We conclude our analysis of the decision of the Supreme Court in the BALCO decision.
The Supreme Court in Bharat Aluminium Co. V. Kaiser Aluminium Technical Services Inc. thus laid to rest the maladies which arose from the Bhatia and Satyam decisions.
The Supreme Court in Bharat Aluminium Co. V. Kaiser Aluminium Technical Services Inc. thus laid to rest the maladies which arose from the Bhatia and Satyam decisions.
13. The
maintainability of an action for interim relief outside the A&C Act, 1996
As the Supreme Court interpreted that Part I of the A&C Act 1996 would only apply if the seat of arbitration was in India, the same basically deprives parties to such arbitrations from obtaining interim relief in respect of assets located in India.[1] Therefore an additional issue was framed before the Supreme Court, viz, whether a suit for interim relief would be maintainable under any other law in India even if S. 9 of the A&C Act, 1996 was unavailable to the parties.
The Supreme Court examined the Code of Civil Procedure, 1908 which contains provisions relating to suits and applications for interim relief.
Order XXXIX and XL of Code of Civil Procedure, 1908 which relate to interim relief require the existence of a suit as a necessary condition. S. 9 of the Code of Civil Procedure provides that:
The Courts shall (subject to the provisions herein contained) have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred.
The Supreme Court did not deal with the express bar which can be found in S. 5 of the A&C Act, 1996 which reads as under:
Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.
Thus the Supreme Court could have held that there could be no suit brought before Indian Courts for interim relief in the case of an arbitration seated outside India as the same was barred by S. 5 of the A&C Act, 1996. The Supreme Court however did not express this view.
Instead the Supreme Court found that the pendency of an arbitration proceeding would bar the courts from taking cognizance of a suit based on the same disputes in view of S. 8 or S. 45 of the A&C Act, 1996. This in turn would mean that as no suit could be brought in this regard, no application for interim relief could be found to be maintainable.
The Supreme Court further held that for any suit to be maintainable (and thus any request for interim relief) there has to be a cause of action. Pendency of arbitral proceedings outside India was found not to constitute a sufficient cause of action. The Supreme Court further held that interim relief is to be sought as a part of the substantive relief.[2] Where the substantive relief is within the jurisdiction of the arbitral tribunal, no substantive relief concerning the merits of the arbitration can be claimed in court and therefore no interim relief can in turn be claimed.
The Supreme Court also considered other laws in India such as the Specific Relief Act, 1963 and found that on similar grounds no interim relief could be sought in relation to an arbitration seated outside India.
The Supreme Court then examined the law in this regard in England. In Siskina (Cargo owners) v. Distos Compania Navieria SA[3] the House of Lords held
A right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependent upon there being a pre-existing cause of action against the defendant arising out of an invasion, actual or threatened by him, of a legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the Court.
The above decision still holds good in India although in England the law was subsequently modified in this regard by amendments to the Supreme Court Act, 1981. This in turn permitted the English Courts in Channel Turner Group Ltd. v. Balfour Beatty Construction Ltd.[4] to grant interim relief in relation to proceedings that have or are likely to commence in a foreign state. The Supreme Court of India observed that no such power having been granted by the Indian Legislature, no such interim relief could be granted in relation to arbitration proceedings taking place outside India.
The Supreme Court thus effectively shut the door on any request for interim relief in relation to assets located in India in the case of an arbitration with its situs outside India. While several commentators may criticize the consequences of such a decision, one cannot lose sight of the fact that a purposive interpretation cannot put the Court in the shoes of the Legislature. It would be best to leave the task of remedying this defect to the Legislature. The simplest way to achieve the same would be to provide the same exceptions to S. 2(2) of the A&C Act, 1996 as provided to A. 1(2) of the Model Law.
As the Supreme Court interpreted that Part I of the A&C Act 1996 would only apply if the seat of arbitration was in India, the same basically deprives parties to such arbitrations from obtaining interim relief in respect of assets located in India.[1] Therefore an additional issue was framed before the Supreme Court, viz, whether a suit for interim relief would be maintainable under any other law in India even if S. 9 of the A&C Act, 1996 was unavailable to the parties.
The Supreme Court examined the Code of Civil Procedure, 1908 which contains provisions relating to suits and applications for interim relief.
Order XXXIX and XL of Code of Civil Procedure, 1908 which relate to interim relief require the existence of a suit as a necessary condition. S. 9 of the Code of Civil Procedure provides that:
The Courts shall (subject to the provisions herein contained) have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred.
The Supreme Court did not deal with the express bar which can be found in S. 5 of the A&C Act, 1996 which reads as under:
Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.
Thus the Supreme Court could have held that there could be no suit brought before Indian Courts for interim relief in the case of an arbitration seated outside India as the same was barred by S. 5 of the A&C Act, 1996. The Supreme Court however did not express this view.
Instead the Supreme Court found that the pendency of an arbitration proceeding would bar the courts from taking cognizance of a suit based on the same disputes in view of S. 8 or S. 45 of the A&C Act, 1996. This in turn would mean that as no suit could be brought in this regard, no application for interim relief could be found to be maintainable.
The Supreme Court further held that for any suit to be maintainable (and thus any request for interim relief) there has to be a cause of action. Pendency of arbitral proceedings outside India was found not to constitute a sufficient cause of action. The Supreme Court further held that interim relief is to be sought as a part of the substantive relief.[2] Where the substantive relief is within the jurisdiction of the arbitral tribunal, no substantive relief concerning the merits of the arbitration can be claimed in court and therefore no interim relief can in turn be claimed.
The Supreme Court also considered other laws in India such as the Specific Relief Act, 1963 and found that on similar grounds no interim relief could be sought in relation to an arbitration seated outside India.
The Supreme Court then examined the law in this regard in England. In Siskina (Cargo owners) v. Distos Compania Navieria SA[3] the House of Lords held
A right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependent upon there being a pre-existing cause of action against the defendant arising out of an invasion, actual or threatened by him, of a legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the Court.
The above decision still holds good in India although in England the law was subsequently modified in this regard by amendments to the Supreme Court Act, 1981. This in turn permitted the English Courts in Channel Turner Group Ltd. v. Balfour Beatty Construction Ltd.[4] to grant interim relief in relation to proceedings that have or are likely to commence in a foreign state. The Supreme Court of India observed that no such power having been granted by the Indian Legislature, no such interim relief could be granted in relation to arbitration proceedings taking place outside India.
The Supreme Court thus effectively shut the door on any request for interim relief in relation to assets located in India in the case of an arbitration with its situs outside India. While several commentators may criticize the consequences of such a decision, one cannot lose sight of the fact that a purposive interpretation cannot put the Court in the shoes of the Legislature. It would be best to leave the task of remedying this defect to the Legislature. The simplest way to achieve the same would be to provide the same exceptions to S. 2(2) of the A&C Act, 1996 as provided to A. 1(2) of the Model Law.
Conclusion
Effectively the Supreme Court in the decision under review has removed all the evils created by over enthusiastic interpretations of the law in Bhatia and Satyam decisions. It has reiterated the strict territorial criterion of the A&C Act, 1996 calling the law as seat centric and thereby completely restricting the applicability of Part I of the Act to arbitrations taking place in India only. Effectively it means that in an arbitration with its seat outside India, no provision under Part I of the Act of 1996 is available to either of the parties to the arbitration. This bars any court in India to entertain and try requests for interim relief or for setting aside awards pursuant to arbitrations with seat outside India.
Interestingly the Supreme Court has made its decision prospective in
nature[5],
i.e. applicable to arbitration agreements entered into post the date of its
decision. The Supreme Court felt that the decisions in Bhatia and Satyam cases having
been followed over the years, several arbitration agreements would have been
entered with the position of law laid down therein having been accepted as the
correct one. To safeguard parties to such arbitration agreements the Supreme
Court made its decision prospective.
This creates two parallel regimes of law, one prior to 6th
September 2012 and one thereafter which is likely to cause a headache or two
for lower courts. Further this permits the problems of Bhatia and Satyam to
continue unabated with respect to arbitration agreements entered into prior to
the decision under review. (This despite a dispute not having arisen in
relation to the arbitration agreement.)[6]
However one must remember parties are free to novate or substitute their
arbitration agreements which would be advisable considering the prospective
nature of this decision.
[1]
As S. 9 which falls in Part I
is not available to them
[2]
The Supreme Court relied upon
precedents such as State of Orissa v.
Madan Gopal Rungta, AIR 1952 SC 12, Cotton Corporation Ltd. v. United Industrial
Bank, (1983) 4 SCC 625, Ashok Kumar
Lingala v. State of Karnataka, (2012) 1 SCC 321
[3]
1979 AC 210
[4]
1993 AC 334
[5]
Paragraph 201 of the decision
[6]
Take the case of an
arbitration agreement entered into prior to the decision under review. No
dispute arises in relation thereto until ten years later. The decision under
review will not be applicable but the position of law as laid down in Bhatia decision would apply. This seems
farcical. It would have been better to make the ratio applicable to arbitration
agreements entered into even prior to the date of the decision but in respect
of which no arbitration proceedings or legal proceedings have commenced.
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