Citation: AIR 1999 SC 565 | (1999) 2 SCC 479
Court: Supreme Court of India
Bench: Justice Sujata V. Manohar and Justice B.N. Kirpal
Date of Judgment: 13 January 1999
Facts of the Case
The respondent, NEPC India Ltd., entered into a hire-purchase agreement with the appellant, Sundaram Finance Ltd., for the supply of two wind turbine generators along with accessories. Under the agreement, the respondent was required to make payment in 36 instalments, commencing from 29 September 1995 and ending on 25 August 1998.
According to the appellant, the respondent paid the first fifteen instalments but subsequently defaulted in making further payments despite repeated demands. The hire-purchase agreement contained an arbitration clause, providing that all disputes arising out of the agreement would be referred to the sole arbitrator nominated by the Managing Director of the owner, and that the arbitral award would be final and binding upon the parties.
When the appellant learnt that other litigation was pending against the respondent, it apprehended that its interest in the hired equipment might be prejudiced. Consequently, it filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 before the City Civil Court, Chennai, seeking appointment of an Advocate Commissioner to take possession of the wind turbine generators and restore their interim custody to the appellant.
The trial court entertained the application and, by an interim ex parte order dated 7 April 1998, appointed a Commissioner to take possession of the turbines with police assistance.
The respondent challenged this order before the Madras High Court under Article 227 of the Constitution, primarily contending that since no arbitral proceedings had commenced and no arbitrator had been appointed, an application seeking only interim relief under Section 9 was not maintainable.
The High Court accepted this contention and held that the trial court lacked jurisdiction to entertain the application because arbitration proceedings had not yet been initiated. The High Court therefore set aside the trial court's order without examining its merits.
Aggrieved by this decision, the appellant preferred appeals before the Supreme Court.
Issues Before the Court
Whether a court has jurisdiction under Section 9 of the Arbitration and Conciliation Act, 1996 to grant interim measures before the commencement of arbitral proceedings and before the appointment of an arbitrator.
Whether an application under Section 9 must necessarily be preceded by a notice invoking arbitration under Section 21 of the Act.
Contentions
Appellant
The appellant contended that:
Section 9 expressly empowers courts to grant interim protection before, during, or after arbitral proceedings.
Interim relief is intended to preserve the subject matter of arbitration and therefore may become necessary even before arbitral proceedings formally commence.
The language of Section 9 clearly contemplates the grant of interim protection before arbitration begins.
Respondent
The respondent argued that:
Since neither arbitral proceedings had commenced nor an arbitrator had been appointed, the application under Section 9 was premature and not maintainable.
Section 9 should be interpreted in the light of the provisions of the Arbitration Act, 1940, under which interim relief could be granted only when arbitration proceedings were pending.
Permitting applications under Section 9 before arbitration would allow parties to obtain interim orders without ever initiating arbitration.
Judgment
The Supreme Court allowed the appeals and set aside the judgment of the Madras High Court.
Reasoning of the Court
The Arbitration and Conciliation Act, 1996 is fundamentally different from the Arbitration Act, 1940
The Court observed that the 1996 Act introduced an entirely new arbitration regime based upon the UNCITRAL Model Law.
It held that:
The provisions of the 1996 Act must be interpreted independently.
Reliance upon the principles governing the Arbitration Act, 1940 could lead to an incorrect interpretation.
The provisions of the 1996 Act should instead be construed with reference to the UNCITRAL Model Law.
Section 9 expressly permits interim relief before commencement of arbitration
The Court examined the language of Section 9, particularly the words:
"before or during arbitral proceedings."
It held that these words clearly recognise two distinct stages:
before commencement of arbitral proceedings, and
during arbitral proceedings.
Giving any other interpretation would render the word "before" redundant, which is impermissible.
Accordingly, the Court held that a court has jurisdiction to grant interim measures:
before arbitral proceedings commence,
during arbitral proceedings, and
after the arbitral award but before its enforcement under Section 36.
Arbitral proceedings commence only under Section 21
The Court referred to Section 21, which provides that arbitral proceedings commence on the date when a request for reference to arbitration is received by the respondent.
Since Section 9 specifically permits relief before arbitral proceedings, the legislature intentionally empowered courts to grant interim protection even before the stage contemplated by Section 21.
Notice under Section 21 is not a mandatory prerequisite
The Court held that an application under Section 9 need not necessarily be preceded by issuance of a notice invoking the arbitration clause.
However, where arbitration has not yet commenced, the applicant must demonstrate a manifest intention to refer the dispute to arbitration.
The Court observed that:
filing an application under Section 9 itself implies acceptance of the arbitration agreement;
a valid arbitration agreement must exist;
the dispute must be one capable of being referred to arbitration; and
the applicant must genuinely intend to commence arbitration.
The Court further observed that, while granting interim protection, the court may impose suitable conditions to ensure that arbitration proceedings are actually commenced.
Section 9 is not comparable with the Arbitration Act, 1940
The Court rejected the High Court's reasoning based upon the Arbitration Act, 1940.
It held that:
Section 8 of the 1996 Act is not in pari materia with Section 20 of the 1940 Act.
Sections 9 and 17 are also materially different from Section 41 and the Second Schedule of the 1940 Act.
Appointment of arbitrators under the 1996 Act is governed by Section 11, which does not require a judicial order appointing the arbitrator.
Therefore, the provisions of the old Act could not be relied upon while interpreting Section 9.
Reference to UNCITRAL Model Law and English Arbitration Act
The Court noted that Section 9 corresponds substantially to:
Article 9 of the UNCITRAL Model Law, and
Section 44 of the English Arbitration Act, 1996.
Both provisions recognise the power of courts to grant interim protection even before arbitral proceedings commence.
Need for procedural rules under Section 82
The Court observed that many High Courts had not framed procedural rules under Section 82.
It requested all High Courts to frame appropriate rules regarding:
filing of Section 9 applications,
documents accompanying such applications, and
procedure for their expeditious disposal.
Decision
The Supreme Court held that:
Courts possess jurisdiction under Section 9 to grant interim measures before commencement of arbitral proceedings, during arbitral proceedings, and after the arbitral award but before its enforcement.
Issuance of a notice under Section 21 is not a mandatory condition before filing an application under Section 9.
The applicant must, however, demonstrate a genuine intention to commence arbitration.
The Madras High Court erred in holding that the trial court lacked jurisdiction merely because arbitration proceedings had not commenced.
Accordingly:
the judgment of the Madras High Court was set aside;
the matter was remitted to the High Court for consideration of the challenge to the trial court's order on merits; and
there was no order as to costs.
Ratio Decidendi
A court may exercise its jurisdiction under Section 9 of the Arbitration and Conciliation Act, 1996 to grant interim measures before the commencement of arbitral proceedings, provided the applicant establishes the existence of a valid arbitration agreement and a manifest intention to refer the dispute to arbitration. Issuance of a notice under Section 21 is not a mandatory prerequisite for maintaining an application under Section 9.
Important Legal Principles
The Arbitration and Conciliation Act, 1996 must be interpreted independently of the Arbitration Act, 1940.
Section 9 empowers courts to grant interim protection before, during, and after arbitral proceedings (before enforcement of the award).
Arbitral proceedings commence under Section 21 only upon receipt of a request for arbitration by the respondent.
A notice invoking arbitration is not compulsory before filing a Section 9 application.
The applicant must demonstrate a bona fide intention to commence arbitration.
Courts may impose conditions while granting interim relief to ensure initiation of arbitral proceedings.
The provisions of the 1996 Act should be interpreted consistently with the UNCITRAL Model Law wherever appropriate.