Interim Relief and the Intersection of Section 9 of the Arbitration Act with Order XXXVIII Rule 5: Analyzing Essar House v. ArcelorMittal
Interim Relief, in simple terms, refers to a temporary remedy granted by the court to a claimant while awaiting the trial. It is an order issued by the court before a full trial takes place, intended to preserve the current situation and prevent any changes until the trial is conducted. Interim Relief plays a crucial role in the resolution of disputes as it provides a safeguard for the parties involved, ensuring that their rights and interests are protected during the adjudication process. However, there has been a longstanding debate regarding the applicability of Section 9 of the Arbitration and Conciliation Act in situations where Order XXXVIII Rule 5 is invoked. This discussion centres on the interaction between these legal provisions and how they should be applied in cases where interim measures are sought. The case of Essar House Private Limited v. ArcelorMittal Nippon Steel India Limited will be studied to examine this issue in detail.
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Introduction
Interim Relief, in simple terms, refers to a temporary remedy granted by the court to a claimant while awaiting the trial. It is an order issued by the court before a full trial takes place, intended to preserve the current situation and prevent any changes until the trial is conducted. Interim Relief plays a crucial role in the resolution of disputes as it provides a safeguard for the parties involved, ensuring that their rights and interests are protected during the adjudication process.
However, there has been a longstanding debate regarding the applicability of Section 9 of the Arbitration and Conciliation Act in situations where Order XXXVIII Rule 5 is invoked. This discussion centres on the interaction between these legal provisions and how they should be applied in cases where interim measures are sought. The case of Essar House Private Limited v. ArcelorMittal Nippon Steel India Limited[1] will be studied to examine this issue in detail.
Case Study: Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited
- Essar Steel India Limited and ArcelorMittal India Private Limited entered into a contract for the supply of steel products. There had been conflicts amongst the parties, and ArcelorMittal India used the arbitration provision in the contract to settle them.
- ArcelorMittal India consequently petitioned the High Court of Bombay for the selection of an arbitrator in an arbitration proceeding under Section 11 of the Arbitration and Conciliation Act, 1996. To settle the conflicts between the parties, the High Court authorised a sole arbitrator.
- In order to obtain interim relief, along with a mandate for Essar Steel India to provide bank guarantees and an injunction against Essar Steel India from invoking the bank guarantees provided by ArcelorMittal India, ArcelorMittal India filed a petition with the High Court under Section 9 of the Arbitration and Conciliation Act, 1996.
- Essar Steel India disputed the petition's capacity to be maintained under Section 9 on the grounds that the contract's arbitration clause nullified the courts' authority to hear the case. The High Court, however, dismissed the argument and granted ArcelorMittal India's request for interim relief.
- Essar Steel India made an appeal to the Supreme Court of India distressed by the High Court's decision. In light of the contract's arbitration clause, the Supreme Court's main concern was as to if the High Court had the authority to grant interim relief under Section 9 of the Arbitration and Conciliation Act, 1996.
Issues Involved
- Whether the jurisdiction is with the arbitral tribunal: The petitioner, Essar House Pvt. Ltd., claimed that the case fell under the jurisdiction of the arbitral tribunal and that the arbitration was the appropriate forum for the tribunal to resolve the dispute.
- What role does the court play in providing interim relief: The case also addresses issues about the court's role in granting Section 9 interim relief.
- What is the Threshold for Relief under Section 9 of the Arbitration Act: The petitioner had submitted an application to the National Company Law Tribunal pursuant to Section 9 of the Arbitration Act, asking for an interim injunction to stop the respondent from pledging or selling its assets in India.
Findings
The Court decided that Section 9 of the Act offers a relief in addition to any other legal recourse, such as the option to reach an arbitral tribunal for interim relief. The court further emphasised the significance of this clause by pointing out that Section 9 of the Act permits parties to request interim relief before, during, or after the start of the arbitral proceedings.
The Court determined that Section 9 of the Act offers for a distinct and stand-alone remedy that is not constrained by the CPC. The court stated that the principles of equity and fairness must be applied by the court when granting interim relief under Section 9, and the court is obligated to follow through with that.
The Court observed that, in comparison to the powers provided by the Code of Civil Procedure, 1908, Section 9 of the Act grants the court more discretion when granting interim relief[2]. The Court ruled that any interim measure which might be required to safeguard the interests of the parties or to safeguard the subject matter of the dispute falls under the purview of the court's authority under Section 9 of the Act, which extends beyond simply granting an injunction or designating a receiver[3]. The court further ruled that the court's discretionary power under Section 9 must be used wisely and on a case-by-case basis[4].
According to the Supreme Court, the High Court made an error in dismissing the application for interim relief on the mere basis that the plaintiff had not explicitly cited the basis for attachment before judgement under Order XXXVIII Rule 5 of the CPC. The Court observed that the plaintiff had established a compelling original statement, and that the weight of ease favoured granting the plaintiff's request for interim relief[5]. The Court further ruled that the High Court shouldn't have denied interim relief based solely on the technicality that Order XXXVIII Rule 5 of the CPC's requirements for particular averments encompassing the premises for attachment before judgement were missing.
The Supreme Court also explained that a strong prima facie case must be established in order to grant interim relief under Section 9 of the Arbitration Act, and the balance of convenience has to favour the grant of such relief[6].
The arbitral award should not be deemed irrelevant by the dilution or dissipation of the assets against which it is to be enforced, according to the Court's rationale for providing interim relief under Section 9 of the Act[7]. In light of this, the Court found that Section 9's requirement of a ‘strong possibility’ of asset diminution—which could prevent or defer the realisation of the anticipated arbitral award—is sufficient to grant interim relief.
Conclusion
There remains uncertainty surrounding the application of the Code of Civil Procedure's regulations to cases handled in accordance with Section 9 of the Arbitration and Conciliation Act. Different High Courts' perspectives and judgements on this issue have resulted in conflict and incoherence. Furthermore, the Supreme Court left this subject open for further exploration in the case of Arvind Constructions v. Kalinga Mining Corporation and Others[8]. The Supreme Court has clarified the two approaches that different courts priorly used to address the aforementioned issue.
In contrast to Essar's ruling, the Supreme Court recently ruled in Sanghi Industries Limited v. Ravin Cables Ltd[9] that commercial courts cannot practise their Section 9 of the Act authority until and unless the prerequisites listed in Order XXXVIII Rule 5 of the CPC are met. When different courts exercise their discretion to grant interim relief under Section 9 of the Act, this lack of judicial coordination may cause them to be uncertain.
Suggestions & Recommendation
- For awarding interim relief under Section 9 of the Act, the Supreme Court must establish clear standards and principles, especially when it comes to the applicability of the CPC provisions.
- To guarantee that the law is applied consistently by all courts, the Supreme Court must decide if the strategy used in the Essar decision or the Sanghi Industries decision is the accurate one.
- To avoid ambiguity and inconsistent rulings from various courts, the government may want to amend the Arbitration Act to deal with the problem of the applicability of CPC clauses to Section 9 proceedings.
- In order to protect their interests, parties to arbitration proceedings should be aware of how separate high courts grant remedies under Section 9 of the Act and pursue legal assistance as necessary.
- To prevent ambiguity and discrepancy in judicial decisions, the Supreme Court should make an effort to maintain judicial alignment, particularly in cases involving issues of such importance as whether or not CPC provisions apply to proceedings under Section 9 of the Act.
[1] Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited, 2022 SCC Online SC 1219
[2] Ajay Singh & Ors v. Kal Airways Private Limited and Ors [2006 (3) Arb. LR 283] (Delhi High Court)
[3] Jagdish Ahuja & Anr v. Cupino Limited [2009 (4) Arb. LR 90] (Bombay High Court)
[4] Valentine Maritime Ltd v. Kreuz Subsea Pte Ltd & Anr [2017 (2) Arb. LR 167] (Bombay High Court)
[5] Ajay Singh & Ors v. Kal Airways Private Limited and Ors [(2017) 9 SCC 353]
[6] P.D. Sharma v. State of Maharashtra [(2002) 8 SCC 462]
[7] Valentine Maritime Ltd v. Kreuz Subsea Pte Ltd & Anr [(2020) SCC OnLine SC 1161]
[8] Arvind Constructions v. Kalinga Mining Corporation and Others is (2018) 16 SCC 570.
[9] Sanghi Industries Limited v. Ravin Cables Ltd, (2020) 10 SCC 684.