Bar Of Section 9(3) Operates Where Section 9(1) Application Is Not Taken Up For Consideration Till Constitution of Arbitral Tribunal: Supreme Court
A two-judge Bench Justice Indira Banerjee and Justice J.K. Maheshwari observed that once an Arbitral Tribunal has been constituted, the Court cannot take up an application under Section 9 of the Arbitration and Conciliation Act, unless the remedy under Section 17 of the Act is inefficacious. However, the Court further observed that, once an application is taken up for consideration and the Court has applied its mind, it can proceed to adjudicate the application.
"When an application has already been taken up for consideration and is in the process of consideration or has already been considered, the question of examining whether remedy under Section 17 is efficacious or not would not arise ", added the Bench.
The Court further noted that the bar of Section 9(3) operates where the application under Section 9(1) had not been entertained till the constitution of the Arbitral Tribunal.
In the case at hand, applications were filed in the Commercial Court by both the Appellant and the Respondent, under Section 9 (1) of the Arbitration Act. The Court reserved its orders, following which, a three-member Arbitral Tribunal was constituted to adjudicate upon the dispute between the parties. The Appellant filed an interim application before the Commercial Court for reference of both the applications filed by the parties under Section 9 to the Arbitral Tribunal. However, the Commercial Court rejected the said application. The Appellant accordingly moved the Gujarat High Court, challenging the jurisdiction of the Commercial Court to proceed with the applications. The High Court held that the Commercial Court has the power to consider applications under Section 9 whether the remedy under Section 17 of the Arbitration Act is inefficacious and pass necessary orders.
Therefore in the appeal, the questions of law presented before the Supreme Court were two-fold:
1. Whether the Court has the power to entertain an application under Section 9(1) of the Arbitration and Conciliation Act, 1996, hereinafter referred to as "the Arbitration Act", once an Arbitral Tribunal has been constituted and if so, what is the true meaning and purport of the expression "entertain" in Section 9(3) of the Arbitration Act.
2. Whether the Court is obliged to examine the efficacy of the remedy under Section 17, before passing an order under Section 9(1) of the Arbitration Act, once an Arbitral Tribunal is constituted
Sub-Section 1 & 3 of Section 9 of the Arbitration Act
The Court, after analyzing Section 9(1) and Section 9(3) of the Arbitration Act, opined that Section 9 (3) had two limbs:
"The first limb prohibits an application under sub-Section (1) from being entertained once an Arbitral Tribunal has been constituted. The second limb carves out an exception to that prohibition, if the Court finds that circumstances exist, which may not render the remedy provided under Section 17 efficacious."
Once Arbitration Tribunal Is Constituted, There Is No Reason For Courts To Take Up Applications of Interim Relief
The Court clarified that the Arbitral Tribunal has the same power to grant interim relief as the Court and the remedy under Section 17 is as efficacious as the remedy under Section 9(1). "There is, therefore, no reason why the Court should continue to take up applications for interim relief, once the Arbitral Tribunal is constituted and is in seisin of the dispute between the parties, unless there is some impediment in approaching the Arbitral Tribunal, or the interim relief sought cannot expeditiously be obtained from the Arbitral Tribunal.", noted the Court.
Interpretation of the Term "Entertain"
While interpreting the term 'Entertain' under section 9(3), the Court held that 'entertain' means the application of mind to the issues raised like a Court entertains case when it is taken up for consideration. "Once an Arbitral Tribunal is 32 constituted the Court cannot take up an application under Section 9 for consideration, unless the remedy under Section 17 is inefficacious. However, once an application is entertained in the sense it is taken up for consideration, and the Court has applied its mind to the Court can certainly proceed to adjudicate the application," the Court observed.
Reasons Why The Arbitral Tribunal May Not Be An Efficacious Alternative To Section 9(1)
The Court observed that there may be various reasons as to why the Arbitral Tribunal may not be an efficacious alternative to Section 9(1), such as temporary unavailability of any one of the Arbitrators of an Arbitral Tribunal because of illness, travel etc.
"As observed above, there could be numerous reasons which render the remedy under Section 17 inefficacious. To cite an example, the different Arbitrators constituting an Arbitral Tribunal could be located at faraway places and not in a position to assemble immediately. In such a case an application for urgent interim relief may have to be entertained by the Court under Section 9(1)." observed the Court.
Reasons For Grant of Interim Relief
The Court noted that interim relief applications are required to be disposed of urgently. The object of these applications is to grant relief in aid of final relief and to ensure the protection of the property being the subject matter of Arbitration and/or otherwise ensure that the arbitration proceedings do not become infructuous and the Arbitral Award does not become an award on paper, of no real value.
To this effect, the Court reiterated the principles for the grant of interim relief, which are:
- Good prima facie case
- Balance of convenience in favor of grant of interim relief and
- Irreparable injury or loss to the applicant for interim relief
"Unless applications for interim measures are decided expeditiously, irreparable injury or prejudice may be caused to the party seeking interim relief. It could, therefore, never have been the legislative intent that even after an application under Section 9 is finally heard relief would have to be declined and the parties be remitted to their remedy under Section 17.", added the Court.
The Court reiterated that Section 9(1) enables the parties to an arbitration agreement to approach the appropriate Court for interim measures before the commencement of arbitral proceedings, during arbitral proceedings, or at any time before the enforcement of arbitral award, following Section 36 of the Arbitration Act.
"The bar of Section 9(3) operates where the application under Section 9(1) had not been entertained till the constitution of the Arbitral Tribunal. Ofcourse it hardly need be mentioned that even if an application under Section 9 had been entertained before the constitution of the Tribunal, the Court always has the discretion to direct the parties to approach the Arbitral Tribunal, if necessary by passing a limited order of interim protection, particularly when there has been a long time gap between hearings and the application has for all practical purposes, to be heard afresh, or the hearing has just commenced and is likely to consume a lot of time. In this case, the High Court has rightly directed the Commercial Court to proceed to complete the adjudication." concluded the Court.
Accordingly, the appeal was dismissed while clarifying that it shall not be necessary for the Commercial Court to consider the efficacy of relief under Section 17, since the application under Section 9 has already been entertained and considered by the Commercial Court.