What Does “Enforced” Mean? A Critical Reading of B.M. Insulation (P) Ltd. v. Vardeep Petro Chemical (P) Ltd.

The power to grant relief by a court (as opposed to an Arbitral Tribunal) is located only in one solitary provision of the Arbitration and Conciliation Act, 1996.

Introduction

The arbitration landscape in India is fast evolving. Along with this evolving legal landscape, parties to the arbitration have also become more legally aware and this has led to long protracted litigation. The tendency of long protracted litigation is present in both obtaining an arbitral award and, in some cases an even longer period, to enforce the same.

In this context, a crucial goal for the successful party in arbitration is to find quick and effective mechanisms to preserve and protect some assets that can later be executed. Therefore, there has been an increasing trend whereby successful parties in arbitration apply for and seek post-award interim reliefs. This has led to increasing debate and differing opinions on the maintainability of such applications. This has led to differing views on when such an application can be maintained. In this context, a recent decision of the Full Bench of the Madras High Court in B.M. Insulation (P) Ltd. v. Vardeep Petro Chemical (P) Ltd.¹ has attempted to put to naught all debate and has laid down an authoritative view on the scope and ambit of post-award applications for interim relief.

In this article, the authors attempt to identify a legal framework within which the differing views of various High Courts can be located. Thereafter, we have attempted to critically analyse the decision in the B.M. Insulation case on its individual merit and reasoning.

We wish to make it clear that the present article is only focused on Indian seated arbitrations where Part I applies. This does not deal with foreign seated arbitrations which are governed by Part II of the Act.

Post-award interference by courts under Section 9 prior to B.M. Insulation

The power to grant relief by a court (as opposed to an Arbitral Tribunal) is located only in one solitary provision of the Arbitration and Conciliation Act, 1996 (Act). Section 9² of the Act is the only provision and this provision governs all applications/petitions seeking interim relief before the Court: 1) prior to the commencement of arbitration, 2) during the pendency of arbitral proceedings, and 3) after making of the arbitral award but before it is enforced in accordance with Section 36.

The object and purpose behind the introduction of Section 9 was to clarify and re-emphasise the legal position that a domestic court has the power to order interim relief, even if the dispute is governed by an arbitrable agreement.

From a plain reading of the provision, the recourse to Section 9 is available:

1. Before arbitral proceedings, i.e. before the appointment of an arbitrator by the parties or the court or through any other agreed upon authority or procedure.

2. During the arbitral proceedings, however, the power of the national court during this period is severely curtailed and not unlimited.

3. At any time after the award but before it is enforced in accordance with Section 36.

Post-award interim measures under the UNCITRAL Model Law

Though after the Act followed the Model Law, the Act differs in one crucial aspect. Article 9 of the UNCITRAL Model Law in fact does not speak about post-award applications and the language is restricted to applications of interim reliefs before or during arbitral proceedings. The relevant portion of Article 9 of the Model Law is extracted hereunder:

9. Arbitration agreement and interim measures by court

It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure.

Therefore, going by the plain language of Section 9, an application for interim measures post-award is maintainable as long as the same has been made before it is enforced in accordance with Section 36³.

The plain language of Section 36 merely states that an arbitral award shall be enforced in accordance with the local laws, that is provisions of the Civil Procedure Code, 1908, in the same manner as if it was a decree of the Court. The award can be enforced after the time period fixed for making an application under Section 34 has expired and no order of stay has been granted in an application (if any) filed under Section 34.

Views by Indian Courts on the interpretation of the word “enforced”

Before adverting to our interpretation, we must first lay out the existing views by different Indian Courts on this subject. For the sake of avoiding prolixity we will focus upon three important pronouncements.

The first is that the view of the Bombay High Court in Dirk India (P) Ltd. v. Maharashtra State Electricity Generation Co. Ltd.⁴, the second view is that of the Madras High Court in Gopuram Enterprises Ltd. v. Integrated Finance Co. Ltd.⁵ and lastly, the view of the Delhi High Court in Shanghai Electric Group Co. Ltd. v. Reliance Infrastructure Ltd.⁶

Thereafter, we shall consider the decision of the Full Bench of the Madras High Court in B.M. Insulation case⁷ which has in effect adopted and reaffirmed the position of another earlier Bench of the Madras High Court in Eros International Media Ltd. v. Reels Entertainment (P) Ltd.⁸

The first decision is the decision of the Delhi High Court in the Dirk India case. This decision arose out a peculiar set of facts whereby a party who had its claim rejected by the Arbitral Tribunal sought for interim relief under Section 9 post-award pending challenge under Section 34. The primary question framed by the Bombay High Court was whether such a party is entitled to invoke the provisions of Section 9. The Bombay High Court emphatically held that the petition under Section 9 was not maintainable. During the course of arriving at such a finding, incidental observations were made on the purposive interpretation of Sections 9 and 36. It was held that the object and purpose of a post-award Section 9 is to protect through the measure, the fruits of a successful conclusion of the arbitral proceedings.

Curiously, one of the arguments put forth by the unsuccessful party before the Arbitral Tribunal is that the words “enforced” has to be read as “legally executed”. This contention has been recorded at para 8(i) of the judgment but however there appears to be no finding on this issue. In particular, the following extract from para 24 of the judgment is of importance, as it is critical to understand the import of the decision:

24. The language of Section 9(1) enunciates a distinct timeline specifically leaving no space for any further interpretation. The three specific scenarios enlisted includes, before, during or at any time after passing the arbitral award, but before execution. Here, the time-gap specified in the third prong is crystal clear. When the words employed are pristine, no further meddling is required and meaning as plainly given shall be taken. “Enforced” is the word used, which implies execution of the award. The words cannot be dissected and used to suit each party in arbitration proceedings. The phrases “any time after making of the arbitral award but before it is enforced illuminates complete meaning within itself. Further, dissection of this third prong is unnecessary and fogs the rationale of Section 9(1). The rationale being is to facilitate the final award and to prevent it from becoming meaningless.

The decision in the Dirk India case has to thus be understood in the facts of its case. The findings in the Dirk India case on the need to preserve the fruits of the award is in the backdrop as to whether an unsuccessful party to the arbitral award can maintain an application under Section 9 after arbitral proceedings.

The decision in the Dirk India case only reiterates the position that the object of a post-award Section 9 is to preserve the fruits of the award, a position which hardly anyone can dispute. On this aspect, the decision in the Dirk India case has also been quoted with approval by the Supreme Court in Hindustan Construction Co. Ltd. v. Union of India⁹. However, the decision in the Dirk India case itself equates “enforced” with “execution” and not executed or executable.

The next judgment that comes up for discussion is that of the Division Bench of the Madras High Court in the Gopuram case. The decision in the Gopuram case in fact also more or less reiterates the same principle as in the Dirk case, namely, that the purpose of a post-award Section 9 is to be a step-in-aid of enforcement.

However, the High Court held that the words “enforced” as to be read as “enforceable” and therefore a party will have a right to approach the Court only till such time the award becomes “enforceable”, i.e. the period for filing a petition to set aside the award has elapsed or a petition to set aside the award has been filed but no order of stay has been passed. The doors of a court exercising powers under Section 9 is open only till such time the award becomes “enforceable”. Crucially, the High Court made a fundamental distinction between the nature of orders that can be passed by a court in execution as opposed to the nature of orders that can be passed by a court exercising powers under Section 9. The “Section 9 Court” can only pass orders in aid of enforcement to protect and preserve the 1) subject-matter of the arbitration or, if loosely interpreted, 2) subject-matter of the award.

This judgment in the Gopuram case came up for consideration before a Single Judge of the Madras High Court in K. Puniyamoorthy v. Ondraga Entertainment¹⁰. The learned Single Judge was of the view that the word enforced in the third limb of Section 9 means “until the complete satisfaction of the award”. The learned Single Judge referred to the contention in para 8(i) and finding in para 14 of the Dirk India case to hold that the preservation of fruits of the award would mean that a Section 9 petition is maintainable until the eventual enforcement of the award. It was held that step-in-aid of enforcement means that a Section 9 petition is maintainable until complete satisfaction of the award. Reliance was also made to the decision of the Supreme Court in Hameed Joharan v. Abdul Salam¹¹ to refer to the grammatical meaning of the word “enforced”. The Single Judge stated that he is inclined to follow the decision in the Dirk India case and not in Gopuram case as the former was affirmed by the Supreme Court in the Hindustan Construction case.

Subsequently, noting that there appears to be a divergence of opinion in Gopuram case and Puniyamoorthy case a reference was made to the Full Bench which was ultimately decided in B.M. Insulation case. However, before adverting to the B.M. Insulation case, it would be prudent to also cover the decision of the Delhi High Court in the Shanghai Electric case.

The first fact to note before discussing on the merits of the Shangai Electric case was that it was not a case of a domestic award. It was an award passed by the Singapore International Arbitration Centre (SIAC) and is governed by Part II and applicable provisions of Part I of the Act. There were proceedings under Section 9 filed in the Delhi High Court on account of the fact that assets were located in India. From the contentions it also appears that a petition for recognition and enforcement were filed but the outcome of the same cannot be ascertained. On this ground, the Delhi High Court held that the term “enforced” used in the past tense would mean complete satisfaction of the decree. This judgment, in the context of a foreign award, may not stricto sensu be relevant for interpretation of a domestic award. The process of recognition and enforcement i.e. requirement of a second layer of judicial recognition prior to enforcement would render decisions and observations made in such decisions contextually different from those governed by Section 36 as according to the authors, the award is not “enforced” until it is recognised. This additional step, makes all the difference as the award is not “enforced” does not come into play until it is recognised. This article does not deal with enforcement of foreign award under Part II of the Act.

Therefore, broadly speaking, there was no clear authority in the context of maintaining a post-award Section 9 after such time it becomes executable. There was a view in the Dirk India case which was not determinative on this issue and was rendered on wholly distinct facts. Thereafter, there was the decision in the Gopuram case which has been doubted and bypassed by the Madras High Court itself in the K. Puniyamoorthy case. Lastly, there is the decision in the Shanghai Electric case which was in the context of a foreign award. The only authoritative pronouncement came in the decision of the Madras High Court in the Eros International case which was the foundational basis behind the decision in the B.M. Insulation case.

The decision in B.M. Insulation

B.M. Insulation case as a judgment has approved and followed the decision in the Eros International case. The underlying principle behind both decisions was that the conclusion arrived at in the Gopuram case was wrong as judicially re-reading of the word “enforced” as “enforceable” is not permissible. Where the plain language of the statute is clear, it would be judicially impermissible to rely upon tools of interpretation to alter or change the plain language. Furthermore, since the Act does not define the word “enforced”, resort to the Law Lexicon should be made to understand the meaning better. It was held that curtailment of time period within which a Section 9 petition can be filed would be against the legislative intent behind Section 9. Furthermore, reliance was also made to the Dirk India case and the Shanghai Electric case to support the conclusion that a Section 9 petition can be filed till full and final satisfaction of the award. It was ultimately held that the word “enforced” denotes a completed act and therefore “before it is enforced” signifies “until the complete satisfaction of the award”.

The decision in B.M. Insulation case might be the most authoritative precedent till date on the scope and extent of post-award Section 9 petitions. However, we attempt to legally analyse this decision and attempt to provide an alternative framework. We agree with the findings of the B.M. Insulation case insofar as it relates to the following:

1. The purpose of a post-award petition under Section 9 is to be act as a step-in-aid of execution and to preserve the fruits of the award.

2. The decision in the Gopuram case was wrong in construing “enforced” as “enforceable” and we need to abide by the plain language of the statute.

However, in our view, after having emphasised on the plain language of the statute, the Full Bench erred in equating the word “enforced” with “executed”, as explained supra. The words “enforce” and “execute” are distinct and connote two different actions and a distinction of the same would, in our opinion, make the legal framework clear.

Now, coming to the merits of the decision in the B.M. Insulation case, it is in our opinion that the Full Bench, much like the decision in the Gopuram case, erred by altering the plain language of the State. While it cannot be doubted that “enforced” cannot be read as “enforceable” it is equally true that “enforced” cannot be read as “executed”. The word “enforced” has to be read to mean “to put in execution”. According to Advanced Law Lexicon by P. Ramanatha Aiyer, the word enforced is defined as “to put in execution, to cause”¹². The term “enforce a right” relates “to an initial act when it is done in furtherance of any right and not to an act when it is done to maintain a position already achieved in lawful exercise of that right”¹³. It is thus clear that “enforce” pertains to the performance of an act (or motion) in furtherance of the right and does not pertain to the outcome of such an act (or motion). Hence, the word enforced would mean “execution” and not “executed” and in our view, the mere act of putting into motion the process to recover or enforce the award would be the literal meaning of the word “enforced”.

The decision in the Dirk India case where it was categorically held that the word “enforced” means “execution”. Conspicuously the word used is “execution” and not “executed”. This implies the process or initiation of execution proceedings and not full and final satisfaction of the award. More importantly, the decision in the K. Puniyamoorthy case itself refers to relies upon the decision in the Hameed Joharan case in which the word “enforce” has been extensively defined. The relevant portion is extracted hereunder:

9. As noticed earlier in this judgment, Article 136, Limitation Act, 1963 being the governing statutory provision, prescribes a period of twelve years when the decree or order becomes enforceable. The word “enforce” in common acceptation means and implies “compel observance of” (vide Concise Oxford Dictionary) and in Black’s Law Dictionary “enforce” has been attributed a meaning “to give force or effect to; to compel obedience to” and “enforcement” has been defined as “the act or process of compelling compliance with a law, mandate or command”. In ordinary parlance, “enforce” means and implies “compel observance of”. Corpus Juris Secundum attributes the following for the word “enforce”:

“Enforce.— In general, to cause to be executed or performed, to cause to take effect, or to compel obedience to, as to enforce laws or rules; to control; to execute with vigour; to put in execution; to put in force; also to exact, or to obtain authoritatively. The word is used in a multiplicity of ways and is given many shades of meaning and applicability, but it does not necessarily imply actual force or coercion. As applied to process, the term implies execution and embraces all the legal means of collecting a judgment, including proceedings supplemental to execution.

The past tense or past participle ‘enforced’ has been said to have the same primary meaning as ‘compelled’.” (emphasis supplied)

Therefore, the word enforce can mean to execute with vigour or to put in execution and not until complete satisfaction of the proceedings. It cannot in our view be read as executed. This in our view would do violence to both the plain language as well as to the legislative intent.

The decision in the B.M. Insulation case and the Eros International case appears to proceed on an erroneous notion about the ratio and dictum in the Dirk India case and the Shanghai Electric case without considering the factual background appears to have led to a different understanding from what appears to have been laid down in relation to the facts in those cases in the opinion of the authors.

What is the effect of the word “enforced” being read as “until complete satisfaction”

1. Section 9 proceedings could be a substitute for execution proceedings

The right to file an execution proceedings arises only after the time period for filing a petition to set aside an arbitral award under Section 34 has expired. Therefore, there is a small window after making of the award but before an execution can be filed whereby there is potential mischief to defeat the subject matter of the award through various dubious methods. The purport of a post-award Section 9, in the opinion of the authors, is to come in to play and preserve the assets in this interregnum period. Therefore, a post-award Section 9 can only be filed in the limited period consequent to the passing of the award but prior to the period in which an execution petition can be filed. This ensures that Section 9 proceedings are not resorted to as a substitute for execution.

Another reason to support our conclusion is that an execution court possess all the powers wider than that of a court exercising jurisdiction under Section 9 of the Act. This is supported by the decision in the Gopuram case that highlights the quality of orders that can be passed by an execution court, such as orders for disclosure of assets, that cannot be passed by a court exercising jurisdiction under Section 9.

2. Difference between Section 9 of the Act and UNCITRAL Model Law

The distinction where the UNCITRAL law does not contemplate any post-award interim measures is crucial. The issues discussed above could be completely avoided if the execution was the only remedy available to the award holder, similar to what the UNCLITRAL Model Law contemplates. It is only in the post-award interim measures, that the conflict between the powers of execution court and the powers of a court under Section 9 of the Act, comes into play. If the legislature had not contemplated post-award interim measures, then the award holder would only resort to the execution court under Section 36 of the Act.

3. Issue of judicial arbitrage and conflicting orders

The interpretation in the B.M. Insulation case might also lead to concurrent motions being taken for both execution and interim relief in two different courts. It is now clear execution petition can be filed in any court within whose jurisdiction the judgment debtor has assets. A party may choose to approach one jurisdiction for enforcement and another jurisdiction for injunctive relief.

This permits the award holder to get two bites at the cherry in respect of the same award and there is also risk of conflicting orders being passed by two different courts and this could potentially lead to parties attempting “judicial arbitrage”.

4. Violation of Section 42 of the Act

As seen above, when two courts get jurisdiction concurrently over the same subject-matter there is a risk that conflicting orders could be passed. The parties could approach different courts throughout the territory of India for the same subject-matter. This creates a mischief which Section 42 sought to remedy. Section 42 ensures that the jurisdiction is restricted to the court, where an application under Part I of the Act was made first. If the word “enforced” is interpreted to mean “until the complete satisfaction of the award”, it would violate Section 42 of the Act since there would be two courts having concurrent jurisdiction over the same subject-matter.

Conclusion

Thus, considering above discussion, the word “enforced” could be interpreted to mean “to execute with vigour; to put in execution” rather than “until the complete satisfaction of the award”. Since, for the reasons mentioned above, post-award power given under Section 9 is specific to cater to a unique situation between passing of an award and filing for execution and catering that situation would satisfy the purpose of the section. It has to act as a bridge between the award and the execution proceedings.

Furthermore, to prevent the mischief that Section 42 was enacted for, to avoid multiplicity of proceedings, and to avoid conflicting orders by two different courts in India, and finally to prevent the use of Section 9 of the Act as a substitute for execution proceedings. The word, in the humble opinion of the authors, “enforced” cannot be read as “executed” but could be read as “to put in execution”. This way the complications discussed above could be avoided.