INTERIM MEASURES UNDER ARBITRATION AND CONCILIATION ACT, 1996

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This article is written by Virat Singh of 7^th Semester of Shri Ramswaroop Memorial University

ABSTRACT

This article delves deeper into the field of arbitration and mediation. It starts with talking about the historical presence of arbitration as an alternative dispute resolution in both India and the countries abroad. It presents certain evidences which prove the existence of arbitration in history since a very long time. Thereafter, it discusses the advent of Arbitration Act of colonial era. It also discusses the reason of failure of this Act which ultimately led to the formation of Arbitration and Conciliation Act, 1996 as we know today. In the aftermath, relevant case laws have also been discussed in order to bring it forth to the reader the judicial establishments in this regard. The interim measures that could be awarded by the arbitral courts have also been discussed. Finally, the article has been summed up by a concluding note.

Keywords:

Arbitration and Conciliation Act, Section 17, Arbitral Tribunal, Enforcement, Contempt proceedings, UNCITRAL Model Law, Judicial pronouncements, Alternative Dispute resolution, Cross-border arbitration

INTRODUCTION

Alternative Dispute resolution (ADR), in the form of arbitration and conciliation, has been deep rooted in the legislative framework of almost every state since a very long time. The oldest known record of arbitration is engraved into biblical theory where King Solomon settled the dispute between two women both of whom claimed to be the mother of a child.[1] Later on, historical records show the use of arbitration by Phillip, the second, to settle territorial disputes.

The Indian sub-continent is not new to this field. The mode of settlement of disputes through alternative means finds its mention in the Vedic period.[2] In Brhadranayaka Upanishad, three types of arbitral bodies have been described:[3]

The Puga
The Sreni
The Kula

Thereafter, with the advent of Mughal rule in the country, the Muslims were governed by Islamic Laws: The Shariah, as contained in the Hedaya.[4] It contains the provisions of arbitration between the parties. The people of other religions were governed by their respective personal laws during this period.

Thus, settlement of disputes through arbitration and conciliation can be traced back to the ancient time both in the Indian sub-continent and countries abroad. In this article, we will be delving deeper into the field of alternative dispute resolution through arbitration and conciliation with our primary focus on the interim measures as provided under The Arbitration and Conciliation Act, 1996.

ARBITRATION IN COLONIAL ERA

The practice of arbitration in India has thrived since the late nineteenth century. Initially, the Indian Arbitration Act of 1899 marked the first statutory recognition of arbitration as a method for resolving disputes, but its application was limited to the three presidency towns: Madras, Bombay, and Calcutta.

To extend the reach of arbitration across different regions of British India not covered by the 1899 Act, the provisions of arbitration were subsequently incorporated into Section 89 and Schedule II of the Code of Civil Procedure in 1908.

However, it became apparent that both the 1899 Act and the provisions in the Code of Civil Procedure from 1908 were deemed unsatisfactory, as they were overly technical and impractical. In response to these shortcomings, the Arbitration Act of 1940 was enacted, replacing the 1899 Act and relevant provisions of the Code of Civil Procedure.

Inspired by the English Arbitration Act of 1934, the Arbitration Act of 1940 aimed to comprehensively address the subject of arbitration, but it lacked provisions for enforcing foreign awards. Consequently, the 1940 Act only applied to domestic arbitrations.

Despite its intentions, the Arbitration Act of 1940 did not fulfil its purpose adequately and faced several operational issues, rendering its functioning far from satisfactory. In the case of Guru Nanak Foundation v Rattan Singh[5], Justice D.A. Desai pointed out the prevailing issues within the Indian courts and the ineffectiveness of the Arbitration Act of 1940. He, succinctly expressing his concerns regarding this matter, stated:

“Interminable, time consuming, complex and expensive Court procedures impelled jurists to search for an alternative Forum, less formal, more effective and speedier for resolution of disputes, avoiding procedural claptrap and this led them to Arbitration Act, 1940. However, the way in which the proceedings under the Act are conducted and without exception challenged in Courts, has made Lawyers laugh and legal philosophers weep.”

ARBITRATION POST INDEPENDENCE

Even after several critical remarks, no amendments were made to the 1940 Act. It was only in 1991 that steps were taken to attract foreign investments into the country and consequently, Arbitration and Conciliation Act, 1996 was introduced which repealed the Arbitration Act of 1940. It is intriguing to note that the Arbitration Act of 1996 drew its foundation from the UNCITRAL Model Law on International Commercial Arbitration, which was formulated in 1985.[6] Unlike its predecessor, the Act of 1996 was comprehensive in its scope, encompassing both domestic and international arbitration processes.

During the implementation of the Arbitration Act of 1996, a controversy emerged when the Supreme Court of India, in the case of Bhatia International v. Bulk Trading S.A. and Another[7], ruled that Part I of the Act would be applicable to arbitrations conducted outside India unless expressly or implicitly excluded. Similarly, in Venture Global Engineering v Satyam Computer Services Ltd.[8], the Supreme Court delivered a judgment following a similar approach. These decisions faced significant criticism for being perceived as regressive.

However, this matter was subsequently settled in the case of Bharat Aluminium and Co. v. Kaiser Aluminium and Co.[9], wherein the Supreme Court clarified that Part I of the Act does not apply to Part II of the Act. As per the judgment in BALCO, Indian courts were not authorized to entertain interim applications under Section 9 of the Act in foreign-seated arbitrations governed by Part II of the Act. This ruling provided a more definitive stance on the applicability of different parts of the Arbitration Act, resolving the earlier controversy surrounding the issue.

INTERIM MEASURES BY ARBITRAL TRIBUNALS

An interim award pertains to a decision on a specific aspect of the dispute that has been referred to arbitration. It is rendered during the ongoing arbitration proceedings before the final award is issued. Interim awards are required to be made in a manner consistent with the process of issuing a final award. In other words, they are to be prepared and delivered following the same procedural rules and principles that apply to the final award. Interim awards play a significant role in resolving certain issues and providing partial resolution while the arbitration process is still underway, ultimately contributing to the efficient and effective resolution of the overall dispute.[10]

The honourable Supreme Court in the case of Deepak Mitra v. District Judge, Allahabad[11], held that the Arbitral Tribunal has the authority to issue interim awards for disputes that fall within the scope of the arbitration agreement between the involved parties. Additionally, the Tribunal can render interim awards on any subject matter over which it possesses the jurisdiction to make final awards. These interim awards address specific issues or aspects of the dispute and can be issued at various stages of the arbitration process. The power to issue interim awards enables the Tribunal to provide provisional resolutions and maintain control over the proceedings until the final award is delivered, ensuring an orderly and fair resolution of the entire dispute.

Interim measures can be sought by a party during the course of arbitration proceedings under Section 17 of the Act. Section 17(1)(ii) specifies the matters for which a party may apply to the Arbitral Tribunal for interim protective measures:

To prevent, temporarily take custody of, or sell any goods that are the subject matter of the arbitration agreement.
To secure the amount in dispute in the arbitration.
To detain, preserve, or inspect any property or item that is the subject matter of the dispute in arbitration.
To authorize a person to enter any land or building in the possession of any party for the above-mentioned purposes, including taking samples, making observations, or conducting experiments to gather relevant information or evidence.
To seek interim injunctions or the appointment of a receiver.
To request any other interim protective measure that the Arbitral Tribunal deems just and appropriate.

According to Section 17(1) of the Act, the Arbitral Tribunal may exercise its authority to grant interim measures only after it has been properly constituted, and not before. However, there is an exception to this condition. If the parties agree to have the proceedings conducted under the rules of a specific institutional Arbitral Tribunal, and if these institutional rules allow for the conduct of Emergency Arbitration prior to the constitution of the Arbitral Tribunal, then the Institution may appoint an Emergency Arbitrator to address interim measures before the Tribunal’s formal establishment.

RELEVANT CASE LAWS

In the case of Amazon.Com NV Investment Holdings LLC v. Future Retail Ltd.[12], the Supreme Court of India ruled that the interim measures granted by the Emergency Arbitrator under the Singapore International Arbitration Centre Rules (“SIAC Rules”) would fall within the purview of Section 17 of the Arbitration and Conciliation Act, 1996. This landmark decision clarified that such interim measures issued by an Emergency Arbitrator before the constitution of the main Arbitral Tribunal would be recognized and enforceable under the Indian law. This allowed parties involved in arbitration proceedings to seek and obtain interim relief from Emergency Arbitrators appointed under the SIAC Rules, which would be considered as valid and enforceable interim measures under the Indian Arbitration Act.

Under Section 17(1)(ii) of the Arbitration and Conciliation Act, 1996, the powers of the Arbitral Tribunal are restricted to granting interim measures solely against the parties involved in the arbitration. The Supreme Court of India, in the case of MD Army Welfare Housing Organisation v. Sumangala Services (P) Ltd.[13], confirmed that the Arbitral Tribunal lacks the jurisdiction to pass interim measures against third parties under Section 17 of the Act. According to the court’s ruling, the Arbitral Tribunal’s authority is confined to issuing interim measures that directly affect the parties to the arbitration agreement. Therefore, it cannot extend its jurisdiction to grant interim relief against individuals or entities who are not parties to the arbitration, even if they may have some connection to the subject matter of the dispute. As a result, any interim measures required against third parties must be sought from the appropriate judicial authorities through separate legal proceedings and not through the Arbitral Tribunal under Section 17 of the Act.

ENFORCEMENT OF ORDERS

As per Section 36 of the Arbitration and Conciliation Act, 1996, an interim award issued by an Arbitral Tribunal under Section 17 of the Act holds the same legal status and enforceability as an interim award granted by the Court under Section 9 of the Act. In other words, both types of interim awards are treated equally in terms of their legal value and authority.

Additionally, Section 27(5) of the Act empowers the Court to impose appropriate disadvantages, penalties, or punishments on any individual found guilty of contempt of the Arbitral Tribunal during the course of the arbitration proceedings. This provision allows the Court to take action against those who defy or obstruct the proceedings, showing a similarity to the consequences faced by individuals in a regular court trial for contemptuous behaviour.

In essence, the Act ensures that interim awards issued by the Arbitral Tribunal are legally binding and enforceable, and it grants the Court the authority to take appropriate actions against those who act in contempt or attempt to undermine the arbitration process.

In case a party fails to adhere to the interim award issued by an Arbitral Tribunal under Section 17 of the Arbitration and Conciliation Act, 1996, the person would be considered “guilty of contempt of the Arbitral Tribunal” under Section 27(5) of the Act. This stance was confirmed by the Delhi High Court in the case of Sri Krishan v. Anand[14].

According to the Delhi High Court’s ruling, non-compliance with an interim award amount to showing contempt towards the authority of the Arbitral Tribunal, and the party failing to comply with such an award could face consequences akin to those of contempt as if it were a regular court trial. This interpretation reinforces the significance and enforceability of interim awards and emphasizes the importance of adhering to the decisions made by the Arbitral Tribunal throughout the arbitration process.

In the case of Alka Chandewar v. Shamshul Ishrar Khan[15], the Supreme Court of India established that any individual who refuses to comply with an interim award issued by the Arbitral Tribunal under Section 17 of the Arbitration and Conciliation Act, 1996, would be deemed to have committed contempt during the course of the arbitration proceedings. As a consequence, civil contempt proceedings could be initiated against such a person under the provisions of the Contempt of Courts Act, 1971.

This ruling emphasizes the seriousness of adhering to the decisions of the Arbitral Tribunal, including interim awards, and underscores the significance of respecting the authority of the Tribunal throughout the arbitration process. Non-compliance with interim awards can result in legal consequences akin to contempt actions typically taken against those who defy court orders, further reinforcing the enforceability and importance of interim awards in arbitration proceedings.

CONCLUSION

Interim measures play a pivotal role in the efficacy and effectiveness of arbitration proceedings under the Arbitration and Conciliation Act. These measures, as embodied in Section 17 of the Act, empower the Arbitral Tribunal to address urgent issues and provide provisional relief during the course of the arbitration process. Such measures encompass a wide range of remedies, including injunctions, preservation of assets, and appointment of receivers, among others, allowing the Tribunal to maintain control and ensure fairness throughout the dispute resolution.

The Act’s recognition of interim awards on par with those passed by the Court adds weight to their legal value, promoting their enforceability and adherence by the parties involved. Additionally, the Act’s provision to penalize non-compliance with interim awards through contempt proceedings underscores the significance of respecting the Tribunal’s authority and decisions.

Furthermore, recent judicial pronouncements, as illustrated in landmark cases such as Alka Chandewar v. Shamshul Ishrar Khan[16] and Sri Krishan v. Anand[17], have clarified and solidified the enforceability of interim awards, discouraging parties from disregarding or challenging these vital measures.

In the realm of international commercial arbitration, the adoption of the UNCITRAL Model Law principles in the Act and its amendments further facilitates the recognition and enforcement of interim measures on a global scale, promoting consistency and efficiency in cross-border dispute resolution.

As arbitration continues to be embraced as a preferred method for resolving disputes, the significance of interim measures cannot be overstated. These measures offer parties a means to protect their rights and interests, ensuring that the arbitration process remains effective, prompt, and equitable. Through the appropriate use of interim measures, arbitrators can strike a balance between safeguarding the parties’ positions and expediting the resolution of disputes, ultimately contributing to the growth and credibility of arbitration as a robust alternative to traditional court proceedings.

REFERENCES

[1] Frank Emerson, CSU, History of Arbitration Practice and Law, https://core.ac.uk/download/pdf/216936738.pdf

[2] Sumit Kumar, University of Delhi, Historical Growth of Arbitration Law in India, Vol. 10, Issue No. 2

[3] Ibid

[4] O.P. Malhatora, The law and practice of Arbitration and Conciliation, 2^nd edition, (Lexis Nexis-Butterworths

Publications: New Delhi 2002) p-5

[5] (1981) 4 SCC 634

[6] Tariq Khan, Muneeb Rashid Malik, History and development of Arbitration Law in India, Bar and Bench – Indian Legal news.

[7] (2002) 4 SCC 105

[8] (2008) 4 SCC 190

[9] (2012) 9 SCC 552

[10] Tamil Nadu Water Supply and Drainage Board, Chennai v. Abhan Constructions [2002 (4) RAJ 575 (Mad)]