Interim Reliefs by Arbitral Tribunals in Foreign Seated Arbitrations: An Inefficacious Remedy?

Interim measures under the Indian Arbitration and Conciliation Act, 1996 are granted by Courts as well as the Arbitral Tribunals. The Scheme of the Act is such that Part I deals with domestic arbitrations while Part II provides for foreign-seated arbitrations. Until October 23, 2015, the scope of the Arbitral Tribunal under Section 17 was very limited. A major shift in the arbitration regime took place when the Arbitration and Conciliation (Amendment) Act, 2015 made the powers of the Arbitral Tribunal to grant interim relief under Section 17 identical to that of the Court under Section 9 and the order of the Arbitral Tribunal under Section 17 was made enforceable like that of a Court. With the powers of the Arbitral Tribunal to grant interim relief being equated with that of the Court, the Courts under Section 9 can entertain an application for interim relief only when ‘the court finds that circumstances exist which may not render the remedy provided under Section 17 efficacious.’

Unless agreed otherwise, the application of Section 9 extends to foreign seated arbitrations as well, since there is no provision for interim relief in Part II. Therefore, parties to a foreign-seated arbitration can approach the Indian courts for interim relief under Section 9. However, since there is no provision analogous to Section 17 in Part II and Section 17 has not been extended to foreign-seated arbitrations, there is no clarity on the procedure for enforcement of an interim order of a foreign-seated Arbitral Tribunal in India.

Indian Courts have been approached with the question of what constitutes ‘efficacious remedies’ available with the Arbitral Tribunal, rendering the remedy before the Court under Section 9 as unsustainable. Parties have tried to bring the absence of specific provision for enforcement of intern order of the Arbitral Tribunal within the ambit of ‘circumstances which may not render the remedy provided under Section 17 efficacious’ to invoke the jurisdiction of Indian Courts to grant interim reliefs once the Arbitral Tribunal in a foreign-seated arbitration has been constituted.

The 246^th Law Commission Report which suggested extending the applicability of Section 9 to foreign-seated arbitrations had mentioned that, where the assets of a party are in India, and there is a likelihood that the party will dissipate its assets in near future, the other party will lack an ‘efficacious remedy’ if the seat of the arbitration is abroad. The Report contemplated that in such a scenario, the later party will have two possible remedies - first, it can obtain an interim order from a foreign Court or the arbitral tribunal itself and file a civil suit to enforce the right created by the interim order as the interim order would not be enforceable directly by filing an execution petition as it would not qualify as a ‘judgment’ or ‘decree’ of the Court. Second, if the former party does not adhere to the terms of the foreign order, the later party can initiate proceedings for contempt in the foreign court and enforce the judgment through Courts in India. The Law Commission Report was of the view that neither of these remedies would be practical for the party seeking to enforce the interim order. This reasoning of the 246^th Law Commission Report has been recognized by the Supreme Court in Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited and Ors., and was followed by the Bombay High Court in Heligo Charters Private Limited v. Aircon Feibars FZE and the Delhi High Court in Big Charter Private Limited v. Ezen Aviation Pty. Ltd. and Ors.

In Ashwani Minda and Jay Ushin Limited v. U-shin Limited and Minebea Mitsumi Inc., the Delhi High Court held that an application under Section 9 shall not lie after the constitution of an arbitral tribunal, unless the applicant demonstrates that it does not have an efficacious remedy before the tribunal. It said that in assessing the efficacy of the arbitral tribunal, appropriate test is whether the tribunal is sufficiently empowered to grant effective interim relief. It extended the applicability of Section 9(3) to foreign-seated arbitrations, despite the Section referring to Section 17 which is not applicable to foreign-seated arbitrations. In the absence of a provision in Part II analogous to Section 17, what needs to be examined is whether this scenario would cross the test of ‘circumstances which may not render the remedy provided under section 17 efficacious.’

To remedy this lacuna, the Delhi High Court in Raffles Design International India Pvt. Ltd. v. Educomp Professional Education Ltd., held that although the order passed by the emergency arbitrator is not enforceable, the Court can grant interim reliefs under Section 9. In this case, the party to a foreign-seated arbitration had approached the Delhi High Court under Section 9, after having secured interim orders from an emergency arbitrator. The Court held that while recourse to Section 9 is not available for the purpose of enforcing the orders of the emergency arbitrator, it will not act as a bar on the Courts to entertain an application under Section 9 independently. Similarly, in HSBC PI Holdings (Mauritius) Ltd. v. Avitel Post Studioz Ltd., the Bombay High Court granted interim reliefs under Section 9 of the Act, despite an emergency arbitrator already having passed interim orders.

The position was recently settled by the Delhi High Court in Shanghai Electric Group Co. Ltd. v. Reliance Infrastructure Ltd where a Single Judge Bench while relying on the reasoning in Big Charter, Ashwani Minda & Raffles Design, held that since (i) ‘interim orders’ are not enforceable under the Code of Civil Procedure, 1908, (ii) Section 17 does not extend to foreign seated arbitrations and (iii) there is no provision in Part II which is analogous to Section 17 in Part I, the remedy of seeking interim relief of securing the amount in dispute would be ‘inefficacious’ before the Arbitral Tribunal and the Courts are not barred from providing such a relief under Section 9.

While pronouncement in Ashwani Minda extended the application of the restriction under Section 9(3) to foreign-seated arbitrations to hold that the application under Section 9 was not maintainable, the Delhi High Court in Shanghai Electric Group has rightfully distinguished the judgment to hold that the application under Section 9 was maintainable as the remedy of seeking interim relief of securing the amount in dispute would be ‘inefficacious’ before the Arbitral Tribunal.

However, the judgment in an appeal against Shanghai Electric Group judgment is reserved by a Division Bench of the Delhi High Court. Therefore, we must wait and watch if it holds the ground and if it can crawl up to the Apex Court to conclusively consider the grey area of effective enforcement of interim orders of foreign-seated arbitrations. For the time being, the judgment in Shanghai Electric Group seems to be well reasoned as interim order of a foreign-seated Arbitral Tribunal cannot be enforced either under the Code of Civil Procedure or the Act. One can also be hopeful that the pronouncement catches the eyes of the legislature for an amendment in the Act to the effect of either extending the applicability of Section 17 to foreign-seated arbitration or providing for enforcement of interim order of an Arbitral Tribunal in Part II.

Yogendra Aldak is a Partner, Pranav Mundra is a Principal Associate and Bhavya Shukla is a Senior Associate at Lakshmikumaran & Sridharan.