ARCELOR MITTAL NIPPON STEEL INDIA LTD. Vs. ESSAR BULK TERMINAL LTD. [CIVIL APPEAL NO. 5700 OF 2021]

Judge : INDIRA BANERJEE, J.& K. MAHESHWARI J.

Dare : SEPTEMBER 14, 2021

LAW POINT- Once an Arbitral Tribunal is constituted, the court would not take up for consideration and apply its mind to an application for an interim measure, unless the remedy of applying to the arbitral tribunal for interim relief is inefficacious. However, this bar does not operate where already the application has been taken up for consideration and the court has applied its mind.

FACTS

On 21.2.2011, the parties entered into an agreement for cargo handling. The contract mentioned that disputes between the parties shall be settled through arbitration. The case pertains to the claim made by the Essar Bulk Terminal for the acquisition of the Hazira port, not being part of the resolution process. The appellant in this case then issued a notice to the respondent to invoke arbitration in relation to the agreement made on 22.02.2011. AMNS had sought appointment of an Arbitral Tribunal under Section 11 of the Arbitration Act, 1996 from Commercial Court at Surat. The Court, after hearing both the parties, dismissed the said application and granted the appellant 10 days’ time to file their challenge. The petition was filed under Article 227 of the Constitution of India. The High Court held that Section 9(3) of the Act does not take away the jurisdiction of the Court in dealing with the application under Section 9(1) of the Act once the Arbitral Tribunal is constituted, rather it provides that the Court can entertain such an application after the Arbitral Tribunal is constituted only if it finds that the alternative remedy as provided under Section 17 is not efficacious. The case was brought to the Supreme Court.

RELEVANT PROVISIONS

Section 9(1) of the Arbitration and Conciliation Act– It allows the parties to seek interim measures before an arbitral award is enforced. This means that the parties can approach the appropriate court before and during the arbitral proceedings. Section 9(3) of the Arbitration and Conciliation Act– Once an Arbitral Tribunal has been set up, the Court may not entertain an application under Section 9(1) of the Act, unless it has been established that circumstances exist which would not allow the remedy provided under Section 17 efficacious.

ISSUES

Whether a court has the power to entertain an application under Section 9(1) of the Arbitration Act once the arbitral tribunal had been constituted, and if so, what is the true meaning and purport of the expression “entertain” in Section 9(3) of the Arbitration Act?

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?

CONTENTIONS OF THE APPELLANT

Section 9(3) of the Arbitration Act, as amended, restricted the scope of the court to entertain an application under Section 9(1) once the arbitral tribunal was constituted. Even though Section 9(3) did not oust the jurisdiction of the Court under Section 9(1), it restricted the role of courts post constitution of an arbitral tribunal. It was only when a remedy under Section 17 would be rendered inefficacious that the court would entertain an application under Section 9 of the Arbitration Act.
The appellant referred to the 246th Report of the Law Commission, which observed that the insertion of Section 9(3) was to reduce the role of the courts in relation to grant of interim measures once the arbitral tribunal had been constituted. Similarly, the appellant referred to the report of the High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, chaired by Mr. Justice B.N. Srikrishna to contend that Section 9(3) of the Arbitration Act was introduced to minimise judicial intervention in the arbitral process.Therefore, the appellant argued that Section 9(3) must be construed purposively, and any attempt to thwart the mandate of Section 9(3) must be discouraged.
The appellant then referred to State Bank of India and Ors. v. S. N. Goyal to argue that the fact that an order was reserved did not mean that the district court had stopped entertaining a Section 9 application. A reference was then made to the decision in Deep Chand & Ors. v. Land Acquisition Officer & Ors to submit that the term adjudication included hearing by a court. Thus, the term “entertain” in Section 9(3) of the Arbitration Act, is to be interpreted to mean and include adjudication and passing of an order or a judgment.
The appellant then argued that a party that was trying to render the remedy under Section 17 inefficacious could not be permitted to approach the court under Section 9 of the Arbitration Act. It was the submission of the appellant that the respondent was trying to avoid the arbitration all throughout. Thus, the appellant argued that the Commercial Court had erred in interpreting “entertain” as contained under Section 9(3) of the Arbitration Act.

CONTENTIONS OF THE RESPONDENTS

The respondent at the outset challenged the maintainability of the application filed under Article 227. It was argued that the Arbitration Act being a self-contained Code providing the right of appeal at various stages, Article 227 could not be invoked to circumvent the procedure under Arbitration Act. The respondent submitted that an application under Article 227 of the Constitution of India lies where the lower court acts outside the bounds of its authority, without jurisdiction, in violation of principles of natural justice, or if the order suffers from patent perversity.
Moreover, the respondent relied on Section 9(1) to state that a party can apply before, during or after the arbitral proceedings. Therefore, the respondent submitted that the courts did not lose jurisdiction upon the constitution of the Arbitral Tribunal.
The respondent argued that Section 9(3) of the Arbitration Act restrains the court from “entertaining” an application under Section 9, unless circumstances exist which may not render the remedy provided under Section 17 efficacious. In this case, only the formality of pronouncing the order in the Section 9 applications remained. Since the application under Section 9 had been entertained, fully heard and arguments concluded, Section 9(3) of the Arbitration Act would not apply.
The respondent submitted that an application is “entertained” when the court applies its mind to it. Entertain means “admit into consideration” or “admit in order to deal with”. The respondent argued that the Commercial Court had admitted into consideration and applied its mind to the Section 9 applications, filed by the respective parties, and therefore, the Section 9 applications had gone past the stage of “entertainment”. Moreover, the respondent stated that the Arbitration Act did not confer any power on the court to relegate or transfer pending applications under Section 9(1) to an arbitral tribunal the moment it was constituted.

OBSERVATIONS OF HON’BLE SUPREME COURT

Upon hearing the parties, the Hon’ble Supreme Court observed that in this case there was no material on record to show that there were any lapses or laches on the part of the respondent, which delayed the constitution of the Arbitral Tribunal.

The allegation that the respondent had disabled itself from availing the remedy under Section 17 remained unsubstantiated. Moreover, mere delay in agreeing upon an arbitrator did not dis-entitle a party from relief under Section 9 of the Arbitration Act.

The Apex Court then held that even after the constitution of an arbitral tribunal, the court is not denuded of the power to grant interim relief under Section 9(1) of the Arbitration Act [ Avantha Holdings Limited v. Vistra ITCL India Limited, (2020) SC].

Further, the Hon’ble Supreme Court held that the expression “entertain” means considering the issues raised by application of mind. The court entertains a case when it takes a matter up for consideration. The process of consideration could continue

till the pronouncement of judgment. Once an 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, it is taken up for consideration, and the court has applied its mind to the court can certainly proceed to adjudicate the application.

The Apex Court accepted the respondent’s submission that the intent behind Section 9(3) was not to turn the clock back and require a matter already reserved for orders to be considered in entirety by the arbitral tribunal under Section 17 of the Arbitration Act. Even after an arbitral tribunal is constituted, there could be myriads of reasons why the arbitral tribunal may not be an efficacious alternative to Section 9(1).

The Hon’ble Supreme Court reiterated that applications for interim relief are inherently applications that must be disposed of urgently. Unless applications for interim measures are decided expeditiously, irreparable injury or prejudice may be caused to the party seeking interim relief. Therefore, the Apex Court concluded that it could 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 are remitted to their remedy under Section 17.

While the respondent sought interim measures, the Supreme Court held that Section 9 enables any party to approach the appropriate court for interim measures before, during, or at any time of arbitral proceedings but before it is enforced

DECISION-Accordingly, the appeal was allowed only to the extent of clarifying that it shall not be necessary for the Commercial Court to consider the efficacy of relief under Section 17, since the Commercial Court had already entertained the application under Section 9. It directed the Commercial Court to proceed with the adjudication.