Analysis of the Power of the Arbitral Tribunal to Order Attachment of Property

Introduction

The grant of interim relief is necessary for arbitration as it assists in protecting the sanctity of the entire process by prohibiting certain actions which are capable of negating the outcome of the arbitration. The Arbitral Tribunal (“the tribunal”) has been entrusted with the power to grant interim relief to the parties under the erstwhile Section 17 of the Arbitration and Conciliation Act, 1996. (“the Act”). However, the courts have struggled in the past to interpret the scope of this power due to the difficulty in integrating the principles laid down in the Civil Procedure Code, 1908 (“CPC”) with the actions of the tribunal. A situation may arise wherein the tribunal may face a lack of certainty to order attachment of property for safeguarding the interest of either party during the ongoing arbitral proceedings since the law on the same was not settled for a prolonged period. Thus, in a bid to understand the current legal position, it is material to answer two questions; firstly, whether a tribunal can order an attachment of property as a grant of interim relief and, secondly, whether in exercise of such power, the tribunal is under an obligation to act in accordance with Order XXXVIII Rule 5 of CPC in extensor.

Judicial Developments

In one of the earliest cases in this regard, Intertoll ICS CECONS O & M Comp. Pvt. Ltd. (2013) (“Intertoll”), one of the more important issues raised was whether the tribunal has the power under S. 17 of the Act to direct a party to furnish security for the amount claimed in the arbitration proceedings since it was not explicitly provided for in the statute. The High Court of Delhi began by setting forth and examining the apparent and inherent disparities between S. 9 (Interim measures, etc. by Court) and S. 17 of the Act which was necessary to affix the harnesses surrounding the latter. The Court, following precedents set in various previous matters[1] held that the power to grant interim relief laid down in S. 9 of the Act is naturally “much wider” than the power laid down in S. 17 of the Act. Earlier, the power of the tribunal was limited to granting interim measures for protection in respect of the “subject matter of dispute” and giving directions to provide security in connection with the measure of protection taken in it. Keeping this in mind, the tribunal could only act for the protection of the subject matter of the dispute, which should be a tangible property and in such cases, directing a party to furnish security for an indeterminate monetary claim would not fall within the scope of S. 17 of the Act. That being said, the Court observed that if the interim relief claimed by the party is in relation to a monetary claim, it can only present itself in the form of a bank guarantee. However, the same being a drastic measure, at the interlocutory stage, shall only be taken after careful consideration of the facts of the case and should not be based on a speculative claim of damages. Furthermore, there is no escaping the fact that the essential requirement under Order XXXVIII Rule 5 of CPC viz., proving the defendant’s intention to obstruct or delay the execution of a decree that may be passed against him should first and foremost be satisfied. The Court further set out that prior to determining whether the interest of the party requesting for the relief is affected, the condition of a prima facie case should be met. Further down the line, the same question came up for consideration before the Bombay High Court in Baker Hughes Singapore Pte. case (2014). To determine its answer, the Court first analyzed whether a “money claim” made by a party before the tribunal can be considered as the ‘subject matter of dispute’ as required under S. 17 of the Act. The Bombay High Court answered the same in affirmative. It commented on the findings of the Delhi High Court in Intertoll by observing that there is no such law laid down in that case which holds that the power under S. 9 of the Act to pass an interim order to secure the “subject matter of the dispute” cannot be exercised by an arbitrator under S. 17 of the Act. Both S. 9 and S. 17 are employed for the purpose of protecting the subject matter of dispute until the arbitration proceedings draw to a close. The Bombay High Court also relied upon the decision of this Court in Nimbus Communications v. BCCI (2012). It was suggested that the exercise of power under S. 17 of the Act is conditioned by two essential requirements, namely, to establish a prima facie case that he would finally succeed in the proceedings and a case for the grant of interim measures (also highlighted in Intertoll).

Therefore, while the principles underlying Order XXXVIII Rule 5 of CPC shall be attracted to an application under S. 9 of the Act, it cannot be applied in an inflexible manner so as to defeat the purpose of interim relief. The court shall reckon with these tenets at all times. The Court opined that no comparison was endurable between the claim made by the petitioner under the undisputed invoices and the counterclaim for damages which was speculative in nature. Drawing the foregoing distinction, the Court held that the claimant had made out a clear case for grant of the interim relief and, thus, an order was passed directing the respondent to furnish a bank guarantee to the tune of USD 20,00,000. This decision was reaffirmed by the Supreme Court in Shiv-Vani Gas Oil and Gas Exploration Services Ltd. v. Bakr Hughes Singapore Pte (2015).

Position after 2015 Amendment

Until the Amendment Act, the power of the tribunal to grant interim relief in the form of a direction to furnish bank guarantee or to attach property was seldom exercised due to the absence of an explicit provision to that effect linked with the risk of exercising the power in a manner repugnant to Order XXXVIII Rule 5 of CPC. However, after the Amendment Act, the balance of powers stands restored as the Section is substantially amended becoming a cause for expansion in the powers of the tribunal and facilitation of the exercise of powers under S. 17 of the Act to grant an interim relief in the form of an attachment or order seeking security. Post the amendment to the Act, the Delhi High Court observed in Lanco Infratech Ltd. (2016) that the tribunal had ordered the respondent to furnish 50% of the claim amount as Bank Guarantee overlooking the fact that a substantial portion of the claim amount constituted losses sustained by the petitioner on account of suspension of the contract. In the Court’s view, this could not be referred to as a substantive claim since it can only be fairly ascertained and quantified after the evidentiary stage. The Court opined that for a fair exercise of the tribunal’s powers under S. 17, it ought not to take consideration of such speculative assertions. The primary objective sought to be achieved through Order XXXVIII Rule 5 of CPC is to prevent the ends of justice from being defeated by defeating the realization of the decree, for which the tribunal is under a duty to draw a distinction between speculative and substantive claims. It is evident that even the Court, in this case, agreed with the strict application of the principles of Order XXXVIII Rule 5 of CPC, perhaps because it alleviated the burden of the judiciary to lay and interpret unique and flexible standards for tribunals. However, the case was different in the recent judgment of Reliance Communication Ltd. & Anr. (2018). Here, the appellants were directed to furnish a bank guarantee of Rs. 10 crores of a nationalized bank within two weeks along with the auction of equipment concerned, within 60 days. The counsel for the Appellant also argued, in connection with other things that, while exercising this power, the tribunal will be bound by the strict rigors of Order XXXVIII Rule 5 of CPC because even the courts are under a duty to discourage its application in a rather mechanical manner. He further argued that the condition per Order XXXVIII Rule 5 (1) & (2) was not met as the event that caused apprehension in the minds of the respondent apropos of its debt had failed to take place. However, Yogesh Khanna J. relied upon the case of Steel Authority of India Ltd. v. AMCI Pty Ltd. & Anr. (2011) to hold that the three reasons:

  • Determinate claim based on the terms of the contract
  • Series of prior violations by the respondent of the orders of the court
  • Respondent’s financial crisis

are sufficient to invoke the power of the tribunal to make an interim order under S. 17 of the Amendment Act seeking bank guarantee from the respondent. The Delhi High Court held that the provisions of Order XXXVIII Rule 5 of CPC cannot be strictly enforced as it may hamper the exercise of power to achieve equity, fair play and good conscience in the peculiar facts of each case. Thus, the Court was in agreement with the order of the tribunal directing the appellants to furnish at least 20% of the dues as bank guarantees within 3 days from the date of order.

This position was further strengthened by the Madras High Court in Sundaram Finance Ltd. case (2018) in which the arbitrator passed an order to attach the property of the respondents as they failed to furnish security as ordered by the tribunal previously. The same was sent by the arbitrator to another District Judge within whose jurisdiction the said property was situated. However, the District Judge did not comply with the order and in fact, returned the same with a notation that making of such an order is beyond the powers of the tribunal. The question of law which arose was whether the tribunal has the power to attach property other than the subject matter of the dispute under S. 17 of the Amendment Act. The Madras High Court took a flexible approach while interpreting S. 17 (1) and held that it should be read in conjunction with S. 94 of CPC (Supplemental Proceedings), wherein, the phrase “attachment of any property” U/ S. 94 reaffirms that no embargo operates to limit this power of the Court or the tribunal to the subject matter of the dispute only. Ergo, this decision not only inspirits the law laid down in Reliance Communications Ltd., but also makes headway by ameliorating the exercise of such power by the tribunal.

Conclusion

Thus, it is evident that the current position of the law acts as a facilitator for the Arbitral Tribunal to exercise its power under S. 17 of the Act provided the same is done with an intention to safeguard the interest of the party concerned and the two conditions viz. prima facie case and balance of convenience in favour of the respondent are met by the party claiming such interim relief. Further, the extremities within which the tribunal can make an interim order to attach property under S. 17 of the Amendment Act have been visualized through a range of decisions, which invariably include keeping in mind the basic tenets of CPC at all times. However, it is also emphasized that the same should not induce extreme rigidity into the procedure so as to attenuate the power of the tribunal to exercise such authority.


Jyotsna Punshi is a 4th-year law student at National University of Advanced Legal Studies, Kochi

[1] See also, National Highways Authority of India v. M/s. China Coal Construction Group Corporation AIR 2006 Delhi 134; Shin Satellite Public Co. Ltd. v. Jain Studios Ltd., 153 (2008) DLT 604.

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