Recognition And Enforcement Of Interim Measures:The Inadequacy Of The Indian Arbitration Amendment Act, 2015

Gracious Timothy

22 Nov 2016 11:44 AM GMT

  • Recognition And Enforcement Of Interim Measures:The Inadequacy Of The Indian Arbitration Amendment Act, 2015

    IntroductionThe Arbitration and Conciliation Act of 1996 (‘1996 Act’) was India’s moment of adopting the 1985 UNCITRAL Model Law on International Commercial Arbitration (‘Model Law’) [24 I.L.M. 1302 (1985)]. With a view to comprehensively cover international commercial arbitration as also domestic arbitration, the objects and reasons for its enactment was framing an arbitration system...

    • Introduction

    The Arbitration and Conciliation Act of 1996 (‘1996 Act’) was India’s moment of adopting the 1985 UNCITRAL Model Law on International Commercial Arbitration (‘Model Law’) [24 I.L.M. 1302 (1985)]. With a view to comprehensively cover international commercial arbitration as also domestic arbitration, the objects and reasons for its enactment was framing an arbitration system that empowered a tribunal, therefore, ensuring speedy disposal with the least court intervention. Section 17 of the 1996 Act is one such integral provision that grants an arbitral tribunal the power to order interim measures of protection, critical for the efficacy of an arbitration system. It ensures that for the purposes of interim reliefs parties can approach the arbitral tribunal rather than anticipating orders from a court. The real value in section 17, however, was seriously compromised under the old regime given the lack of any suitable statutory mechanism for the enforcement of such interim orders issued by an arbitral tribunal. The advent of the ‘new regime’ through the Arbitration and Conciliation (Amendment) Act, 2015, (the ‘Amendment’) changed the fate of interim orders in the domestic context, giving them the sanctity of a court’s decree. The Amendment had a celebrated entry into the Indian law of arbitration with its high definition international standards. It is true that the Amendment delivered a solution for an immediate enforceability of interim orders passed by an arbitral tribunal, nevertheless, there are questions, essential dimensions, that linger unanswered – what about the sanctity of an interim order issued by a arbitral tribunal seated outside India? What about its recognition and enforceability within India? Is not this one of the cornerstones of building a pro-Arbitration jurisdiction?

    • The Problem That Existed

    Section 17 of the ‘old regime’ under the 1996 Act was a concern which was commented upon by the Supreme Court of India on several occasions. Each time it was felt that though the said provision gives the arbitral tribunal the power to pass orders, the same could not be enforced as orders of a court. For this reason, it was understood that the 1996 Act also gave powers to the court to pass interim orders during ongoing arbitration proceedings which filled-in the gaps to a certain extent. It was undoubtedly clear that no power was conferred on an arbitral tribunal to enforce its interim order, and neither did it provide for any judicial enforcement thereof.

    • The Suggested Solution to the Problem that was

    In the face of existing categorical judicial opinion about the inadequacy of section 17, courts made an attempt to find an alternative suitable legislative basis for enforcing the orders of the arbitral tribunal. It was proposed that any person failing to comply with the order of the tribunal under section 17 would be deemed to be making a ‘default’ or would be ‘guilty’ of contempt to the arbitral tribunal during the conduct of the arbitral proceedings. The remedy of the aggrieved party would then be – to apply to the arbitral tribunal for making a representation to the court to mete out appropriate disadvantages, penalties, and punishment, as they would deserve for like offences in lawsuits tried before the court. Therefore, once such a representation is received by a court from an arbitral tribunal, the court would be competent to deal with such a party in ‘default’ as if it is in contempt of an order of the court [Either under the provisions of the Contempt of Courts Act, 1971, or under the provisions of Order 39 Rule 2A of the Code of Civil Procedure, 1908 (the “CPC”).]. However, taking this route involved too many complications, and it was not considered to be an overall solution.

    • The Solution That Finally Came

    The Law Commission of India, therefore, recommended amendments to section 17 of the 1996 Act which would give teeth to the orders of an arbitral tribunal. It was recommended that the interim order becomes statutorily enforceable in the same manner as the orders of a court. In this respect, the views of the Commission were consistent, although not fully, with the 2006 amendments to Article 17 of the UNCITRAL Model Law. Reflecting the recommendations of the Law Commission, section 17 of the 2015 Arbitration Amendment sets forth that any order issued by the arbitral tribunal under this section shall be deemed to be an order of the court for all purposes and shall be enforceable in the same manner as if it were an order of the court.

    The arbitral tribunal would now have the same powers as a civil court in relation to granting an order of interim measure. Reading section 17 and section 9 (‘interim measures etc. by court’) of the 2015 Arbitration Amendment in conjunction with each other would show that under the new regime parties will now be compelled to approach the arbitral tribunal for interim relief (instead of a court) once the tribunal has been constituted. The Amendment further provides that once the arbitral tribunal is constituted, the courts are not to entertain an application for interim measures unless the court finds that circumstances exist which may not render the remedy under section 17 efficacious. This is a clear departure from the old position that the existence of an application before an arbitral tribunal for interim measure did not denude the court of its powers to make an order for interim measures under section 9; that a court being a superior judicial forum the court’s power had primacy over those of an arbitral tribunal. What’s more under the new regime, it stipulates that the arbitral tribunal would continue to have powers to order interim measures post-award. There are three simple explanations for abovementioned characteristics of the amended section 17 under the new regime – firstly, because an arbitral tribunal now wields the power of a court under the new regime; secondly, to cut short the involvement of courts in arbitral proceedings motivating a smooth flow of the arbitral process; and thirdly, to ensure a reduction of the court’s burden.

    • The Existing Inadequacy of Section 17

    It is an established position that section 17 from the old regime was limited and that it did not confer any power on the arbitral tribunal to enforce its orders. Nonetheless, with the 2015 Arbitration Amendment coming into force, a broader mandate was granted to an arbitral tribunal, solidifying it with a statutory mechanism of enforcement. What it fails to reflect is the establishment of a regime for the recognition and enforcement of interim measures issued by arbitral tribunal seated outside India (or as I’d like to call them – ‘foreign interim orders’).

    A foreign interim order, however, should not be tangled with that of an ‘interim award’ rendered by a foreign seated arbitral tribunal and its recognition and enforcement under Part-II of the 1996 Act. The distinction between an ‘interim award’ and an ‘interim order’ must be gathered clearly as certain legal consequences flow from the categorisation of the same. The Indian arbitration law considers an ‘interim award’ to be as good as an ‘award’. An award is a decision of the arbitral tribunal on the substance of the dispute and includes a partial or interim awards but excludes any ‘orders’ or ‘directions’. An ‘interim award’ is one that is issued while the arbitration is still in progress; a final decision on the matters covered thereby but made at an interim stage. An ‘interim award’, therefore, is a decision of the arbitral tribunal on the parties’ legal rights and liabilities, which is final and binding and not in the nature of a ‘measure of protection’ (whereas an ‘interim order’ is always in the nature of a measure of protection - Section 9 and Section 17 of the 1996 Act.).

    Where there are ‘interim awards’ rendered arbitral tribunals seated abroad, such awards are supported by a mechanism of recognition and enforcement under the domestic arbitration statute of India, parallel to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). However, no such framework exists, either in the domestic law or under the 1958 New York Convention [Jason Fry, Simon Greenberg, Francesca Mazza, The Secretariat's Guide to ICC Arbitration, ICC Publication, 291 (Paris 2012). The New York Convention, under Article 5(1)(e), states that recognition or enforcement of an award may be refused if the award is not binding on the parties. The fact that an interim measure ordered by arbitral tribunal may be amended or rescinded by the tribunal poses an obstacle for its enforcement under the New York Convention.] or any other bilateral or multilateral treaty, by which ‘foreign interim orders’ may be recognised and enforced in the Indian jurisdiction.

    The UNCITRAL Model Law adopted in 2006 made an important advancement with Articles 17H and 17I as they identified this lacuna and suggested a regime for the recognition and enforcement of interim orders, which was modelled on the regime for recognition and enforcement of arbitral awards under Article 35 and Article 36 of the Model Law. The Model Law specifies that interim orders issued by an arbitral tribunal would be recognised as binding and enforced upon an application to the competent court, irrespective of the country in which it was issued, followed by another stipulation laying down the grounds for refusing recognition and enforcement of an interim order.

    Seemingly, the Arbitration Amendment of 2015 ignored the adoption of these provisions relating to recognition and enforcement of interim orders and neither did the Law Commission of India make any observation with respect to the same in its 246th Report. Furthermore, even section 5 of the 1996 Act (Extent of Judicial Intervention) sets the court’s intervention at a minimal, insulating these foreign interim orders from any judicial innovation for their recognition and enforcement. The incorporation of the Model Law principle of recognising and enforcing interim orders could have enormously enhanced India’s status as an arbitration-friendly state.

    • Conclusion

    The importance of interim orders by arbitral tribunals has been widely recognised in international arbitration [Ali Yeşilırmak, Provisional Measures in International Commercial Arbitration (Kluwer Law International 2005).]. Such measures are commonly used in practice in relation to urgent interim reliefs, and even by emergency arbitrators [Gracious Timothy, The Workability of Emergency Arbitrator in India: A Flawed Emergence of the Emergency Arbitrator, 19 Young Arbitration Review 55 (2015)]. Indubitably, the system of recognition and enforcement of interim orders is an edifice of international arbitration. With the possibility that parties may avoid compliance with such measures directed by arbitral tribunals seated outside India, there is a need for a statutory machinery to enforce these measures. It is necessary that an assistance should be available from the legislative pillars, as well as the courts in India to, ensure that such orders are not reduced to mere ‘paper orders’. However, the Indian arbitration law remains silent about the fate ofsuch interim orders issued by tribunalsseated outside India, warranting an overhaul of section 17 yet again.

    gracious-timothyGracious Timothy is an Advocate with a focus on commercial arbitration and litigation matters. He is also an Accredited Mediator passionate about consensual dispute resolution.

    [The opinions expressed in this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of LiveLaw and LiveLaw does not assume any responsibility or liability for the same].

    This article has been made possible because of financial support from Independent and Public-Spirited Media Foundation.

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