In a somewhat belated realisation, the Arbitration and Conciliation (Amendment) Act 2015 has made changes that impact the ability of parties in international commercial arbitrations seated outside India (offshore arbitrations) to seek interim remedies before Indian courts. In a nutshell, the amended provision permits an Indian court to order interim measures of protection in aid of an offshore arbitration.

The issue is not new, and the traditional debate has been centred on the applicability of Section 9 of the Arbitration and Conciliation Act 1996 (Arbitration Act) to such offshore arbitrations. Section 9 is found in Part I of the Arbitration Act (which is applicable to domestic arbitrations), and empowers Indian courts to grant interim measures in aid of arbitration proceedings. Until 2012, the Supreme Court had through a series of judgements [including most significantly the case of Bhatia International vs Bulk Trading S.A, (2002) 4 SCC 105] given an expansive reading to the jurisdiction of Indian courts, by holding that Part I of the Act would be applicable to offshore proceedings. It is now well known that this expansive interpretation came under severe criticism. When the Constitution Bench sat to hear the case of Bharat Aluminium v Kaiser Aluminium (2012) 9 SCC 552 (BALCO), it considered the correctness of the law laid down in the case of Bhatia International. In an extremely positive move, the Supreme Court held that Part I of the Arbitration Act was inapplicable to offshore arbitrations.

While both the tenor and analysis of the BALCO judgement is noteworthy, the Supreme Court did not deal with some important facets of interim protection in an impressive way. During the course of arguments, it was asserted that Section 9 of the Arbitration Act was sui generis, and that it ought to apply even if Part I (concerning domestic arbitrations generally) was held inapplicable to offshore arbitrations. It was argued that the provision was needed for the purpose of making efficacious orders in arbitration proceedings, and that a vacuum would be created if no authority could make efficacious interim orders with regard to Indian assets in an offshore arbitration. The argument was rejected by the Constitution Bench. The Amendment Act attempts to undo this position.

While it may seem that the amendment has resolved the impasse, it would be a mistake to conclude that the underlying issue has been holistically resolved. The changes introduced speak only to the power of Indian courts in such cases, and do not deal with the enforcement of interim orders issued by foreign courts and tribunals. Importantly, there has been no significant debate on the primacy of forum for the purpose of making such orders. Put differently, the amendment deals with the secondary question of court assistance, leaving untouched the primary question concerning the enforcement of foreign court/tribunal ordered interim measures. As an additional point of interest, the wording of the amended provision is largely unqualified, and could result in errors moving forward.

What was the problem?

The argument raised in BALCO followed the logic that if Section 9 was held not to apply to offshore arbitrations, parties would be left without the remedy of conservatory measures in relation to assets situated in India. There is no direct enforcement of interim orders of foreign courts in India (the Code of Civil Procedure, 1908, does not provide for this), and orders of foreign tribunals are not provided the benefit of the New York Convention (which applies to awards and not orders). In other words, since an interim measure ordered by a foreign court/tribunal would not ipso jure be enforceable in India, a mechanism was required to make possible effective relief in relation to Indian assets. It was argued that Section 9 of the Arbitration Act was that mechanism.

In BALCO, the Supreme Court rejected the sui generis theory, and sided instead with a textual interpretation of Sections 2 and 9 of the Arbitration Act. It went on to declare that Section 9 of the Arbitration Act was no different than the remaining provisions in Part I, and that it was accordingly inapplicable to offshore arbitrations.

It is not difficult to understand why this debate has come back to life. In offshore arbitrations, the need to secure assets located in India could routinely arise. This need would have gone unfulfilled under the blanket BALCOban on intervention, or would have at best been dealt with in awkward ways. It is this need that has been engaged with by the amendment.

A missed opportunity–the possible solutions

In theory, various solutions could have resolved the impasse. First, an amendment could have been brought to the Code of Civil Procedure (or the Arbitration Act), creating space for the direct enforcement of interim measures granted by foreign courts (or arbitral tribunals) in aid of arbitration. Variants of these methods are presently used in different countries, with no significant harmonisation. It will be found that many common law countries do not enforce foreign judgements unless they are final and conclusive, and this becomes a significant bar on the enforceability of interim orders made by foreign courts.

The second solution, unsuccessfully mooted before the court in BALCO, was to follow the method used by the House of Lords in the case of Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd ([1993] A.C. 334). Although the analogy is not perfect, Channel Tunnel opens a possible line of argument. If it is conceded that Section 9 is a necessary part of Part I, and that it is accordingly inapplicable to an offshore arbitration, it can be argued that the inherent power of the court under Section 151 of the Code of Civil Procedure, 1908, can be exercised for the purpose of granting interim injunctions in the context of offshore arbitrations. Of course, the absence of a main suit before the Indian court is an imminent objection to this mechanism. Moreover, such an exercise would be awkward exercise of jurisdiction.

The final recourse would be to amend the Arbitration Act, by including within it an express provision that helps overcome the blanket restriction BALCO imposes. This would directly empower an Indian court to make orders in aid of offshore arbitration proceedings. This is the route that has been taken by the present amendment.

It is important to note that these solutions are intricately related, and respond to the same underlying question regarding the best method to ensure interim protection during arbitration proceedings. Of course permitting domestic courts to make such orders can be an advisable safety valve. However, this solution is not mutually exclusive to tribunal ordered injunctions; and they could very well have supplemented each other.

The change brought about at the moment exclusively empowers Indian courts to make effective interim orders in offshore arbitrations in relation to assets situated in India. The amendment does not provision for easier enforcement of interim orders made by foreign tribunals/ courts. It bears mentioning that the amended provision is intricately linked to Section 17 of the Arbitration Act (tribunal ordered injunctions in domestic arbitrations), and conditions the grant of interim relief in domestic arbitrations by the court upon the non availability of tribunal ordered remedies. Accordingly, the Amendment Act accepts the in principal primacy of tribunals in domestic arbitrations with regard to making of interim orders. 

It may well be the case that enforcement of interim measures ordered by tribunals is a more complicated task (and will need sufficient checking mechanisms). It is also true that internationally, there is no homogenous system of enforcement of interim measures ordered by tribunals. That said, it is a remedy that must be more carefully be considered. There is merit in the suggestion that arbitral tribunals should be primarily responsible for making such orders. In the absence of a debate on the appropriate forum for making of such orders (and consequent absence of statutory reform that would permit easier enforcement of interim orders by foreign court/tribunal), it appears that the Amendment has missed a trick. In a heterogeneous enforcement environment for interim measures, India could have taken an important global step, by at the minimum instituting an important public debate.

Foreign court/tribunal ordered injunctions

There are good reasons to argue for a tribunal’s primacy in dealing with issues arising from the disputes they adjudicate. These reasons also apply to interim measures of protection.

First, an interim measure of protection is ex hypothesi issued at a time when the court/tribunal has not come to any final determination on the merits of a case. Many scholars have pointed to the uncertainties associated with the grant of interim injunctions, and concluded that the guiding principle ought to be minimisation of harm that might accrue as a consequence of an erroneous decision. In the language of probability, this means that the authority should look to minimise the expected harm as a consequence of its erroneous decision on the interim measure. Conceptually, this may require an inquiry into the merits of a claim, which the tribunal seized of the matter, shall conduct in any event.

Second, the tribunal has a continuous mandate in relation to the matter, and is ultimately responsible for making awards that are capable of being enforced. The ability to make enforceable interim orders can be crucial in this regard.

Third, party autonomy in choosing institutional rules which provide for such interim measures by tribunals is a significant factor that must be given due weight when determining the natural forum for granting such reliefs.

These are strong reasons for tribunals to be granted a place of pride in the making of such orders. Of course this does not, without more, imply that exclusive jurisdiction ought to be granted to them. The appreciation of this position should however translate into some form of direct assistance in enforcing interim orders of tribunals. And even though parties may often enough voluntarily comply with tribunal ordered interim measures, a statutory framework is nonetheless required to ensure effectiveness. This framework may well come with its own set of protections (mandatory requirements to be met for such orders to be enforced), thereby alleviating concerns regarding due process requirements.

A problem for the wordsmith

In addition to the issues mentioned above, the phraseology of the amendment is questionable in some parts. The amendment makes the following inclusion in Section 2 of the Arbitration Act: “Provided that subject to an agreement to the contrary, the provisions ofsections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of section37 shall also apply to international commercial arbitration, even if the place ofarbitration 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.”.

Essentially, the amended provision (in so far as it relates to Section 9) provides jurisdiction to Indian courts to issue interim remedies in offshore arbitrations. The qualification attached is that the award made (or to be made) must be enforceable under Part II. Thus, for all practical purposes, if the place or seat of arbitration happens to be a country that is a signatory to the New York Convention (most countries are), an interim measure may be granted by an Indian court. On the face of it, this is a return to the pre- BALCO Section 9 position.

It is understandable that with a change in attitude towards commercial arbitration coming from the Supreme Court, there is reduced fear of unreasonable interference by Indian courts in offshore arbitrations. Be that as it may, the present phraseology does not in any significant way guide the exercise of discretion by courts in India. Nor does it in anyway caveat the exercise of this jurisdiction, equitable as it might very well be. A short comparison with other legislations may be helpful.

Under the English Arbitration Act, courts have the power to issue interim remedies in support of arbitration, even if the seat of the arbitration is outside England and Wales or Northern Ireland. However, the court “may refuse to exercise any such power if, in the opinion of the court, the fact that the seat of the arbitration is outside England and Wales or Northern Ireland, … makes it inappropriate to do so” (Emphasis Supplied).

The amended provision appears to rely entirely on the faith that domestic courts will not issue Section 9 reliefs in ways that are contrary to the purpose of international commercial arbitration seated outside India. It is here that an important step has been missed. An ‘appropriateness’ analysis ought to be integral to the making of such an order. Making such a test a necessary part of the statute would have occasioned such an inquiry every time such an order was sought.

Conclusion

The new provision has not yet been tested fully. In the meanwhile, we must recognise that difficult questions regarding interim protection in aid of arbitration by foreign tribunals/courts are yet to be resolved holistically. Even within the scope of the changes made, the inclusion of an appropriateness test would have been advisable. Further, while it remains the case that there is no homogeneity globally on how such orders should be enforced, it would be a welcome addition to the debate if we were to consider Tribunal primacy in such matters. This framework could come with its own set of protections (mandatory requirements to be met for such orders to be enforced), thereby alleviating concerns. An opportunity for reform was presented, but this important issue was left out discussion.

In any event, the spectre of Section 9 has risen to haunt again, and although positive changes have been introduced, they do not appear enough to obviate the need for further review at some stage in the future.

* This article has been written with Shobhit Nanda, Advocate.