Minimal Court Intervention and Arbitrator’s Discretion to Grant Interim Orders

Advocate Meenal Garg, Punjab & Haryana High Court

The Arbitration and Conciliation Act, 1996 (hereinafter “the Act”) empowers both the court as well as the arbitral tribunal to grant interim protection to an aggrieved party under Sec. 9 and 17 of the Act respectively. A comparison of these two provisions read along with other provisions of the Act reveals the following differences:

  • The power of the court to grant interim orders is wider than the tribunal as the court can grant interim order before, during or even after making of the arbitral award. On the other hand, an arbitral tribunal can only issue an interim order during the pendency of the arbitration proceedings.
  • The power of the arbitral tribunal to grant interim protection is circumscribed by the agreement. This is because the arbitral tribunal derives its jurisdiction from the arbitration agreement agreed upon by the parties.

In light of the above differences coupled with the inadequate mechanisms for enforcement of interim orders of the arbitral tribunal, the parties have been reluctant to approach the arbitral tribunal for any interim protection during the proceedings. Moreover, as per Sec. 17(2) of the Act any interim order passed by the arbitral tribunal is enforceable in the same manner as an order of court under the Code of Civil Procedure, 1908. This is problematic since to enforce an order of the tribunal, a party has to apply for execution proceedings before the concerned court. In this respect, since arbitration is a time bound proceeding under Sec. 29A of the Act, by the time such an interim order is enforced, the arbitration proceedings are over and the benefit of securing an immediate urgent relief is lost in judicial delay.

However, two recent decisions of the Delhi High Court in Nirbhay Pratap Singh vs. Sumitomo Electric Industries Ltd (hereinafter “Nirbhay Pratap”) and Dinesh Gupta vs. Anand Gupta (hereinafter “Dinesh Gupta”) could be viewed as potential game changers in changing this status quo.

The Urgency Requirement

In Nirbhay Pratap, the applicant had prayed that Respondent No. 1 be directed to furnish a bank guarantee to secure the claims of the applicant as there was apprehension that the Respondent may leave the country and it might be difficult to secure the claims of the applicant. The court rejected the prayer and held that apart from establishing a prima facie case, the balance of convenience and irreparable loss which are the essentials of interim relief, a requirement of urgency needs to be proved to successfully secure interim protection in an application under Sec. 9 of the Act. The court held that Sec. 9 cannot be used as a substitute for Sec. 17 and held that in consonance with the objective of minimum court intervention, Sec. 9 application can only be entertained where there is an urgent need for “interim protection” which if not granted would frustrate the arbitration proceedings before it begins. Consequently, it was held that the prayer of the applicant is based on mere apprehensions and no proof of urgency could be furnished. Resultantly, the application was rejected.

It is also pertinent to mention here that this urgency requirement has yet again been affirmed by the Delhi High Court in the case of CRSC Research & Design Institute Group Co Ltd vs. Dedicated Freight Corridor Corporation of India Ltd.

Challenging the Interim Orders of the Arbitral Tribunal

While the factual matrix of Dinesh Gupta is insignificant to the present discussion, it would be sufficient to state here that the arbitral tribunal had passed certain interim orders under Sec. 17 pertaining to an earlier family settlement between the appellant and the Respondent. Resultantly, such orders were challenged on various grounds under Sec. 37 of the Act. The court while rejecting the appeal made note of various judgments of the Supreme Court, provisions of Civil Procedure Code, 1908 and the Arbitration and Conciliation Act, 1996 and culled out the following principles pertaining to first appellate jurisdiction under Sec. 37 of the Act:

  • Judicial intervention against the orders of the tribunal, whether interim or final award, should be minimal.
  • The principles of Order XXXIX of CPC, 1908 (which pertain to temporary injunctions) are not mandatory and only provide guidance to the court or the tribunal while exercising jurisdiction under Sec. 9 or 17 as the case may be. However, in all fairness, the court did not refer to contrary precedents on applicability of CPC on arbitration proceedings; neither did it refer to the legislative intent. Thus, this position is still unclear.
  • Order XXXVIII Rule 5 (which prescribes pre-conditions for compelling defendant to provide security for any property) is not applicable to proceedings under Sec. 17 of the Act. While holding this, the court distinguished its decisions and held that these were rendered before the 2015 amendment act and under the amended Act; Order XXXVIII Rule 5 is not applicable.
  • Jurisdiction under Sec. 17 is “fundamentally discretionary in nature”.
  • Lastly and most importantly, the court held that grounds for exercising first appellate jurisdiction under Sec. 37(2)(b) is even more limited than the second appellate jurisdiction under Sec. 37(2)(a) and the jurisdiction under Sec. 34 of the Act. Thus, the court held that an interim order of the arbitral tribunal can only be challenged if it is “palpably arbitrary or unconscionable”. 

Analysis: Dawn of a new era

Through various rulings of the Apex court as well as through legislative efforts, endeavour has been made to limit judicial intervention at every stage of arbitration proceedings. However, the concurrent jurisdiction of courts and arbitral tribunal to grant interim protection had somehow neglected this objective. By means of the above judgments, the court has truly implemented the objective of minimal judicial intervention from theory to practice, at least as far as interim orders are concerned.

A conjoint reading of the aforementioned two judgments reveals an interesting change which has turned the status quo in favour of the arbitral tribunal. Firstly, the courts would grant interim protection under Sec. 9 only in urgent or emergency situations and would otherwise direct the parties to approach the arbitral tribunal. Since Nirbhay Pratap was decided while keeping in mind the concurrent jurisdiction of courts and arbitral tribunals to grant interim orders, the urgency requirement would come into play only where there is a relief which can be granted both by the court and the tribunal. Secondly, once an interim order is passed by the arbitral tribunal, the courts would usually restrain themselves from interfering with the orders of the arbitral tribunal except on the very narrow ground of palpable arbitrariness.

Courts should encourage the tribunals to grant interim orders and the application under Sec. 9 should only be considered if no efficacious remedy can be availed after the constitution of arbitral tribunal. The rulings would undoubtedly oblige practitioners and parties alike to not casually approach the court for interim protection. Moreover, given the extremely narrow scope of first appellate jurisdiction of the court, the tribunal’s discretion to grant interim protection has been given supremacy. Of course, what constitutes urgency and palpable arbitrariness would depend upon the nature of relief prayed for, the stage of proceedings, type of contract, financial position of parties and other facts and circumstances of the case. However, for instance situations like restraining the encashment of bank guarantee may constitute an urgent situation warranting interim protection by court. Also, interim relief granted by the tribunal in violation of the clear terms of the contract may constitute palpable arbitrariness.

In conclusion, it can be said that the decisions of the Delhi High Court are baby steps in restoring the sanctity of the arbitral tribunal to grant interim orders. However, the efficacy of this concept would be staunchly put to test as undue insistence to secure interim order from an arbitral tribunal can lead to enforcement issues. In such cases, an affirmation of these decisions by the Hon’ble Supreme Court could certainly clear the air. Moreover, it is possible that the Delhi High Court issues special guidelines similar to those laid in M/s Bhandari Engineers & Builders Pvt Ltd vs. M/S Maharia Raj Joint Venture for speedier execution of interim orders passed by the arbitral tribunal. Interestingly, the Rajasthan High Court in the recent case of Bhilwara-Jaipur Toll Road Pvt Ltd vs. State of Rajasthan has held that courts while hearing an appeal under Sec. 37(2) of the Act ought not to circumspect the order or issue any interim orders including stay orders. This judgment again signals to the need for speedy enforcement and minimal judicial intervention in respect of interim orders. Finally, if the enforcement issue is solved and there is clarity in the decisions of the Delhi High Court, the tables could certainly turn in favour of the arbitral tribunals.

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