Alerts & Updates 16th Sep 2023

ELP Arbitration update – Of Foreign Seated Tribunals and Interim Relief in India: A saga that continues

Authors

Naresh Thacker Partner | Mumbai
Harshvardhan Nankani Senior Associate | Mumbai

Latest Thought Leadership

Articles 14th Jun 2024

Digital Bouncers: Navigating the Digital Competition

Read More
Articles 14th Jun 2024

SEBI Imposes Financial Penalties on Market Infrastructure Institutions For Surveillance Failures

Read More
News & Media 13th Jun 2024

Compensation claims plunge as SEBI crackdown intensifies

Read More
News & Media 12th Jun 2024

50% assured pension for central govt staff under NPS: Proposal explained

Read More

  • Of Foreign Seated Tribunals and Interim Relief in India: A saga that continues

    Shanghai Electric Group Co. Ltd. v. Reliance Infrastructure Ltd.

  • Introduction

    Every party to an arbitration agreement seeking interim relief faces a choice right at the outset between approaching a court or the tribunal, or in some cases, an emergency arbitrator. To approach a tribunal the party must wait for it to be constituted. Once constituted, Section 9(3) bars a court from entertaining an application for interim relief. This provision was introduced by way of an amendment in 2015 to discourage the dependence on courts and prevent conflicting decisions from courts and tribunals on issues regarding interim relief. There is, however, an exception to this rule, where the court believes that the remedy under Section 17, i.e., before a tribunal, is inefficacious. In such a case the court may choose to entertain the Section 9 petition.

    Section 17 applies to arbitrations seated in India. Whether the specific reference to Section 17 in Section 9(3) would make the bar contained in Section 9(3) inapplicable to foreign seated arbitrations because of this, was examined in a recent judgment of the Delhi High Court in Shanghai Electric Group v. Reliance Infrastructure Ltd.[1]

  • Background

    A petition under Section 9 of the Arbitration and Conciliation Act, 1996 (“the Act”) for interim relief was filed in a dispute between Shanghai Electric Group (“the Petitioner/SEGCL”) and Reliance Infrastructure (“the Respondent/RIL”), arising out of a contract of guarantee (“Guarantee Letter”). The Respondent had guaranteed the performance of its subsidiary, Reliance Infrastructure UK Ltd. (“Reliance UK”) with respect to a contract with the Petitioner for the supply and servicing of equipment for a power project at Sasan, Madhya Pradesh.

    Through its Petition, SEGCL sought to secure payment of dues it had claimed against Reliance UK. The arbitration agreement provided for arbitration under the UNCITRAL Rules, seated in Singapore, and administered by the Singapore International Arbitration Centre (“SIAC”). SEGCL alleged that RIL was hurriedly dissipating its assets to deprive SEGCL of the fruits of an arbitration where it claimed it had a strong prima facie case, claiming further that it was apprehensive of RIL’s ability to remain a “going concern”.

    SEGCL moved the Delhi High Court citing that the assets of the Respondent were present in its territorial jurisdiction. Notably, these assets were not the subject matter of the arbitration.

    The arbitration was initiated prior to the institution of the Petition under Section 9(1) for interim relief by a court. Also, a tribunal had already been constituted, which would attract the bar under Section 9(3)[2]unless the Court finds that circumstances exist which may not render the remedy provided under Section 17[3] efficacious.

  • Issues

    The questions of law which arose for determination before the Delhi High Court (“Court”) included the following:

    On Maintainability:

    • Whether the parties had impliedly excluded the application of Section 9 by their choice of a foreign seated institutional arbitration and their choice to subject the Guarantee Letter to the laws of the UK?
    • Whether the bar under Section 9(3) of the Act would operate, given that an arbitral tribunal had already been appointed?

    On Jurisdiction:

    • Whether a court under whose territorial jurisdiction the assets of a respondent are located has the jurisdiction to entertain a Petition under Section 9 of the Act?
  • Decision

    Exclusion of Section 9

    It is now a settled position in law that the provisions of Part-I as mentioned in the Proviso to Section 2(2)[4] are applicable to foreign seated arbitrations, unless parties have chosen to exclude them by way of “an agreement to the contrary”. Tellingly, the parties had subjected the arbitration to the UNCITRAL Rules, which permits parties to approach a court of competent jurisdiction (other than the seat court) for interim reliefs.[5]

    The Court held that the choice of a foreign law or a foreign seat cannot be conclusive evidence of the parties’ intention to exclude the applicability of Section 9 of the Act to their foreign-seated arbitration. Such choice of the parties cannot be construed as an “agreement to the contrary” as is mentioned in the proviso to Section 2(2) of the Act. While noting that the statutory provision does not specify that such an agreement to the contrary must be express, the Court held that the exclusion must be explicitly demonstrated by the party asserting it, which it found lacking in the present case.

    Bar under Section 9(3)

    Reflecting upon the significance of Section 9(3) of the Act, the Court observed that a Division Bench of the Court had previously ruled in the case of Ashwani Minda[6] that a Petition under Section 9 of the Act is not maintainable once a tribunal has been constituted, except where it is demonstrated that the party does not have an efficacious remedy before the tribunal.

    In the present case, the Court dismissed the Petitioner’s argument that the bar under Section 9(3) only applied to arbitrations seated in India. It was argued that Section 9(3) mentions Section 17, which is a provision of Part-I of the Act that is conspicuously absent in the proviso to Section 2(2). The Court relied on the judgment in Ashwani Minda to rule that the specific reference in Section 9(3) to Section 17 cannot be taken to mean that the bar under Section 9(3) was not applicable to foreign seated arbitrations.

    But, where the rule applies, so would the exception. Thus, if the party in a foreign seated arbitration, seeking interim relief before an Indian court, can demonstrate that the remedy available to it before the tribunal is inefficacious, it’s petition under Section 9 would nevertheless be maintainable.

    In its judgment, the Court found that the criteria for the exception was met. The unavailability of a direct method of enforcement of interim relief granted by a foreign seated tribunal would render such a remedy inefficacious.

    Jurisdiction of a Court where assets are located

    Interestingly, the assets based on the location of which SEGCL had moved the Delhi High Court were not the subject matter of the arbitration. RIL argued that SEGCL could not have invoked the jurisdiction of the Delhi High Court on the basis of the location of its assets. This would ordinarily be a factor for consideration at the enforcement stage. It was argued that absent an award,  the relief would be tantamount to attachment before judgment, which would be outside the scope of Section 9 at the pre-award stage.

    In the case of Trammo DMCC[7], the Bombay High Court had assumed jurisdiction under Section 9 of the Act on the basis of the location of the assets of the respondent therein. While the Section 9 petition in Trammo DMCC was filed after the award was passed, the Court in the present case ruled that the ratio would still be applicable to a similar petition before an award. Thus, the Court ruled that it had jurisdiction to entertain the Section 9 petition. The location of assets to satisfy a foreign award can be considered when taking recourse under Section 9 of the Act. This can be done as much before a potential award as after the award, provided the test for grant of attachment before judgment is satisfied.

  • Conclusion & Analysis

    While the Court declined to grant the reliefs as prayed for by SEGCL based on factual considerations, the findings on the issue of law are significant. More particularly, on matters of maintainability and jurisdiction, the High Court has provided important guidance on the use of the words “unless the Court finds that circumstances exist which may not render the remedy provided under Section 17 efficacious”, as found in Section 9(3).
    This decision in all probability, settles the position in law that courts in India would consider grant of interim relief under Section 9 of the Act, despite the constitution of an arbitral tribunal in an international commercial arbitration seated outside India, before such tribunal has granted any interim relief. This is on the basis that the interim order of such a tribunal would not be directly enforceable under the scheme of the Act. An important point to consider is that the lack of direct enforceability of such orders passed in an international commercial arbitration seated outside India could render a remedy in the nature of that under Section 17 of the Act inefficacious. Thus, the exception in Section 9(3) to the rule that a court cannot entertain an application for interim relief once a tribunal is constituted, comes into play.

    We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com  or write to our authors:

    Naresh Thacker, Partner – Email – NareshThacker@elp-in.com
    Harshvardhan Nankani, Associate – Email  HarshvardhanNankani@elp-in.com

  • References

    [1] O.M.P. (I) (Comm.) 433 of 2020, Delhi High Court decided on July 19, 2022.
    [2] Section 9(3) of the Arbitration and Conciliation Act, 1996 reads as follows:
    “Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under Section 17 efficacious.”
    [3] Section 17 of the Arbitration and Conciliation Act, 1996 provides the power to the arbitral tribunal to grant interim relief during the arbitral proceedings.
    [4] The proviso to Sec. 2(2) of the Act reads as follows:
    “Provided that subject to an agreement to the contrary, the provisions of sections 9, 27, and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.”
    [5] Article 26(9) of the UNCITRAL Rules reads as follows:
    “A request for interim measures addressed by any party to a judicial authority shall not be deemed incompatible with the agreement to arbitrate, or as a waiver of that agreement.”
    [6] Ashwani Minda v. U-Shin Ltd., 2020 SCC Online Del 721
    [7] Trammo DMCC v. Nagarjuna Fertilizers and Chemicals Ltd., 2017 SCC Online Bom 8676

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice. This document is not intended to address the circumstances of any individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein