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 measure”.
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 proceedings”.
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.
|