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  • Vrinda Gaur

Navigating Relief under Section 9(ii)(b) of the Arbitration and Conciliation Act 1996: A Shift in Modus Operandi

[Vrinda is a student at Dr Ram Manohar Lohiya National Law University.]


Realistically, after the appointment of an arbitrator, there is often a considerable amount of time between such an appointment and the actual commencement of proceedings between parties. During this period, one party may find itself in a vulnerable position due to the acts or omissions of the other party, potentially affecting its ability to recover its claim after the commencement of arbitration proceedings. Such actions, which could undermine the possibility of recovery of claims through arbitration, necessitate immediate court intervention to protect the interests of the affected party. This article explores the court’s power in granting reliefs under Section 9(ii)(b) of the Arbitration and Conciliation Act 1996 (1996 Act), and examines the evolution of the court's approach since the enactment of the Arbitration Act 1940 (1940 Act).

 

The Contours of Power Vested in the Courts


Section 9 specifies grounds on which a court of competent jurisdiction may, on receiving an application by the party, grant temporary relief to the party or prevent the other party from acting noxiously.


This section enumerates that an application to this effect can be filed at three stages of arbitration proceedings i.e. before the formation of the tribunal, during the proceedings, and after an award has been passed but before its enforcement.


Under the provision, the court may (i) direct the appointment of a guardian of a minor or a person of unsound mind and (ii) pass an interim measure for the preservation, custody, or sales of any goods which is the subject matter of the agreement, securing the amount in dispute, and the detention, preservation or inspection of any property or thing which is the subject matter of the dispute. Additionally, the court may also issue an interim injunction, appoint a receiver, or issue any other measure that the court deems just and convenient.

 

Before 2015, there was no timeline for the commencement of arbitration after an interim measure was passed by the court. As a result, parties preferred to reap the fruits of such an interim measure for as long as they could, thereby demonstrating little effort to proceed for adjudication through arbitration. However, after the 2015 amendment, a duty has been cast upon the parties to commence arbitration proceedings within 90 days of such relief. However, this provision is a subject of misuse due to a lack of retributive consequences for non-enforcement after the lapse of the prescribed timeline.

 

Section 9(ii)(b) and the Shift in the Court’s Approach in Granting Relief 


Section 9(ii)(b) of the 1996 Act, allows a party to apply to the court for “securing the amount in dispute” in arbitration. However, no static definition of the term “amount in dispute” can be applied and it usually varies from case to case depending upon the facts and circumstances.


To secure the amount in a dispute, courts have a reference to Order 38, Rule 5 of the Code of Civil Procedure 1908 (Code), which allows attachment before judgment. Under the provision, if to the satisfaction of the court, it is established that the (i) defendant is about to dispose of a part or whole of his property or (ii) defendant is about to remove the whole or any part of his property from the local limits of the jurisdiction of the court, it may require him to furnish security as against the property for protecting a party’s claim over it.


Initially, the court was bound by this provision while scrutinizing the parameters for granting relief under this section. However, over the years, the court has made a radical commute toward a more flexible approach from the initial practice of being bound by the rigor of the Code.

 

Pre-1996 Act


Before the commencement of the 1996 Act, the mechanism of arbitration proceedings was extremely confined to the application of the routine civil procedure under the Code.  Section 41 of the 1940 Act, endorsed the power of the courts to impose the provisions of the Code to all proceedings before it, making an explicit recognition and reinforcing the applicability of it during arbitration proceedings. The Supreme Court in ABC Laminart (Private) Limited v. AP Agencies, observed the the view that the Code in its entirety applied to proceedings and courts are bound by its procedure by virtue of Section 41 of that 1996 Act. Hence for securing an amount in dispute, the court had to rely solely on the parameters of Order 38, Rule 5 while granting relief. However, after the enactment of the 1996 Act, there has been a massive drift from this practice. Courts now have endorsed a more progressive approach for securing the amount to the dispute.

 

A Compounded Approach Post-1996 Act


Numerous unexplored precedents exist that have deliberated upon and varied the extent of applicability of the relevant order on Section 9(ii)(b) applications.


The Calcutta High Court in Srie Infrastructure Finance Limited v. Ravi Udyog Private Limited observed that an application under Section 9 cannot be ignored based on the technicalities of the Code.


The Bombay High Court in Nimbus Communications v. Board of Control of Cricket In India (Nimbus), observed that the rigor of procedural provisions cannot be allowed to come in the way of the court while granting relief under Section 9(ii)(b). However, power under Section 9 cannot be carried out in an unchartered territory ignoring the basic principles of procedural law. Further, in Deccan Chronicle Holdings Limited v. L&T Finance Limited, the Bombay High Court observed that the court need not go into the specifics of Order 38, Rule 5 if the petitioner has established a prima facie case and filed an application for reasonable expedition.


In Ajay Singh v. Kal Airways Private Limited, the Delhi High Court observed that though the courts should not find themselves bound by the provisions of the Code, it laws down certain guidelines and principles based on which power should be exercised. In Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited, a division bench of the Supreme Court implicitly upheld the Nimbus judgment and ruled that the technicality of Order 38, Rule 5 cannot prevent courts from securing the ends of justice, but the embedded procedural essence of Code cannot be overlooked.

 

Unraveling the Detours from Order 38 Rule 5: Doctrine of Balance of Convenience and Other Parameters Evolved by Over Time


From the above discussion, it is apparent that the courts may look for parameters other than those specified in Order 38, Rule 5 of the Code. In all the judgments discussed above, a significant principle considered by the courts while directing the defendant to deposit security, was of the balance of convenience which favors the applicant.


As established in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited, to assess the balance of convenience, the court is now required to examine and weigh the consequences of the refusal of interim relief to the applicant in case of success in the proceedings, against the consequences of granting interim relief to the opponent in case the proceedings should ultimately fail. If it favors the applicant, the court need not solely rely on factors such as the defendant's ability to dispose of the property or remove it from the court’s jurisdiction. 


In the Nimbus Communications case, the Bombay High Court considered the financial crunch and paucity of funds of the defendant as the sole criterion for directing the defendant to deposit security in the court. In Dr Reddy's Laboratories Limited v. Alpha Sciences Pte Ltd, significant loss of business and reputation to the applicant could act as an intervening factor in the determination of whether relief should be granted or not.


The above parameters are not exhaustive and depend upon the facts and circumstances of each case although, in the majority of cases, it is often the situation of financial vulnerability of the defendant to satisfy the claim of the applicant in the future.


Another example where the court has determined a distinct criterion other than those mentioned in Order 38, Rule 5 is Ssangyong Engineering and Construction Company v. M/S Engineering Associates, the fleeing of a person from the country was recognized as a relevant factor for securing the amount in dispute.

 

Is the Approach Feasible?


Irrespective of the dominance of the above approach, a recent judicial trend has reinforced the “intention matters” perspective and considered financial soundness as an inconsequential element while disposing of Section 9(ii)(b) applications. In Shanghai Electrics v. Reliance Infrastructure, the Delhi High Court observed that the financial condition alone cannot justify a claim of relief under Order 38, Rule 5. It further observed that the intention of the defendant while disposing of property/goods should be closely examined to grant relief. Though approaches like the one taken in Shanghai Electrics may quiver the confidence of parties in the arbitration process, especially in cases of international commercial arbitrations, one must remember that the ultimate cause for deviating from the initial practice of relying solely on Order 38, Rule 5 was to ensure that courts could administer complete justice after carefully weighing the balance of convenience. Likely, the courts may further reform their approach depending on the circumstances to fit in their respective definition of “doing complete justice”.


Hence, on a note of caution, though the broader discretion of the judges aims to achieve equitable outcomes, it also necessitates careful application to avoid undermining the legislative intent and to prevent potential judicial overreach.

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