In the case of Arcelor Mittal Nippon Steel India Limited v. Essar Bulk Terminal Limited, Special Leave Petition (Civil) No. 13129 of 2021, the Supreme Court discussed the power of a Court to entertain an application under Section 9(1) of the Arbitration and Conciliation Act, 1996 (“the Act”) after constitution of the Arbitral Tribunal, and whether such Court was obliged to examine the efficacy of remedy under Section 17 of the Act before passing an Order in such a situation.
FACTS
In the present petition, the Appellant (Arcelor Mittal Nippon Steel India Limited) and the Respondent (Essar Bulk Terminal Limited) entered into a Cargo Handling Agreement at Hazira Port (“the Agreement”), which was amended from time to time.
All disputes arising out of the Agreement were to be settled in Courts, in accordance with the Act, and be referred to a mutually appointed sole Arbitrator under Article 15 of the Agreement.
Thereafter, certain disputes and disagreements emerged between the parties, prompting the Appellant to invoke the Arbitration Clause by a Notice of Arbitration dated 22.11.2020. As the Respondent did not respond to the Notice of Arbitration, the Appellant approached the High Court of Gujarat (“HC”) for the appointment of an Arbitral Tribunal under Section 11 of the Act.
However, the Respondent vide Letter dated 30.12.2020 replied to the Notice of Arbitration that the disputes between the parties were not arbitrable. Meanwhile, the Appellant and the Respondent on 15.01.2021 and 16.03.2021 respectively filed Interim Relief Applications (“Interim Relief Applications”) before the Commercial Court in Surat, Gujarat (“the Commercial Court”) under Section 9 of the Act. The Interim Relief Applications were heard by the Commercial Court and reserved for orders on 07.06.2021.
While the Commercial Court’s decision was pending, the High Court on 09.07.2021 disposed off the Appellant’s application under Section 11(6) of the Act by appointing a three-member Arbitral Tribunal comprising of three retired Supreme Court (“SC”) Judges.
Pursuant to the HC’s Order, the Appellant filed another interim application before the Commercial Court, requesting that the parties’ Interim Relief Applications be referred to the learned Arbitral Tribunal.
The Commercial Court, however, dismissed the aforementioned interim application vide Order dated 16.07.2021. Thereafter, the Appellant filed a Special Leave Petition (“SLP”) under Article 227 of the Constitution of India in the HC challenging the Order of the Commercial Court.
The HC subsequently dismissed the application vide Order dated 17.08.2021, holding that the Commercial Court has the power to assess whether the remedy under Section 17 of the Act is inefficacious and to pass necessary Orders under Section 9 of the Act. Aggrieved by the decision of the HC, the Appellant appealed the impugned Order before the SC.
ISSUES BEFORE THE TRIBUNAL
i) Whether the Court has the power to entertain an application under Section 9(1) of the Act, 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 Act?
ii) Whether the Court is obliged to examine the efficacy of the remedy under Section 17 of the Act, before passing an order under section 9(1) of the Act, once an Arbitral Tribunal is constituted?
CONTENTIONS OF THE PARTIES
The Appellant contended that Section 9(3) of the Act restricts the power of the Commercial Court to entertain Interim Relief Applications under Section 9(1) of the Act, once an Arbitral Tribunal is constituted. The Appellant asserted that the purpose of insertion of Section 9(3) of the Act was to curtail the role of the Court post the constitution of an Arbitral Tribunal.
The Appellant argued that Section 9(3) of the Act was a measure of Negative Kompetenz-Kompetenz, substantiated by the introduction of Section 17(2) of the Act. Reliance was placed on the decision of the Supreme Court in Amazon.com NV Investment Holdings LLC v. Future Retail Limited & Ors. 2021 SC Online SC 557, wherein it was held that the object of introducing Section 9(3) of the Act was to decongest the Court System and to enable Arbitral Tribunals to grant interim relief in a timely and efficacious manner.
The Appellant submitted that although the High Court had erred in directing the Commercial Court to pass orders in the Interim Relief Applications, it had rightly interpreted the word ‘entertain’ to mean “the whole gamut upto its final adjudication and passing of an order on merits.” Thus, the Commercial Court was till date entertaining the Interim Relief Applications, and the fact that the orders were reserved did not mean that the Commercial Court stopped entertaining the said application.
The Respondent contended that Section 9(3) of the Act would not be applicable as the Interim Relief Applications were finally heard on merits, and reserved for orders prior to the constitution of the Arbitral Tribunal.
The Respondent argued that the Appellant’s SLP under Article 227 of the Constitution was not maintainable as: (i) the Act is a self-contained Code and that Article 227 of the Constitution cannot be invoked to circumvent the procedure under the Act; (ii) an SLP under Article 227 of the Constitution can be instituted only when the lower Court acts beyond its authority, without jurisdiction, in violation of principles of natural justice, or if the Order suffers from patent perversity; and (iii) the SLP was premature and speculative as the issue could be determined only after the Commercial Court passed the Order in the Interim Relief Applications.
It was further submitted by the Respondent that Section 9(3) of the Act was neither non-obstante nor an ouster clause, rendering the courts coram non judice as soon as the Arbitral Tribunal was established.
The Respondent asserted that as the Interim Relief Applications were entertained, fully heard and the arguments concluded with only the formality of pronouncing the order remaining, Section 9(3) of the Act would not apply in the present case.
The Respondent submitted that an Application is “entertained” when the Court applies its mind to it, and that the term “entertain” meant “admit into consideration” or “admit in order to deal with”. In support thereof, the Respondent cited the decisions in Lakshmi Rattan Engineering Works Ltd. v. Asstt. Commissioner Sales Tax, Kanpur and Anr AIR 1968 SC 488; Anil Kunj Bihari Saraf v. Namboodas S/o Shankarlal and Ors (1996) SCC Online MP 112 and Kundan Lal v. Jagan Nath Sharma AIR 1962 All 547.
Finally, the Respondent pleaded that through the SLP, the Appellant had abused the process of Court to stop the competent Court from passing an Order under Section 9 of the Act. The Respondent further submitted that the parties had spent a significant amount of judicial time, money, and resources agitating the Interim Relief Applications, and that relegating the Interim Relief Applications to the Arbitral Tribunal would defeat the objective of Arbitration.
DECISION AND FINDINGS
In response to the first issue, the SC noted that it is well settled that the expression “entertain” means to consider by application of mind to the issues raised. However, even though the process of consideration could continue till the pronouncement of judgment, once the Court entertains an application by taking it up for consideration and applies its mind to the case, the Court has the power to adjudicate the application.
The SC concurred with the Respondent that the intent of Section 9(3) of the Act cannot be to turn back the clock and force an Arbitral Tribunal to reconsider an issue under Section 17 of the Act, which has already been reserved for orders.
Thus, the SC held that the bar imposed by Section 9(3) of the Act would not apply once an application was entertained and taken up for consideration, as in the present case, where the hearing was concluded and the judgement reserved. The SC stated that:
“99. It could, therefore, 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 be remitted to their remedy under Section 17.”
With regards to the second issue, the SC observed that when an application was already taken up for consideration and is in the process of consideration or has already been considered, the question regarding effectiveness of remedy under Section 17 does not arise.
The SC further noted that the Courts always have the discretion to direct the parties to approach the Arbitral Tribunal whenever required, such as when there has been a long-time gap between hearing, or the hearing has just commenced and is likely to consume a lot of time.
Concluding, the SC held that as the Commercial Court had previously entertained and taken up for consideration the Interim Relief Applications under Section 9 of the Act, it would not be necessary for the Commercial Court to consider the efficacy of relief under Section 17 of the Act.
AMLEGALS REMARKS
Section 9(1) of the Act establishes defined stages at which parties may seek interim relief from the Court, including (a) before the start of Arbitral Proceedings, (b) during Arbitral Proceedings, or (c) at any point after an Arbitral Award is made but before it is enforced under Section 36 of the Act.
The SC’s decision was based on the reasoning that if an application was already considered by the Court, i.e. the Order was reserved or the judgement rendered, a significant amount of time and resources were expended on it. Thus, sending the issue back to the Arbitral Tribunal for a new hearing would defeat the purpose of law.
The SC made a noteworthy observation through this decision that the Courts are empowered to direct the parties to approach the Arbitral Tribunal even if an application under Section 9 was entertained prior to the constitution of the Arbitral Tribunal, if the situation so calls for it.
Through this decision, the SC delicately balanced the role of Arbitral Tribunals and Courts regarding disputes which are arbitrable under an Arbitration Clause, by allowing the Court to adjudicate upon an arbitrable issue over which the Court applied its mind prior to the constitution of the Arbitral Tribunal.
The SC further emphasized on the role of Arbitral Tribunals to adjudicate arbitrable issues, when such issue was not taken for consideration by the Court and would take a considerable amount of time for the Court decide upon the same.
For any queries or feedback, feel free to get in touch with rohit.lalwani@amlegals.com or riddhi.dutta@amlegals.com.
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