The fundamental principle of pacta sunt servanda, meaning "agreements must be kept," underpins the essence of arbitration agreements. Despite this, the effectiveness of arbitration is often compromised when parties fail to comply with interim arbitral orders. In India, this issue has become increasingly pressing, demanding innovative solutions to ensure that arbitration remains a viable and effective alternative to litigation.

Section 17 of the Arbitration and Conciliation Act, 1996 provides for interim measures that can be granted by an arbitral tribunal, catering to various situations that may arise in the arbitral proceedings. By way of illustration, arbitral tribunals are competent to grant interim measures to secure the sum in dispute by ordering the concerned party to submit appropriate bank guarantees or any other such security. Such interim measures are vital in protecting the parties' rights during the arbitration proceedings.

However, the absence of any statutory framework for the enforcement of the interim orders granted by the tribunal has often been cited as a serious shortcoming, as highlighted in Sundaram Finance Ltd. v. NEPC India Ltd and Army Welfare Housing Organisation v. Sumangal Services (P) Ltd.

In order to address these shortcomings, acting on the issue raised in para 46 and 47 of the 246th Report of the Law Commission, Section 17(2) was introduced through the 2015 Amendment. This section provides that any interim measure granted by an arbitral tribunal would be deemed to be an order of the court for 'all purposes' and would be 'enforceable' under the Code of Civil Procedure, 1908 (CPC) in the same manner as if it were an 'order of the court.'

At present, when a party against whom an interim measure has been granted refuses to or fails to comply with an interim measure, the aggrieved party usually would take recourse to the institution of contempt proceedings under Section 27(5) of the 1996 Act as a means for enforcement of the interim measure. The Supreme Court evolved this remedy in the case of Alka Chandewar v. Shamshul Ishrar Khan (2017), where it was held that if any party fails to comply with the orders of the arbitral tribunal, then that party would be deemed guilty of contempt.

In this article, we propose to examine the effectiveness of the remedy of contempt proceedings as a means for enforcement of interim measures granted by the arbitral tribunal.

Contempt proceedings, while intended to compel compliance by imposing penalties on parties that fail to adhere to the orders of the arbitral Tribunal, are often undermined by various limitations. These limitations, especially where time is of the essence, include jurisdictional challenges, procedural delays, and courts' reluctance to impose stringent sanctions. This underscores the need for an alternative enforcement mechanism.

There also appears to be an inherent contradiction in the stance that contempt could serve as an effective remedy to enforce interim measures, particularly when the Supreme Court has itself cautioned against recourse to contempt as ‘execution proceedings in disguise.’ This is notwithstanding the fact that there are also a few decisions where it has been held that directions can be passed in contempt proceedings to ensure compliance with decrees. However, in practice, it is noticed that courts are reluctant to do so. It is also relevant to mention that as per the provisions of the Contempt of Courts Act, 1971, the scope of the court's authority is limited to punishing for the disobedience of the tribunal's interim order, not what is attempted to be secured within it.

The 1971 Act was never intended as a means for enforcing or executing orders, but rather for addressing situations concerning disobedience with the orders of the court. Therefore, the invocation of contempt jurisdiction as an enforcement mechanism for interim measures in the Indian arbitral regime leads to an ineffective environment for arbitration.

This being the position, even though there may be cases where the defaulting party may finally comply fearing contempt of court, in practice, two circumstances arise: first, where parties immediately abide by the interim order effectively. The second route is where the defaulting party further appeals the order of the tribunal and lengthens the proceedings to the point that the interim measure passed ends up being a paper order.

However, there is potential for exploring alternate enforcement mechanisms other than contempt proceedings for the enforcement of interim orders where an affected party faces a willful defaulter.

The Supreme Court has affirmed the enforceability of interim arbitral orders and held the enforcement of Section 17(2) measures to be akin to that under Section 9(1). More specifically, the Supreme Court in Amazon.com NV Investment Holdings LLC v. Future Retail Limited (2022) affirmed the creation of a legal fiction for the enforcement of the interim order. It held that when a court acts to enforce an order passed under Section 17, it acts in the same manner as it acts to enforce a court order made under Section 9(1).

Section 36 of the CPC provides that all provisions of the Code relating to the execution of decrees shall also be deemed to apply to the execution of orders. This blurs the distinction between orders and decrees for the purposes of their execution. Therefore, a case could be made that much like the execution of arbitral awards in terms of Section 36 of the 1996 Act (which are enforceable as a decree of the court), even interim measures could be enforced in the manner that decrees are enforced under the CPC, which is by recourse to Order XXI of the Code. Order XXI provides various remedies, including the power of attachment of property and other precipitative measures that may be required for the forceful execution of orders. Therefore, this may serve as a more effective remedy for enforcing an interim measure granted by the arbitral tribunal under Section 17.

As a matter of fact, it could be argued that the execution proceedings under Order XXI could proceed simultaneously with contempt proceedings under Section 27(5) of the 1996 Act. While the execution proceedings, on the one hand, would ensure the execution of the interim measures, on the other hand, the contempt proceedings could serve as a means to punish the defaulting party for willful and deliberate disobedience of the order of the tribunal.

The benefits of approaching a court under Order XXI further bind the defaulting party in a fair and time-bound manner. This fair and just process instills confidence in the proposed mechanism. This approach allows for the attachment of the defaulting party's property, providing a more effective and time-bound method of enforcement. This alternative mechanism addresses the current system's shortcomings, offering a potentially more efficient and robust means of enforcing interim arbitral orders in India, thereby upholding the principle of pacta sunt servanda in arbitration proceedings.

Shaurya Sahay is an Advocate-on-Record and Aditya Kumar is an Advocate.

The authors acknowledge the assistance rendered by Bhavya Jha and Varshita N.