Section 9 Of The A&C Act Is A Provision In Aid Of The Arbitration, Applies To Foreign Seated Arbitration Also: Calcutta High Court Reiterates

TITLE:
Chemex Oil Private Limited Vs. Seastarr International Private Limited & Ors.

DATE OF ORDER:
30 November 2022

JUDGE(S):
Shekhar B. Saraf, J.

SUBJECT

The Hon’ble High Court of Calcutta while hearing an appeal against the applicability of section 9 ofA&B Act to foreign seated arbitration, held that section 9 is a provision in aid of the arbitration proceedings and vide amendment act of 2015 it is made applicable to foreign arbitrations.

IMPORTANT LEGAL PROVISIONS

ARBITRATION AND CONCILIATION ACT, 1996

• Proviso to sec 2(2)- provides for the applicability of sections 9, 27, 37(1)(a) and 37(3) to international commercial arbitration, even if the place of arbitration is outside India.

BRIEF FACTS OF THE CASE

• The petitioner, a company engaged in manufacturing, supplying and marketing refined glycerin entered into a sale with respondent 1 for purchase of 200 metric tons of crude glycerin.
• The total price of the said transaction was US$1,90,000.
• The petitioner agreed to pay for the same through the means of an irrevocable letter of credit drawn upon the respondent no. 1 with the respondent no. 2 bank.
• Payment under this was to be made within ninety days from the date of issuance of a bill of lading for the shipment of the contracted quantity of glycerin.
• After the above procedures were observed, respondent no. 1 shipped the contracted quality of glycerin to the petitioner.
• However, after about a month, the petitioner received an email from the officer of the respondent no. 1 intimating him that the shipped glycerin does not conform to the specifications contracted for by the parties.
• The petitioner, in his reply to the said mail, expressed his inability to accept the crude glycerin.
• Soon thereafter, the petitioner received an intimation from the respondent no. 2 that respondent no. 1 had furnished the required documents for invocation of the letter of credit.
• The petitioner sought to restrain the bank from invoking the letter of credit by approaching the court.
• The court directed the respondent no.2 to not encash the L.C. for a period of eight weeks from date.
• It is against this order that the respondent no. 1 has raised objections in the present case.

ARGUMENTS RAISED BY THE PETITIONER

• That the proviso to Section 2(2) of the Act allows for granting interim relief even in foreign seated arbitrations, unless specifically excluded.
• The learned counsel further contended that there lies a difference between (i) provisions relating to arbitration proceedings and (ii) provisions in aid of arbitration proceedings. Section 9 belongs to the second category, included in proviso to Section 2(2) of the Act, which applies to even foreign seated arbitration, unless specifically excluded.

ARGUMENTS RAISED BY THE RESPONDENT

• It was contended by the learned counsel that in cases where arbitration is foreign seated, part I of the act is not applicable.

ANALYSIS BY THE COURT

• While adjudicating upon the matter, the Hon’ble court went on to state how the laws relating to applicability of part I of A&C act to foreign seated arbitration have evolved over the time.
• The decision of the Apex Court in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. [(2012)9 SCC 552] was referred to , wherein it was noted that Section 2(2) of the pre-2015 amendment Arbitration and Conciliation Act, 2015 provides for the applicability of Part I to arbitration outside India unless there is an express ouster of such jurisdiction by the statute.
• The above judgement was however overruled by the Apex Court in Bhatia International v. Bulk Trading S.A[(2002) 4 SCC 105].
• However, the Law Commission in its 246th Report took note of the anomaly that could arise out of a complete exclusion of Part I of the Act and suggested changes to Section 2(2) of the Act. As a result, the parliament by the amendment act of 2015 made applicable some provisions of Part I, including section 9 to foreign seated arbitration.
• The court further observed the view taken by the Delhi High Court in Raffles Design International v. Educomp Professional Education [SCC Online Del 5521]. The Delhi High Court had stated that -

“the proviso makes Section 9 of the 1996 Act applicable even in the case of foreign seated arbitrations; any “agreement to the contrary” would, therefore, have to expressly stipulate that Section 9 would not apply in that particular case.”

• The Court, while keeping in view the above observation, stated the following principles

1. There is a difference between (i) provisions relating to arbitration proceedings and (ii) provisions in aid of arbitration proceedings, in relation to their applicability to foreign seated arbitrations.
2. Section 9 of the Act is a provision in aid of arbitration proceedings and is applicable to international commercial arbitration, even if seated outside India.
3. In proviso to Section 2(2) of the Act, the terms ‘seat’ and ‘venue’ are interchangeable.
4. For exclusion of Section 9 of the Act, parties have to expressly provide for the same.

CONCLUSION

In the present case, the arbitration is seated in Singapore. However, there exists no evidence on record to show that applicability of section 9 has been expressly prohibited by the parties. As a result, it was held that the court had the power to grant interim injunction.

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