Judgement on arbitration
sushil bhatt
(Querist) 05 February 2010
This query is : Resolved
Dear All
Can you pls provide some citations in respect of CRP filed against the interim order of the Principal Dist. Judge passed in an Application u/s 9 of the arbitration & conciliation Act, 1996.
Guest
(Expert) 05 February 2010
Sundaram Finance Ltd. vs. NEPC India Ltd.
(Whether a party can approach a court for interim orders under Section 9 even before commencement of arbitration proceedings and before appointment of arbitrator)
Case Reference :
Civil Appeal Nos.141-143 of 1999, decided on January 13, 1999
.
Judges :
Justice Sujata V.Manohar and Justice B.N.Kirpal
Parties :
Sundaram Finance Ltd.(Appellant) Vs. NEPC India Ltd. (Respondent)
Question of Law :
Whether under Section 9 of the Act of 1996 the court has jurisdiction to pass interim orders even before arbitral proceedings have commenced and before an Arbitrator is appointed
Gist of the Case :
The Respondent entered into a Hire-Purchase Agreement with the Appellant in respect of supply of two wind turbine generators. The Respondent paid the first 15 instalments and thereafter committed default in payment. The Appellant filed an application under Section 9 of the Act of 1996 before the City Trial Court, Chennai praying for the appointment of an Advocate Commissioner to take custody of Hire-Purchase machinery/equipment and restore the same to the interim custody of the Appellant. The Trial Court passed an interim order appointing a Commissioner to take possession of the turbines.
The Respondent challenged the order of the Trial Court by filing a petition under Article 227 of the Constitution before the High Court at Chennai. One of the main contentions of the Respondent was that no arbitration proceedings were pending and arbitrator had not been appointed and hence an application under Section 9 of the Act of 1996 for getting interim relief alone was not maintainable. The High Court allowed the Respondent’s petition. The High Court observed, inter alia, that there is no virtual difference between Section 41 read with Schedule 2 of the Arbitration Act, 1940 and Section 9 of the Act of 1996. If Section 9 were to be interpreted as contended by the Appellant, then any party who has an agreement for arbitration with another can rush to the Civil Court and straightaway get an order under Section 9 of the Act of 1996 and thereafter keep quiet without referring the matter to arbitration. The Appellant went in appeal to the Supreme Court against the decision of the High Court.
The Supreme Court observed that the Act of 1996 is very different from the Arbitration Act, 1940. The provisions of the Act of 1996 have, therefore, to be interpreted and construed independently and in fact reference to the 1940 Act may actually lead to misconstruction. It is more relevant to refer to the UNCITRAL Model Law rather than the 1940 Act. The material portion of Section 9 of the Act of 1996 is that “a party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a court†for interim orders. Although under Section 17 of the Act of 1996, the arbitral tribunal has the power to pass interim orders, the same cannot be enforced as orders of a court. It is for this reason that Section 9 gives the court power to pass interim orders during arbitration proceedings. Under the Arbitration Act, 1940 a party could commence proceedings in court by moving an application under Section 20 for appointment of an arbitrator and simultaneously it could move an application for interim relief under the Second Schedule read with Section 41(b) of the 1940 Act. The Act of 1996 does not contain a provision similar to Section 20 of the 1940 Act. Nor is Section 9 or Section 17 of the Act of 1996 similar to Section 41(b) and the Second Schedule to the 1940 Act. Under the Act of 1996, the appointment of arbitrator/s is made as per provisions of Section 11 of the Act of 1996 which does not require the court to pass a judicial order appointing arbitrator/s. The High Court was, therefore, wrong in referring to the provisions of 1940 Act while interpreting Section 9 of the 1996 Act.
In this regard, Section 9 of the Act of 1996 corresponds to Article 9 of the UNCITRAL Model Law which is as follows:
“It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measureâ€.
It is possible that in some countries, if a party went to the court seeking interim measure of protection, that might be construed under the local law as meaning that the said party had waived its right to take recourse to arbitration. Article 9 of the UNCITRAL Model Law seeks to clarify that merely because a party to an arbitration agreement requests the court for an interim measure “before or during arbitral proceedings†such recourse would not be regarded as incompatible with an arbitration agreement.
Sub-section (3) of Section 44 of the Arbitration Act, 1996 of England permits, in case of urgency, the court to make an order contemplated by sub-section (2) even on an application by a “proposed party to the arbitral proceedingsâ€. The expression used in this sub-section “party or proposed party to the arbitral proceedings†shows that where arbitral proceedings have commenced, then the application will obviously be of a party to the said proceedings but where the arbitral proceedings have not commenced a “proposed party†has been given the right to approach the court. A proposed party to the arbitral proceedings would, therefore, be one who is a party to an arbitration agreement and where disputes have arisen but the arbitral proceedings have not commenced.
The Supreme Court agreed with the view of the learned counsel for the Respondent that when an application under Section 9 of the Act is filed before the commencement of arbitral proceedings, there has to be a manifest intention on the part of the applicant to take recourse to arbitral proceedings. However, the Supreme Court observed that in order to give full effect to the words “before or during arbitral proceedings†occuring in Section 9, it would not be necessary that a notice invoking the arbitration clause must be issued to the opposite party before an application under Section 9 can be filed. A situation may so demand that a party may chose to apply under Section 9 for an interim measure even before issuing a notice contemplated under Section 21 of the Act of 1996. If an application is so made, the court will first have to be satisfied that there exists a valid arbitration agreement and the applicant intends to take the dispute to arbitration. Once the court is so satisfied, it will have jurisdiction to pass interim orders under Section 9 of the Act of 1996. The court should ensure that effective steps are taken to commence the arbitral proceedings.
The learned Judges called upon all the High Courts in India to frame appropriate rules, in terms of Section 82 of the Act of 1996, to facilitate quick and satisfactory disposal of arbitration cases.
The Supreme Court set aside the judgement of the High Court and directed that the petition filed by the Respondent challenging the order of the trial court be decided on merits.
Citation :
(1999) 2 SCC 479.
