[By Mrudula Dixit]
The author is a fourth year student of Symbiosis Law School, Pune.
There are a few peculiar provisions in the Arbitration and Conciliation Act, 1996 (“Act”)[i] which stand out for instance Section 9 of the Act. Section 9 states that an interim measure can be granted by a court before, during or after making of the arbitral award at the instance of the party making an application. Section 9 is different in one aspect – it allows for the grant of an interim measure after the pronouncement of the final arbitral award as well. The parties can apply under Section 9 after the final award is granted but before it is enforced as per Section 36 of the Act. This provision in the Indian law is a deviation from the UNCITRAL Model Law on International Commercial Arbitration which does not contain any post-award interim measure. Thus, in India, the parties have been granted a small window of opportunity to effectively secure their award or protect their interests.
Further Section 36 of the Act clarifies that when the time for making an application to set aside the arbitral award under Section 34 has expired [i.e 3 months from the date of announcement of the award], then such final award can be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (‘Code’).[ii] Though this part of the provision has been explicitly included in the impugned Section, its interpretation and practical application remains controversial.
Recently, in November 2019, the Supreme Court made certain observations on this aspect in the case of Hindustan Construction Company Limited & Anr v. Union of India (‘HCC’).[iii] Here the primary question for consideration was whether Section 87 of the Act is liable to be struck down as ‘manifestly arbitrary’. Section 87 of the Act states that amendments made to the Act by the Arbitration and Conciliation (Amendment) Act, 2015 would not apply to court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings were commenced prior to or after commencement of 2015 Amendment Act. What is of relevance for the purpose of this Blog is not the wider question of law posed before the Apex Court but rather an ancillary observation made by Justice Rohinton Nariman in the judgment. He accepted the ratio previously laid down in two cases before the Bombay High Court and succinctly stated that Section 9 allows a party to secure the final arbitral award via an application for interim measure. In view of the decision, this Blog aims at summarizing the jurisprudence of Section 9 and post-award interim measures. Further, it also seeks to analyse its implications of the same on Sections 34 and 36 of the Act.
As mentioned above, in course of the judgment, Justice Nariman made certain remarks about the interpretation of Section 36 of the Act. He carefully delineated the nexus between Sections 9, 34 and 36 before concluding that Section 36 does not prohibit grant of stay of a money decree under the Code. As he elucidated the scope of Section 9, he relied on a pivotal case, namely Dirk India Pvt. Ltd v. Maharashtra State Power Generation Co. Ltd. (“Dirk India“).[iv]
Dirk India was the first judgment to bolster the legislative intent of granting an ‘interim’ relief at a post-award stage. The Bombay High Court was faced with the issue of determining whether a party which has lost in an arbitral proceeding can make an application under Section 9 post-award. Justice Chandrachud reiterated the words of the Section 9 and held in paragraph 12 that;
‘When [interim relief is] sought after an arbitral award is made but before it is enforced, the measure of protection is intended to safeguard the fruit of the proceedings until the eventual enforcement of the award. Here again the measure of protection is a step in aid of enforcement. It is intended to ensure that enforcement of the award results in a realisable claim and that the award is not rendered illusory by dealings that would put the subject of the award beyond the pale of enforcement.’
The decision made by the court in Dirk India effectively meant that post-award interim measure can only be sought by an Award–Creditor and not by the Award–Debtor. Dirk India was relied upon by Justice G.S Kulkarni in March 2019, in the case of Mahyco Monsanto Biotech (India) Pvt. Ltd. v. Nuziveedu Seeds Ltd.[v] The Petitioner in this case had made an application under Section 9 of the Act after he had succeeded in his claim before the Arbitral Tribunal. The tribunal, by majority, had granted the petitioner a sum of Rs. 117 Crores which the petitioner wished to secure before enforcement under Section 36. Justice Kulkarni relied heavily on Dirk India and held that the law is set in that regard. He reiterated the settled position by stating that post-award interim measures ensure that the award is not illusive or avoidable. The position laid down in these two cases of the Bombay High Court have been reinforced by the Supreme Court in HCC.
Analysis of the judgments
The observations of the Author are:
- When an Award–Creditor approaches the court under Section 9 to secure the award, it acts on a presumption that the Award–Debtor will prefer an application to set aside the arbitral award under Section 34 of the Act. Moreover, when Section 34 is read together with Section 36, an arbitral award cannot be enforced until and unless the 90 days’ period expires or the application under Section 34 has been duly disposed of. Because of this obvious paradox, the pre-emptive right to secure the award, bestowed upon the Award–Creditor by the interpretation of Section 9 in Dirk India, is likely to prejudice the party affected by the arbitral award as it takes away its 3-month window given by law.
- As a way of a corollary, the ‘remedy’ under Section 34(4) which gives power to the court to remit the matter back to the Arbitral Tribunal for reconsideration, upon request, is rendered nugatory. When an award has already been secured under Section 9, then any flaw in the arbitral proceedings, sent back for reconsideration will not benefit the Award – Debtor.
This incongruence between Section 9 on one hand and Sections 34 and 36 on the other is due to Dirk India’s observation that post-award interim measures are only available to the Award –Creditor. In contrast, a recent single bench ruling of the Delhi High Court in Organising Committee Commonwealth Games v. M/s Nussli (Switzerland) Ltd. (“Organising Committee“)[vi] gave a wider meaning to Section 9. It held that the correct interpretation for post-award situations was to make interim available to both parties. In this case, the Arbitral Tribunal had decided in the favour of the respondent/claimant. After the award was made, the Award–Debtor (the plaintiff) made an application under Section 9 seeking a stay on the discharge of the performance bank guarantee at the behest of the Respondent (Award – Creditor). The Respondent contended that as per Dirk India, the Petitioner being the losing party did not have the right to a post-award interim measure. However, the court disagreed and distinguished the facts of Dirk India from the case at hand. It upheld the submissions of the Petitioner that a stay under Section 9 as an interim measure before the Petitioner proceeds with Section 34 of the Act (within 3 months) is tenable in law.
In the author’s opinion, the court’s judgment in Organising Committee is the right interpretation of Section 9 as it does not create any conflicts with other provisions of the Act. Moreover, it follows settled judgments like those of Firm Ashok Traders v. Gurumukh Das[vii], which have given a wide scope to the definition of ‘party’ under the Act.
As the concept of post-award interim measures is unique to India, it is essential to construe it harmoniously with other provisions and laws. It is incongruous and illogical to limit Section 9 to only the Award – Creditor. Interim measures are not limited to only securing a successful award but also to injunctions etc. The Award – Debtor has the right to approach the Court for preliminary stay before it prepares its application under Section 34 of the Act. Even if a critical appraisal of Dirk India is avoided, the author emphasises that post-award interim measures should be judged on a strictly factual basis, having regard to the uniqueness of every issue.
[i] The Arbitration Act, 1996 (Act No. 26 of 1996).
[ii] The Code of Civil Procedure, 1908 (Act No. 5 of 1908).
[iii] Hindustan Construction Company Limited & Anr v. Union of India, Writ Petition (Civil) No. 1074/2019.
[iv] Dirk India Pvt Ltd. v. Maharashtra State Electricity Corporation, 2013 (7) Bom CR 493.
[v] Mahyco Monsanto Biotech (India) Pvt. Ltd. v. Nuziveedu Seeds Ltd, Commercial Arbitration Petition No. 312/2019 [Bombay High Court].
[vi] Organising Committee Commonwealth Games v. M/s Nussli (Switzerland) Ltd., O.M.P 1300/2013 [Delhi High Court].
[vii] Firm Ashok Traders v. Gurumukh Das, Appeal (Civil) 131-132/2004 [Supreme Court].