I. Introduction

The Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act, 2015”) introduced several amendments to fill critical gaps in the Arbitration and Conciliation Act, 1996 (“the Act”) vis-à-vis international practices.

Among several welcomed amendments, the Legislature also amended section 9 of the Act. Before the amendment in the year 2015, section 9(1) of the Act empowered a Civil Court to order interim measures “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… . . .”

However, the provision as may be noted did not provide how much before, could a party apply or a Court order an interim measure and what will be the fate of the interim order if a successful applicant does not commence arbitration in any near future after the interim order. As a consequence of this lacuna, a successful applicant often did not commence arbitration and continued to enjoy fruits of the interim measure, to a grave disadvantage of the opposite party.

It was first in Sundaram Finance Ltd. v. NEPC India Ltd.¹, the Supreme Court held that an applicant for an interim measure must have a “manifest intention” to initiate arbitration proceedings, but did not address any of the above-said lacunas relating to time within which he should initiate the arbitration and consequence for non-commencement.

Subsequently, in Firm Ashok Traders v. Gurumukh Das Saluja [2004] 50 SCL 224 (SC) (“Ashok Traders”), the Supreme Court of India, held that “before the arbitral proceedings” means that arbitration is contemplated to start within a “reasonable time” and it will vary depending on the facts and circumstances of each case. Moreover, the Court also held that if an applicant fails to initiate the arbitration proceedings within a “reasonable time“the interim relief allowed under section 9 “shall cease“to operate.²

Thus, as may be noted in Firm Ashok Traders (supra), the Court did attempt to remove the lacuna, however, the standard of “reasonable time” still gave sufficient opportunity to the applicant to reap the benefits of an interim order and cause irreparable harm and inconvenience to the opposite party on the backing of a mere interim order.

To remedy this, of the Law Commission of India in in its 246th Report recommended the insertion of section 9(2) in following terms:

“After the words “any proceedings before it” add sub-section “(2) Where, before the arbitral proceedings, a Court grants any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within 60 days from the date of such grant or within such shorter or further time as indicated by the Court, failing which the interim measure of protection shall cease to operate”.³

Following this, the Parliament inserted section 9(2) vide the Arbitration Act, 2015. The inserted provision, however, materially varied from the above-quoted suggestion of the Law Commission. The inserted sub-section (2) provides that if a party has obtained interim relief from a court before the commencement of arbitral proceedings under sub-section (1), “the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such time as the Court may determine”. Thus, the legislature though defined the term “reasonable time” suggested above in the Firm Ashok Traders (supra), however, surprisingly, omitted the phrase entailing the consequence for failure to commence arbitration within ninety days, i.e. “failing which the interim measure of protection shall cease to operate“. By this the Legislature only cured the lacuna of time within which arbitration shall be commenced by a successful applicant if a Court has ordered an application of interim measure in his favor and left some other consequential questions advertently or inadvertently open which has been litigated in different courts.

II. Loopholes in section 9 of the Act

First, as already noted, the legislature omitted to provide any express consequence for non-commencement of the arbitral proceedings within 90 days. Instead, the legislature omitted the consequence proposed by the Law Commission. Thus, the ambiguity arose whether non-initiation of arbitration within 90 would lead to automatic cessation of an interim order. Second, the legislature also did not provide for any effect because of the commencement of the arbitral proceedings within ninety days. This was pertinent to be clarified in view of the fact that vide the Amendment Act, 2015, the Parliament also inserted section 9(3) which has restricted the power of the courts to grant interim order majorly only before the constitution of the arbitral tribunal “unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious“. However, section 9(3) does not provide the time/stage until which the interim order made by the Court would operate. Thus, would an interim award continue to operate once an arbitration is timely commenced i.e. within 90 days or would such an order cease to operate once an arbitral tribunal is constituted? Last, where the legislature intended to avert overlaps in the exercise of power for grant of interim measure by the Courts and the arbitral tribunals, section 9(3) fails to state what will happen if the application filed before the Court has yet not been disposed of but the arbitral tribunal is now constituted in the interim period? Will such application be transferred by the Court to the constituted arbitral tribunal?

The present article examines these ambiguities and suggests how the legislature could have avoided these ambiguities and consequential litigations as below.

II. i What will be the effect on the order of interim measure if the applicant has not commenced arbitration within ninety days of interim order?

The text and the purpose of an amendment are the two tests to determine the legislative intent behind an amendment. The Supreme Court of India appositely noted that “that interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted”.⁴

However, as afore-said, the text of section 9(2) does not mandate any consequence for failure to initiate arbitration within ninety days. Instead consequence was expressly omitted by the legislature. However, considering first, the purpose behind the provision being to cure above-said mischief and misuse by a successful applicant of not initiating the arbitral proceedings, it is apposite to conclude that if arbitration is not commenced, within a period of ninety days or such time as directed by a Court, the interim relief provided under section 9(1) shall automatically cease to operate. Second,given the above purpose of the amendment such a conclusion is also in consonance with the doctrine of necessary implication which means “an implication that is absolutely necessary and unavoidable”.⁵

The Karnataka High Court⁶ had earlier held that if the applicant does not commence arbitration within 90 days, vacation of the ordered interim relief is a mandate of the legislature. More squarely, the Andhra Pradesh High Court⁷ noted as follows:

“The obvious legislative intent in incorporating sub-section (2) of Section 9 of the Act ….. . is to see that a party securing an order of interim measure will not continue to enjoy such measure beyond the period stipulated in the provision without initiating the arbitral proceedings. Viewed from this angle, though this provision per se does not declare that the interim measure granted under Section 9(1) automatically ceases to exist if arbitral proceedings are not commenced within 90 days or within such further time as the Court may determine, we find force in the submission of the learned Counsel for the appellant that such interim measure would automatically cease to exist on the expiry of the stipulated period of 90 days from the date on which it was granted or within such further time as determined by the Court which granted such order”.

Latest, the Gujarat High Court⁸ reiterated the same consequence, stating that the interim order holder cannot be “while away” time on it.

Thus, though the Supreme Court has until now not made any observation on the issue and the legislature omitted a consequence of cessation yet given the uniformity in decisions of the different High Courts, it would be safe to conclude that the interim measure ordered by the Court shall be deemed vacated if a party does not commence an arbitration within a period of ninety days or within such time as was directed by the Court from the date of order.

II. ii What will be the effect on the order of interim measure if the applicant has commenced arbitration within ninety days of interim order?

The concern, as above-said, arises due to the silence of section 9(3) as to time of operation of interim order. Ex. Does the interim order continue to operate even after the arbitral tribunal is constituted? The author opines that the commencement of arbitration proceedings within the requisite time would not lead to cessation of the order of interim measure made by the Court for several reasons. First, different High Courts like Andhra Pradesh High Court⁹, Bombay High Court¹⁰, Calcutta High Court¹¹, and Gujarat High Court¹² have now uniformly held that an interim order operates till the time fixed by the Court or till the conclusion of the arbitral proceedings. A non-mention of life of interim order in newly inserted section 9(2) and 9(3) and section 17 does not infer to the contrary. A re-hearing of the application once decided by the Court by the arbitral tribunal on its constitution would set the clock backwards for the party had earlier either successfully availed an interim measure or who had successfully defended such an application for an interim measure under section 9 of the Act.

Second , the legislature could not have intended the same consequence for both i.e., commencement and non-commencement of arbitration or compliance and non-compliance with the provision. Had the contrary been the intent of the legislature it would have been expressly provided in the statute or the amendment enacted. Such a conclusion shall, therefore, be deemed necessarily excluded.

Moreover, such an interpretation would allow the Respondent to make the commenced arbitral proceeding mala-fidely infructuous in the interim period, i.e. after commencement but before the time arbitral tribunal determines the issue again. Thus, an aversion of an automatic vacation of interim order with commencement of arbitral proceedings within 90 days or with constitution of the arbitral tribunal do not speak merit and appears contrary to the intention of legislature.

III. iii What will happen if the application filed before the Court has yet not been disposed of but the arbitral tribunal is constituted in the interim period? Is it mandated for the Court to transfer such an application to the Arbitral Tribunal?

As afore-noted, Section 9(1) of the Indian Arbitration Act confers jurisdiction to grant interim measure in all three stages i.e. before the constitution of the arbitral tribunal, during the arbitral proceedings, and after the award is passed but before it is enforced. Section 9(3), however, limits this power of the Courts to before constitution of the arbitral tribunal unless as afore-said, the relief before the tribunal would be inefficacious. Thus, this as may be noted, does not speak of the position where the application is still pending before the Court and an arbitral tribunal is now constituted. The author opines that on such occasions, the jurisdictional court should not be bound to transfer the case to arbitral tribunal for several reasons.

First , as afore-said,section 9(1) empowers a Court to determine an interim relief application at any stage of arbitration though subject to section 9(3). Considering this position, it would not be reasonable to aver that once an arbitral tribunal is constituted, a Court becomes incompetent to hear pending applications for interim relief or in any way reduces court intervention.

Second , there is no provision in the Act or the Amendment Act, 2015 directing that once an arbitral tribunal is constituted, the Court must transfer the pending application to the arbitral tribunal. The Delhi High Court¹³ held that when no such language has been employed by the Legislature relegation cannot be inferred because when “the Legislature intents an ouster, it makes it clear”.

Thus, the Court locks jurisdiction with itself once an application has been filed with the Court, unless it transfers it to the arbitral tribunal in its discretion or when the circumstances do not require immediate intervention of the court.

III. Concluding Remarks

In closing, it may be noted that the above-discussed questions arise due to the language employed by the legislature in section 9 which neither does state the effect of the commencement or non-commencement of arbitral proceedings within a time of ninety days on the interim award nor does state the time for the operation of an interim order if arbitration is duly commenced.

These above-discussed anomalies could have been easily averted by the Legislature had it inserted phrase like “failing which the interim order made shall be deemed as vacated” in section 9(2). Similarly, the legislature could add another sub-section 4 to section 9 stating that “the interim order passed under sub-section 1 shall be deemed to be continuing until the conclusion of the arbitration unless otherwise vacated by the Court due to changed circumstances”. A lack of such preciseness in amendments makes such well-intended amendments as first step of litigation, particularly, when the legislation like the Amendment Act, 2015 was intended to reduce court intervention. Thus, among other lacunas like providing of time frame for commencement of arbitral proceedings, defining of jurisdiction of court and arbitral tribunal, the Amendment Act, 2015 did cure some of the lacunas. However, some of the lacunas like those discussed above, and consequent court resorts could have been easily averted by addition of the suggested phrase and sub-section.

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