"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.

Friday, November 12, 2010

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

In a previous post on the same topic, we had discussed the earliest cases on the issue as to whether a court, under S 9 of the Arbitration and Conciliation Act, 1996, would have the power to issue an interim order against a non-signatory (“third party”) to the arbitration agreement. Moving forward, we would, as promised in the previous post, see a few recent cases on this point.

The first decision is that of Rajiv Sahai Endlaw, J. in the case of Value Advisory Services v. ZTE Corporation and Ors. In the said case, though the judge dismissed the petitioner’s prayer to issue an order under S 9 for other reasons, the judge discussed, in detail, the law on the issue relevant to our subject. His discussion on the issue is significant and therefore we summarize it:
  • There can be no general principle on the issue as to whether a court has the power under S 9 to grant interim order against a third party.
  • The past cases have decided on the facts unique to them
  • Each case has to be decided on the facts before the court.
  • Restricting a court’s power to grant an interim order only against the parties to the arbitration and not a third party would hamper the efficacy of S 9.
  • S 9 itself recognises issue of interim orders against a class of persons who are actually third parties to the arbitration agreement.
  • Though the proceedings in court, similar to those before the arbitrator, are between the parties to the arbitration agreement, the practice has been to issue interim orders against third parties under several provisions of the Code of Civil Procedure, 1908 such as Sections 47, 60 and Order 21 Rules 46 and 46A-F, Order 38 Rules 6-11A of CPC.
  • There is no indication in the Act that the power of the court to issue interim orders is restricted only to the parties to the arbitration agreement. In fact, S 9 states that the court shall have, in issuing interim orders, the same power which it has for or in relation to any proceeding before it.
(Also see, Sri Krishnan v. Anand and Ajay Makhija v. Dollarmine Exports, where Rajiv Sahai Endlaw, J. has confirmed the position he took in Value Advisory Services v. ZTE Corporation and Ors. on the issue. Sri Krishnan v. Anand is also an interesting case because Rajiv Sahai Endlaw, J. maintains that in case a party breaches the tribunal’s order under S 17, the other party could approach the court under S 27(5) of the Act against the breaching party for contempt of court. We’ll discuss this aspect of the case some other day)

The next case is interesting, one reason being that the decision is not precisely on the issue under discussion. The other reason is that the case is intrinsically connected to our issue. In the case of Mohammad Ishaq Bhat v. Tariq Ahmad Sofi 2010(3) Arb. LR 107 (J & K), the question before the Jammu & Kashmir High Court was whether a party had the right to be impleaded as a party to a petition under S 9.The court decided it in the affirmative. We’ll skip the facts but discuss only the law by summarizing it like we did for the previous case (on facts the court allowed the plea of the petitioner to be impleaded as a respondent even though he was not a party to the arbitration agreement):

  • S 9 is clear in that only a party to the arbitration agreement can apply to the court for interim measures. A third party to an arbitration agreement cannot apply to the court under S 9 for interim measures
  • However this does in no way restrict a person from impleading himself as a party to the proceedings when he is “materially and substantially interested” in the subject matter of the S 9 petition and would be materially affected by the court order.
  • Restraining such a person from having a say in the court in such a situation might lead to injustice.
  • Such a person would assist the court in arriving at a just conclusion
  • If the person is not allowed to implead himself as a party to the proceedings under S 9, it may lead to multiplicity of proceedings and would consequently be contrary to public policy.
  • Such person has to, however, convince the court that:
    • He is a proper and necessary party to the proceedings, and
    • His presence is bound to enable the court to arrive at a just and proper conclusion.
The court held:
A person having vital interest in the subject matter of arbitration agreement cannot be asked to watch the proceedings from the fence and leave the arena to for the parties to the arbitration agreement to cut swords , when the victim of the outcome of the dispute is none else but the person pushed to the fence.”
Thus, in both the cases, the courts have contemplated that third parties could have (in some situations) an important role to play in respect of the subject matter of a S 9 petition. More on this in the next post.

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