"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well." -Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Saturday, October 16, 2010

Scope of Jurisdiction to Award Interim Measures Vis-à-vis Third Parties (Part I)

The purpose of this post is to analyse the power of the relevant adjudicatory authority to grant interim orders against third parties. Two adjudicatory authorities have been given the power to grant interim orders under the Arbitration and Conciliation Act, 1996 (Act):
  1. Power of the court to grant interim measures (S 9)
  2. Power of the arbitral tribunal to grant interim measures (S 17)
The question as to the power of arbitral tribunal to grant interim measures vis-à-vis third parties is less controversial and would therefore be taken first in this multi-part post.

Power of arbitral tribunal to grant interim measures vis-à-vis third parties:  
Section 17 reads:

Interim measures ordered by arbitral tribunal.- (1) Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject matter of the dispute.

(2) The arbitral tribunal may require a party to provide appropriate security in connection with a measure ordered under sub-section (1).


Section 2(1)(h) defines “party” to mean “a party to an arbitration agreement.”

S 7 lays down the essentials to an arbitration agreement. S 7 reads:

Arbitration agreement.- (1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
 
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in-

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract
.”

The crucial point in Section 7, recognized by the Supreme Court many times over, is that there must be a clear and unequivocal consensus between to arbitrate disputes and such consensus must be in writing. If a purported arbitration agreement does not satisfy the conditions laid down in S 7, it is not an arbitration agreement for the purposes of the Act [except where the arbitration is a statutory arbitration, in which case S 2(4) would be applicable].

Another fundamental principle that has been recognized several times by the Indian courts is that arbitrators are “creatures of contract” and must act within the confines of the contract. What comes out of this proposition, relevant to this topic, is that the arbitrators acquire their jurisdiction from the agreement between the parties to decide on their the rights and liabilities. The logical corollary is that the arbitral tribunal does not have power to decide on the rights and liabilities of persons who are not parties to the arbitration agreement, whether provisionally or finally.

When such is the legal position, how come the arbitrator in the case of Cadre Estate Pvt. Ltd. v. Salochna Goyal W.P.(C) 2782/2010 and C.M. No. 5556/2010 (Stay), passed an interim order under Section 17 of the Act against a third party who was not even a signatory to the arbitration agreement? More on this case in the next post.

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