Post Award Interim Reliefs under Section 9 of the Arbitration and Conciliation Act, 1996: A light at the end of the tunnel 

Introduction:

One of the most sought after remedies under the Arbitration and Conciliation Act, 1996[1] (the Act) is the grant of interim relief under Section 9 of the Act which allows the parties to apply to the court for interim relief before or during the arbitral proceedings, or after an award is passed but before it is enforced. The law of interim reliefs took a great stride under the Act as neither the Arbitration Act of 1940 nor the UNICTRAL Model Law had envisaged granting interim reliefs to a party in a post award scenario. The Act accordingly allows the parties, before executing the award, to apply to the court for securing the proceeds of the arbitral award to protect the decretal amount, so that the award debtor cannot evade the obligations under the award and make the realisation of the award illusory.

The importance of a post award Section 9:

The grant of interim reliefs under Section 9 of the Act, especially in a scenario where the award has been delivered, assumes significance primarily because the Act provides for a statutory period of three months for the award debtor to file a challenge to the award. This created a unique hurdle in the enforcement of the award by the successful award-holder since the mere filing of a Section 34 application would automatically stay the execution of the award, pending the adjudication of the setting aside application.

To remedy such an incongruity in law, the Act, as amended in 2015 removed the concept of an automatic stay on the execution of awards, pending the adjudication of a setting aside application, and allowed award- holders to forthwith move for the execution of the award, even if a Section 34 application was pending before the court. This was deemed essential to ensure that the decree obtained in favour of the award- holder did not remain unsatisfied and be rendered a mere paper decree amidst the rigmarole of the award debtor’s attempts to stall execution of the award. Under the amended Act, an award debtor has to now necessarily apply for a stay of the execution of the arbitral award by the successful award-holder, through a separate application. Therefore, the amendment to the Act created two distinct scenarios where firstly, what was available on a platter under the Act has to be now asked for and secondly, a grant of it can be conditional upon an adjudication of the grounds made out in the stay application [See Rendezvous Sports World v. Board of Cricket Control in India[2], BCCI v. Kochi Cricket Ltd.[3] and Hindustan Construction Company Ltd. v. Union of India[4]]

Accordingly, a post award Section 9 application attains renewed significance because while the amended Act allows for the execution of the award as a money decree pending a Section 34 challenge, it does not cover situations where the 90 day period provided to award debtors to challenge an arbitral award is utilised to alienate its assets with the sole intent of resisting execution of the award. In such a circumstance, even if the successful award-holder moves for the execution of the award upon expiry of the statutory period, he would be prevented from enjoying the fruits of his decree on account of the award debtor’s mala fide conduct. The only remedy available to a successful award-holder to seek interim protection of the award amount in such circumstances therefore remains a post award Section 9 application.

The scope of a post award Section 9: Applying principles of Order 39 strictu sensu?

When it comes to the principles guiding grant of interim relief, there prima facie appears to be a consensus among the courts on applicability of procedural law principles enunciated under the Civil Procedure Code, 1908 (CPC) and the Specific Relief Act, 1963 (SRA) supervising the operation of Section 9, which includes inter alia, prima facie test, balance of convenience and irreparable harm. [See Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd.[5]] However, there appears to be a divergence on the issue of the degree to which such principles from the CPC and SRA can be imported in the adjudication of a post award Section 9 application. In any event, it is essential to note that the nature of reliefs in a post award Section 9 application can only be to a limited extent of preservation of the subject-matter of the arbitration agreement or securing the amount in dispute and not for the execution of the award pending the objections against the award. [See Afcons Infrastructure Ltd. v. Board of Trustees of Port of Mumbai.[6]]

In reference to the guidelines that the courts are supposed to follow while granting a post award interim relief, there have been various judgments which have held that a Section 9 court is not duty bound to observe the provisions of CPC strict sensu but have to merely refer to the CPC for guidance on principles governing injunctions on the alienation of assets and deposit of the award amount. The Bombay High Court in Delta Construction Systems Ltd., Hyderabad v. Narmada Cement Company Ltd., Mumbai,[7] held that in case of securing the amount in dispute, all that is required to be established is a case that if interim relief is not granted, the award in favour of a party will become nugatory. Similarly, the Kerala High Court in M. Ashraf v. Kasim V.K.[8], held that a Section 9 court has to necessarily take a liberal approach while granting interim reliefs post award and not be stymied by the application of the CPC in its most rigid sense.

However, the recent judicial trends seem to suggest that depending on the facts and circumstances of each case, the courts are inclined to apply the three–fold test of prima facie case, balance of convenience and irreparable harm and injury enshrined under Order 39 the CPC for grant of temporary injunctions while adjudicating a post award Section 9 application. Reference in this regard may be drawn to two Bombay High Court decisions in Felguera Gruas India Pvt. Ltd v. Tuticorin Coal Terminal Pvt Ltd.[9] (Felguera) and Mahyco Monsanto Biotech (India) Pvt. Ltd. v. Nuziveedu Seeds Ltd.[10], (Monsanto) wherein the Bombay High Court applied the principles of Order 39 CPC in securing the award amount by way of a post award interim relief. In the cases as above, the court merely established the existence of a prima facie case for grant of interim relief (based on the financial position of the award debtor and its conduct with regard to alienation of its assets) and proceeded to grant deposit of the entire arbitral award pending the execution of the award.

Accordingly, evidence of the declining financial position of the award debtor coupled with mala fide conduct in dealing with its assets is essential to make out a case for a post award Section 9. It is important to remember that owing to the limited period for challenge under the Act upon expiry of which an award becomes enforceable, the courts are generally hesitant to grant a post award relief and that too in a circumstance where the challenge to the arbitral award has not been filed yet. However, if a prima facie case can be made out to the court’s satisfaction, and in compliance with the principles governing Order 39 CPC – establishing that the declining financial position of the award debtor and its surreptitious conduct in disposing of its assets would amount to the award being rendered a mere paper decree, the chances of obtaining a deposit or injunction order from the courts would increase manifold.

Recent judicial trends:

Recent pronouncements on the issue can be looked at from two different perspectives:

(a) The grant of post award interim reliefs in situations where a Section 34 challenge has been filed; and

(b) The grant of post award interim reliefs in situations apprehending the filing of a Section 34 challenge by the award debtor.

Analysing the jurisprudential development on the subject, it is crucial to note that the courts generally grant deposit of the entire award amount as and by way of a post award relief under Section 9, and the grant of such relief is usually predicated upon the contumacious conduct of the award debtor and/or its brazen attempts to renege from its payment obligations under the award. The Delhi High Court in Power Mech Projects v. Sepco Electric Power Construction Corporation (Sepco)[11], granted a 100% deposit of the principal amount in the award before hearing the objections to the award filed by the award debtor. This was because in the facts and circumstances of the case, the award debtor had no immoveable assets in India and sought to furnish security for the award amount on the strength of its ongoing projects in India. The Court in Sepco, while negating the award debtor’s arguments held that revenue generated from the ongoing projects cannot be accepted as security against the enforcement of the award and further observed that valuations of machinery and other assets at the project site also cannot be taken as solvent security since the award is to be enforced as a money decree and cannot be secured by moveable assets such as machinery.

In Sampson Maritime Limited v. Hardy Exploration & Production (India) Inc.,[12] (Samson Maritime) even though a Section 34 application was pending in the case, the Madras High Court proceeded to hear the Section 9 application and granted full deposit of the awarded amount. In doing so, the Court observed that an action under Section 9 of the Act, post award, in no manner qualified as enforcing the award in itself and sought to distinguish a post award Section 9 application from an application made under Order 38 Rule 5  CPC. The remedy under Order 38 Rule 5 squarely applies in situations where the attachment of the judgment debtor’s assets is sought before judgment and the rights of the award-holder have not crystallised. Hence, an application under Order 38 Rule 5 needs to necessarily be supported by material averments to establish how the award-holder expects his rights to be defeated by the conduct of the judgment debtor. However, in a post award Section 9 application, the rights of the award-holder have crystallised since he has a decree in his favour. In such a scenario, the Court need not go into the question of the intention of the judgment debtor to delay the execution of the award and the making of a positive case by the award- holder establishing the mala fide intent of the judgment debtor. The Madras High Court held that pending the adjudication of a Section 34 application, the successful award-holder can seek protection under Section 9 post the delivery of the award – not on any apprehended action of the respondent but as a matter of right.

In Candor Gurgaon Two Developers & Projects Pvt. Ltd. v. Srei Infrastructure Finance Ltd.,[13] (Candor) the Calcutta High Court was dealing with a question of a post award Section 9 application by the award- holder, apprehending the filing of a Section 34 application by the judgment debtor. In Candor, the award directed the judgment debtor to make payment of Rs 25 crores within 30 days of the making of the award. However, since no such payments were furnished by the judgment debtor, the Section 9 application was filed seeking protection of the award amount. The Court held that since the judgment debtor had not made any effort to repay the amounts due to the successful award- holder, notwithstanding the fact that the judgment debtor still had time to file its challenge to the award, the award-holder was entitled to the protection of the award amount. Highlighting the scope of a post award Section 9, the Court observed that the protection under Section 9 can be exercised to the extent of protecting the arbitral amount if there exists a real likelihood that the award amount will be disposed of or is at general risk of being rendered nugatory.

Conclusion: Post award Section 9 reliefs – jumping the gun?

At the outset, it is crucial to note that the threshold of maintaining a case for post award relief is extremely high, even when proof of the financial weakness of the award debtor is furnished. The Gujarat High Court in Essar Oil Limited v. United India Insurance Company Limited,[14] has categorically observed that mere proof of financial instability would not in itself be sufficient to maintain a case for post award reliefs. It held that if there are extenuating circumstances showing that the conduct of the award debtor is such that it leads to the inescapable conclusion that they are likely to dispose of the property with a view to defeat the decree/awards, the Court may in the exercise of powers under Section 9(ii)(b) of the Act, pass an order of protecting the award amount. Similarly, since the statute provides a 90-day period for the award debtor to lodge his challenge to the award, the enforcement mechanism kicks in immediately after the expiry of the 90 days. Therefore, the burden on the award-holder is very high to satisfy to the court that pending the filing of the challenge to the award (and even in cases where such challenge is filed) and before the execution of the award, the circumstances are such that warrant grant of interim protection to prevent the award from becoming a paper decree.

However, should a situation arise which makes it evident that the award debtor is encumbering its assets to defeat the award, Monsanto and Felguera may be used as a guide to understanding the factors that contribute towards demonstrating the commercial insolvency of the award debtor[15]. Since the Act, as amended in 2015 does away with the concept of the automatic stay, it would be prudent to initiate execution proceedings upon the expiry of the 90 day period lest there exist prima facie exigencies which make it evident that there exists a likelihood of the award being defeated.

***


*Final year student of Government Law College, Mumbai

** Associate (Dispute Resolution) Vashi and Vashi, Advocates and Solicitors, Mumbai

[1] Arbitration and Conciliation Act, 1996 

[2] 2016 SCC OnLine Bom 6064  

[3] (2018) 6 SCC 287  

[4] 2019 SCC OnLine SC 1520 

[5] (2007) 7 SCC 125

[6] 2013 SCC OnLine Bom 1946 

[7] 2001 SCC OnLine Bom 630 

[8] 2018 SCC OnLine Ker 4913 

[9] Felguera Gruas India Pvt. Ltd. v. Tuticorin Coal Terminal Pvt. Ltd., Commercial Arbitration Petition No. 1403 of 2019,  order dated  20-11- 2019.

[10]. Mahyco Monsanto Biotech v. Nuziveedu Seeds Ltd.,Commercial Arbitration Petition No. 312 of 2019, judgment dated  6-3- 2019.

[11] Power Mech Projects v. Sepco Electric Power Construction Corporation, Judgment dated F 17-2- 2020, in O.M.P. (I.) (COMM.) 523/2017

[12] 2016 SCC OnLine Mad 9122 

[13] 2018 SCC OnLine Cal 2430

[14] 2014 SCC OnLine Guj 6737 

[15] Supra Note 10, at para 19

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