Article

In a recent matter of Arcelor Mittal Nippon Steel India Ltd. v. Essar Bulk Terminal Ltd. (Civil Appeal No. 5700 OF 2021) an interesting question of law arose. The issue was “whether the Court has the power to entertain an application under Section 9(1) of the Arbitration and Conciliation Act, 1996, (“Arbitration 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 Arbitration Act?”

The issues arose when the Appellant in the matter approached the High Court of Gujarat at Ahmedabad under Section 11(6) of the Arbitration Act, for appointment of an Arbitral Tribunal. Simultaneously, the both the parties in the matter also filed their applications under Section 9 of the Arbitration Act before the Commercial Court at Surat. The Commercial Court, heard both the Section 9 applications and reserved the orders on 7^th June, 2021.

In the interim but before the Commercial Court in Surat pronounced the order, the Gujarat High Court disposed of the application under Section 11 of the Arbitration Act and appointed a three-member Arbitral Tribunal. The Appellant immediately filed an interim application before the court to refer both the applications under section 9 filed by the parties, to the Arbitral Tribunal. The application was dismissed. The Appellant challenged the dismissal before the Gujarat High Court under Article 227 of the Constitution of India. The High Court dismissed the petition holding that the Commercial Court has the power to consider whether the remedy under Section 17 of the Arbitration Act is inefficacious.

The Appellant filed an appeal before the Apex Court.

Arguments on behalf of the Appellant:

• Section 9(3) of the Arbitration Act restricts the power of the Court to entertain an application under Section 9(1) of the Arbitration Act once an Arbitral Tribunal has been constituted and since the Tribunal was constituted, the court cannot proceed with the matter, unless it finds that circumstances exist, which may render the remedy under Section 17 of the Arbitration Act inefficacious.
• The term ‘entertain’ in Section 9(3) of the Arbitration Act, is to be interpreted to mean “adjudicate”. It would not merely mean admitting for consideration, but would mean the entire process upto its final adjudication and passing of an order on merits.
• The objective behind insertion of the sub-clause was emphasized that is to reduce the interference of court, to reduce burden of court, and that to ensure that the relief is granted in a timely and efficacious manner.

Arguments on behalf of the Respondent:

• Section 9(1) of the Arbitration Act provides that a party will apply to the court before, during or after the arbitral proceedings. The Courts therefore do not lose jurisdiction upon constitution of the Arbitral Tribunal.
• Section 9(3) of the Arbitration Act was neither a non-obstante clause nor an ouster clause that would render the courts coram non judice, immediately upon the constitution of the Arbitral Tribunal.
• In this case, only the formality of pronouncing the order in the Section 9 Applications remained and the application under Section 9 had been entertained, fully heard and arguments concluded;
• ‘Entertain’ means “admit into consideration” or “admit in order to deal with”.
• The Commercial Court has already given much judicial time for the matter.
• An appeal from an order passed by the Arbitral Tribunal in an application under Section 17, lies before the superior Court. It cannot, therefore, be said that Section 17 proceeding flows any differently from a proceeding in Court under Section 9 of the Arbitration Act or has any distinct hierarchy.

The Court after hearing both the parties observed that post 2015 amendments to the Arbitration Act, the Arbitral Tribunal has the same power to grant interim relief under section 17 as the Court and the remedy under Section 17 is as efficacious as the remedy under Section 9(1). The Court also observed that a judgment is said to be pronounced when it is done so in an open court and not when it is reserved or merely dictated. A judge becomes functus officio when he pronounces, signs and dates the judgment.

Relying on Energo Engineering Projects Ltd. v. TRF Limited 2016 SCC Online Del 6560 and various other judgments passed post 2015 Amendments including one passed by the Delhi High Court in Avantha Holdings Limited v. Vistra ITCL India Limited 2020 SCC OnLine Del 1717, the Court approved the findings of law that the Court, while exercising its power under Section 9 of the Arbitration Act, has to be acutely conscious of the power vested in the arbitral tribunal by Section 17 of the Arbitration Act. The sections are identically worded thus giving identical powers of “interim measures”. The Court explained that it is for this reason Section 9(3) proscribes grant of interim measures by the Court after the constitution of the arbitral tribunal with the exception where the Court finds that circumstances exist, which may not render the remedy, under Section 17, to be efficacious.

However, the Court disapproved the finding of the Delhi High Court to the extent it stated that the “Court, while exercising jurisdiction under Section 9, even at a pre-arbitration stage, cannot usurp the jurisdiction which would, otherwise, be vested in the arbitrator, or the Arbitral Tribunal, yet to be constituted”. The Court instead held that “The bar of Section 9(3) operates after an Arbitral Tribunal is constituted. There can therefore be no question of usurpation of jurisdiction of the Arbitral Tribunal under Section 17 before the Arbitral Tribunal is constituted. The Court is obliged to exercise power under Section 9 of the Arbitration Act, if the Arbitral Tribunal is yet to be constituted. Whether the Court grants interim relief or not is a different issue,”

The Court then went on to analyse the meaning and purport of the term ‘entertain’. While analysing the judgments in Lakshmi Rattan Engineering Works Ltd. v Asstt. Commissioner Sales Tax, Kanpur and Anr (1968) 1 SCR 505, the Court stated that ‘entertain’ means “admitting to consideration”. In the matter of Hindustan Commercial Bank Ltd. v Punnu Sahu (1971) 3 SCC 124, the Court held that the expression “entertain” in the proviso to clause (b) Order 21 Rule 90 of the CPC (as amended by Allahabad High Court), means to “adjudicate upon” or “proceed to consider on merits” and not “initiation of proceeding”.

The Court therefore agreed with the argument of the Appellant and concluded that it was well settled that the expression “entertain” means to consider by application of mind to the issues raised. The Court entertains a case when it takes a matter up for consideration. The process of consideration could continue till the pronouncement of judgment. However, the Court also agreed with the argument of the Respondent that intent of section 9(3) was “not to turn back the clock and require a matter already reserved for orders to be considered in entirety by the Arbitral Tribunal under Section 17 of the Arbitration Act”.

The Court clarified that the bar of Section 9(3) would not operate, once an application has been entertained and taken up for consideration, as in the instant case, where hearing has been concluded and judgment has been reserved. The Court while agreeing with the Appellant that the process of consideration continues till the pronouncement of judgment, posed a question for its consideration – whether the process of consideration has commenced, and/or whether the Court has applied its mind to some extent before the constitution of the Arbitral Tribunal. If the answer is in positive, the application can be said to have been entertained before constitution of the Arbitral Tribunal.

The court in detail discussed the concept of Negative Kompetenz-Kompetenz which as per the decision of the Court is a sequel to the rule of priority in favour of the Arbitrators, that is, the requirement for parties to an arbitration agreement to honour the arbitration agreement to submit their disputes to arbitration. On the flip side the Courts are prohibited from hearing such disputes. In this regard the Court analysed the decision in Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. (2013) 1 SCC 641 and Vidya Drolia and Ors. v. Durga Trading Corporation (2021) 2 SCC 1. The Court finally, in the light of the Kompetenz-Kompetenz principle and the principle of no judicial interference, held that the court always has the discretion to direct the parties to approach the Arbitral Tribunal, if necessary by passing a limited order of interim protection, especially in the matters where the proceedings have not commenced or are at the initial stage. However, in present matter, it was not necessary for the Commercial Court to consider the efficacy of relief under Section 17, since the application under Section 9 was already entertained and considered by the Commercial Court.