Supreme Court clarifies powers of Arbitral Tribunal to enforce interim orders: Alka Chandewar vs Shamshul Ishrar Khan (2017)

Introduction

Date of the Judgment: July 6, 2017
Citation: (2017) INSC 593
Judges: R.F. Nariman, J., Sanjay Kishan Kaul, J.
Can an arbitral tribunal’s interim orders be disregarded without consequence? The Supreme Court of India addressed this critical question in a recent case, clarifying the powers of arbitral tribunals to enforce their interim orders. This judgment highlights the importance of interim measures in arbitration proceedings and the mechanisms available to ensure their compliance. The bench comprised of Justice R.F. Nariman and Justice Sanjay Kishan Kaul, with the judgment authored by Justice R.F. Nariman.

Case Background

The case revolves around a dispute where an arbitrator was appointed to resolve the matter between the parties. On October 7, 2010, the arbitrator issued an interim order under Section 17 of the Arbitration and Conciliation Act, 1996, prohibiting the disposal of any flats without the tribunal’s permission. However, on October 14, 2010, the respondent allegedly transferred five flats in violation of this order. The arbitrator, on March 22, 2012, found that the respondent had indeed breached the interim order. Subsequently, on May 5, 2014, the arbitrator referred the matter of contempt to the High Court under Section 27(5) of the Act.

Timeline

Course of Proceedings

The Bombay High Court held that Section 27(5) of the Arbitration and Conciliation Act, 1996, does not empower the Tribunal to make a representation to the Court for contempt if the orders, including interim orders passed by the Arbitrator, are violated, except in respect of taking evidence. The High Court also stated that the contempt petition was beyond the period of limitation. The Supreme Court heard arguments from both sides. The appellant argued that if orders under Section 17 were unenforceable, the provision would be rendered useless. The respondent argued that Section 27(5) only applies to assistance in taking evidence and not to other contempt matters, a lacuna that was filled by the 2015 Amendment Act.

Legal Framework

The case primarily revolves around the interpretation of several sections of the Arbitration and Conciliation Act, 1996:

• Section 9: This section deals with interim measures that can be ordered by a court. It allows a party to apply to a court for interim measures of protection before, during, or after arbitral proceedings but before the award is enforced.
• Section 17: This section empowers the arbitral tribunal to order interim measures during the arbitral proceedings or after the making of the arbitral award but before it is enforced. It includes measures for preservation of goods, securing amounts in dispute, and interim injunctions.
  The 2015 Amendment Act added sub-section (2) to Section 17, which states that any order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court and shall be enforceable under the Code of Civil Procedure, 1908.
• Section 27: This section deals with court assistance in taking evidence. Sub-section (5) states that persons failing to attend court processes, making any default, or guilty of contempt to the arbitral tribunal during the proceedings shall be subject to the same penalties as they would incur for like offenses in suits tried before the Court.

Arguments

Appellant’s Arguments:

• The appellant argued that Sections 9 and 17 of the Arbitration and Conciliation Act, 1996, provide alternative remedies for interim relief. If orders made under Section 17 were unenforceable, the provision would be rendered useless.
• The appellant contended that Section 27 of the Act clearly grants the Court the power to punish for contempt of orders made by the Arbitral Tribunal.
• The appellant relied on a Delhi High Court judgment and the Supreme Court judgment in M/s Ambalal Sarabhai Enterprises vs. M/s Amrit Lal & Co. & Anr. (2001) 8 SCC 397 to support their arguments.

Respondent’s Arguments:

• The respondent argued that Section 27(5) of the Arbitration and Conciliation Act, 1996, only applies to assistance in taking evidence and not to any other contempt that may be committed.
• The respondent stated that the marginal note of Section 27 makes it clear that Section 27(5) would only apply to assistance in taking evidence.
• The respondent submitted that this lacuna in the law has now been filled by the 2015 Amendment Act, which inserted Section 17(2).

Submissions by Parties

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue can be summarized as:

1. Whether Section 27(5) of the Arbitration and Conciliation Act, 1996, empowers the Court to punish for contempt of interim orders passed by the Arbitral Tribunal under Section 17 of the Act.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

• M/s Ambalal Sarabhai Enterprises vs. M/s Amrit Lal & Co. & Anr. (2001) 8 SCC 397 – Supreme Court of India: The Court held that parties to arbitration proceedings have an election to apply for interim relief before the Tribunal under Section 17 or before the Court under Section 9.
• Sri Krishan v. Anand, (2009) 3 Arb LR 447 (Del) – Delhi High Court: The Delhi High Court held that any person failing to comply with the order of the arbitral tribunal under section 17 would be deemed to be “making any other default” or “guilty” of any contempt to the arbitral tribunal during the conduct of the proceedings” under section 27(5) of the Act.
• Section 9 of the Arbitration and Conciliation Act, 1996: Interim measures by Court.
• Section 17 of the Arbitration and Conciliation Act, 1996: Interim measures ordered by arbitral tribunal.
• Section 27 of the Arbitration and Conciliation Act, 1996: Court assistance in taking evidence.

Treatment of Authorities

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court relied on M/s Ambalal Sarabhai Enterprises vs. M/s Amrit Lal & Co. & Anr. (2001) 8 SCC 397 to emphasize that parties have an election between Section 9 and Section 17 for interim relief, and that Section 17 would be rendered useless if the orders were not enforceable.
• The Supreme Court approved the Delhi High Court’s interpretation in Sri Krishan v. Anand, (2009) 3 Arb LR 447 (Del), which held that Section 27(5) includes contempt of the arbitral tribunal.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure the efficacy of interim orders passed by arbitral tribunals. The Court emphasized that if these orders were toothless, it would defeat the purpose of providing an alternative mechanism for dispute resolution. The Court also focused on the plain meaning of Section 27(5) and the purpose of the Arbitration and Conciliation Act, 1996, to promote arbitration as an effective dispute resolution mechanism.

Fact:Law

The Court’s reasoning was primarily based on legal interpretation (80%) rather than factual aspects (20%) of the case.

Logical Reasoning:

The Court considered the argument that Section 27(5) should be narrowly interpreted to apply only to the taking of evidence. However, the Court rejected this interpretation, stating that the plain language of the provision covers “any contempt to the arbitral tribunal during the conduct of arbitral proceedings.” The Court also considered the purpose of Section 17, which is to provide an alternative to court proceedings for interim relief. The Court reasoned that if interim orders passed by the arbitral tribunal were not enforceable, Section 17 would be rendered useless. The Court also noted that the 2015 Amendment Act, which added sub-section (2) to Section 17, was intended to provide a complete solution to the problem of enforcing interim orders of the arbitral tribunal, but that it did not negate the applicability of Section 27(5). The Supreme Court held that the High Court’s interpretation was incorrect and that Section 27(5) does empower the court to punish for contempt of the arbitral tribunal.

The Court quoted the following from the judgment:

“If Section 27(5) is read literally, there is no difficulty in accepting the plea of learned senior advocate for the appellant, because persons failing to attend in accordance with the court process fall under a separate category from “any other default”. Further, the Section is not confined to a person being guilty of contempt only when failing to attend in accordance with such process. The Section specifically states that persons guilty of any contempt to the Arbitral Tribunal during the conduct of the Arbitral proceedings is within its ken.”

“Also, in consonance with the modern rule of interpretation of statutes, the entire object of providing that a party may approach the Arbitral Tribunal instead of the Court for interim reliefs would be stultified if interim orders passed by such Tribunal are toothless. It is to give teeth to such orders that an express provision is made in Section 27(5) of the Act.”

“Pursuant to this report, sub-section(2) to Section 17 was added by the Amendment Act 2015, so that the cumbersome procedure of an Arbitral Tribunal having to apply every time to the High Court for contempt of its orders would no longer be necessary. Such orders would now be deemed to be orders of the Court for all purposes and would be enforced under the Civil Procedure Code, 1908 in the same manner as if they were orders of the Court.”

There was no minority opinion in this case.

Key Takeaways

• Interim orders passed by arbitral tribunals under Section 17 of the Arbitration and Conciliation Act, 1996, are enforceable.
• Contempt of such orders falls within the ambit of Section 27(5) of the Act, empowering the court to punish for such contempt.
• The judgment reinforces the importance of arbitration as an effective dispute resolution mechanism.
• The 2015 Amendment Act, which added sub-section (2) to Section 17, was intended to provide a complete solution to the problem of enforcing interim orders of the arbitral tribunal, but that it did not negate the applicability of Section 27(5).

Directions

The Supreme Court set aside the judgment of the Bombay High Court and remanded the matter back to the High Court to decide the alleged contempt on facts. The Court also stated that it would be open for the respondent to argue before the High Court that he has, on the facts of the case, not committed any contempt.

Development of Law

The ratio decidendi of this case is that Section 27(5) of the Arbitration and Conciliation Act, 1996, empowers the court to punish for contempt of interim orders passed by the arbitral tribunal under Section 17 of the Act. This clarifies the scope of Section 27(5) and ensures that interim orders passed by arbitral tribunals are not toothless. This judgment reinforces the effectiveness of arbitration as a dispute resolution mechanism and ensures that orders passed by arbitral tribunals are not disregarded without consequence.

Conclusion

The Supreme Court’s judgment in Alka Chandewar vs. Shamshul Ishrar Khan clarifies that interim orders passed by arbitral tribunals under Section 17 of the Arbitration and Conciliation Act, 1996, are enforceable, and contempt of such orders falls within the ambit of Section 27(5) of the Act. This ruling ensures that arbitral tribunals’ orders are not rendered ineffective and reinforces the efficacy of arbitration as a dispute resolution mechanism. The matter has been remanded back to the High Court to decide the alleged contempt on facts.