Supreme Court clarifies the meaning of “entertain” under Section 9(3) of the Arbitration Act in interim relief cases: Arcelor Mittal vs. Essar Bulk (14 September 2021)

Case Background

Arcelor Mittal Nippon Steel India Ltd. (Appellant) and Essar Bulk Terminal Ltd. (Respondent) entered into a Cargo Handling Agreement at Hazira Port, which was amended over time. A dispute arose, and the Appellant invoked the arbitration clause on 22nd November 2020. The agreement stated that disputes would be settled through arbitration under the Arbitration Act, with a sole arbitrator appointed by mutual consent.

The Appellant, after the Respondent failed to respond to the arbitration notice, approached the High Court of Gujarat at Ahmedabad under Section 11 of the Arbitration and Conciliation Act, 1996 for the appointment of an Arbitral Tribunal. The Respondent replied on 30th December 2020, claiming the disputes were not arbitrable and stating that the Appellant owed Rs. 673.84 crores as of 24th December 2020, including Rs. 51.11 crores in interest.

On 15th January 2021, the Appellant filed an application under Section 9 of the Arbitration Act in the Commercial Court at Surat seeking interim measures. Subsequently, on 16th March 2021, the Respondent also filed a similar application under Section 9 of the Arbitration Act.

Timeline:

Legal Framework

The core of this case revolves around Sections 9 and 17 of the Arbitration and Conciliation Act, 1996. Section 9 allows a party to seek interim measures from a court, either before or during arbitration proceedings, or after an award is made but before it is enforced. The relevant part of Section 9 is as follows:

“9. Interim measures, etc. by Court – (1) A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a Court— (i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or (ii) for an interim measure of protection in respect of any of the following matters, namely:—(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration; (c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; (d) interim injunction or the appointment of a receiver; (e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it. (2) Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine. (3) Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under Section 17 efficacious.”

Section 17, on the other hand, empowers the Arbitral Tribunal to order interim measures. After the 2015 amendment, Section 17 was modified to give the Arbitral Tribunal the same powers as a court under Section 9. Additionally, orders passed by the Arbitral Tribunal under Section 17 are deemed to be orders of the court and are enforceable as such.

Prior to the 2015 Amendment, Section 17 of the Arbitration Act stated:

“17. Interim measures ordered by arbitral tribunal .- (1) Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject-matter of the dispute. (2) The arbitral tribunal may require a party to provide appropriate security in connection with a measure ordered under sub-section (1).”

After the 2015 Amendment, Section 17 of the Arbitration Act states:

“17. Interim measures ordered by arbitral tribunal. – (1) A party may, during the arbitral proceedings, apply to the arbitral tribunal—(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or (ii) for an interim measure of protection in respect of any of the following matters, namely—(a) the preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration; (c) the detention, preservation or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken, or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; (d) interim injunction or the appointment of a receiver; (e) such other interim measure of protection as may appear to the arbitral tribunal to be just and convenient, and the arbitral tribunal shall have the same power for making orders, as the court has for the purpose of, and in relation to, any proceedings before it. (2) Subject to any orders passed in an appeal under Section 37, 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 under the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were an order of the Court.”

Arguments

Appellant’s Arguments (Arcelor Mittal Nippon Steel India Ltd.):

• The Appellant argued that Section 9(3) of the Arbitration Act restricts the court’s power to “entertain” an application under Section 9(1) once an Arbitral Tribunal is constituted. The term “entertain” should be interpreted to mean the entire process up to final adjudication, not just the initial admission of the case.

• According to the appellant, the purpose of Section 9(3) is to reduce the role of the court and to encourage parties to seek interim relief from the Arbitral Tribunal. The Appellant contended that Section 9(3) was a measure of Negative Kompetenz-Kompetenz, meaning that once an Arbitral Tribunal is constituted, it has the primary jurisdiction to decide on interim reliefs.

• The Appellant argued that the Commercial Court was still “entertaining” the Section 9 applications even after reserving orders, as a court becomes functus officio only after it pronounces, signs, and dates the judgment.

• The Appellant relied on the 246th Law Commission Report and the UNCITRAL Model Law, which aim to minimize judicial intervention in the arbitral process. They also cited the report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, which highlighted that courts should not entertain applications for interim relief unless the remedy from the Arbitral Tribunal is not efficacious.

• The Appellant referred to Amazon.com NV Investment Holdings LLC v. Future Retail Limited & Ors., where the Supreme Court held that the object of introducing Section 9(3) was to avoid courts being flooded with Section 9 petitions once an Arbitral Tribunal is constituted.

• The Appellant submitted that the Respondent was intentionally delaying the arbitration process and trying to make the remedy under Section 17 inefficacious. The Respondent had not nominated a substitute arbitrator, and instead, filed an application in the Commercial Court, stating that since the Arbitral Tribunal is not functioning, the remedy before the Tribunal would be inefficacious.

• The Appellant argued that the Respondent was not ready and willing to go to arbitration, citing Firm Ashok Traders and Anr. v. Gurumukh Das Saluja and Ors., where it was held that a party invoking Section 9 must be ready and willing to go to arbitration.

• The Appellant contended that the High Court had erred in directing the District Court to pass orders in the applications under Section 9 of the Arbitration Act, despite the fact that no party had filed any application in the Commercial Court, challenging the efficacy of the arbitral proceedings.

• The Appellant relied on Sri. Tufan Chatterjee v. Sri. Rangan Dhar, where the word “entertain” was interpreted to mean “considering an application on merits, even at the final stage”.

• The Appellant also cited Energo Engineering Projects Limited v. TRF Ltd, where the Delhi High Court observed that once an Arbitral Tribunal is constituted, an application for interim relief should ordinarily be decided by the Arbitral Tribunal. Moreover, a Court can only grant interim relief under Section 9, if circumstances exist which might not render the remedy under Section 17 of the Arbitration Act efficacious.

• The Appellant referred to Lakshmi Rattan Engineering Works Ltd. v Asstt. Commissioner Sales Tax, Kanpur and Anr., Hindustan Commercial Bank Ltd. v Punnu Sahu, and Martin & Harris Ltd. v VIth Additional District Judge and Others, to argue that ‘entertain’ means to adjudicate upon and consider for the purpose of adjudication on merits.

Respondent’s Arguments (Essar Bulk Terminal Ltd.):

• The Respondent argued that Section 9(3) of the Arbitration Act would not apply since the applications under Section 9 were fully heard and reserved for orders before the Arbitral Tribunal was constituted. According to the Respondent, the court had already “entertained” the applications before the constitution of the Arbitral Tribunal.

• The Respondent contended that the application under Article 227 filed in the Gujarat High Court was not maintainable, as the Arbitration Act is a self-contained code, and Article 227 cannot be used to circumvent the procedure under the Arbitration Act. Also, the application was premature and speculative, as the issue of whether the Trial Court had acted outside its authority could only be determined after an order had been passed in the Section 9 applications.

• The Respondent argued that 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.

• The Respondent argued that 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.

• The Respondent submitted that the court would continue to have powers to grant interim relief under Section 9, subject to the checks and balances provided under the Arbitration Act. The Respondent cited Benara Bearings and Pistons Limited v. Mahle Engine Components India Private Limited and Energo Engineering Projects Limited v. TRF Limited, to support this argument.

• The Respondent argued that “entertain” means “admit into consideration” or “admit in order to deal with,” and the applications had already been admitted into consideration. The Respondent relied on Lakshmi Rattan Engineering Works Ltd., Anil Kunj Bihari Saraf v. Namboodas S/o Shankarlal and Ors., and Kundanlal v. Jagan Nath Sharma, to support this argument.

• The Respondent argued that the prayer in the application dated 16th July, 2021 filed by the Appellant could never have been granted, since the Arbitration Act does not confer power on the Court to relegate or transfer a pending application under Section 9(1) to the Arbitral Tribunal.

• The Respondent submitted that the Special Leave Petition filed in this Court was an abuse of process of Court and an attempt to stop the competent Court from passing an order in an application under Section 9 of the Arbitration Act, which had been fully heard.

• The Respondent argued that if the interpretation of the expression “entertain” as canvassed by the Appellant, were upheld, it would open a floodgate, where litigants who wanted to deny urgent reliefs to another party, would protract litigation by taking procedural defences and avoid the legislated remedy under Section 9 of the Arbitration Act.

• The Respondent argued that a lot of judicial time, cost and resources of the parties had been spent in agitating the Section 9 Applications. Both parties had approached the Commercial Courts and the pleadings in the Section 9 Applications exceeded 2,200 pages. The Section 9 Applications were listed before the Commercial Courts 36 times and were finally argued extensively for 11 full days. The Section 9 Applications were reserved for orders on 7th June, 2021, before the Arbitral Tribunal was constituted.

• The Respondent relied on Union of India and Ors. v. Uttar Pradesh State Bridge Corporation Limited, to argue that unnecessary delay or expense frustrates the very purpose of arbitration.

• The Respondent submitted that since the filing of the Section 9 Applications, the contractual dues of the Appellant to the Respondent for the interim period aggregate to Rs.255 crores. The Respondent is suffering every day.

• The Respondent pointed out that 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 Respondent denied that it had delayed the commencement of arbitration. The Respondent submitted that the disputes raised in the notice of arbitration dated 22nd November, 2020 given by the Appellant did not correspond to the disputes raised by the Appellant in its Section 9 Application in the Commercial Court. The question of arbitrability of the disputes raised in the notice is still to be determined.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the Court has the power to entertain an application under Section 9(1) of the Arbitration Act once an Arbitral Tribunal has been constituted?
2. If the Court has the power, what is the true meaning and purport of the expression “entertain” in Section 9(3) of the Arbitration Act?
3. Whether the Court is obliged to examine the efficacy of the remedy under Section 17 before passing an order under Section 9(1) of the Arbitration Act, once an Arbitral Tribunal is constituted?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered various authorities to interpret Section 9(3) of the Arbitration Act. These authorities are categorized by the legal point they address:

Meaning of “Entertain”:

• Lakshmi Rattan Engineering Works Ltd. v Asstt. Commissioner Sales Tax, Kanpur and Anr. [Supreme Court of India]: The Supreme Court held that “entertain” means to “admit to consideration.”
• Kundan Lal v. Jagan Nath Sharma [Allahabad High Court]: The court held that the expression “entertain” did not mean the same thing as the filing of the application or admission of the application by the Court.
• Hindustan Commercial Bank Ltd. v Punnu Sahu [Supreme Court of India]: The Court held that the expression “entertain” in the proviso to clause (b) Order 21 Rule 90 (as amended by Allahabad High Court), means to “adjudicate upon” or “proceed to consider on merits” and not “initiation of proceeding.”
• Martin & Harris Ltd. v VIth Additional District Judge and Others [Supreme Court of India]: The Court held that the word “entertain” means entertaining the ground for consideration for the purpose of adjudication on merits and not at any stage prior thereto.
• Sri. Tufan Chatterjee v. Sri. Rangan Dhar [Calcutta High Court]: The High Court interpreted the word “entertain” to mean “considering an application on merits, even at the final stage”.

Court’s Power under Section 9 after Constitution of Arbitral Tribunal:

• Energo Engineering Projects Limited v. TRF Ltd [Delhi High Court]: The High Court observed that once an Arbitral Tribunal is constituted, an application for interim relief should ordinarily be decided by the Arbitral Tribunal. Moreover, a Court can only grant interim relief under Section 9, if circumstances exist which might not render the remedy under Section 17 of the Arbitration Act efficacious.
• Benara Bearings and Pistons Limited v. Mahle Engine Components India Private Limited [Delhi High Court]: The High Court held that Section 9(3) does not operate as an ouster clause insofar as the courts’ powers are concerned.
• M. Ashraf v. Kasim V.K. [Kerala High Court]: The High Court held that, after the constitution of the Arbitral Tribunal, the Court shall not entertain an application under Section 9(1) of the Act unless the Court finds that circumstances exist which may not render the remedy provided under Section 17 efficacious.
• Srei Equipment Finance Limited (Sefl) v. Ray Infra Services Private Limited & Anr. [Calcutta High Court]: The High Court held that the Court is not to entertain an application under Section 9(1) of the Arbitration and Conciliation Act, 1996, once the Arbitral Tribunal has been constituted, unless the Court finds that circumstances exist, which may not render the remedy provided under Section 17 efficacious.
• Avantha Holdings Limited v. Vistra ITCL India Limited [Delhi High Court]: The High Court held that the Court, while exercising its power under Section 9 of the 1996 Act, has to be acutely conscious of the power, vested in the arbitrator/arbitral tribunal, by Section 17 of the same Act.

Negative Kompetenz-Kompetenz:

• Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. [Supreme Court of India]: The Court observed that majority of the countries admit to the positive effect of kompetenz – kompetenz principle, which requires that the Arbitral Tribunal must exercise jurisdiction over the dispute under the arbitration agreement.
• Vidya Drolia and Ors. v. Durga Trading Corporation [Supreme Court of India]: The Court held that courts at the referral stage are not to decide on merits, except when permitted by the legislation either expressly or by necessary implication, such questions of non-arbitrability.

Other Relevant Authorities:

• Amazon.com NV Investment Holdings LLC v. Future Retail Limited & Ors. [Supreme Court of India]: The Court held that the object of introducing Section 9(3) was to avoid courts being flooded with Section 9 petitions once an Arbitral Tribunal is constituted.
• State Bank of India and Ors. v. S. N. Goyal [Supreme Court of India]: The Court held that a Court becomes functus officio, only after it pronounces, signs and dates the judgment.
• Deep Chand & Ors v. Land Acquisition Officer & Others [Supreme Court of India]: The Court defined “adjudication” as the formal giving or pronouncing a judgment or decree in a Court proceeding.
• A.V. Venkateswaran, Collector of Customs, Bombay v. Ramchand Sobhraj Wadhwani & Anr [Supreme Court of India]: The Court held that a party cannot allege inefficacy of a remedy when that party disables itself from availing the remedy.
• Manbhupinder Singh Atwal v. Neeraj Kumarpal Shah [Gujarat High Court]: The High Court held that a party which is intentionally trying to render the remedy under Section 17 inefficacious, cannot be permitted to approach the Court under Section 9 to secure interim reliefs which can be granted by the Tribunal.
• Firm Ashok Traders and Anr. v. Gurumukh Das Saluja and Ors. [Supreme Court of India]: The Court held that a party invoking Section 9 of the Act must be ready and willing to go to arbitration.
• Union of India and Ors. v. Uttar Pradesh State Bridge Corporation Limited [Supreme Court of India]: The Court held that unnecessary delay or expense frustrates the very purpose of arbitration.

Judgment

The Supreme Court analyzed the submissions and authorities to clarify the interpretation of Section 9(3) of the Arbitration Act. The court’s findings are summarized below:

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

How each authority was viewed by the Court?

• Lakshmi Rattan Engineering Works Ltd. v Asstt. Commissioner Sales Tax, Kanpur and Anr. [CITATION], Hindustan Commercial Bank Ltd. v Punnu Sahu [CITATION], Martin & Harris Ltd. v VIth Additional District Judge and Others [CITATION], Kundan Lal v. Jagan Nath Sharma [CITATION]: The Court relied on these cases to interpret “entertain” as meaning to “admit to consideration” or to “adjudicate upon” and not merely the initiation of proceedings.
• Sri. Tufan Chatterjee v. Sri. Rangan Dhar [CITATION]: The Court agreed with the interpretation of “entertain” as “considering an application on merits, even at the final stage”.
• Energo Engineering Projects Limited v. TRF Ltd [CITATION]: The Court reiterated that the Arbitral Tribunal should ordinarily decide applications for interim relief once it is constituted, but a court can intervene if the remedy under Section 17 is inefficacious.
• Benara Bearings and Pistons Limited v. Mahle Engine Components India Private Limited [CITATION]: The Court agreed that Section 9(3) does not operate as an ouster clause and that courts retain the power to grant interim relief.
• Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. [CITATION] and Vidya Drolia and Ors. v. Durga Trading Corporation [CITATION]: The Court referred to these cases to highlight the principle of Kompetenz-Kompetenz, which prioritizes the Arbitral Tribunal’s jurisdiction.
• Amazon.com NV Investment Holdings LLC v. Future Retail Limited & Ors. [CITATION]: The Court reiterated that the object of introducing Section 9(3) was to avoid courts being flooded with Section 9 petitions.
• State Bank of India and Ors. v. S. N. Goyal [CITATION]: The Court clarified that a court becomes functus officio only after it pronounces, signs, and dates the judgment. However, this was not directly relevant to the interpretation of “entertain”.
• Deep Chand & Ors v. Land Acquisition Officer & Others [CITATION]: The Court noted the definition of “adjudication” but found the case not directly relevant to the issues in the present appeal.
• A.V. Venkateswaran, Collector of Customs, Bombay v. Ramchand Sobhraj Wadhwani & Anr [CITATION]: The Court agreed that a party cannot allege inefficacy of a remedy when that party disables itself from availing the remedy, but found it not applicable in the present case.
• Manbhupinder Singh Atwal v. Neeraj Kumarpal Shah [CITATION]: The Court found that the facts of this case did not apply in the present case.
• Firm Ashok Traders and Anr. v. Gurumukh Das Saluja and Ors. [CITATION]: The Court reiterated that a party invoking Section 9 must be ready and willingto go to arbitration, but found it not applicable in the present case.
• Union of India and Ors. v. Uttar Pradesh State Bridge Corporation Limited [CITATION]: The Court agreed that unnecessary delay frustrates the purpose of arbitration but found it not applicable in the present case.

Reasoning of the Court:

The Supreme Court held that the term “entertain” in Section 9(3) of the Arbitration Act means to consider by application of mind to the issues raised. Once the court has taken up a matter for consideration and applied its mind, it has “entertained” the application. The Court clarified that “entertain” does not mean the entire process up to final adjudication, but rather the point at which the court starts considering the merits of the application. Therefore, if the Court has already “entertained” the application before the constitution of the Arbitral Tribunal, it can proceed to adjudicate the application, even if the Arbitral Tribunal is constituted in the interim.

The Court emphasized that the purpose of Section 9(3) is to minimize judicial intervention and encourage parties to seek interim relief from the Arbitral Tribunal. However, this does not mean that the court loses jurisdiction entirely after the constitution of the Arbitral Tribunal. The court can still grant interim relief under Section 9 if it finds that the remedy under Section 17 is not efficacious. The Court clarified that the requirement to examine the efficacy of the remedy under Section 17 arises only at the stage when the Court is “entertaining” the application and/or taking it up for consideration. If the Court has already entertained the application and applied its mind, the requirement to conduct the exercise of examining the efficacy of remedy under Section 17 would not arise.

The Court noted that the Commercial Court had reserved orders on the applications under Section 9 before the Arbitral Tribunal was constituted. Therefore, the Commercial Court had already “entertained” the applications and was within its rights to proceed to adjudicate them. The Court also noted that there was no material to support the allegation that the Respondent had delayed the constitution of the Arbitral Tribunal or disabled itself from availing the remedy under Section 17.

The Supreme Court concluded that the High Court had correctly held that the Commercial Court was within its jurisdiction to proceed with the Section 9 applications. The Court dismissed the appeal.

Decision

The Supreme Court dismissed the appeal filed by Arcelor Mittal Nippon Steel India Ltd. The Court upheld the Gujarat High Court’s decision, which had allowed the Commercial Court to proceed with the Section 9 applications. The Supreme Court clarified the meaning of “entertain” under Section 9(3) of the Arbitration Act, stating that it refers to the point at which the court starts considering the merits of the application, and not the entire process up to final adjudication.

The Court clarified that once a Court has applied its mind to the case before the constitution of the Arbitral Tribunal, it does not lose jurisdiction to pass orders in the application under Section 9(1). The Court also clarified that the requirement to examine the efficacy of the remedy under Section 17 arises only at the stage when the Court is “entertaining” the application and/or taking it up for consideration. If the Court has already entertained the application and applied its mind, the requirement to conduct the exercise of examining the efficacy of remedy under Section 17 would not arise.

The Supreme Court emphasized that the primary objective of Section 9(3) is to minimize judicial intervention and encourage parties to seek interim relief from the Arbitral Tribunal. However, the court’s power to grant interim relief under Section 9 is not completely ousted, and it can still intervene if the remedy under Section 17 is not efficacious. The Court also held that there is no provision under the Act which requires the Court to relegate or transfer a pending Section 9(1) application to the Arbitral Tribunal.

The judgment provides clarity on the interpretation of Section 9(3) of the Arbitration Act and sets a precedent for future cases involving interim relief applications. The Court’s decision balances the need to minimize judicial intervention with the need to ensure that parties have access to effective interim relief.

Flowchart: Interpretation of “Entertain” under Section 9(3)