Efficacy Of Relief Might Be Ignored If The Application Is Already Considered Under Section 9 Of The Arbitration Act: Supreme Court

CASE TITLE:
Arcelor Mittal Nippon Steel India Ltd. v. Essar Bulk Terminal Ltd.

DATE OF ORDER:
14 September 2021.

JUDGE(S):
Justice Indira Banerjee.

PARTIES:
Petitioner: Arcelor Mittal Nippon Steel India Ltd.
Respondent: Essar Bulk Terminal Ltd.

SUBJECT

In the present case, the Court is dealing with the matter of considering an application under Section 9 of the Arbitration Act.

IMPORTANT PROVISIONS

The Arbitration and Conciliation Act, 1996

• Section 9-Interim measures, etc. by Court.
• Section 17- Interim measures ordered by arbitral tribunal.

BRIEF FACTS

• In the present case, the Appellant and the Respondent entered into an agreement for Cargo Handling at Hazira Port and this agreement was amended from time to time.
• There were disputes and differences under the said Cargo Handling Agreement wherein the Appellant invoked the arbitration clause by a notice of arbitration dated 22 November 2020. But the respondent did not respond to that notice.
• The Appellant thereafter appealed the High Court of Gujarat under Section 11 of the Arbitration Act for the appointment of an Arbitral Tribunal.
• The Respondent replied to the notice of arbitration on or about 30 December 2020 contending that the disputes which were present between the parties cannot be solved through arbitration and the Appellant was supposed to pay the due amount which was Rs. 673.84 Crores inclusive of interest of Rs. 51.11 Crores.
• The Appellant filed an application under Section 9 of the Arbitration Act in the Commercial Court and 12th Additional District Judge, District & Sessions Court at Surat on 15 January 2021.
• The Respondent also filed an application under Section 9 of the Arbitration Act in the Commercial Court on 16 March 2021.
• Both the parties were heard before the Commercial Court and the orders were reserved for the same on 7 June 2021.
• The Application filed by the Appellant under Section 11(6) of the Arbitration Act was disposed of by the Arbitral Tribunal on 9 July 2021.
• The appellants filed an interim application on 16 July 2021 praying for reference of both the applications filed by the Appellant and the Respondent respectively under Section 9 of the Arbitration Act.
• The Commercial Court dismissed the application of the Appellant on 16 July 2021 but granted 10 days’ time to the Appellant for challenging the order given.
• The Appellant thereby filed an application under Section 227 of the Constitution of India challenging the order of the Commercial Court in the Gujarat High Court.
• In the meantime, the High Court directed the Commercial Court to defer the pronouncement of orders in the applications under Section 9 of the Arbitration Act till 9 August 2021.
• On 17 August 2021, the High Court dismissed the application which was filed by the Appellant under Article 227 of the Constitution of India and held that the Commercial Court has the power to consider if the remedy under Section 17 of the Arbitration Act is inefficacious or not and pass necessary orders under Section 9 of the said Act.

QUESTIONS RAISED

• 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?
• 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.

ARGUMENTS ADVANCED BY THE APPELLANT

• The appellant submitted that once the Arbitral Tribunal have been constituted, the Commercial Court cannot proceed further with the application under Section 9 of the Arbitration Act according to Section 9(3) of the Arbitration Act.
• The Appellant counsel relied on Amazon.com NV Investment Holdings LLC v. Future Retail Limited &Ors. (2021 SCC Online SC 557) and held that the object of introducing Section 9(3) was to avoid Courts being flooded with Section 9 petitions when an Arbitral Tribunal is constituted for two reasons-

1. 1. That the clogged Court System ought to be decongested,
2. 2. That an Arbitral Tribunal, once constituted, would be able to grant interim relief in a timely and efficacious manner.

• The learned counsel for the appellants contended that in the present case, the Commercial Court did not pass its orders under Section 9 applications.
• The appellant counsel also submitted that the Respondent did not nominate a new arbitrator even though their nominee Arbitrator had withdrawn its name. They also criticised the Respondent for putting the blame on the Arbitral Tribunal that it is not functioning and the remedy given by them would be inefficacious. Reliance was placed upon A.V. Venkateswaran, Collector of Customs, Bombay v. Ramchand Sobhraj Wadhwani & Anr. (AIR 1961 SC 1506) while stating this.
• The petitioner cited Manbhupinder Singh Atwal v. Neeraj Kumarpal Shah [2019 GLH (3) 234] and condemned how the intention of the Respondent was to avoid the Arbitral Tribunal.
• The Appellant Counsel furthermore stated that the appointment of Arbitral Tribunal was delayed by reason of the conduct of the Respondent. Moreover, the Respondent did not respond to the notice within 30 days as mandated in Section 11 (4)(a) of the Arbitration Act that was send by the Appellant.
• The learned Counsel enforced that a party invoking Section 9 of the Arbitration Act must be ready and willing to go to arbitration by citing the judgement of Firm Ashok Traders and Anr. V. Gurumukh Das Saluja and Ors. [(2004) 3 SCC 155]. The counsel stated that the Respondent itself delayed the nomination of the substitute Arbitrator but now it was taking the plea of inefficacy of the remedy under Section 17 of the Arbitration Act.
• Mr. Khambata, appearing for the learned counsel of the Appellant further stated that the High Court had erred in directing the District Court to pass orders in the applications under Section 9 of the Arbitration Act despite of the fact that none of the parties filed any application challenging the efficacy of the arbitral proceedings in the Commercial Court.

ARGUMENTS ADVANCED BY THE RESPONDENT

• The respondent counsel submitted that the application filed under Article 227 in the Gujarat High Court was not maintainable because-

1. The Arbitration Act being a self-contained Code providing the right of appeal at various stages, Article 227 cannot be invoked to circumvent the procedure under Arbitration Act. Power under Article 227 can only be exercised where a party is left either remediless or where clear bad faith is shown.
2. An application under Article 227 of the Constitution of India lies where the lower Court has acted outside the bounds of its authority, without jurisdiction, in violation of principles of natural justice, or if the order suffers from patent perversity.
3. The application before the Gujarat High Court under Article 227 was premature and speculative, since the issue of whether the Trial Court had acted outside the “bounds of its authority” or “without jurisdiction” or whether the order suffered from “patent perversity”, could only be determined after an order had been passed by the Trial Court in the Section 9 Applications.

• The respondent counsel stated that Section 9(3) of the Arbitration Act was 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.
• By citing the judgements given in Benara Bearings and Pistons Limited v. Mahle Engine Components India Private Limited [(2017) SCC Online Del 7226] and Energo Engineering Projects Limited v. TRF Limited (2016 SCC Online Del 6560), the respondent counsel argued that the Court will continue to have powers to grant interim relief under Section 9 subject to the checks and balances provided under the Arbitration Act.
• Mr. Sibal, representing the learned counsel of 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 the present case, the application under Section 9 had been entertained, fully heard and arguments were also concluded which means that Section 9(3) of the Arbitration Act would not apply.
• The respondent counsel further argued that the prayer in the application dated 16 July 2021 which was filed by the Appellant could never have been granted. Mr. Sibal pointed out that the Appellant sought an order for referring all disputes between the parties to the Arbitral Tribunal for adjudication. But the Arbitration Act did not confer any such power to relegate or transfer a pending application under Section 9(1) right at the moment when the Arbitral Tribunal was constituted.
• Mr. Sibal furthermore stated that the Special Leave Petition filed in this Court was an abuse of process of Court and an attempt to stop the competent Court from passing an order in an application under Section 9 of the Arbitration Act.
• The respondent counsel contended that a lot of judicial time, cost and resources of the parties had been spent in agitating the Section 9 Applications. Reliance was placed upon Union of India and Ors. V. Uttar Pradesh State Bridge Corporation Limited.[(2015) 2 SCC 52].
• The respondent counsel denied the complaint of delay in commencement of arbitration.
• Concluding the argument, the respondent counsel stated that the appointed arbitrator resigned on the ground of health and there was no functional Arbitral Tribunal. Still the respondent promptly commenced the process of appointment of substitute arbitrator and addressed a letter dated 27 August 2021 to the Appellant.

ANALYSIS OF THE COURT

• The Court observed that Section 9(3) has two limbs-

1. Prohibition of application under sub section (1) from being entertained once an Arbitral Tribunal has been constituted.
2. An exception to the prohibition that if the Court finds that circumstances exist which may not render the remedy provided under Section 17 efficacious.

• The Court stated that in the present case, there were no materials to show that there were any lapses or laches on the part of the Respondent which delayed the constitution of an Arbitral Tribunal. The allegation which was made upon the Respondent that they had disabled themselves from availing the remedy under Section 17 was also unsubstantiated.
• The Court relied on Avantha Holdings Limited and stated that the bar of Section 9(3) operates after an Arbitral Tribunal is constituted and there can be no question of usurpation of jurisdiction of the Arbitral Tribunal under Section 17 before the Arbitral Tribunal is constituted.
• The Court thereby allowed the appeal only to the extent of clarifying that it shall not be necessary for the Commercial Court to consider efficacy of relief under Section 17 since the application under Section 9 has already been entertained and considered.

CONCLUSION

The Court rightly distinguished the provisions of Section 9(3) and Section 17 of the Arbitration Act. In the present circumstances, the Court strictly pointed out the cause of amending Article 9 and the proviso stated in it.

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