Delhi High Court: Whether A Party Which Has Lost Before An Arbitral Tribunal And Has No Enforceable Claim Under An Award Is Entitled To Seek An Interim Measure Against The Winning Party?

Delhi-High-Court

One of the facets of interim measures from the Court under Section 9 of the Arbitration & Conciliation Act, 1996 (‘Arbitration Act’) is the proximate nexus between the orders that are sought by the applicant and the arbitral proceedings. When an interim measure of protection is sought before or during arbitral proceedings, such a measure is a step in aid to the fruition of the arbitral proceedings. When sought after an arbitral award is made but before it is enforced, the measure of protection is intended to safeguard the fruit of the proceedings until the eventual enforcement of the award. Here again the measure of protection is a step in aid of enforcement. It is intended to ensure that enforcement of the award results in a realisable claim and that the award is not rendered illusory by dealings that would put the subject of the award beyond the pale of enforcement.[1] However, consider a situation wherein a party which has lost its claim before the arbitral tribunal threatens to encash the bank guarantees of the winning party and resists winning party’s application under Section 9 of the Arbitration Act seeking injunction against invocation of its bank guarantees by the losing party pending the final adjudication of losing party’s application to set aside the award under Section 34 of the Arbitration Act. The feasibility of such a course was decided by the Delhi High Court in Technimont Private Limited & Anr. v. ONGC Petro Additions Limited O.M.P. (I) (COMM)87/2020 decided on 20 June 2020.

The question is no longer res integra and the same was first decided by the Division Bench of the Bombay High Court in Dirk India Private Limited vs. MSEGC[2]. In that case, an application under Section 34 of the Arbitration Act (application to set aside the award) was pending in relation to the arbitral award. During the pendency thereof, an application was filed under Section 9 and an objection was raised before the learned Judge hearing the matter that the party could not maintain a petition under Section 9 as there was no enforceable award in its favour. The learned Judge however made an interim arrangement which became the subject matter of appeal before the Division Bench. Again, the issue of maintainability of the petition under Section 9 was raised. The Division Bench opined that enforcement of an award under Section 36 would enure to the benefit of the party who secured such an award in the arbitral proceedings and that was the reason why enforceability of the Award was juxtaposed in the context of two time frames, the first being where an application for setting aside an arbitral Award had expired and the second, where an application for setting aside an arbitral Award was made but was refused. In other words, it was held that enforceability of the Award was defined with reference to the process of setting aside of the said Award under Section 34. The Division Bench concluded that an interim measure of protection within the meaning of Section 9 was intended to protect, through the measure, the fruits of successful conclusion of the arbitral proceedings and therefore, a party whose claim had been rejected in the arbitral proceedings could not obviously have the arbitral Award enforced in accordance with Section 36.

The Division Bench further observed that the Court exercising jurisdiction under Section 34 was not a Court of first appeal and where an arbitral claim had been rejected, the Court under Section 34 could either dismiss the objection to the arbitral Award or set it aside. Setting aside of an arbitral Award rejecting a claim would not result in the claim, which was rejected by the Arbitrator, being decreed as a result of the judgment of the Court under Section 34. Once a party’s claim has been rejected, holding to the effect that a petition under Section 9 could be maintained by such party, per the Bench, would result in a perversion of the object and purpose underlying Section 9 of the Arbitration Act. The Bench observed that what such a litigating party could not possibly obtain even upon conclusion of the proceedings under Section 34, it could not secure in a petition under Section 9, after passing of the Award. The Bench accordingly held that the petition filed by an unsuccessful party in the arbitral proceedings was not maintainable under Section 9 of the Arbitration Act.

Subsequently, the Division Bench of the Delhi High Court in Nussli Switzerland Ltd. vs. Organizing Committee[3], followed the dictum of Dirk India. In that case, an award was passed in favour of Nussli Switzerland Limited and the respondent, viz., the Organizing Committee, filed a petition under Section 9 of the Arbitration Act to direct Nussli Switzerland Limited to extend the validity of a bank guarantee till conclusion of the proceedings that would be initiated by it under Section 34 of the Arbitration Act. The question before the Delhi High Court was whether the losing party could seek such an interim measure pending determination of the objections raised against the Award. Quoting copiously from Dirk India, the Division Bench finally agreed with the reasoning recorded therein. The Division Bench observed that even if the Organizing Committee succeeded in relation to the objections raised by it against the award, the award would only stand set aside, as Section 34 of the Arbitration Act did not empower the Court to modify the Award. The Division Bench accordingly held that the Section 9 petition filed by the Organizing Committee was not maintainable.

In the present case, the Ld. Single Judge of the Delhi High Court, relying on the dictums of Dirk India and Nussli Switzerland, inter alia held the award of the Arbitral Tribunal enures to the benefit of the successful party. It is the successful party who can seek its enforcement under Section 36 of the Arbitration Act and also secure the award under section 9 and not the losing party. Thus, in this scenario a losing party cannot file a petition under Section 9 of the Arbitration Act.

Further, on the issue of whether a losing party in an arbitration can invoke the bank guarantees of the winning party or can seek an extension of them once it has suffered an Award, the Ld. Single Judge observed that if such a plea is allowed every party even after losing before an arbitral tribunal, on the pretext that the bank guarantees cannot be injuncted or it shall deposit the amount in the Court, shall achieve what it could not achieve before the Arbitral Tribunal, through claims / counter-claims. Thus, Ld. Single allowed winning party’s petition under Section 9 restraining the losing party from invoking /encashing the bank guarantees of the winning party.

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

[1] Dirk India Private Limited vs. MSEGC 2013 SCC Online Bom 481

[2] (2013) 7 Bom. CR 493. The decision of the Bombay High Court was challenged before the Supreme Court in Special Leave to Appeal (C) No.13688 of 2013 but the same was dismissed as infructuous on 29.11.2016. The only relief granted to the appellant was that the Court seized of the Section 34 petition was directed to dispose of the same within a time frame.

[3] 2014(145) DRJ 399. The decision of the Delhi High Court was subjected to challenge before the Supreme Court in Special Leave to Appeal (C) No.26876 of 2014 and by order dated 26.09.2014, the Supreme Court directed the bank guarantee to be kept alive until further orders, if not already discharged.

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