Speaking Cross-Purposes: Challenges Posed To The Enforcement Of Interim Measures By Foreign Seated Tribunals

 - Arnav Doshi & Jugaad Singh

I. Introduction

The much awaited Draft Arbitration and Conciliation (Amendment) Bill, 2024 (‘Draft Amendment’) carried with it high expectations to bolster the pro-arbitration regime in India. The enforcement of interim measures by foreign-seated tribunals in India has been one such issue which was expected to be rectified by the Expert Committee – as it remained unaddressed in earlier amendments and discussions.

The current framework suffers from a disparity between interim measures passed by arbitral tribunals governed under Part I of the Arbitration and Conciliation Act, 1996 (‘Act’) (Indian-seated tribunals) and those passed by arbitral tribunals governed under Part II of the Act (Foreign-seated tribunals). While interim measures by Indian-seated tribunals can be directly enforced under Section 17(2) of the Act, to the extent that it has been deemed to be an order of the Court under the Code Of Civil Procedure, 1908 (‘CPC’), there exists a legislative vacuum for the enforcement mechanism exists for interim measures by foreign-seated tribunals. This has been acknowledged by the Delhi HC in Raffles Designs International India v Educomp Professional Education (para 98).

The Bombay HC judgment in HSBC PI Holdings (Mauritius) Limited v Avitel Post Studioz Limited  had provided much needed respite by allowing parties to a foreign-seated arbitration to seek relief for such interim measures before the courts under Section 9 of the Act. Alas, cases such as Bharat Aluminum Co. v. Kaiser Aluminum Technical Services (‘BALCO’) ensured that Section 9 would apply only to arbitrations under Part I of the Act. The 246th Law Commission Report took cognizance of this vacuum and a proviso was inserted to Section 2(2) by the Arbitration and Conciliation (Amendment) Act, 2015, making Section 9 the established route for enforcement of interim measures by foreign-seated tribunals.

Unfortunately, in a bid to minimize recourse to the courts in arbitration matters, the Draft Amendment completely obviates any recourse for the enforcement of interim measures passed by a foreign-seated tribunal, by limiting the parties from filing an application under Section 9 during the pendency of an arbitral proceeding. The authors seek to examine the existing framework (II) in contrast with the proposed amendment and its potential consequences on India’s reputation as an arbitration hub (III). The authors shall further examine the existing methods of enforcement in other jurisdictions and propose solutions to prevent a remediless situation for parties seeking the enforcement of interim measures (IV).

II. Existing Framework on Interim Measures in Foreign-Seated Arbitration

Within the existing framework under the Act, Section 17, akin to Section 9, empowers the arbitral tribunal to issue interim reliefs. However, the reliefs granted under Section 17 are confined to Part I of the Act, and thus, to Indian-seated arbitrations. As previously mentioned, prior to the 2015 Amendment, the challenges to the enforcement of interim measures by foreign-seated tribunals originated from the decision of the Constitutional Bench in BALCO. However, in deciding that the application of Section 9 would be circumscribed to Part I of the Act, the bench addressed the grievance that the exclusion of the application of Section 9 to foreign seated arbitrations, would result in great hardship to parties who were in need of interim measures – by tellingly observing that it was an issue to be redressed by the legislature.  The Delhi High Court in Shanghai Electric Group Company Limited v. Reliance Infrastructure Limited (‘Shanghai Electric’) succinctly encapsulated the issue at hand - “Unlike Section 17, there is no corresponding provision under the Act for enforcement of interim orders passed by a foreign tribunal. The Act only contemplates enforcement of foreign awards (and not foreign interim orders).”

Pertinently, Section 17H of the UNCITRAL Model Law on International Commercial Arbitration (‘UNCITRAL Model Law’) states that, “An interim measure issued by an arbitral tribunal shall be recognized as binding and, unless otherwise provided by the arbitral tribunal…”. In the wake of BALCO, the 246th Report by the Law Commission of India proposed an amendment to Section 2(2) of the Act which was subsequently enacted vide the Arbitration and Conciliation (Amendment) Act, 2015 by way of a proviso to Section 2(2). The proviso allowed the provisions of Section 9 to apply to international commercial arbitration, even if the place of arbitration is outside of India (foreign-seated tribunals). Such application was subject to the underlying agreement, i.e., whether the agreement allowed recourse to Indian courts under Section 9. This amendment led to ambiguity regarding whether such an agreement must be implied or express and has resulted in multiple judgements by courts. However, a discussion on such exclusions is outside the scope of this discussion, which pertains to foreign seated arbitrations where the agreement does not exclude the applicability of Part I of the Act.

The Supreme Court in Mankastu Impex Private Limited v. Airvisual Limited  reaffirmed the intent of the newly amended Section 2(2) to allow for the application of Section 9 from Part I to international commercial arbitration. Thereby, resolving the “remediless” vacuum of enforcement of interim measures by foreign-seated tribunals by establishing Section 9 as the appropriate route for grievance redressal.

In a similar vein, the Division Bench in Ashwani Minda and Another v. U-Shin Limited and Another ruled that the principles of Section 9 of the Act are “equally applicable when interim measures are sought in the Indian courts in connection with a foreign-seated arbitration.” The  Delhi HC too, in Shanghai Electric clarified that the import of Section 2(2) proviso of the Act specifically makes the provision of Section 9 applicable to foreign-seated arbitral tribunals. Therefore, in view of the ineffective remedy under Section 17 of the Act, Section 9 permits parties seeking interim relief before or during the arbitration.

III. Analysis of the Proposed Amendment to Section 9 of the Act

In the Draft Amendment, the proposed amendment to Section 9 of the Act (‘Proposed Amendment’) replaces the words “or during” with the words “the commencement of”. In doing so, it allows the courts to entertain an application under Section 9 of the Act only prior to the constitution of the arbitral tribunal and after the making of an arbitral award prior to its enforcement under the provisions of the Act. Therefore, parties would be restricted from approaching the court under Section 9 during the pendency of the arbitral proceedings. As discussed in the previous sections, this Proposed Amendment does not affect Indian-seated arbitrations as the Act deems an interim measure by an arbitral tribunal to be akin to an order by a court under the CPC in terms of its enforcement. However, for foreign-seated tribunals, which do not enjoy the benefit of direct enforceability of interim orders and had to rely on Section 9 of the Act, the change stymies enforcement of interim measures during the pendency of the arbitral proceedings. If the subject matter of the dispute or the concerned assets are located within India, there would be no recourse for the affected party to safeguard the same till after the arbitral proceedings are completed. While the intention behind this change might have been to streamline the arbitration process in India, it has come into conflict with practical challenges, leaving parties involved in foreign seated arbitration vulnerable and without recourse to Indian courts.

In light of these developments, a question arises whether such an amendment would be in line with India’s obligations under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (‘New York Convention’).  Article III of the New York Convention provides that each contracting state shall recognize arbitral awards as binding and enforce them as per the domestic rules of procedure. Despite the New York Convention being silent on the issue of interim orders, it allows for enforcement of such interim awards which have the characteristic of ‘finality’.      

Further, the Proposed Amendment does not align with the principles of comity of international law and the New York Convention, which thereby impacts India’s aspirations to be an arbitration friendly jurisdiction for international commercial arbitration. The absence of a clear recourse to Indian courts for the enforcement of interim orders could be perceived by potential foreign investors as a major drawback. Such a perception may discourage them from choosing India as a seat for arbitration or from engaging in commercial transactions governed by Indian law. Additionally, this concern is not limited to foreign investors alone—it could also deter other parties who might otherwise prefer arbitration as their preferred mode of dispute resolution for commercial contracts. The resulting chilling effect could ultimately hinder the development of arbitration as a robust and reliable mechanism for resolving cross-border disputes within the country.

 

IV. Proposed Solutions for Direct Enforceability of Interim Measures by Foreign Tribunals

To incapsulate the problem at hand, the Proposed Amendment will effectively curtail access to the courts during the duration of the arbitral proceedings to obtain an interim measure in a foreign-seated arbitration. This would be the final straw towards the dismantling of an enforcement mechanism which already lacks direct enforceability and, in its stead, even an adequate standard for adjudication of reliefs.

The simplest method of rectification to the Proposed Amendment would be to introduce a ‘carve in’ provision in the amendment to Section 9(1) which would allow parties in foreign-seated arbitrations to approach courts for interim relief at any stage of the arbitration.

This would retain the intention of circumventing unnecessary recourse to the courts during the pendency of domestic arbitral proceedings when the relief sought after could be provided by a directly enforceable order by the tribunal under Section 17 of the Act. Meanwhile, a ‘carve-in’ would allow enforcement of interim measures by a foreign-seated tribunals, and consequently, prevent such interim reliefs from becoming an ‘inefficacious remedy’. The act of resolving inefficacious remedies through Section 9 of the Act is one which has been carried out before by the Delhi High Court in Bhubaneshwar Expressways v. National Highways Authority of India. In this case, the HC allowed the petitioner to file a Section 9 application for interim relief as the tribunal was non-functional due to the recusal of one of the arbitrators. The HC explained the principle that if the alternative remedy is inefficacious and a party is suffering hardships, the courts can extend the remedy available to the parties.  A carve-in would greatly reinforce the principle of providing an efficacious remedy.

Despite a carve-in being introduced, the problem of direct enforceability of interim measures by foreign-seated tribunals still persists. Section 17H of the UNCITRAL Model Law provides for direct enforcement of interim measures by foreign seated tribunals. Within national legislations, only Section 61 of the Hong Kong Arbitration Ordinance, 2011 and Section 17L of the New Zealand Arbitration Act, 1996 make arbitral orders and directions directly enforceable in the same way as judgment of court. In contrast, despite being pro-arbitration hubs, several nations such as Singapore, the UK, and the USA reject the concept of direct enforceability of interim measures by an arbitral tribunal. It is a perfectly understandable stance for a sovereign State to disallow the same owing to complex international relations and the possibility of such measures having unintended or ‘inappropriate’ effects which may go against national interests or public policy of the State.

Therefore, adopting a mechanism of direct enforceability of interim measures by foreign seated tribunals, like that of Hong Kong or New Zealand, may not be apposite in the Indian arbitration milieu. Hence, by way of the proposed solution, a standard of adjudication could be adopted thereafter to allow for effective and efficient recognition and enforcement of interim measures by foreign-seated tribunals.

V. Conclusion

The Draft Amendment was aspired to resolve the conundrum concerning the enforcement of interim measures granted by foreign-seated tribunals. However, not only has the Proposed Amendment disturbed the parchment safeguard implemented by the courts but also in effect estops parties from enforcing interim reliefs granted by a foreign-seated tribunal. Thus, the intended purpose of an amendment to Section 9 of the Act has been further diluted.

As a relief measure, the Draft Amendment is at the stage of public consultation with the possibility of rectification of the Proposed Amendment. In view of same, the authors urge reconsideration of the Proposed Amendment basis the prejudice and hinderance caused to parties on account of a direct bar on the enforcement of interim awards once the arbitration proceedings have commenced. Considering the Indian courts have ex facie allowed the enforcement of interim awards rendered by foreign-seated tribunals, the ‘carve-in’ recommendation to Section 9 of the Act, as a welcome change, would entail parties to approach courts at any stage to enforce interim awards.