The Hon’ble Supreme Court (“SC”) in the matter of M/s Arcelor Mittal Nippon Steel India Limited v. M/s Essar Bulk Terminal Limited [Special Leave Petition [(Civil) No. 13129 of 2021], decided on September 14, 2021, (“Judgement”) held that a bar under Section 9(3) of the Arbitration and Conciliation Act, 1996 (“Act”) only operates when the application under Section 9(1) of the Act had not been entertained.

Facts

M/s Arcelor Mittal Nippon Steel India Limited (“Appellant”) and M/s Essar Bulk Terminal Limited (“Respondent”), entered into an agreement for handling cargo (“Agreement”) at the Hazira Port, Surat. Clause 15 of the Agreement provided that all disputes arising out of the Agreement were to be settled in courts, in accordance with the provisions of the Act and be referred to a sole arbitrator appointed mutually by the parties. The Appellant invoked the said arbitration clause in the Agreement by a notice of arbitration dated November 22, 2020 (“Notice”). On December 30, 2020, the Respondent replied to the Notice by contending that the dispute is not arbitrable. In response, the Appellant, for the appointment of an arbitral tribunal, approached the Hon’ble High Court of Gujarat at Ahmedabad (“GHC”) under Section 11 (Appointment of arbitrators) of the Act (“Section 11 Application”).

On January 15, 2021 and March 16, 2021, the Appellant and the Respondent also filed an application under Section 9 (Interim measures by the court) of the Act in the commercial court (“CC”), respectively (“Section 9 Applications”). The CC heard the Section 9 Applications, and, after multiple adjournments, reserved the same for orders on July 20, 2021. On July 9, 2021, the Section 11 Application was disposed of by appointing a three-member arbitral tribunal (“Tribunal”). Thereafter, on July 16, 2021, the Appellant filed an interim application before the CC praying for reference of Section 9 Applications to the Tribunal, however, the CC dismissed the said application. The Appellant, challenging the said order of the CC, filed an application before the GHC under Article 227 of the Constitution of India, 1950. The said application was heard by a division bench of the GHC and by an order dated August 17, 2021, the GHC dismissed the application, holding that the CC has the power to consider whether the remedy under Section 17 of the Act is inefficacious and pass necessary orders under Section 9 of the Act (“Impugned Order”). On account of the Impugned Order, a special leave petition was filed by Appellant before the SC challenging the Impugned Order.

Issue

• Whether the court has the power to entertain an application under Section 9(1) of the 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 Act.
• Whether the court is obliged to examine the efficacy of the remedy under Section 17 (Interim measures ordered by the arbitral tribunal) of the Act, before passing an order under Section 9(1) of the Act, once an arbitral tribunal is constituted.

Arguments

Contentions raised by the Appellant:

The Appellant, inter alia, contended that Section 9(3) of the Act, as amended, restricts the power of the court to entertain an application under Section 9(1) of the Act once an arbitral tribunal has been constituted and, therefore, the CC cannot proceed with the Section 9 Applications under the Act. The Appellant, citing the 246th Law Commission Report, the UNCITRAL Model Law and Amazon NV Investment Holdings LLC v. Future Retail Limited & Others [2021 SCC Online SC 557], emphasised that the purpose of insertion of Section 9(3) of the Act was to reduce the role of the court in relation to grant of interim measures once the arbitral tribunal has been constituted and even though Section 9(3) of the Act does not completely oust the jurisdiction of the court under Section 9(1) of the Act, it restricts the role of the court post the constitution of an arbitral tribunal and once an arbitral tribunal is constituted, the court should not entertain an application under Section 9 of the Act unless it finds that such circumstances exist, which may render the remedy under Section 17 of the Act inefficacious.

The Appellant argued that the fact that an order is reserved does not mean that the court has stopped entertaining the Section 9 Applications and since the CC had not passed its orders in the Section 9 Applications, as on the date of the Impugned Order, the CC was ‘entertaining’ the Section 9 Applications. The Appellant substantiated this argument by submitting that the term ‘entertain’, under Section 9(3) of the Act, would not mean admitting for consideration, but would mean the entire process upto its final adjudication and passing of an order on merits and the fact that an order was reserved does not mean that the court has stopped ‘entertaining’ the Section 9 Applications.

The Appellant further emphasised that the word ‘entertain’ in Section 9(3) of the Act has to be interpreted in the context of Section 9(1) of the Act. Section 9(1) of the Act provides for the ‘making of orders’ for the purpose of grant of interim relief. The internal aid to construction provided under Section 9 of the Act substantiates its submission that the term ‘entertain’ would necessarily mean all acts including the act of making orders under Section 9(1) of the Act. Lastly, the Appellant argued that, after the constitution of the arbitral tribunal, a court can only grant interim relief under Section 9 of the Act, if circumstances exist which might not render the remedy under Section 17 of the Act efficacious, which were not present in the case. Therefore, the CC cannot proceed with the Section 9 Applications under the Act as it is barred by Section 9(3) of the Act.

Contentions raised by the Respondent:

The Respondent, on the other hand, submitted that the prayers of the Appellant should be answered in the negative since the Section 9 Applications were heard on merits and reserved for orders before the constitution of the Tribunal. The Respondent argued that a party can apply to the court under Section 9(1) of the Act, before, during or after the arbitral proceedings and the courts do not lose jurisdiction upon constitution of the tribunal as Section 9(3) of the Act is neither a non-obstante clause nor an ouster clause that would render the courts coram non judice, immediately upon the constitution of the arbitral tribunal.

The Respondent argued that Section 9(3) of the Act restrains the court from entertaining an application under Section 9, unless circumstances exist which may not render the remedy provided under Section 17 of the Act efficacious. However, in this matter, before the constitution of the Tribunal, the Section 9 Applications had already been entertained, fully heard and since only the formality of pronouncing the order in the Section 9 Applications was remaining, Section 9(3) of the Act would not apply in this case.

The Respondent, on the basis of various judicial pronouncements, argued that an application is ‘entertained’ when the court takes up the application for consideration and applies its mind to it. It further substantiated that the word entertain means “admit into consideration” or “admit in order to deal with” and in this case, Section 9 Applications had already been “admitted into consideration”, and the CC had already applied its mind to the Section 9 Applications. Therefore, the Section 9 Applications had gone past the stage of “entertainment”, as contemplated under Section 9(3) of the Act. Lastly, the Respondent submitted that the Act did not confer any power on the court, to relegate or transfer a pending application under Section 9(1) of the Act to the arbitral tribunal, the moment an arbitral tribunal is constituted.

Observations of the Supreme Court:

The SC, while examining Section 9 of the Act, stated that Section 9(3) of the Act has two limbs. The first limb prohibits an application under Section 9(1) of the Act 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 of the Act efficacious. It was further observed that even after an arbitral tribunal is constituted, there may be myriads of reasons why the arbitral tribunal may not be an efficacious alternative to Section 9(1) of the Act due to any reason such as temporary unavailability of any one of the arbitrators of an arbitral tribunal by reason of illness, travel, etc.

The SC noted that the court is obliged to exercise power under Section 9 of the Act, if the arbitral tribunal is yet to be constituted and the expression ‘entertain’, under Section 9(3) of the Act, means that, once the arbitral tribunal is 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 that it is taken up for consideration, and the court has applied its mind to the case, the court can certainly proceed to adjudicate the application. The SC further noted that the intent behind Section 9(3) of the Act was not to turn back the clock and require a matter already reserved for orders to be considered in entirety by the arbitral tribunal under Section 17 of the Act. The bar of Section 9(3) of the Act would not operate, once an application has been entertained and taken up for consideration, as in the instant case, where hearing has been concluded and judgment has been reserved.

In relation to examining the efficacy of the remedy under Section 17 of the Act, the SC stated that 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. The requirement to conduct the exercise arises only when the application is being entertained and/or taken up for consideration.

Lastly, the SC concluded by reiterating that Section 9(1) of the Act 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 after the making of an arbitral award but before it is enforced in accordance with Section 36 of the Act. The bar of Section 9(3) of the Act operates where the application under Section 9(1) had not been entertained till the constitution of the arbitral tribunal. If an application under Section 9 had been entertained before the constitution of the arbitral 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 to be, for all practical purposes, be heard afresh, or the hearing has just commenced and is likely to consume a lot of time.

Decision of the Supreme Court:

In light of the above mentioned, the SC stated that the Impugned Order has rightly directed the CC to proceed to complete the adjudication of Section 9 Applications and allowed the appeal only to the extent of clarifying that it shall not be necessary for the CC to consider the efficacy of relief under Section 17 of the Act, since the Section 9 Applications have already been entertained and considered by the CC.

VA View:

The interim measures under Section 9 and Section 17 of the Act form an integral aspect of arbitration proceedings in India and the SC in this Judgement clarifies the important aspects of the scope and interplay between Section 9 and Section 17 of the Act.

The SC in this Judgement, first, by interpreting the word ‘entertain’ under Section 9(3) of the Act, clarifies that the parties to the arbitration proceedings are not required to argue afresh before the arbitral tribunal for an interim measure when the matter is already ‘entertained’ by the court prior to the constitution of the arbitral tribunal. However, at the same time, it also provided the court with the discretion to direct the parties to approach the arbitral tribunal, if necessary. Secondly, the SC clarified the powers of court under Section 9 of the Act by stating that, when an application under Section 9 of the Act is entertained, the court shall not consider the efficacy under Section 17 of the Act. This is a welcome clarification by the SC as it ensures that there is no undue repetition in the arbitration proceedings which would eventually result in a speedy dispute resolution of the arbitration proceedings.

For more information please write to Mr. Bomi Daruwala at [email protected]

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