Alternative Dispute Resolution (ADR) is now the most accepted method of dispute resolution in the US, UK, Canada, Australia and several other countries. According to a survey conducted by the International Chamber of Commerce in 2002, about 80% of the litigants prefer ADR methods in these countries and not more than 20% cases go to the national courts. There is no reason why we cannot make ADR methods popular in India
too. ADR has four facets to commend it: Speed, Finality, Cheapness and Justice. Negotiation, mediation, conciliation and arbitration are the four basic methods of resolving a dispute under ADR system. The Arbitration and Conciliation Act, 1996 (in short The Act) contains provisions regarding arbitration and conciliation, which are two major methods under the ADR. The Act has been enacted on the line of UNCITRAL model law of International Commercial Arbitration. The Act provides autonomy to the parties in various matters and has reduced the intervention of Court to the minimum. However, the courts can intervene to give effect to various matters as permitted by
the Act. One such situation is to grant interim measures of protection as contemplated by Section 9. This is similar to the power available to the court under the Arbitration Act of 1940. But what is clearly revolutionary is section 17 of the Act, which also uses the
phrase ‘Interim measures of protection’ and thus gives co-terminus power to the Arbitral Tribunal as well. The Amendment Bill, 2003 proposes to make sweeping changes in these two sections.
PROVISIONS OF INTERIM MEASURES IN THE INDIAN ACT
Interim measures by the Court
Section 9 of the 1996 Act It will be apposite to advert to section 9 of the Act which reads thus:
Interim measures, etc. by court: 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 the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings or for an interim measure of protection in respect of any of the following matters namely: -
(1) The preservation, interim custody or sale of any goods, which are the subject matter of the arbitration agreement.
(2) Securing the amount in dispute in the arbitration
(3) The detention, preservation or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorizing for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorizing any samples to be taken or any observation to be made or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence.
(4) Interim injunction or the appointment of a receiver
(5) Such other interim measures of protection as may appear to the Court to be
just and convenient.
And the court shall have the same power for making orders as it has for the purpose of and in relation to, any proceedings before it.
Obviously, all such factors, which the court considers in passing interim order, would be applicable to orders passed under Section 9 of the Act also. Basically, the party seeking injunctive relief should establish a likelihood of success on the merits, irreparable harms that might be caused to him if the interim relief is denied and the balance of convenience in its favour. It may be relevant to point out that the Arbitration Act, 1996 of England makes interim relief more stringent in the sense that it permits such relief only when the parties have not otherwise agreed and only if and to the extent that the arbitral tribunal or any institution agreed to by the parties has no power or is unable for the time being to act effectively. Thus, the English Arbitration Act has minimized the intervention of the court and as such the provision is truly pro-arbitration.
Power of the Arbitral Tribunal
As mentioned earlier, the Act gives co-terminus powers to the arbitral tribunals to order interim measures of protection. However, parties have a right to prevent the tribunal to exercise such powers by mutual agreement. Section 17 reads as follows:
(1) Unless otherwise agreed by the parties, the arbitral tribunal may at the request of a party, order a party to take any interim measures of protection as the Arbitral tribunal may consider necessary in respect of the subject matter of the dispute.
(2) The arbitral tribunal may require a party to provide appropriate security in connection with a measure ordered under sub-section (1)
It can be observed that Section 9 does not contain any express provisions saving the arbitrators’ own power of ordering interim measures. The same is not enforceable as a decree or order of the court.
At what stage can the Court pass an interim order?
The Supreme Court, in Sundaram Finance Ltd. vs. NEPC India Ltd.[1], held that Section 9 is available even before the commencement of the arbitration. It need not be preceded by the issuing of notice invoking the arbitration clause. This is in contrast to the power given to the arbitrators who can exercise the power u/s 17 only during the currency of the tribunal. Once the mandate of the arbitral tribunal terminates, Section 17 cannot be pressed into service. The Supreme Court also made an observation about the relevance of Arbitration Act, 1940 in interpreting the Act of 1996. The Court held that:
“The provisions of this Act have, therefore to be interpreted and construed independently and in fact reference to 1940 Act may actually lead to misconstruction. In other words, the provisions of 1996 Act have to be interpreted being uninfluenced by the principles
underlying the 1940 Act.”
DRAWBACKS EXPERIENCED IN THE PROVISIONS FOR INTERIM RELIEF
The Law Commission of India in its 176th report published in 2001 noted a number of loopholes in the provisions for interim relief in the 1996 Act which were exploited by the parties after the Act came into force.
Interim measures by the Court
Provisions contained in section 9 regarding the availability of interim relief even before the arbitration proceedings commence had been misused by parties. It so happened that after obtaining an interim order from the court, parties did not take initiative to have an arbitral tribunal constituted. This allowed them to reap the benefits of the interim order without any time limit.
Power of Arbitral Tribunal to grant interim relief
As mentioned earlier, section 17 empowers the arbitral tribunal to order a party to take any interim measures of protection in respect of the subject matter of the dispute. The arbitral tribunal may also require a party to provide appropriate security in connection with a measure ordered as above. Such measures would include the measure for preservation, custody or sale of goods, which are the subject matter of the reference.
However, as compared to power of the court u/s 9, the arbitral tribunal’s powers are limited in scope and sweep. The tribunal’s powers are restricted to the subject matter of the dispute. However, it is open to the arbitral tribunal to call upon the party seeking relief to provide adequate security as a precondition for granting interim relief.
In the past, it had so happened that parties had initiated proceedings simultaneously in the Court and the Tribunal, as that is perfectly allowed under the Act, often claiming frivolous reliefs. Likewise clause (d) regarding inspection of property etc. also widens the power of the tribunal. Clause (e) now gives explicit powers to the arbitrators to examine a party or witness on oath or affirmation. Arbitrators can now validly administer oath and take necessary affirmation. In the existing provision there was confusion regarding such power of the arbitrators and as a result few arbitrators used to refuse to examine witnesses on oath. This controversy will be settled if the amendment Bill becomes the law.
The Law Commission in its 176th report, observed that very often, in the past, Parties had used underhand means to destroy evidence which they felt could go against them during the Arbitral Proceedings or had attempted to concoct witnesses and tamper with evidence, in the possession of a third party. As a result, there was an immediate need to change the provisions of the existing section, so that the Tribunal could get more powers to deal with such situations.
PROPOSED AMENDMENTS TO Ss. 9 & 17
The Law Commission of India, after considering the above drawbacks in, and the subsequent misuse of, the provisions for Interim Relief has drawn up theArbitration and Conciliation(Amendment Bill), 2003,in pursuance of its 176th report, which contained a study on the working of the Arbitration and Conciliation Act, 1996.
Proposed Amendment to S.9
The Amendment Bill proposes to introduce subsections 4 to 6 in the existing section 9 which are reproduced below:
As per Sub-Sec (4), where a party makes an application under sub-section (1) for the grant of interim measures before the commencement of arbitration, the Court shall direct the party in whose favour the interim measure is granted, to take effective steps for the appointment of the arbitral tribunal in accordance with the procedure specified in section 11, within a period of thirty days from the date of such direction.
As per Sub-sec (5), the Court may direct that if the steps referred to in sub-section (1) are not taken within the period specified in sub-section (4), the interim measure granted under sub-section (2) shall stand vacated on the expiry of the said period;
Provided that the court may, on sufficient cause being shown for the delay in taking such steps, extend the said period.
In Sub-sec. (6), where an interim measure granted stands vacated under sub-section (5), the Court may pass such further direction as to restitution as it may deem fit against the party in whose favour the interim measure was granted under this section.
Thus, if the Amendment Bill is passed, it will be then mandatory on the part of the party who has obtained interim relief from a court to constitute the arbitral tribunal expeditiously. On failure to do so, a party may run the risk of automatic vacation of the interim measure. This is a step in the right direction.
Proposed amendment to Section 17
Section 17 is proposed to be amended by the Amendment Bill 2003 by adding some more powers that can be exercised by the arbitral tribunal. The new provisions are more or less similar to the section 38 of the English arbitration Act, 1996. The amended version of section 17 is reproduced below.
Section 17
“The arbitral tribunal may, pending arbitral proceedings,
(1) direct the other party, at the request of a party, to take steps for the protection of the subject-matter of the dispute in the manner considered necessary by it; or
(2) direct a party to provide appropriate security in connection with the directions issued under clause (a); or
(3) direct a party, making any claim, to furnish security for the costs of the arbitration; or
(4) give directions in relation any property which is the subject-matter of the arbitral proceedings and which is owned by or is in possession
of a party to the proceedings-
(a) for the inspection, photographing, preservation, custody or detention of the property by the arbitral tribunal, by an expert or by a party; or
(b) for samples to be taken from, or any observation to be made of, or experiment conducted upon the property; or
(c) direct that a party or witness shall be examined on oath or affirmation, and may for that purpose administer any necessary oath or take any necessary
affirmation; or
(d) give directions to a party for the preservation of any evidence in his custody or control for the purpose of the proceedings.”
At this juncture, it will be relevant to note the provisions of S. 38 of The English Arbitration Act, on the lines of which, S. 17 of the Indian Act has been proposed to be Amended.
Section 38 of The English Arbitration Act, 1996:
It will be relevant to study the provisions of interim measures of protection as contained in the English Arbitration Act, 1996. The section 38 of this
act is quoted below:
38. General powers exercisable by the tribunal
1. The parties are free to agree on the powers exercisable by the arbitral tribunal for the purpose of and relation to the proceedings.
2. Unless otherwise agreed by the parties the tribunal has the following powers.
(i) The tribunal may order a claimant to provide security for the costs of the arbitration.
This power shall not be exercised on the ground that the claimant is –
a) an individual ordinarily resident outside the United Kingdom, or
b) a corporation or association incorporated or formed under the law of a country outside the United Kingdom, or whose central management and control is exercised outside United Kingdom.
(ii) The tribunal may give directions in relation to any property which is the subject of the
proceedings or as to which any question arises in the proceedings, and which is owned by or is in the possession of a party to the proceedings —-
(a) for the inspection, photographing, preservation, custody or detention of the property by the tribunal, an expert or a party or
(b) ordering that samples be taken from, or any observation be made of or experiment conducted upon the property.ME
(iii) The tribunal may direct that a party or witness shall be examined on oath or affirmation, and may for that purpose administer any necessary oath or take any necessary affirmation.
(iv) The tribunal may give directions to a party for the preservation for the purposes of the proceedings of any evidence in his custody or control.
The Amendment proposed in section 17 is more or less on the lines of English Arbitration Act. It provides the much needed teeth to the existing section and gives wider powers to the Arbitral Tribunal. It empowers the arbitral tribunal to direct a party to furnish security for the costs of the arbitration. This will help to prevent frivolous arbitration proceedings and now it will be in the interest of the parties to expedite the arbitral proceedings..
If the Amendment Bill, 2003 is passed, it will be mandatory on part of the party who has obtained interim relief from a court to constitute the arbitral tribunal expeditiously. Failure to do so, a party may run the risk of automatic vacation of the interim measure as per the provisions of the proposed Amendments to S.9
The Law Commission in its 176th Report had highlighted that the Proposed Amendments to S.9 will help to curb its widespread misuse and will make the parties much more vigilant about their rights, rather than sleep over them, as had happened so far after the Act came into force.
This Report had also highlighted that S.38 of the English Arbitration Act, 1996 had been successful in bringing the English Arbitral Tribunals at par with the English Courts and thus it felt that, the new S.17 will have the same effects in the Indian system.
Additional Proposal made by the Law Commission
The Law Commission, in its 176th Report, had also proposed the abolition of the dual mechanism of obtaining reliefs from the Courts and Tribunals at the same time, i.e. the institution of parallel proceedings. It proposes that the Tribunal should have the power to give relief first, as more often, they are the ones who are seized of the subject matter of the dispute. In case, if a party is not satisfied with the Tribunal’s decision, then only it should be allowed to come to the Court. This proposal gives first preference to the Tribunals, thereby reducing Court Intervention further, which is in consonance with the objectives of the Act.
CONCLUSION
From time to time, the interests of justice may require the making of orders in relation to goods or other property, pending the hearing and the award.
Such orders fulfill two distinct functions –
1. They ensure that the property which is the subject of dispute does not come to harm until the dispute has been resolved; and
2. Where the property, or an aspect of it, is an item of evidence in the reference they ensure that the parties are able to exploit its evidentiary value in the full.
It is submitted that lacunas in the provisions of interim measures should be set right by legislative initiation. Six years have passed but the Bill has not been made into law because the Legislature feels that there are many other important issues like enforcement of interim orders and Costs of proceedings which need to be taken care of before making these Amendments to Ss.9 & 17. The abolition of the dual mechanism of interim relief also needs to be given a serious thought, if reduction of Court Intervention, which is one of the primary objectives of the Arbitration and Conciliation Act, 1996.
The fact remains that some or the other factor has always prevented the Legislature to fine-tune the Indian Legislations, according to the changing socio-legal scenario prevalent in the Country and the Arbitration and Conciliation Act is no exception. Therefore, the need of the hour is a much more pro-active stance of the Legislature which will in turn work towards the goal of establishing an efficient legal system in the Country.
BIBLIOGRAPHY
(1) Aggarwal Pawan, Interim measures of Protection in Arbitration- An analysis, Journal of the Institute of Chartered Accountants of India, December, 2004
(2) Redfern Alan, Arbitration And The Courts: Interim Measures Of Protection–Is The Tide About To Turn?, 30, Texas International Law.Journal, 71, 80 (1995)
(3) Prathiba M. Singh & Krishnan Devashish, The Indian 1996 Arbitration Act - Solutions for a Current Dilemma, Journal of International Arbitration, Vol XXX, Issue No. 6, 2005
(4) Giri V., Interim Measures Available in Arbitration and Conciliation Act, 1996, ICA Arbitration Quarterly, Vol. XL, No.3, Oct-Dec 2001, available at http://www.ficci.com/icanet/ICA-Oct/OCT6.htm
(5) 176th Report of the Law Commission of India available at www.lawcommission.nic.in/lawcommission_176th report.pdf
(6) A Note on the Arbitration and Conciliation(Amendment) Bil, 2003 available at www.icai.org/amendmentbill_2003.pdf
[1] AIR 1999 SC 565
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