ABOUT THE AUTHOR This article is drafted by Advocate Nishant Mehrotra. He practices at Allahabad High Court, NCLT, CAT and DRT at Allahabad. He can be reached either at email@example.com or +91-9415235966.
The most common and widespread legal thought in legal fraternity has been that the orders of an arbitrator are powerless because the arbitrator has no authority to implement them. Therefore, involvement of a Court to achieve enforceable orders, even in an on-going arbitration, becomes unavoidable.
Arbitrator not a “court”*
An arbitrator under the Arbitration and Conciliation Act exercises various powers similar to that of the Court, for instance, the power to grant interim relief under Section 17. Even though an arbitrator is an adjudicating authority under the Arbitration and Conciliation Act and has to conduct itself judicially, an arbitrator is not a Court.
Premised on the same rationale, under Section 17 of the Arbitration and Conciliation Act, an arbitrator is not bound by the principles of the Code of Civil Procedure, 1908 and the Indian Evidence Act, 1872 (hereinafter, the “Evidence Act”). Even the definition of “Court” under Section 2 of the Evidence Act expressly excludes an arbitrator. Hence, it is evident that an arbitrator is not a “Court”.
Since an arbitral tribunal is not a “Court” and is a creature of a contract between the parties, it has no power to punish a disobedient party for contempt of its orders, either under the Constitution of India or under the [Indian] Contempt of Courts Act, 1971.
Earlier view of Supreme Court & High Courts on arbitrator’s power to enforce its orders
Supreme Court, in the case titled MD, Army Welfare Housing Organisation v, Sumangal Services (P) Ltd. , while dealing with the provisions of the old Arbitration Act, 1940, observed that even under Section 17, no power is conferred upon the arbitral tribunal to enforce its order nor does it provide for any judicial enforcement.
Even in a case titled Sundaram Finance Ltd. v. NEPC India Ltd., the Supreme Court of India has held that although Section 17 gives the arbitral tribunal the power to grant interim relief, such orders cannot be enforced as orders of a Court. Accordingly, Section 9 gives a concurrent power to the Court to pass interim orders even during the arbitration proceedings.
However, in the said decisions of the Hon’ble Supreme Court failed to take notice of Section 27 (5) of the Arbitration and Conciliation Act, which expressly confers the power on the arbitral tribunal to punish for its contempt.
Section 27(5) of Arbitration and Conciliation Act, 1996, specifies that ‘Persons failing to attend in accordance with such process, or making any other fault, or refusing to give their evidence, or guilty of any contempt to the arbitral tribunal during the conduct of arbitral proceedings, shall be subject to the like disadvantages, penalties and punishments by order of the Court on the representation of the arbitral tribunal as they would incur for the like offences is suits tried before the Court’.
Delhi High Court, on interpretation of Section 27 (5) of Arbitration and Conciliation Act, 1996, in the case of Sri Krishan v. Anand, was seized of the question whether a whether a petition under Section 9 of the Arbitration and Conciliation Act would lie for the same interim measure which has already been granted by the arbitral tribunal under Section 17. The petitioner had sought to justify the petition under Section 9 on the ground that orders passed by an arbitral tribunal are toothless and unenforceable. Delhi High Court, while rejecting the contention of the petitioner, held that the legislative intent of enacting Section 17 of the Arbitration and Conciliation Act is to make the arbitral tribunal a complete forum not only for finally adjudicating the disputes between the parties but to also order interim measures. The Court further held that no purpose would be served in approaching the arbitral tribunal under Section 17, if for enforcing orders under Section 17, a separate petition under Section 9 has to be filed subsequently. The Court held that under Section 27 (5) of the Arbitration and Conciliation Act, any person failing to comply with the order of the arbitral tribunal would be deemed to be “making any other default” or “guilty of any contempt to the arbitral tribunal during the conduct of the proceedings”.
Accordingly, the remedy of the aggrieved party in a case of disobedience of the order of the arbitral tribunal has been to apply to the tribunal for making a representation to the Court to meet out such punishment to the disobedient party, as would have been warranted for contempt of Court. The arbitral tribunal would make a representation to the Court only upon being satisfied that the defaulter is in default or in contempt.
Once such a representation is received by the Court from the arbitral tribunal, the Court was competent to deal with such disobedient party as if in contempt of order of the Court. This could be either under the provisions of the Contempt of Courts Act or under the provisions of Order 39 Rule 2A of the Code of Civil Procedure, 1908, which provides for consequences of disobedience or breach of injunction.
This position of law was upheld by a subsequent judgment of the Delhi High Court in the case of India Bulls Financial Services Limited v. Jubilee Plots and Housing Private Limited.
Relying upon the afore-mentioned judgments of the Supreme Court of India, all the courts in the country have held that the arbitral tribunals have no power to enforce their own orders.
246th report of Law Commission
Law Commission, in its 246th report, found the need to go one step further than what was provided in Section 27(5) as construed by the Delhi High Court in the case of Sri Krishan v. Anand and followed in Indiabulls Financial Services v. Jubilee Plots.
The Commission, in its report, mentioned:
POWERS OF TRIBUNAL TO ORDER INTERIM MEASURES
Under section 17, the arbitral tribunal has the power to order interim measures of protection unless the parties have excluded such power by agreement.Section 17 is an important provision, which is crucial to the working of the arbitration system, since it ensures that even for the purposes of interim measures, the parties can approach the arbitral tribunal rather than await orders from a Court.
The efficacy of section 17 is however, seriously compromised given the lack of any suitable statutory mechanism for the enforcement of such interim orders of the arbitral tribunal.
In Sundaram Finance Ltd. v. NEPC India Ltd., (1999) 2 SCC 479, the Supreme Court observed that though section 17 gives the arbitral tribunal the power to pass orders, the same cannot be enforced as orders of a court and it is for this reason only that section 9 gives the court power to pass interim orders during the arbitration proceedings. Subsequently, in M.D. Army Welfare Housing Organisation v. Sumangal Services Pvt. Ltd., (2004) 9 SCC 619 the Court had held that under section 17 of the Act no power is conferred on the arbitral tribunal to enforce its order nor does it provide for judicial enforcement thereof.
In the face of such categorical judicial opinion, the Delhi High Court attempted to find a suitable legislative basis for enforcing the orders of the arbitral tribunal under Section 17 in the case of Sri Krishan v. Anand, (2009) 3 Arb LR 447 (Del) (followed in Indiabulls Financial Services v. Jubilee Plots, OMP Nos.452-453/2009 Order dated 18.08.2009). The Delhi High Court held that any person failing to comply with the order of the arbitral tribunal under section 17 would be deemed to be “making any other default” or “guilty” of any contempt to the arbitral tribunal during the conduct of the proceedings” under section 27(5) of Act. The remedy of the aggrieved party would then be to apply to the arbitral tribunal for making a representation to the Court to mete out appropriate punishment. Once such a representation is received by the Court from the arbitral tribunal, the Court would be competent to deal with such party in default as if it is in contempt of an order of the Court, i.e., either under the provisions of the Contempt of Courts Act or under the provisions of Order 39 Rule 2A Code of Civil Procedure, 1908.
The Commission believes that while it is important to provide teeth to the interim orders of the arbitral tribunal as well as to provide for their enforcement, the judgment of the Delhi High Court in Sri Krishan v. Anand is not a complete solution. The Commission has, therefore, recommended amendments to section 17of the Act which would give teeth to the orders of the Arbitral Tribunal and the same would be statutorily enforceable in the same manner as the Orders of a Court. In this respect, the views of the Commission are consistent with (though do not go as far as) the 2006 amendments to Article 17 of the UNCITRAL Model Law.
Effect of amended to Section 17 of Arbitration and Conciliation Act, 1996, by the Amendment Act 2015, and the latest view of Supreme Court
Section 17 of the principal Act has been replaced with a new section that gives more teeth to interim measures by arbitral tribunals. Under the old section, the tribunal could pass interim measures but such measures could not be implemented, as they were not treated at par with an order of the court. The new section lays down that any order passed by the arbitral tribunal under section 17 will be deemed to be an order of the court for all purposes and be enforceable under CPC as if it were an on order of the court
The reason for doing so is that under section 17, the arbitral tribunal has the power to order interim measures of protection, unless the parties have excluded such power by agreement. But section 17 of the principal Act lacked effectiveness due to the absence of statutory mechanism for the enforcement of interim orders of the arbitral tribunal.
In the case of Alka Chandewar vs Shamshul Ishrar Khan on 6 July, 2017, Hon’ble Supreme Court has held :: _It may also be resorted to when the plain meaning of the section is not clear. In the present case we must go by the plain meaning of sub-section (5). This being the case, we find it difficult to appreciate the reasoning of the High Court. Also, in consonance with the modern rule of interpretation of statutes, the entire object of providing that a party may approach the Arbitral Tribunal instead of the Court for interim reliefs would be stultified if interim orders passed by such Tribunal are toothless. It is to give teeth to such orders that an express provision is made in Section 27(5) of the Act._
The Hon’ble Court further held:: Section 17 (2) was added by the Amendment Act 2015, so that the cumbersome procedure of an Arbitral Tribunal having to apply every time to the High Court for contempt of its orders would no longer be necessary. Such orders would now be deemed to be orders of the Court for all purposes and would be enforced under the Civil Procedure Code, 1908 in the same manner as if they were orders of the Court.
Applicability of section 340 CrPC to Arbitral Proceedings
Section 340 CrPC provides::
340. Procedure in cases mentioned in section 195.
(1) When, upon an application made to it in this behalf or otherwise, any Court is of opinion that it is expedient in the interests of justice that an inquiry should be made into any offence referred to in clause (b) of sub- section (1) of section 195, which appears to have been committed in or in relation to a proceeding in that Court or, as the case may be, in respect of a document produced or given in evidence in a proceeding in that Court, such Court may, after such preliminary inquiry, if any, as it thinks necessary,-
(a) record a finding to that effect;
(b) make a complaint thereof in writing;
(c) send it to a Magistrate of the first class having jurisdiction;
(d) take sufficient security for the appearance of the accused before such Magistrate, or if the alleged offence is non- bailable and the Court thinks it necessary so to do, send the accused in custody to such Magistrate; and
(e) bind over any person to appear and give evidence before such Magistrate.
(2) The power conferred on a Court by sub- section (1) in respect of an offence may, in any case where that Court has neither made a complaint under sub- section (1) in respect of that offence nor rejected an application for the making of such complaint, be exercised by the Court to which such former Court is subordinate within the meaning of sub- section (4) of section 195.
(3) A complaint made under this section shall be signed,-
(a) where the Court making the complaint is a High Court, by such officer of the Court as the Court may appoint;
(b) in any other case, by the presiding officer of the Court.
(4) In this section,” Court” has the same meaning as in section 195.
Section 340, upon a plain reading, would indicate that it provides for the procedure in cases mentioned in Section 195. Therefore, Section 340 CrPC cannot be read in isolation without reading and examining the provisions of Section 195.
Section 195 CrPC and in particular the portion that is relevant for our purposes, i.e., Section 195(1)(b)(ii), inter-alia , provides that no Court shall take cognizance of any offence described in section 463, or punishable under section 471, section 475 or section 476, of the said Code, when such offence is alleged to have been committed in respect of a document produced or given in evidence in a proceeding in any Court.
Upon a plain reading of the two provisions, it immediately becomes clear that where the bar under Section 195(1)(b)(ii) operates, the procedure prescribed under Section 340 of the CrPC gets triggered.
Delhi High Court, in the case of Montreaux Resorts Pvt. Ltd. vs Sonia Khosla & Ors, held that since Hon’ble Supreme Court, in Manohar Lal vs Vishesh Anand, had held that an arbitral tribunal cannot be construed to be a Court within the of Section 195 of Cr.P.C, as such Section 340 Cr.P.C. would not be applicable in proceedings before the arbitrator. However, the Hon’ble Court did not consider the import of section 27 (5) to the applicabilityof section 340 to arbitral proceedings. This view has been taken by High Courts of some other states also.
However, a new contention that is being taken is that since section 27(5) of Arbitration and Conciliation Act, 1996, inter-alia, specifies that persons making any other fault during the conduct of arbitral proceedings shall be subject to the like disadvantages, penalties and punishments by order of the Court on the representation of the arbitral tribunal as they would incur for the like offences is suits tried before the Court, hence a party can apply to the tribunal for making a representation to the Court under section 340 CrPC, and the arbitral tribunal would make a representation to the Court only upon being satisfied that the basic ingredients of section 340 CrPC are being satisfied or not.
However, this contention is yet to get affirmed by the Courts of Law of India.