Supreme Court on Negative Kompetenz-Kompetenz, Interim Measures and S. 9 of Arbitration Act

 

INTRODUCTION

Today, I will discuss the case of Arcelor Mittal Nippon Steel India Ltd. v. Essar Bulk Terminal Ltd., 2021 SCC OnLine SC 718, wherein the Hon’ble Supreme Court discussed whether the Courts have the power to entertain an application under Section 9 (1) of the Arbitration and Conciliation Act, 1996 (in short, “Arbitration Act”), once an Arbitral Tribunal has been constituted.

 

SECTION 9

 

Section 9 (1) of the Arbitration Act provides power to the Court to grant interim relief or interim measures to the parties “before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced.” However, S. 9 (3) stipulates that once the arbitral tribunal has been constituted, “the court shall not entertain an application seeking interim measures, unless the court finds that circumstances exist which may not render” the interim remedy to be efficaciously granted by the Arbitral Tribunal.

 

FACTS IN BRIEF

 

The brief facts of the case are that there was an Arbitration Agreement between the parties to the instant case. Now, before constitution of the Arbitral Tribunal, the parties preferred Applications under Section 9 seeking interim relief before the Commercial Court. Such Applications were heard and considered by the Commercial Court, but the orders were reserved. Thereafter the Arbitral Tribunal got constituted and, in such light, the parties prayed by moving an application before the Commercial Court to refer their interim applications under Section 9 before the Arbitral Tribunal. However, the Commercial Court declined such relief by dismissing their application. Such dismissal was challenged before the High Court that declined any relief holding that the Commercial Court has the power to consider whether the remedy sought could be efficaciously granted by the Arbitral Tribunal or not and if required, it may “pass necessary orders under Section 9.” This Order of the High Court was challenged before the Supreme Court. The moot question to be answered by the Supreme Court was: -

 

LEGAL QUESTION

 

Whether a Court has the power to entertain an application under Section 9(1) of the Arbitration and Conciliation Act, 1996, 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?

 

Thus, let us understand the pertinent observations by the Supreme Court.

 

OBSERVATIONS BY THE COURT

 

Firstly, the Court observed that “applications for interim relief are inherently applications which are required to be disposed of urgently. Interim relief is granted in aid of final relief. The object is to ensure protection of the property being the subject matter of Arbitration and/or otherwise ensure that the arbitration proceedings do not become infructuous and the Arbitral Award does not become an award on paper, of no real value.”

 

Secondly, the Court discussed the basic principles for grant of interim relief that are: -

 

a. Good prima facie case.

b. Balance of convenience in favour of grant of interim relief.

c. Irreparable injury or loss to the applicant for interim relief. Such irreparable injury may occur on account of delay in disposal of an application seeking interim relief.

 

Thirdly, the Court discussed the Doctrine of Kompetenz-Kompetenz “which requires that the Arbitral Tribunal must exercise jurisdiction over the dispute under the arbitration agreement. Thus, challenge to the existence or validity of the arbitration agreement would not prevent the Arbitral Tribunal from proceeding with the hearing and ruling upon its jurisdiction. If it retains jurisdiction, it may make an award on the substance of the dispute, without waiting for the outcome of any court action aimed at deciding the issue of jurisdiction.”

 

Fourthly, the Court also explained that “the object of introducing Section 9(3) was to avoid Courts being flooded with applications under Section 9 of the Arbitration Act.” In this light, the Court also discussed the Doctrine of Negative Kompetenz-Kompetenz that is an exception to the rule of priority in favour of the Arbitrators. This doctrine permits the courts to decide interim disputes or issues only on need basis where a prima facie case is made out, but any grant of such interim relief is subject to complete review by an Arbitral Tribunal.

 

Fifthly, the Court noted that it could “never have been the legislative intent that even after an application under Section 9 is finally heard relief would have to be declined” and the parties would have to be relegated to the Arbitral Tribunal for consideration of such interim relief. According to the Court, once an application for interim relief is being considered or has been considered by a Court, then there is no point in relegating the parties to the Arbitral Tribunal.

 

Sixthly, the Court observed that “the Courts do not decide on merits except when permitted by legislation either expressly or by necessary implication.” Thus, “Section 9(1) enables the parties to an arbitration agreement to approach the appropriate Court for interim measures before the commencement of arbitral proceedings, during arbitral proceedings or at any time after the making of an arbitral award but before it is enforced” and “the bar of Section 9(3) operates where the application under Section 9(1) had not been entertained till the constitution of the Arbitral Tribunal.”

 

And lastly, the Court noted that “even if an application under Section 9 had been entertained before the constitution of the Tribunal, the Court always has the discretion to direct the parties to approach the Arbitral Tribunal, if necessary, by passing a limited order of interim protection.”

 

Thus, the Supreme Court partially allowed the Appeal before it, holding that “the High Court has rightly directed the Commercial Court to proceed to complete the adjudication” and it shall not be necessary for the Commercial Court to consider whether the remedy sought could be efficaciously granted by the Arbitral Tribunal or not, “since the application under Section 9 has already been entertained and considered by the Commercial Court.”

 

That was all about the case. So, what are my concluding remarks?

 

CONCLUDING REMARKS

 

I feel that the initial purpose of having an Arbitration Law to have a clear, straightforward and speedy remedy for the parties is getting defeated. Though the Courts including the Hon’ble Supreme Court have made painstaking efforts to bring clarity to the provisions of the Arbitration Act, yet it is being seen that except for the parties who can afford costly litigations, Arbitration as a mode of alternate dispute resolution has not been able to inspire confidence in the general public. The Courts will continue to interpret the Arbitration Act since it is a routine matter for them, but the legislature must think on the how to make Arbitration more accessible for the general public because without it, Arbitration Law shall remain a valid option only for the elites and not for the common man.