Delhi High Court: Whether The Jurisdiction Vested in Indian Courts To Award Interim Measures In A Foreign Seated International Commercial Arbitration is an Asset Based Jurisdiction?

Delhi-High-Court

Consider a situation where in a foreign seated international commercial arbitration with proper law of underlying contract being foreign law, an Indian party files a petition under Section 9 of the Arbitration & Conciliation Act, 1996 (‘Arbitration Act’) before an Indian court seeking interim measures for securing the amount in dispute against the foreign party which does not have any assets in India. Then, can such foreign party plead that the Indian court will not have jurisdiction to grant an interim relief of this nature since even if assuming that an ‘Award’ under Section 9 is passed against such foreign party, the Indian party would have no way of getting the Award executed against such foreign party in India, owing to non-availability of assets? In other words, the issue is whether jurisdiction vested in an Indian Court under proviso to Section 2(2) read with Section 9(1)(ii) of the Arbitration Act to grant interim measure to secure the amount in dispute is an asset based jurisdiction (‘Asset Based Jurisdiction Argument’) and only when the asset(s) of the foreign party against whom the order is sought to be enforced are situated in India, can an Indian Court exercise its jurisdiction? The issue is decided in negative by the Delhi High Court in Goodwill Non-Woven (P) Limited vs Xcoal Energy & Resources Llc OMP(I)(COMM) 120/2020 decided on 9 June 2020.

The above Asset Based Jurisdiction Argument was raised by the Foreign party against the interim measure sought by an Indian party in a Section 9 petition before the Delhi High Court to secure the amount in dispute in an ICC regulated Arbitration clause. To solve this issue, it is pertinent to note that language of Section 2(2) (Applicability of Certain Provisions of Part I on Part II of the Arbitration Act) and Section 9 (Interim Measures by Court) of the Act which reads as under:-

“(2) This Part shall apply where the place of arbitration is in India:

[Provided that subject to an agreement to the contrary, the provisions of sections 9(Interim Measures by Court), 27 and clause (a) of sub- section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.]

XXX XXX XXX

  1. 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—

XXX

(ii)        for an interim measure of protection in respect of any of the following matters, namely:—

XXX

(b)        securing the amount in dispute in the arbitration;

Vide the Arbitration and Conciliation (Amendment) Act, 2015 the proviso was added to Section 2(2) of the Arbitration Act with effect that it makes applicable Sections 9, 27, 37(1)(a) and 37(3) of the Act to foreign seated arbitration. Subsequently, the Indian Courts have interpreted the proviso to mean that it makes Sections 9, 27, 37(1)(a) and 37(3) of the Arbitration Act applicable to foreign seated arbitration.[1]

However, the Asset Based Jurisdiction Argument was based on the 246th report of the Law Commission and on the words ‘enforceable and recognized under the provision of Part-II’ in proviso to Section 2(2) of the Arbitration Act.

It is noteworthy that the expression ‘enforceable and recognized under the provision of Part-II’ mean a contracting State to the conventions, on the basis of reciprocity shall recognize and enforce the awards made in the territory of another contracting State. In the present case, since the foreign party is USA registered with which India has reciprocity arrangements, the above expression was not a thread.

In so far as the 246th report of the Law Commission is concerned, it shows that the thought process, which weighed for incorporating proviso to Section 2(2) of the Arbitration Act is the difficulty faced by both the Indian and the foreign party in seeking orders/interim measures in India in a foreign seated arbitration.  So, it follows that proviso to Section 2(2) was incorporated to facilitate the parties to move the Court in India, even though the arbitration is seated outside India.

Thus, the Court rejected the Asset Based Jurisdiction Argument of the Foreign Party and made some very pertinent remarks which are as follows:-

  • Section 9, starts with the words ‘A party’, which denotes, any party can file an application under the said Section.
  • Section 9 is for order/ interim measure, in either case not an Award required to be enforced against any asset in India. In other words, for the purpose of passing an order/interim measure, the availability of asset in India is irrelevant.
  • The order/interim measure under Section 9 inter alia includes an interim measure for securing the amount in dispute in arbitration like directing the foreign party to furnish a bank guarantee in favour of the Indian party; directing the foreign party to deposit the claim amount in this Court, such orders also does not presuppose existence of asset(s) of a foreign party in India.

In view thereof, the Court dismissed the Asset Based Jurisdiction Argument and held that passing of orders/granting interim- measures under Section 9 does not presuppose existence of asset(s) in India. This is because a bank guarantee, which is furnished/amount deposited pursuant to an order passed by a Court in India under Section 9 can be invoked/withdrawn by an Indian party in the eventuality, it succeeds in a foreign seated arbitration in satisfaction of the Award, even though the foreign entity may not have any assets in India.

That apart, the Court found that it cannot refuse to entertain a petition under Section 9 of the Arbitration Act on the ground that the foreign party does not have any assets in India, as in a given case it may so happen that the Indian party may not be successful in the arbitration proceedings for it to have an Award in its favour, so as to execute against a foreign party in India.

However, on the second issue of the case i.e. whether the Indian Party has made out a case for grant of the reliefs as prayed for in its petition, the Court found that the Indian Party was not able to prove its case based on the trajectory of prima facie case, the balance of convenience and irreparable injury applicable in deciding whether it would be just and convenient to grant an order of injunction and thus, refused to grant the interim relief.

Disclaimer: The views expressed in this post are mine and do not reflect the views of the organisation(s) I am engaged with

[1] Raffles Design International India Pvt Ltd. v. Educomp Professional Education Limited & Ors., 234 (2016) DLT 349; BCCI vs. Kochi Cricket Pvt. Ltd. 2018, (6) SCC 287

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