Introduction
Much scholarly ink has been spent on the 2015[1] and 2019[2] amendments to the Arbitration and Conciliation Act, 1996 [the Act]. Post these amendments, the powers of the arbitral tribunal under Section 17[3] and the Court[4] under Section 9[5], are near identical. This is rather evident from the amended wording of Section 17. Furthermore, on a conjoint reading of Section 17(2)[6] with Section 27(5)[7], defaulting parties can even be subject to contempt proceedings.[8]
However, it is a well-established proposition that civil courts are vested with certain powers (such as joinder of non-parties[9]) which an arbitral tribunal does not have. The only exception is when the parties specifically choose arbitral rules that vest the tribunal with specific powers, which normally the arbitral tribunal does not enjoy. Rule 14(1)[10] of the Madras High Court Arbitration Proceedings Rules, 2017[11] is relevant in this regard, and it reads as follows –
“The arbitral tribunal may implead a party to the arbitral proceedings either at the instance of the parties or on its exercise of discretion in accordance with law in order to render a complete adjudication.” [emphasis supplied]
These rules are sui generis as the power of suo motu joinder is very rarely (if ever) given to an arbitral tribunal. Some would even argue that such a power is contrary to one of the fundamental principles of arbitration – party autonomy.
This piece aims to provide a comparative analysis of the powers of a Court (under Section 9) and an arbitral tribunal (under Section 17) to pass interim orders against persons who are not parties to the arbitration agreement. There are subtle differences in the way various High Courts have dealt with this issue and until the law is crystallised by the Supreme Court, a degree of uncertainty, howsoever small, continues to exist.
Third Parties and Section 9
Section 9 of the Act vests the Court with wide-ranging powers of interim relief. Applications under Section 9 may be made before the arbitral tribunal is constituted, after it is constituted, or even after the award is passed. The broad objective of the Section is to ensure that the arbitral proceedings are not frustrated due to actions of a party.
In this context, it is a broadly accepted view that interim reliefs under Section 9 can be granted even against persons who are not party to the arbitration agreement (i.e. third parties). However, it is to be noted that third parties cannot themselves ask for reliefs under Section 9. The right to move the Court under Section 9 is exclusively with the parties to the arbitral agreement. This was laid down by the Supreme Court in Firm Ashok Traders v. Gurmukhdas Saluja[12].
In Girish Mulchand Mehta v. Mahesh S. Mehta[13], a division bench of the Bombay High Court held that the fact that an order would affect a person who is not party to the arbitration agreement would not be a fetter on the Court’s powers under Section 9 as the overarching objective of Section 9 is to preserve and protect the subject matter of the arbitration. Other high courts[14] and later decisions of the Bombay High Court[15] have shared a similar view.
In Muthoot Leasing and Finance v. N.P. Asiya[16], the Kerala High Court drew a rather fine distinction from Firm Ashok Traders. In Muthoot Leasing it was held that a third party could move the Court under Section 9 to modify or recall a previous order passed under Section 9. The reasoning of the Court was that, on general principles, a Court passing an order must possess inherent or ancillary powers to vacate the order. Therefore, while a third party could not use Section 9 as a sword, it could be used as a shield to protect itself from a previously passed order under the same Section.
From the above decisions the following principles can be culled out vis-à-vis scope of Section 9 of the Act –
The overarching objective of Section 9, vis-à-vis pre-award interim reliefs is to preserve the subject-matter of the arbitration and ensure the arbitral proceeding are not rendered infructuous.
A party to the arbitration agreement can seek reliefs even against a third part.
A third party cannot seek any reliefs under Section 9.
Third Parties and Section 37
Section 37(1)(b)[17] of the Act provides for an appeal against orders passed by a Court under Section 9 whereas Section 37(2)(b)[18] provides for an appeal against orders passed by an arbitral tribunal under Section 17.
In Prabhat Steel v. Excel Metal Processors[19],the Bombay High Court, dealt with an appeal under Section 37(2)(b), from an interim order passed by a tribunal under Section 17. The relevant facts in brief are that the Petitioner’s property was attached in arbitral proceedings between Respondents 1 and 2. While granting leave to the Petitioner to challenge the order under Section 17, the Bombay High Court held that considering the fact that the Petitioner was affected by the order passed by the arbitral tribunal, he had a right to file an appeal under Section 37 (2)(b). This decision cites Muthoot Leasing, Girish Mulchand Mehta, and Mohammad Ishaq Bhat.
Another interesting aspect of the reasoning in Prabhat Steel is that it highlights an important difference between the wordings of Sections 37 and 34[20], i.e., the absence of the expression ‘party’[21] in Section 37. Section 34(2)(a)[22] states that ‘a party’ has to make an application under Section 34. The presence of this phrase indicates that the remedy under Section 34 is available only to a party to the arbitration agreement. The Court reasoned, as a corollary, that the absence of this phrase from Section 37 signifies that an appeal under 37 may be filed even by a third-party. However, it is worth wondering whether this reasoning can be extended to a third-party appeal under Section 37(1)(c)[23] as well.
Third Parties and Section 17
Following the 2015 amendment to the Act, tribunals have been statutorily vested with the same powers as a Court to grant interim reliefs. Therefore, the decisions cited above could now apply to a tribunal exercising powers under Section 17 as well. Also, it may be argued that the tribunal can now pass an order directly against a third party, not only indirectly as in Prabhat Steel, given that the object of the provision is to ensure the preservation of the subject matter of the dispute and to prevent the arbitral proceedings from becoming infructuous.
Furthermore, the orders of the tribunal now have the force of Court order under Section 17(2) and a non-party maybe even found guilty of contempt for non-compliance of the order under Section under 27(5).
Is this Still Arbitration?
While the object of these amendments to make India a more arbitration friendly jurisdiction is laudable, it is difficult to ignore the fact that there is a fundamental dissonance between the powers now vested with the tribunal and the underlying nature of arbitral proceedings, i.e. that it is a creature of contract. A contract is binding on only on the signatories, similarly an arbitration under the contract will also bind only the signatories. Given this principle, these new powers granted to an arbitral tribunal may veer towards over-judicialization of arbitration.
A related issue of powers of joinder of an arbitral tribunal also arises. As on date, the arbitral tribunal’s power of joinder is limited to third-parties who can be linked to the party either by law or by contract. In purely commercial transactions the contractual link is essential. Post amendment a tribunal, exercising powers under Section 17, could potentially pass orders even against an individual who has absolutely no contractual connection with either party, but has some link to the subject matter alone.
Therefore, whether party-autonomy and the contractual nature of arbitration can be sacrificed at the altar of adjudicatory expediency is a question that remains to be answered.
[1] The Arbitration and Conciliation (Amendment) Act, No. 3 of 2016 (Acts of the Parliament), w.e.f. 23-10-2015.
[2] The Arbitration and Conciliation (Amendment) Act, No. 33 of 2019 (Acts of the Parliament), w.e.f. 30-08-2019.
[3] §17, The Arbitration and Conciliation Act, No. 26 (Acts of the Parliament), 1996.
[4] Ibid, As defined by §2(1)(e).
[5] Ibid, §9.
[6] Ibid, §17 cl 2.
[7] Ibid, §27 cl 5; This section makes parties liable for contempt for disobeying the orders of an Arbitral tribunal.
[8] Alka Chandewar v. Shamshul Ishrar Khan, (2017) 16 SCC119
[9] See Order I Rule 10(2) of the Code of Civil Procedure, No. 5 of 1908, (Acts of the Parliament), 1908.
[10] Rule 14, Madras High Court Arbitration Proceedings Rules, (Government of Tamil Nadu), 2017.
[11] Madras High Court Arbitration Proceedings Rules, (Government of Tamil Nadu), 2017, available at http://www.hcmadras.tn.nic.in/arbitration-rules.pdf; these rules are commonly applicable to arbitrations administered by the MHAC.
[12]Firm Ashok Traders v. Gurmukhdas Saluja, (2004) 3 SCC 155.
[13]Girish Mulchand Mehta v. Mahesh S. Mehta, (2010) 2 Mah LJ 657.
[14] See decision of High Court of Jammu and Kashmir in Mohammad Ishaq Bhat v Tariq Ahmed Sofi, AIR 2010 J&K 56.
[15] See BSNL v. Siemens Financial Services Ltd, 2016 SCC OnLine Bom 5317.
[16] Muthoot Leasing and Finance v. N.P. Asiya, 2011 SCC OnLine Ker 680.
[17] §37 cl. 1, b, The Arbitration and Conciliation Act, No. 26 (Acts of the Parliament), 1996.
[18] §37 cl. 2, b, The Arbitration and Conciliation Act, No. 26 (Acts of the Parliament), 1996.
[19] Prabhat Steel v Excel Metal Processors, 2018 SCC OnLine Bom 2347
[20] Supra 17, §34 of the Act lays out the grounds for challenge to the final award passed by the Tribunal.
[21] Supra 17, §2 cl. 1, h; Party has been defined as ‘a party to an arbitration agreement’.
[22] Supra 17, §34 cl. 2, a.
[23] Supra 17, §37 cl. 1, c; Appeal against final order of the Court under §34.
This article has been authored by Mr. Antony R. Julian, Principal Counsel at Julian Law Offices. He was assisted by Jugaad Singh, a student at RGNUL. This blog is a part of RSRR’s Excerpts from Experts Blog Series, initiated to bring forth discussion by experts on contemporary legal issues.