The Karnataka High Court has ruled that the restriction contained under Section 9(3) of the Arbitration and Conciliation Act, 1996 (A&C Act) would not apply once an application under Section 9(1) for interim measures has been "entertained" by the Court before the appointment of the arbitrator.
The Single Bench of Justice Sachin Shankar Magadum observed that, as per the law laid down by the Supreme Court in Arcelor Mittal Nippon Steel India Ltd. versus Essar Bulk Terminal Limited (2021), the Court entertains a matter when it takes it up for consideration. Hence, the Court held that since the application under Section 9(1) was already entertained and considered by the Commercial Court before the appointment of the Sole Arbitrator, the bar under Section 9(3) of the A&C Act was not attracted.
An application under Section 9 of the A&C Act for interim measures was filed by the respondent/lessor UM Projects LLP before the Commercial Court, seeking a direction against the petitioner/lessee Godolphine India Private Limited to pay the outstanding rent and maintenance charges. The Commercial Court allowed the said application, against which the petitioner filed an appeal before the Karnataka High Court. The High Court dismissed the appeal and confirmed the order passed by the Commercial Court. The High Court observed that the liability of the petitioner to pay rent in terms of the lease deed executed between the parties had no nexus or connection to the order passed by the Commercial Court directing the petitioner to deposit a certain sum pending the arbitral proceedings.
Thereafter, the respondent filed an execution petition seeking execution of the interim order. The Executing Court passed an order attaching the bank account of the petitioner. The petitioner filed a writ petition before the Karnataka High Court challenging the order passed by the Executing Court.
The petitioner Godolphine India submitted before the High Court that the remedy sought by the respondent lied before the Arbitral Tribunal and therefore, the respondent cannot file an execution petition to recover the amount, which is the subject matter of arbitration, before the commencement of the arbitral proceedings.
The respondent UM Projects contended that an order passed under Section 9 of the A&C Act is executable under the provisions of Order XXI of the Code of Civil Procedure, 1908 (CPC) as well as under Section 36 of the CPC. The respondent added that an order under Section 9 of the A&C Act assumes a status of decree where the rights of the parties are adjudicated. Hence, the respondent averred that the order passed by the Executing Court does not contravene any provisions of the CPC.
Section 9(1) of the A&C Act provides that a party may, before or during the arbitral proceedings or at any time after the making of the arbitral award but before it is enforced, apply to a court for interim measures of protection. Section 9 (3) provides that once the arbitral tribunal has been constituted, the Court shall not entertain an application under Section 9 (1), unless the Court finds that circumstances exist which may not render the remedy provided under Section 17 efficacious. Section 17 of the A&C Act deals with the power of the arbitral tribunal to pass orders for interim measures of protection.
The High Court observed that the application filed under Section 9 of the A&C Act was dealt by and allowed by the Commercial Court by an order dated 4.3.2022; and that subsequently, the Co-ordinate Bench of the Karnataka High Court had appointed a Sole Arbitrator by an order dated 24.3.2022.
The Court noted that the Supreme Court in the case of Arcelor Mittal Nippon Steel India Ltd. versus Essar Bulk Terminal Limited (2021) had held that once an application for interim relief has been "entertained", i.e., taken up for consideration by the Court, and if the Court has applied its mind, it can proceed to adjudicate the same even after the constitution of the Arbitral Tribunal.
Considering the scope of the term "entertain", as mentioned under Section 9(3) of the A&C Act, the Supreme Court had ruled that a Court entertains a matter when it takes it up for consideration and that such a process of consideration may continue till the pronouncement of the judgment.
Hence, the High Court ruled that in view of the law laid down by the Supreme Court, the restriction under Section 9(3) of the A&C Act would not apply once an application under Section 9(1) has been "entertained" by the Court before the appointment of the arbitrator.
The Court observed that before the Sole Arbitrator was appointed by the Co-ordinate Bench of the Karnataka High Court, the Commercial Court had dealt with the application filed under Section 9(1) of the A&C Act and had passed an order directing the petitioner to pay a certain sum of money towards the premises leased by him.
"Therefore, this Court is of the view that in the present case, the question of examining efficacy of remedy under Section 17 of the Act, 1996 would not arise since application under Section 9(1) of the Act, 1996 is already entertained and considered by Commercial Court. The Apex Court has adopted a practical approach in the case of Arcelor Mittal Nippon Steel India Limited therefore, the bar enshrined in Section 9(3) of the Act does not apply to the present case on hand.", the Court held.
Hence, the Court ruled that the respondent/decree holder was entitled to execute the order passed by the Commercial Court on an application filed under Section 9(1) of the A&C Act, and therefore, the petitioner could not resist the execution proceedings.
The Court, thus dismissed the writ petition.
Case Title: Godolphine India Private Limited versus UM Projects LLP
Citation: 2022 LiveLaw (Kar) 282
Dated: 01.07.2022 (Karnataka High Court)
Counsel for the Petitioner: Mr. Shravanth Arya Tandra, Advocate for Mr. Irfana Nazeer, Advocate
Counsel for the Respondent: Srinivasa. D.C, Advocate for Mr. Pradeep Nayak, Advocate