against whom relief had been
sought protracted the proceedings, by indulging in making bare, baseless
allegations and insinuations against the Arbitrators of bias and impropriety
and thereafter made allegations against the Arbitrators of alleged inaction,
to make out a case of inefficacy of the remedy under Section 17. The
judgment has no manner of application in this case.
75. In this case there are no materials on record to show that
there were any lapses or laches on the part of the Respondent, which
delayed the constitution of an Arbitral Tribunal. The allegation that the
Respondent had disabled itself from availing the remedy under Section
17, is unsubstantiated. Moreover, mere delay in agreeing to an Arbitrator
does not dis-entitle a party from
relief under Section 9 of the Arbitration
Act. Section 11 of the Arbitration Act itself provides a remedy in case of
delay of any party to the arbitration agreement to appoint an Arbitrator.
76. Mr. Khambata rightly submitted that a party invoking Section
9 of the Act must be ready and willing to go to arbitration. The law
enunciated in Firm Ashok Traders and Anr. v. Gurumukh Das Saluja
and Ors. (supra) is well settled. In this case, both the Appellant and the
Respondent have invoked the jurisdiction of the Commercial Court under
Section 9 of the Arbitration Act.
77. As argued by Mr. Sibal, in Tufan Chatterjee (supra) the
applicant seeking interim relief under Section 9 of the Arbitration Act
had referred to Section 26 of the Amendment Act (Act 3 of 2016) and
contended that the 2015 Amendment would not apply to proceedings
pending when the 2015 Amendment came into force.
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78. It was also argued that arbitral proceedings having commenced
before the 2015 Amendment came into effect and/or in other words,
before 23rd October 2015, the 2015 Amendments would not apply to the
arbitral proceedings, which would be governed by the law as it stood
before the amendment. The Arbitral Tribunal would, therefore, not be
able to grant relief under Section 17 as amended by the 2015
Amendments. As argued by Mr. Kapil Sibal, the applicability of the 2015
Amendment to pending proceedings under Section 9 of the Arbitration
Act in a Court, as also the power of the Arbitral Tribunal to grant relief
under Section 17 in pending Arbitration proceedings, were in issue in
Tufan Chatterjee (supra).
79. The High Court distinguished Court proceedings from arbitral
proceedings and held that the 2015 Amendment would apply to Court
proceedings. The High Court also negated the contention of the applicant
under Section 9 that the Arbitral Tribunal was not competent to grant
relief under Section 17 as Arbitral proceedings had commenced before
the 2015 Amendment.
80. The judgment in Tufan Chatterjee (supra) was rendered in
an appeal against an order of the District Court dismissing the application
of the appellant under Section 9 of the Arbitration Act, with the
observation that since arbitral proceedings had been initiated, the Court
was no longer authorized to pass orders on an application under Section
9(1) of the 1996
Act. The High Court interpreted the expression entertain
and held:-
“35. However, as rightly argued by Mr. Bhattacharya, there
is difference between the expressions ‘institute’ and the
expression ‘entertain’. The expression ‘institute’ is not
synonymous with the expression ‘entertain’. In Martin &
Harris Ltd. v. 6th Additional District Judge reported in (1998)
1 SCC 732 cited by Mr. Bhattacharya, the Supreme Court
interpreted the expression ‘entertain’ in Clause 21(1)(a) of
the U.P. Urban Buildings (Regulation of Letting, Rent and
Eviction) Act, 1972, to mean entertaining the ground for
consideration for the purpose of adjudication on merits and
not any stage prior thereto. Unlike the Limitation Act, which
bars the institution of a suit after expiry of the period of
limitation, Section 26 prohibits the Court from entertaining
an application under Section 9, except in circumstances
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specified in Section 9(3), which necessarily means
considering application on merits, even at the final stage.
36. After amendment by the Amendment Act of 2015, the scope
of Section 17 has considerably been widened and the Arbitral
Tribunal has expressly been conferred the same power, as the
Court under Section 9. An order of the Tribunal under Section
17 is also enforceable in the same manner as an order of
Court under Section 9, under the provisions of the Civil
Procedure Code.”
81. The High Court dismissed the appeal from the order of the
District Court dismissing the application under Section 9 on the ground
that an application for interim relief would have to be filed before the
Arbitral Tribunal.
82. In Energo Engineering Projects Ltd. v. TRF Limited (supra)
authored by one of us (Indira Banerjee, J.), a Division Bench of Delhi
High Court held:-
“27. A harmonious reading of Section 9(1) with Section 9(3)
of the 1996 Act, as amended by the 2015 Amendment Act,
makes it amply clear that, even after the amendment of the
1996 Act by incorporation of Section 9(3), the Court is not
denuded of power to grant interim relief, once an Arbitral
Tribunal is constituted.
28. When there is an application for interim relief under
Section 9, the Court is required to examine if the applicant
has an efficacious remedy under Section 17 of getting
immediate interim relief from the Arbitral Tribunal. Once the
court finds that circumstances exist, which may not render
the remedy provided under Section 17 of the 1996 Act
efficacious, the Court has the discretion to entertain an
application for interim relief. Even if an Arbitral Tribunal is
non functional for a brief period of time, an application for
urgent interim relief has to be entertained by the Court under
Section 9 of the 1996 Act.
29. It is a well settled proposition that if the facts and
circumstances of a case warrant exercise of discretion to act
in a particular manner, discretion should be so exercised. An
application for interim relief under Section 9 of the 1996 Act,
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must be entertained and examined on merits, once the Court
finds that circumstances exist, which may not render the
remedy provided under Section 17 of the said Act efficacious.
30. In our view, the Learned Single Bench patently erred in
holding “there is no impediment or situation where the remedy
under Section 17 of the Act is not efficacious”. The Learned
Single Bench failed to appreciate that the pendency of a
Special Leave Petition in which the constitution of the Arbitral
Tribunal was under challenge, was in itself, a circumstance
which rendered the remedy of the parties under Section 17
uncertain and not efficacious.
xxx
xxx
xxx
34. An application for interim relief should ordinarily be
decided by the Arbitral Tribunal, once an arbitral tribunal is
constituted. However, if circumstances exist which may not
render the remedy under Section 17 of the 1996 act
efficacious, the Court has to consider the prayer for interim
relief on merits, and pass such order, as the Court may deem
appropriate.
35. The Learned Single Bench has not at all considered
whether any interim protection was at all necessary in this
case. The bank guarantee was apparently unconditional. In
effect, the appellants have been restrained from invoking an
unconditional guarantee. The application cannot be heard
out until the special leave petition is disposed of.”
83. Even after enforcement of the 2015 Amendment Act, an
application for interim
relief may be filed in Court under Section 9 of the
1996 Act, before the commencement of arbitration proceedings, during
arbitration proceedings or at any time after an award is made, but before
such award is enforced in accordance with Section 36 of the 1996 Act.
The Court has to examine whether the remedy available to the Applicant
under Section 17 is efficacious. In Energo Engineering Projects Ltd.
v. TRF Limited (supra), the remedy of interim relief under Section 17
was found to be inefficacious in view of an interim order passed by this
Court in a Special Leave Petition.
84. In Banara Bearings & Pistons Ltd. (supra) cited by Mr.
Sibal a Division Bench of the Delhi High Court, speaking through Badar
Durrez Ahmed J. Held:
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“24...... We are of the view that Section 9(3) does not operate
as an ouster clause insofar as the courts’ powers are
concerned. It is a well-known principle that whenever the
Legislature intents an ouster, it makes it clear. We may also
note that if the argument of the appellant were to be accepted
that the moment an Arbitral Tribunal is constituted, the Court
which is seized of a Section 9 application, becomes coram
non judice, would create a serious vacuum as there is no
provision for dealing with pending matters. All the powers of
the Court to grant interim measures before, during the arbitral
proceedings or at any time after the making of the arbitral
award but prior to its enforcement in accordance with Section
36 are intact (and, have not been altered by the amendment)
as contained in Section 9(1) of the said Act. Furthermore, it
is not as if upon the very fact that an Arbitral Tribunal had
been constituted, the Court cannot deal with an application
under sub-section (1) of Section 9 of the said Act. Section
9(3) itself provides that the Court can entertain an application
under Section 9(1) if it finds that circumstances exist which
may not render the remedy provided under Section 17
efficacious.
25. We may also note that there is no provision under the said
Act which, even as a transitory measure, requires the Court
to relegate or transfer a pending Section 9(1) application to
the Arbitral Tribunal, the moment an Arbitral Tribunal has
been
constituted.”
85. In M. Ashraf v. Kasim V.K.16 a Division Bench of the Kerala
High Court speaking through R. Narayana Pisharadi J. held:-
“8. ….Even after the amendment of the Act by incorporation of
Section 9(3), the Court is not denuded of the power to grant interim
relief under Section 9(1) of the Act. What is provided under Section
9(3) of the Act is that, after the constitution of the Arbitral Tribunal,
the Court shall not entertain an application under Section 9(1) of
the Act unless the Court finds that circumstances exist which
may not render the remedy provided under Section 17 efficacious.
Normally, the Court shall not entertain an application under Section
9(1) of the Act after constitution of the Arbitral Tribunal. But, the
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Court has the power to entertain an application under Section
9(1) of the Act even after the constitution of the Arbitral
Tribunal unless the Court finds that in the circumstances of
the case the party has got efficacious remedy under Section
17 of the Act. An application for interim relief under Section
9(1) of the Act shall be entertained and examined on merits,
once the Court finds that circumstances exist, which may not
render the remedy provided under Section 17 of the Act
efficacious.”
86. In Srei Equipment Finance Limited (Sefl) v. Ray Infra
Services Private Limited & Anr.17authored by one of us (Indira Banerjee
J.), the Division Bench of Calcutta High Court held:
“5. Under Section 9 of the Arbitration and Conciliation Act,
1996 - a party might before or during arbitral proceedings
or at any time after the making of the arbitral award but before
it is enforced in accordance with Section 36, apply to Court
under Section 9 for interim relief.
6. In our view, the learned Single Bench erred in holding that
there was no scope for further order in the pending application
under Section 9. The learned Single Bench has not considered
the question of depreciation of the value of the assets due to
constant use. Prima facie, the respondent has defaulted in
instalments. In terms of the agreement, the appellant financier
is entitled to take possession of the hypothecated assets. After
the enactment of the Arbitration and
Conciliation (Amendment)
Act of 2015 with effect from 23rd October, 2015, the Court is
not to entertain an application under Section 9(1) of the
Arbitration and Conciliation Act, 1996, once the Arbitral
Tribunal has been constituted, unless the Court finds that
circumstances exist, which may not render the remedy provided
under Section 17 efficacious.
7.The hearing before the Arbitral Tribunal may have been
concluded. Proceedings are, however, still pending before the
Arbitral Tribunal. It may have been possible to make an
application before the Arbitral Tribunal. However considering
the lethargic manner in which the learned Arbitrator has been
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proceeding the remedy of the Appellant under Section 17 of
the Arbitration and Conciliation Act, 1996 does not appear
to be efficacious. The amendments being recent, complicated
issues of law may also arise with regard to the applicability
of the amended provisions to pending arbitral proceedings.”
87. In Avantha Holdings Limited v. Vistra ITCL India
Limited18a Single Bench of the Delhi High Court (C. Hari Shankar J.)
held:-
“45.The Court, while exercising its power under Section 9 of
the 1996 Act, has to be acutely conscious of the power, vested
in the arbitrator/arbitral tribunal, by Section 17 of the same
Act. A reading of Section 9, and Section 17, of the 1996 Act,
reveals that they are identically worded. The “interim
measures”, which can be ordered by the arbitral tribunal,
under Section 17, are the very same as those which can be
ordered by the Court under Section 9. It is for this reason
that sub-section (3) of Section 9 proscribes grant of interim
measures, by the Court, consequent on constitution of the
arbitral tribunal, save and except where the Court finds that
circumstances exist, which may not render the remedy, under
Section 17, to be efficacious. The Court, while exercising
jurisdiction under Section 9, even at a pre-arbitration stage,
cannot, therefore, usurp the jurisdiction which would,
otherwise, be vested in the arbitrator, or the arbitral tribunal,
yet to be constituted.”
88. We fully approve the view taken by the Single Bench of
the
Delhi High Court in Avantha Holdings Limited (supra) except for the
observation that the “Court, while exercising jurisdiction under
Section 9, even at a pre-arbitration stage, cannot usurp the
jurisdiction which would, otherwise, be vested in the arbitrator, or
the Arbitral Tribunal, yet to be constituted”. The bar of Section 9(3)
operates after an Arbitral Tribunal is constituted. There can therefore
be no question of usurpation of jurisdiction of the Arbitral Tribunal under
Section 17 before the Arbitral Tribunal is constituted. The Court is obliged
to exercise power under Section 9 of the Arbitration Act, if the Arbitral
Tribunal is yet to be constituted. Whether the Court grants interim relief
or not is a different issue, for that would depend on the facts of the case
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- whether the Applicant has made out a good prima facie case, whether
the balance of convenience is in favour of relief being granting to the
applicant, whether the applicant would suffer irreparable injury by refusal
of interim relief etc.
89. In Lakshmi Rattan Engineering Works Ltd. (supra) the
Court held:-
“9. The word “entertain” is explained by a Divisional Bench
of the Allahabad High Court as denoting the point of time at
which an application to set aside the sale is heard by the
court. The expression “entertain”, it is stated, does not mean
the same thing as the filing of the application or admission of
the application by the court. A similar view was again taken
in Dhoom Chand Jain v. Chamanlal Gupta [AIR 1962 All 543]
in which the learned Chief Justice Desai and Mr Justice
Dwivedi gave the same meaning to the expression “entertain”.
It is observed by Dwivedi, J., that the word “entertain” in its
application bears the meaning “admitting to consideration”,
and therefore when the court cannot refuse to take an
application which is backed by deposit or security, it cannot
refuse judicially to consider it. In a single bench decision of
the same court reported in Bawan Ram v. Kunj Beharilal [AIR
1961 All 42] one of us (Bhargava, J.) had to consider the
same rule. There the deposit had not been made within the
period of limitation and the question had arisen whether the
court could entertain the application or not.
It was decided
that the application could not be entertained because proviso
(b) debarred the court from entertaining an objection unless
the requirement of depositing the amount or furnishing security
was complied with within the time prescribed. In that case the
word “entertain” is not interpreted but it is held that the Court
cannot proceed to consider the application in the absence of
deposit made within the time allowed by law. This case turned
on the fact that the deposit was made out of time. In yet another
case of the Allahabad High Court reported in Haji Rahim
Bux & Sons v. Firm Samiullah & Sons [AIR 1963 All 326] a
Division Bench consisting of Chief Justice Desai and Mr
Justice S.D. Singh interpreted the words of Order 21, Rule
90, by saying that the word “entertain” meant not “receive”
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or “accept” but “proceed to consider on merits” or
“adjudicate upon”.
9. In our opinion these cases have taken a correct view of
the word “entertain” which according to dictionary also means
“admit to consideration”. It would therefore appear that the
direction to the court in the proviso to Section 9 is that the
court shall not proceed to admit to consideration an appeal
which is not accompanied by satisfactory proof of the payment
of the admitted tax. ...”
90. In Kundan Lal v Jagan Nath Sharma and Ors. (supra), a
Division Bench of Allahabad High Court held that the expression
“entertain” did not mean the same thing as the filing of the application or
admission of the application by the Court. The dictionary meaning of the
word “enterain” was to deal with or to take matter into consideration.
The High Court further held:-
“7. The use of the word ‘entertain’ in the proviso to R. 90 of
Or. XXI denotes a point of time at which an application to set
aside the sale is heard by the court. This appears to be clear
from the fact that in the proviso it is stated that no application
to set aside a sale shall be entertained ‘upon any ground
which could have been taken by the applicant on or before
the date on which the sale proclamation was drawn up.’ Surely,
the question as to the consideration of the grounds upon which
the application is based can only arise when it is being
considered by the court on the merits, that is, when the court
is called upon to apply
its mind to the grounds urged in the
application. In our view the stage at which the applicant is
required to make the deposit or give the security within the
mening of Cl. (b) of the proviso would come when the hearing
of the application is due to commence.”
91. In Hindustan Commercial Bank Ltd. v Punnu Sahu (supra),
the Court held that the expression “entertain” in the proviso to clause (b)
Order 21 Rule 90 (as amended by Allahabad High Court), means to
“adjudicate upon” or “proceed to consider on merits” and not “initiation
of proceeding.”
92. In Martin & Haris Limited (supra), the Court was considering
proviso to Section 21 of the U.P. Urban Buildings (Regulation of Letting,
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Rent and Eviction) Act, 1972 which provided that where the building
was in the occupation of a tenant since before its purchase by the landlord,
such purchase being made after the commencement of this Act, no
application shall be entertained on the grounds mentioned in Clause (a),
unless a period of 3 years has elapsed since the date of such purchase
and the landlord has given a notice in that behalf to the tenant, not less
than 6 months before such application, and such notice may be given
before the expiration of the aforesaid period of 3 years. The Court held:-
“Thus the word “entertain” mentioned in the first proviso to
Section 21(1) in connection with grounds mentioned in clause
(a) would necessarily mean entertaining the ground for
consideration for the purpose of adjudication on merits and
not at any stage prior thereto as tried to be submitted by
learned Senior Counsel, Shri Rao, for the appellant.”
93. It is now well settled that the expression “entertain” means to
consider by application of mind to the issues raised. The Court entertains
a case when it takes a matter up for consideration. The process of
consideration could continue till the pronouncement of judgment as argued
by Khambata. Once an Arbitral Tribunal is constituted the Court cannot
take up an application under Section 9 for consideration, unless the remedy
under Section 17 is inefficacious. However, once an application is
entertained in the
sense it is taken up for consideration, and the Court
has applied its mind to the Court can certainly proceed to adjudicate the
application.
94. Mr. Sibal rightly submitted that the intent behind Section 9(3)
was not to turn back the clock and require a matter already reserved for
orders to be considered in entirety by the Arbitral Tribunal under Section
17 of the Arbitration Act.
95. On a combined reading of Section 9 with Section 17 of the
Arbitration Act, once an Arbitral Tribunal is constituted, the Court would
not entertain and/or in other words take up for consideration and apply
its mind to an application for interim measure, unless the remedy under
Section 17 is inefficacious, even though the application may have been
filed before the constitution of the Arbitral Tribunal. The bar of Section
9(3) would not operate, once an application has been entertained and
taken up for consideration, as in the instant case, where hearing has
been concluded and judgment has been reserved. Mr. Khambata may
be right, that the process of consideration continues till the pronouncement
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of judgment. However, that would make no difference. The question is
whether the process of consideration has commenced, and/or whether
the Court has applied its mind to some extent before the constitution of
the Arbitral Tribunal. If so, the application can be said to have been
entertained before constitution of the Arbitral Tribunal.
96. Even after an Arbitral Tribunal is constituted, there may be
myriads of reasons why the Arbitral Tribunal may not be an efficacious
alternative to Section 9(1). This could even be by reason of temporary
unavailability of any one of the Arbitrators of an Arbitral Tribunal by
reason of illness, travel etc.
97. Applications for interim relief are inherently applications which
are 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.
98. 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.
Unless applications for interim measures are decided expeditiously,
irreparable injury or prejudice may be caused to the party seeking interim
relief.
99. It could, therefore, never have been the
legislative intent that
even after an application under Section 9 is finally heard relief would
have to be declined and the parties be remitted to their remedy under
Section 17.
100. When an application has already been taken up for
consideration and is in the process of consideration or has already been
considered, the question of examining whether remedy under Section 17
is efficacious or not would not arise. The requirement to conduct the
exercise arises only when the application is being entertained and/or
taken up for consideration. As observed above, there could be numerous
reasons which render the remedy under Section 17 inefficacious. To
cite an example, the different Arbitrators constituting an Arbitral Tribunal
could be located at far away places and not in a position to assemble
immediately. In such a case an application for urgent interim relief may
have to be entertained by the Court under Section 9(1).
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101. As pointed out by Mr. Khambata, the 246th Report of the
Law Commission, submitted in August 2014 states that Section 9(3)
seeks to reduce the role of the Court in relation to grant of interim
measure, once the Arbitral Tribunal has been constituted. This is also in
keeping with the UNCITRAL Model Law which discourages Court
proceedings in relation to disputes arising out of an agreement which
contains a clause for arbitration.
102. As held by this Court in Amazon.com NV Investment
Holdings LLC v. Future Retail (supra), the object of introducing Section
9(3) was to avoid Courts being flooded with applications under Section 9
of the Arbitration Act.
103. Negative Kompetenz-Kompetenz is a sequel to the rule of
priority in favour of the Arbitrators, that is, the requirement for parties to
an arbitration agreement to honour their undertaking to submit any dispute
covered by such an agreement to arbitration. This entails the consequence
that the Courts are prohibited from hearing such disputes.
104. In Chloro Controls India Private Limited v. Severn Trent
Water Purification Inc.19, this Court observed that majority of the
countries admit to the positive effect of kompetenz – kompetenz principle,
which requires that the Arbitral Tribunal must exercise jurisdiction over
the dispute under the arbitration agreement. Thus, challenge to the
existence or validity of the arbitration agreement would not prevent the
Arbitral
Tribunal from proceeding with the hearing and ruling upon its
jurisdiction. If it retains jurisdiction, it may make an award on the substance
of the dispute, without waiting for the outcome of any court action aimed
at deciding the issue of jurisdiction.
105. As held by this Court in Vidya Drolia and Ors. v. Durga
Trading Corporation20 :-
“129. Principles of competence-competence have positive and
negative connotations. As a positive implication, the Arbitral
Tribunals are declared competent and authorised by law to
rule as to their jurisdiction and decide non-arbitrability
questions. In case of expressed negative effect, the statute
would govern and should be followed. Implied negative effect
curtails and constrains interference by the court at the referral
stage by necessary implication in order to allow the Arbitral
Tribunal to rule as to their jurisdiction and decide non-
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arbitrability questions. As per the negative effect, courts at
the referral stage are not to decide on merits, except when
permitted by the legislation either expressly or by necessary
implication, such questions of non-arbitrability. Such
prioritisation of the Arbitral Tribunal over the courts can be
partial and limited when the legislation provides for some or
restricted scrutiny at the “first look” referral stage. We would,
therefore, examine the principles of competence-competence
with reference to the legislation, that is, the Arbitration Act.”
[Emphasis supplied]
106. As held in Vidya Drolia (supra), the Courts do not decide on
merits except when permitted by legislation either expressly or by
necessary implication. Prioritisation of the Arbitral Tribunal over the the
Courts can be partial and limited when the legislation so provides. Vidya
Drolia (supra) was referred to a larger Bench, but on a different issue.
107. It is reiterated that Section 9(1) enables the parties to an
arbitration agreement to approach the appropriate Court for interim
measures before the commencement of arbitral proceedings, during
arbitral proceedings or at any time after the making of an arbitral award
but before it is enforced and in accordance with Section 36 of the
Arbitration Act. The bar of Section 9(3) operates where the application
under Section 9(1) had not been entertained till the constitution of the
Arbitral Tribunal. Ofcourse it hardly need be mentioned that
even if an
application under Section 9 had been entertained before the constitution
of the Tribunal, the Court always has the discretion to direct the parties
to approach the Arbitral Tribunal, if necessary by passing a limited order
of interim protection, particularly when there has been a long time gap
between hearings and the application has for all practical purposes, to
be heard afresh, or the hearing has just commenced and is likely to
consume a lot of time. In this case, the High Court has rightly directed
the Commercial Court to proceed to complete the adjudication.
108. For the reasons discussed above, the appeal is allowed only
to the extent of clarifying that it shall not be necessary for the Commercial
Court to consider the efficacy of relief under Section 17, since the
application under Section 9 has already been entertained and considered
by the Commercial Court. The judgment and order under appeal does
not, otherwise, call for interference.
Ankit Gyan
Appeal partly allowed.
ARCELOR MITTAL NIPPON STEEL INDIA LTD. v. ESSAR
BULK TERMINAL LTD. [INDIRA BANERJEE, J.]