Section 9, Arbitration Act: Interim Orders against Third Parties

Written by  //  January 28, 2011  //  Corporate Law and Business  //  18 Comments

S. 9 of the Arbitration and Conciliation Act, 1996 is surely no stranger to controversy. It formed an integral element of the much-maligned decision in Bhatia International, and the jurisprudence that followed. In this post, I discuss another interesting interesting issue that was brought to the fore in two 2009 judgments of the Delhi High Court, delivered by Endlaw J.

S. 9 of the Act confers upon the parties the right to apply to the Court for interim measures dealing with aspects such as guardianship, preservation of goods, inspection of property etc., at any stage prior to the enforcement of the arbitral award. In Value Advisory Services v. ZTE Corporation and Ors., available here, the Delhi High Court was called upon to decide whether a S. 9 interim award could be passed and enforced against an entity not party to the original contract or to the arbitral proceedings (a third party). In the case, the petitioner had a monetary claim against Respondents Nos. 1 and 2. The petitioner claimed that Respondent No. 3 owed certain money to Respondents Nos. 1 and 2, and wished to prevent Respondent No. 3 from releasing this money on the ground that it would leave the Petitioner remediless to enforce its own claims. By a prior order, the Court had restrained Respondent No. 3 from releasing the stated amount to Respondents Nos. 1 and 2. While this order was still in force, the Petitioner filed for an interim application requesting the Court to direct Respondent No. 3 to deposit the stated amount in Court. Respondent No. 3 objected by arguing that neither was it a party to the arbitration agreement and nor was it concerned with the dispute between the Petitioner and Respondents Nos. 1 and 2. In any event, until the case was decided on merits, it could not be said that to be entitled to any money. Some other arguments were made about the provisions of the SICA, with which we are not concerned here. On the other hand, the Petitioner argued that Respondent No. 3 was closely connected with the contract, as it was the Petitioner’s task to facilitate transactions between Respondents Nos. 1 and 2 on one side, and Respondent No. 3 on the other. It was also claimed that the relief sought was in the nature of a garnishee order available under S. 9(ii)(b) of the Act or that, alternatively, provisions of the CPC dealing with attachment before judgment – which were admittedly applicable against third parties – could be invoked.

The Court was called upon to consider numerous conflicting judgments of single-judge benches of the High Court, which had varyingly held that interim orders both could and could not be made against third parties. After examining prior law on the point, Endlaw J. came to the conclusion that “no general principle of maintainability/applicability or non-maintainability/non-applicability can be laid down. It will have to be determined by the court in the facts of each case whether for the purpose of interim measure of protection, preservation, sale of any goods, securing the amount in dispute, an order affecting a third party can be made or not.” He reasoned that if a general rule prohibiting issuance of interim orders was accepted, it would “hamper the efficacy” of S. 9. For instance, a guardian may not be such a party, or the goods may be required to be kept in custody, or sold to third parties etc. He also reasoned that the practice of issuing interim orders, including pre-decretal ones, against third parties, was well-accepted under the C.P.C., and that therefore it would be illogical not to extend the same powers to the Court under the Arbitration Act. Considerations of preventing the defendant from arranging his affairs so as to render the final award infructuous, during the proceedings of the arbitration, was another reason why such a construction was preferred.

Having ruled thus far, Endlaw J. was also required to go into the question of what would happen if the third party contested such an application, or set up a defence to it. While the C.P.C. provides for adjudication by a trial, Endlaw J. observed that the entire purpose of the Arbitration Act, that is, to reduce the time and costs involved in litigation, would  be defeated if such a requirement was imported from the C.P.C. as well. Therefore, he held that the Court was entitled to pass an order under S. 9 based upon a “prima facie” determination of the matter. On the facts of the instant case, Endlaw J. held that where the case was still proceeding, and the earlier order already protected the rights of the Petitioner to an adequate extent, there was no need to require Respondent No. 3 to deposit the monies in Court.

It is submitted with respect that Endlaw J.’s holding is in need of some clarification. While holding that the decision of when to issue an interim order against a third party must be determined on a case-to-case basis, Endlaw J. did not provide any guidance as to what factors should aid the Court in making such a determination. Should the Court proceed with a normal adjudication of whether the provisions of S. 9 are attracted, as it seems to have done in the last part of the above case? Are C.P.C. principles of attachment-before-judgment orders against third parties relevant? Are there some specific rules governing the degree of involvement that a third party must have (a contention that was raised, but not addressed) with the arbitration agreement and the main dispute? The uncertainty is exacerbated further, because in Ajay Makhija v. Dollarmine Exports, decided a month later (available here), Endlaw J. rejected an application for issuing interim orders against a third party, which was based upon a plea for lifting the corporate veil between the third party and the party to the dispute. Scant reasoning was provided for the same. It will therefore be interesting to see how the Delhi High Court evolves and develops its jurisprudence in this regard.

18 Comments on "Section 9, Arbitration Act: Interim Orders against Third Parties"

  1. RAJEEV K. AGARWAL May 11, 2011 at 8:17 am ·

    Hi,
    I am a practicing Advocate at Delhi High Court & Supreme Court of India. I Mostly deal in Civil and Arbitration cases. I am open to all types of discussion on the legal issues and want to be updated regarding these legal judgements and related documents. Hope to find the same on my e-mail henceforth.
    Thanks & Regards,
    Rajeev K. Agarwal
    Advocate

  2. Sanjeev May 11, 2011 at 7:22 pm ·

    I am a claimant in a ARB case and the respondent has filed a suit for declaration in Magistrate court to the effect that the appointment of the arbitrator is illegal because the loan documents were not executed by me. i think civil court has no jurisdiction to interfere when the appointment of the arbitrator has been made with mutual consent. whaat prelimniary objection should i take and pl give some judgments on the that civil court has no authority to interfere——-

  3. NEERAJ PANT S/O SR. K.N.PANT June 18, 2011 at 12:42 pm ·

    I was sub contractor of pwd delhi.Some work done with me direct pwd department( 20k.m lead soil shiffting about 3lakh)verbly.
    but pwd not gives me work order those work.these cause dispute of contractor and pwd deparment.After this mater i am gone to Bhartiya labour Uniun and than complant of pwd & contractor to other Department such as Sachiv pwd,C.M.Delhi,L.Governor,prime Minister etc.After than some many mittings through E.E. & S.E. but not sattelment satisfaction reply those Engg. this matter aprox 1year and 9 month ago. Plese give me suggution this matter. Thanks.my mobile no.9811103886

  4. NEERAJ PANT S/O SR. K.N.PANT June 18, 2011 at 12:44 pm ·

    I was sub contractor of pwd delhi.Some work done with me direct pwd department( 20k.m lead soil shiffting about 3lakh)verbly.
    but pwd not gives me work order those work.these cause dispute of contractor and pwd deparment.After this mater i am gone to Bhartiya labour Uniun and than complant of pwd & contractor to other Department such as Sachiv pwd,C.M.Delhi,L.Governor,prime Minister etc.After than some many mittings through E.E. & S.E. but not sattelment satisfaction reply those Engg. this matter aprox 1year and 9 month ago. Plese give me suggution this matter. Thanks.my mobile

  5. Shyam Kasera September 13, 2011 at 3:10 pm ·

    Dear Mr. Rajeev,
    Can you please advise me in a matter…… Kotak Mahindra Bank, for recovery of credit card dues of Rs. 3 lacs, has got from Bombay High Court an attachment warrnt of immovable property (res. flat) u/o. XXI rule 54 of C.P.C. 1908, being an execution of the arbitral award passed by a sole arbitrator.

    I stay at the flat with my family.

    Please help me with your valuable advice.

    Thanks,

    Shyam

  6. Renu October 9, 2011 at 10:27 pm ·

    The Supreme Court of India in the case titled Firm Ashok Traders v. Gurumukh Das Saluja, reported at (2004) 3 SCC 155, has held that:
    “..The qualification which the person invoking jurisdiction of the Court under Section 9 must possess is of being a “party’ to an arbitration agreement, A person not party to an arbitration agreement cannot enter the Court for protection under Section 9. This has relevance only to his locus standi as an applicant. This has nothing to do with the relief which is sought for from the Court or the right which is sought to be canvassed in support of the relief…”

  7. prashanth November 17, 2011 at 7:50 am ·

    hi,

    Am working in shriram transport finance co ltd. i need clarification with regard sec -9 of arbitration and conciliation act that our company was advanced a loan for one commercial vehicle rs.2,50,000/- after availing loan he paid only 3 monthly loan installment after that party and and vehicle is not traceable we issued many demand notices and personally visited the customers registered address but he is absconded now i think to file sec 9 application seeking interim relief that produce the vehicle for inspection. Please suggest me how can defense and any supreme court decisions with regard to this.

  8. murali December 3, 2011 at 4:20 am ·

    Use below mentioned decsion, it may help you
    Associates India Financial Srvices Pvt Ltd V/s Mr. Jairaj Shetty
    2004(1)ARBLR 9DELHI): 109(2004)DL T854 2004 (73)DRJ5

  9. Anonymous October 1, 2012 at 3:28 pm ·

    Halo,
    Am working in Shriram Transport finance company. I need clarifications and case laws about section 9 of Arbitration and Conciliation Act 2006.Our company advanced a loan for one commercial vehicle Rs 200000. after that the customer paid only paid 5 instalment. several times company informed the customer about his dues but he did not paid dues.After that the company attained an order under section 17 and seized the vehicle and sold the same though a public auction. but the value of that vehicle was not sufficiant to realise the due amount.My query is, can we obtain an interim order for attach immovable property of debtor from a civil court under sectin 9 of arbitration and conciliation act ? please give me directions

  10. Adv. S V Pai, Kerala January 25, 2013 at 12:45 pm ·

    Sec.9 of the Arb.Act helps the financier to obtain an interim attachment order against his movable/immovable property either before, during or after passing an award and thereby protects the subject matter of the agreement. I am available at 09447570253.

  11. APURVA August 16, 2013 at 2:14 pm ·

    Dear Shyam,

    request you to lemme know about your arbitration with Kotak as I have been issued a similar notice from them.

  12. advjadhav February 22, 2014 at 7:51 pm ·

    That section 9 of the act has not made clarifications about the pendency of the proceeding in which court. If the arbitrator, is appointed by the high court in the arbitration petition in the high court and the arbitrator is appointed and notice of withdrawal is received by the parties from the arbitrator.
    After that the party for the interim relief is entitled to approach the court having the jurisdiction i.e. district or the high court whom has appointed the arbitrators
    Interpreting of section 9/11/17/34/42 required and the judgment of S.C. as averment’s are sufficient in the applications .

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  15. Natarajan September 29, 2014 at 11:33 am ·

    As per the Arbitration Agreement, the parties surrendered jurisdiction at Mombay. The defaulter residing in Chennai and holding property at Chennai. As per the settled position of law, if cause of auction arises within the limits more than one and the parties can surrender the jurisdiction to any one of the court and at later point of time the parties has no right to initiate proceeding before the another court against the agreement. I need clarification Whether section 9 application is maintainable before the High Court Madras, after surrendering jurisdiction to Mombay.

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