Tuesday, July 6, 2010

Against whom can remedy under Section 9 lie? Guest post by Shantanu Naravane

After a guest post by Niranjan V., we are glad to publish another guest post from Shantanu Naravane, a final year student of National Law School of India University, Bangalore and one of the most widely read student bloggers in the country. Other writings by Shantanu can be found on the Indian Corporate Law Blog.
Section 9 of the Arbitration and Conciliation Act, 1996 allows parties to approach a court for interim measures, before, during or after an arbitral award. The corresponding provision granting competence to the tribunal to grant interim measures is section 17. However, unlike section 17, which specifically allows for measures to be directed only against parties, section 9 is silent on whom the court-granted measures may be directed against. There has been a fair degree of debate in the High Courts over this question, and the matter is yet to be settled by the Supreme Court.

The first significant discussion of this issue was by the Delhi High Court in 2002, in Arun Kapoor v. Vikram Kapoor (AIR 2002 Del 420), where Justice J.D. Kapoor observed,
Section 9 is distinct from Section 17 inasmuch as that the petition under Section 17 is moved before the Arbitrator for an order against a party to the proceedings whereas Section 9 vest remedy in a party to the arbitration proceedings to seek interim measure of protection against a person who need not be either party to the arbitration agreement or to the arbitration proceedings.
This dictum seems fairly straightforward, and is in keeping with the text of the provision. However, its precedential value is limited, since it was an observation made in passing, and one that finally led to the dismissal of the section 9 application. Thus, even if Justice J.D. Kapoor sought to give section 9 a wide ambit, the subsequent dismissal of the section 9 application shows that the widening did not play a material role in the judge arriving at his decision.
However, subsequent decisions of the Kerala High Court and the Delhi High Court Then followed one decision of the Kerala High Court and one more of the Delhi High Court, both suggest that there needs to be some link between the arbitration proceedings and the party against whom the interim measure is sought under section 9. In the first of these, the Kerala High Court observed in Shoney Sanil v. Coastal Foundations (AIR 2006 Ker 206),
On a plain reading of Section 9 of the Act and going by the scheme of the said Act, there is no room to hold that by an interim measure under Section 9, the rights of third party, holding possession on the basis of a court sale could be interfered with, injuncted or subjected to proceedings under Section 9 of the Act. Section 9 of the Act contemplates issuance of interim measures by the court only at the instance of a party to an arbitration agreement with regard to the subject-matter of the arbitration agreement. This can be only as against the party to an arbitration agreement, or, at best, against any person claiming under him. The writ petitioner is a third party auction purchaser in whose favour is a sale certificate, followed by delivery of possession. He cannot therefore be subjected to proceedings under Section 9 of the Act, initiated on the basis of an alleged arbitral agreement between the respondents. [emphasis supplied]
The highlighted line above, while unequivocal is narrowing the scope of the section 9, seems to have little basis in the text of the provision. The Court is right in observing that only a party may approach a Court in a section 9 application. But, unlike section 17, there is nothing in the provision which restricts these measures only to parties to the proceedings. The Delhi High Court in Impex Trading v. Anunay Fab (MANU/DE/8800/2007) is far less categorical, and like its predecessor in Arun Kapoor, and possibly even influenced by it, only makes a passing observation that,
therefore, present petition under Section 9 of the Arbitration and Conciliation Act against the bankers who are not even party to the consignment agreement and the arbitration clause is not maintainable ...
 Finally, the most recent judicial consideration of this issue was by the Bombay High Court in Girish Mulchand Mehta v. Mahesh S. Mehta, [MANU/MH/1458/2009].  in 2009, when it noted the prior observations of the Kerala and Delhi High Courts to the effect that a section 9 application is maintainable only against a party to the arbitration, or someone claiming under him. The Bombay High Court seemed to be uncomfortable with this interpretation. However, in the spirit of judicial deference, the Court responded by placing the burden of proof on the respondent to establish that he was not a party of claiming under him. In the words of the Court,
Thus understood, Section 9 can be invoked even against a third party who is not party to an arbitration agreement or arbitration proceedings, if he were to be person claiming under the party to the arbitration agreement and likely to be affected by the interim measures. The Appellants herein will have to substantiate that they were claiming independent right in respect of any portion of the subject matter of the Arbitration Agreement on their own and not claiming under the Respondent No. 2 Society who is party to the Arbitration Agreement. In absence thereof, the Court would certainly have jurisdiction to pass appropriate order by way of interim measures even against the Appellants herein, irrespective of the fact that they are not party to the Arbitration Agreement or the Arbitration Proceedings.
Thus, at the end of these four decisions, the precise position on whom a section 9 application can lie against is far from clear. What is clear is that the Bombay High Court, if followed, has significantly diluted the import of the Kerala High Court in Shoney Sanil. However, with respect, the appropriate solution is not to shift the burden of proof (which also comes with its accompanying problems), but changing the test. Given that a Court has its ordinary powers in a section 9 application (which is a point emphasised by the 2010 Arbitration Consultation Paper), and given the importance of preserving the matter for arbitration, it seems unwise to curtail the powers of a Court to grant measures only against parties or those claiming under them. Admittedly, granting interim measures against a person who has nothing to do with the proceedings, seems a dubious interpretation of section 9. However, that concern can be addressed by requiring a nexus with the proceedings, and by hearing the person before ordering the measure against him/her. Thus, rather than the test being whether the person is a party to the proceedings, the test should be one of establishing a nexus with the proceedings. If a person is likely to affect the arbitration or the subject matter thereof, a section 9 application should lie, irrespective of whether he is a party or claiming under a party.


  1. There are many instances where justice demands that a court deciding a S 9 application would have to issue orders against persons who are not parties to the arbitration agreement or the contract containing the arbitration clause.

    Off the cuff, I can think of one. Suppose a dispute has arisen between the two parties
    A and B in connection with a Contract. B had furnished a bank guarantee (BG) as per the Contract. A has decided to invoke the BG and has communicated its decision to encash it to the bank. Consequently, B approaches a court under S 9 to restrain the bank from honouring
    A's request to encashing the BG. If B is able to establish a case for issue of injunction restraining the bank from honouring request to encashing the BG, the court could issue an order restraining the bank therefrom, though the bank is a third party.

    In Maytas Infra v. Utility Energytech and Anr 2009(111) Bom. LR 3693: MANU/MH/0751/2009 Division Bench), an interim order pending final decision was passed in a Section 9 application directing the bank that issued the bank guarantee (ICICI Bank), a third party, to deposit the guarantee amount in the bank. ICICI bank was a third party [I am not sure if at the time of the order, arbitration commenced.]

    In the context of a letter of credit (restraint from invocation thereof is governed by principles identical to the case of bank guarantees), suppose a buyer furnishes a letter of credit to the seller. At the time of receipt of goods, the buyer finds out that a fraud was committed by the seller. When he requests the bank not to honour the letter of credit and the bank refuses, nothing would prevent a court from ordering, under S 9, the bank to not honour the letter of credit. In fact, such a
    situation arose in one of the cases in an American court. This has been recognised by a Single Judge of the Delhi High Court in National Highways Authority of India v. Elsamex-TWS-SNC Joint Venture MANU/DE/0732/2008.

    In several cases where S 9 petitions have been filed for restraining banks from encashment of Bank guarantee, courts have not refused such reliefs on the ground that the guarantee issuing bank was a third party, but have refused on the ground that such reliefs are not generally issued, except in cases of fraud or irreparabe injury.

    Also, suppose pending arbitration, the court appoints a receiver in respect of some
    property. One of the parties moves the court for a particular relief directing the
    receiver to do an act in respect of such property, wouldn't such a relief be a relief
    against a third party?

  2. The same proposition may also be looked from the angle of Section 9, CPC r/w 151, CPC. Where there is a right, there lies a remedy. The applicant should not be denied the remedy of interim relief merely because the subject matter falls within the terms of an arbitration proceeding and the person against whom such relief is sought is not a party to an such arbitration proceeding. The reason for this would be that the dispute would still be of a civil nature to which a civil court will have jurisdiction under s. 9, CPC. So a s. 9, Arbitration Act application should be held to be maintainable because of s. 9 r/w s. 151, CPC. Thus, in my opinion, the bar on the jurisdiction of the civil court that otherwise operates if an arbitration is commenced would not apply if the interim relief, though incidental to the arbitration proceeding, is sought against a third person who is not a party to the arbitration proceeding. Another independent reason, as already pointed out by you is the difference in the wording of Section 9 and Section 17 of the Arbitration Act is relevant here.

  3. Niko Resources Ltd. v. Union of India 2001(3) Arb. L.R. 196 (Delhi) (DB)
    In the last few paragraphs of the judgement, one would notice that the Division Bench had passed an order against one of the respondents and its subsidiary when the subsidiary was a company not a party to the arbitration agreement

  4. The following response to the comments was sent in by Shantanu Naravane, the author of this post:


    Thanks for your comments.

    Badri, thanks for the decisions on the bank guarantees. Provides a good example of when an interim measure against a third party may be a necessity. However, while the receiver is a third party, I think that doesn’t fall within the scope of the debate here, since there is section 9(ii)(d) specifically provides for the appointment of a receiver. While you are correct in saying that the provision only provides for appointment, Courts are likely to slot in all directions to a receiver under that provision, or use the provision to say that a receiver is not really a third party for the purpose of the provision.

    As to your second comment, was Niko Resources the case where the veil was lifted, or did it turn on the interpretation of section 9?

    Anuj, it is an interesting point you make about section 151 of the CPC. However, I do not think that it would mean that interim measures against third parties are maintainable. Section 151 only provides that ‘Nothing in this Code shall be deemed to limit or otherwise affect the inherent power of the Court’, and not that ‘nothing in any law shall be deemed to limit ...’. Given this wording, I think it’s perfectly possible for the AnC Act to limit the Court’s jurisdiction in a section 9 application. However, given the wide powers given in section 9(ii)(e), it is possible to argue that section 151 is co-opted into section 9, leading to the result you suggest, but for a different reason.


  5. Shantanu, I think you made my point clearer to me. I agree to your point that s. 151 CPC is worded in ‘Nothing in this Code' and not ‘nothing in any law'. However, in my opinion, the Arbitration Act, because of the difference in wording of S. 9 and s. 17, does not limit interim relief to be granted only against parties to the arbitration proceeding but also against third parties. So, s. 9 Arbitration Act does not limit the jurisdiction of the court in this regard. Moreover, this power of the court is to 'make such orders as may be necessary for the ends of justice'. On this basis, it can be said that such relief against a third party to an arbitration proceeding may be granted by a court under a s. 9 Arbitration Act application.

    P.S. I guess we are saying the same thing, but differently.

  6. In the Niko case, the veil was not lifted. The court simply did not go into the question as to whether it could pass an order in respect of a third party. But it had to pass an order against that third party because the said third party and the party to the arbitration agreement were acting jointly, they being the subsidiary and the parent.

  7. for instance in Girish Mehta V/s. Mahesh Mehta I have observed that they are the members of the society they are repersented under an title of the society if they claim independent title on a plot and building which is owned by society then what is the meaning of co-operative society ? if ten members want redevelopment and two does not then the ultimate suffer will be the ten members. who also hold majority intrest in the property . so arbitration proceedings against third party is being rightly held in the view of justice to the society

  8. There is also the issue of the extent to which the Court can examine the existence of the arbitration agreement under Section 9 which to my mind would directly affect the aforesaid debate. I am of the view that the scope for examining the existence of the arbitration agreement under Section 9 is extremely limited. As a natural consequence, the requirement to establish privity diminishes. The court in its original jurisdiction cannot usurp statutory powers granted under Section 11 / 16.

    The foregoing notwithstanding, the language of Section 9 is very clear and wide. Even if the person against whom relief is being claimed has no co-relation to the parties to the arbitration agreement, interim relief can be granted.

  9. My question is different . It is that in an arbitral award, maintenance charges (of a property)have been awarded to the claimant(DH)against the respondant(JD). The JD had already sold the property to a third party who is now in possession. Can the third party challange the award under section 34 or or any other remedy to the third party? please guide.


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