Can Courts Intervene in Arbitration? Understanding Sections 9 and 34 of the Arbitration and Conciliation Act, 1996

Introduction : Arbitration has become the preferred means of resolving business disputes in India, at least in part because it offers a final, confidential, and fast forum for resolving disputes where traditional civil litigation often falls short. Parties spend time and money negotiating arbitration agreements because they wish to bypass the lengthy corridors of the court system. However, there is a fundamental question in every arbitration that must be answered: when and how can a court of law properly intervene in what is supposed to be a private dispute resolution process? The Arbitration and Conciliation Act, 1996 (hereinafter "the Act") diligently addresses this question. Rather, it does not exclude courts from the arbitral arena, but it grants them two specific and well-delineated powers – to grant interim relief pursuant to Section 9 and to set aside awards pursuant to Section 34. It is crucial to grasp the meaning of these two provisions. If you're in a business or if you've signed a contract with an arbitration clause, you should know about these clauses and how they can affect you either in your favor or to your detriment.

Section 9: Interim Relief - The Court as Emergency Protector

Section 9 of the Act allows a party to an arbitration agreement to request “interim measures of protection” from a court before, during, or after arbitral proceedings. But before the establishment of the tribunal or when it might be impossible to enforce the decisions of the tribunal, the court's power is essential. The relief to be granted under Section 9 is of many kinds, including: appointment of a guardian for a minor; preservation, custody, or sale of goods in dispute; security for the amount due or payable; detention, custody, or inspection of property; interim injunctions; and appointment of receivers and other interim measures which the court may deem just and convenient.

What is the effect of the 2015 Amendment: Narrowing the Window?

The inclusion of Section 9(3) of the Arbitration and Conciliation (Amendment) Act, 2015, proved to be a turning point. This sub-section makes it clear that, after the formation of an arbitral tribunal, a Section 9 application will not be entertained by the court unless it is satisfied that there are circumstances that may not make the relief granted under Section 17 effective. In other words, the Amendment gave the tribunal the primary jurisdiction: when the arbitral procedure is started, parties must first seek relief from the tribunal before resorting to court.

Landmark Cases Under Section 9

The Standard for Granting Interim Relief

Firm Ashok Traders v. Gurumukh Das Saluja (2004) 3 SCC 155 - The Supreme Court ruled that the jurisdiction of a court under Section 9 is identical to the jurisdiction of a civil court granting temporary injunction under Order XXXIX of the Code of Civil Procedure. Interim relief shall be granted only if the classic “prima facie case”, “balance of convenience,” and “irreparable harm” tests are met.

Nimbus Communications Ltd. v. Board of Control for Cricket in India (2012) 11 SCC 1 - the Supreme Court restated that the purpose of Section 9 relief is a protective one and should not be a grant of final relief at the interim stage. This power should be exercised judiciously and with discipline by the courts.

Scope After Arbitral Award

Dirk India Pvt. Ltd. v. Maharashtra State Electricity Generation Co. Ltd. 2013 SCC OnLine Bom 481 - The Bombay High Court broadened the definition of 'enforcement' to include the period preceding enforcement, thereby extending the time period for which interim protection is granted to award holders.

Section 34: Setting Aside An Award - A Narrow Gate

In Section 34, the role of the court as a guardian after and following the award is described, while in Section 9, the role of the court as a guardian prior to and during the arbitration is set forth. Under section 34, a party may appeal an award made by an arbitrator to have the award set aside. In other words, however, the grounds for interference are clearly specified: the provision is a narrow one, rather than a wide open door. The Act, by itself, restricts the jurisdiction of the court under section 34. An incorrect application of the law, or a misappraisal of evidence which the court may not have considered in the same way, is not a sufficient basis for challenge. The court is not acting in an appellate capacity but rather is engaging in a supervisory, and not a corrective, jurisdiction.

The grounds set out in Section 34(2) are exhaustive. A party may seek setting aside of an award on its own proof, if: there was a failure of the arbitration agreement; a party lacked capacity; the proceedings were not given proper notice; the award involved a dispute that did not fall within the scope of the arbitration agreement; or the composition of the arbitral tribunal was not in compliance with the agreement. Further, a court may, suo motu, set aside an award in case the subject matter is not amenable for arbitration under Indian law or if the award is contrary to the public policy of India.

The 'Public Policy' Ground: Its Evolution

No ground has received as much judicial commentary, or sparked as much controversy, as the 'conflict with public policy of India. The ground was used for many years in an expansive manner, and awards were made subject to public policy review in the guise of conscientious inquiry as to the merits.

Narrowing Public Policy

ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 - the Supreme Court decided that ‘public policy of India' is a wide term which encompasses the concept of patent illegality, that is, an award which is repugnant to the substantive provisions of Indian law. This was criticized as greatly enhancing judicial review of arbitral awards and giving rise to increased challenges.

Renusagar Power Co. Ltd. v. General Electric Co. 1994 Supp (1) SCC 644 - In the case of foreign awards, the Supreme Court interpreted public policy narrowly and confined it to the basic policy of the Indian law, the interests of India, and justice or morality. The Supreme Court in the case of Renusagar Power Co. Ltd. v. General Electric Co. 1994 Supp (1) SCC 644, interpreted the public policy narrowly, confined it to the basic policy of the Indian law, interests of India, and justice or morality. This is still a benchmark of the outer edges of the concept.

Associate Builders v. Delhi Development Authority (2015) 3 SCC 49 - the Supreme Court framed the law for Section 34, which provides that interference is justifiable when the award shocks the conscience of the court, conflicts with the fundamental policies of the Indian law, or is patently unlawful in essence, as opposed to being merely a misreading of the facts or the law.

The 2015 Amendment and 'Patent Illegality'

The 2015 Amendment to the Act provided for the 'patent illegality' ground for setting aside domestic awards (which is not applicable to international commercial arbitrations). The award cannot be set aside, in particular, because of a wrong interpretation of the law or a reassessment of evidence, under the express terms of Section 34(2A). A clear indication to the courts through legislation that intervention must be the exception, not the rule.

Ssangyong Engineering & Construction Co. Ltd. v. NHAI (2019) 15 SCC 131 - the Supreme Court gave a detailed definition of 'patent illegality', which requires illegality to be at the heart of the matter rather than just an approach to contractual interpretation, and provided a clear guideline to the Contracting Agencies for applying the provisions of Section 34 of the post-amendment Act. The court also confirmed that the narrow definition of 'public policy' still applies (as it does in Associate Builders).

Conclusion : Judicial Restraint As A Feature, Not A Bug

The Indian policy, as expressed in Sections 9 and 34 of the Act, is a sophisticated one, wherein courts are to assist arbitration, rather than supplant it. Section 9 safeguards against the possibility that parties may be left without remedy in urgent situations. Section 34 makes sure that really egregious awards that breach the basic legal principles or even go beyond the extent of the agreement never go unchecked. Outside these limitations, the arbitral award shall be final. The expansive interpretation of public policy in Saw Pipes and the disciplined approach in Ssangyong are illustrative of a judiciary that has increasingly come to rely on the arbitral process. The 2015 Amendment put this change into statute. This attitude of limited and principled judicial supervision is not only welcome but essential if India is to achieve its goal of becoming the world's commercial arbitration hub.

Author: Vansh Tuli, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

Endnotes

1. Arbitration and Conciliation Act, 1996, §§ 9, 17, 34 (India).

2. Arbitration and Conciliation (Amendment) Act, 2015, No. 3 of 2016, § 6 (inserting Section 9(3) and strengthening the powers of arbitral tribunals under Section 17).

3. Firm Ashok Traders v. Gurumukh Das Saluja, (2004) 3 SCC 155.

4. Nimbus Communications Ltd. v. Board of Control for Cricket in India, (2012) 11 SCC 11.

5. Dirk India Pvt. Ltd. v. Maharashtra State Electricity Generation Co. Ltd., 2013 SCC OnLine Bom 481.

6. ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705; Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49.

7. Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644.

8. Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131.