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

We had, in the last two months, written several posts on the power of an adjudicatory authority to award interim measures against non-signatories to an arbitration agreement. You can access the previous posts from the following links:

Part I:           dealt with principles pertaining to awarding interim measures by arbitrator against a non-signatory

Part II:             dealt with the case of Cadre Estate Pvt. Ltd. v. Salochna Goyal where the arbitrator awarded interim measures against a non-signatory.

Part III:            further dealt with the case of Cadre Estate Pvt. Ltd. v. Salochna Goyal

Part IV:          dealt with the relevant aspects of the case of Cadre Estate Pvt. Ltd. v. Salochna Goyal pertaining to the power of a court to award interim measures against a third party

Part V:             discussed briefly the law in the case of SN Prasad v. Monnet Finance Ltd. which affirmed the view (that we took in the previous posts) that a dispute between two parties can be referred to arbitration if both are parties to an arbitration agreement. Thus, an arbitrator would have no jurisdiction in respect of a non-signatory.

 The question as to whether a court has under S. 9 of the Arbitration and Conciliation Act, 1996 the power to pass an order against non-signatories to the arbitration agreement if such orders are in relation to arbitral proceedings before it has been answered both ways by the High Courts of India, as this blog post would show. In the absence of any binding decision of the Supreme Court of India (SCI) on this point, seeking orders under S 9 against third parties for whatever reasons is like walking on a tight-rope blindfolded. The court may decide on way or the other. It is in this context that this post is written. The purpose of this endeavour is to point out reasons in support of the contention that courts have the power to pass orders under S 9 against third parties.

Section 9 reads:

“Interim measures etc. by Court.-

A party may, before, or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court-

(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or

(ii) for an interim measure or protection in respect of any of the following matters, namely:-

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the Court to be just and convenient,

and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.”

                                                    

Two aspects are worth noting here. One, Section 9 does not clearly stipulate if a court could pass an order against third parties. Two, in regard to the grant of interim measures, the court would have, according to this section, “the same power for making orders as it has” for or in relation to any proceedings brought before it. Thus, the court would have all the powers to grant interim measures that an ordinary civil court would have if such proceedings were brought before it.

As stated before, the High Courts have seriously differed on this question. Examples are:

Decisions in favour of such power	Decision against such a power
CREF Finance Limited v Puri Construction & Others MANU/DE/0580/2000	National Highways Authority of India v. China Coal Construction Group Corpn. AIR 2006 Del 134 : 2006 (1) Arb LR 265 (Delhi): MANU/DE/0488/2006
Arun Kapur v. Vikram Kapur AIR 2002 Del 420	Arch Hi-Rise (P) Ltd. v. Yatin Bhimani & Ors. 2006 (4) CHN 204: MANU/WB/0276/2006
	Impex  Trading Gmbh v. Anunay  Fab . Ltd. and Ors. 2008 (1) Arb LR 50 (Delhi): MANU/DE/8800/2007
	Kanta Vashist v. Ashwani Kumar MANU/DE/0380/2008
	National Agricultural Co-operative Marketing Federation of India Ltd. v. Earthtech Enterprises Ltd. and Anr. MANU/DE/0534/2009

The earliest case on this aspect was probably CREF Finance Limited v Puri Construction & Others (MANU/DE/0580/2000) CREF Finance Limited (CREF), the petitioner and Puri Construction (Puri) entered into a joint venture for jointly conducting business in real estate. Additional acreage was purchased in the name of CREF as Puri already owned 22 acres. The said 22 acres was to act as security in equitable mortgage for investments by CREF in terms of the letter by Puri. For discharging their liability towards CREF, Puri agreed to transfer a property within a time period. In the meanwhile a Development Agreement was signed between L & T and Puri with CREF as a consenting party. In the said Development Agreement, Puri’s liability to transfer that particular property was duly recognised as a previous agreement for transfer of the property. Disputes arose between Puri and CREF and a sole arbitrator was appointed. On 13 May 2010, the arbitrator passed certain Orders. Relevant portion of the Order reads:

"To sum up, [Puri] is directed to allot to CREF the entirety of the blocks marked as AR and A4 as well as 12 apartments covering an area of about 15000 sq. ft. in Block B2. [Puri] will be at liberty to dispose of in favor of the third parties the rest of the area covered by the first phase of development. In consideration of such earmarked allotment, CREF is directed not to interfere directly or indirectly with, or cause any obstructions in the way of [Puri] and L&T disposing of other buildings in this phase of the project."

On 15 July 2000, PCL recognised its obligations to comply with the Orders of the Arbitrator and stated that they would not transfer the property referred to as AR, A4 and the twelve apartments (Suit Property) to L & T.  However, on 31 May 2000, L & T stated that in an agreement they would not be in a position to allot the land to CREF. The arbitrator’s Orders were also challenged under S 34 of the Act. Hence CREF approached the Delhi High Court for interim relief praying for allotment to them of the property stated in the arbitrator’s Orders. CREF made a specific allegation in their pleadings that the managing director (MD) of Puri did not comply with the arbitrator’s Order. However, Puri’s MD resisted the petition on the ground that there was no arbitration agreement between the MD personally and CREF.

The Single Bench held that though the arbitrator’s Orders could be enforced in view of the fact of non-enforceability under S 34(3) and S 36, a Party to arbitration cannot be left remediless if court is convinced that a negative or a positive interim measure is called for. The purpose of the court in the arbitral process, according to the Single Judge, was to assist the arbitral process. MD was agent of the Respondent. It was contended that an interim order under S 9 cannot lie against L & T, a third party to the arbitration agreement. The court rejected the argument and held that the fact that L & T was a third party to the arbitration agreement would not in any way curtail the power of the court to grant equitable relief. The judge stated:

“15. All Statutes must be viewed and interpreted with a proactive vision. This is not to say that Courts would be justified in granting interim orders and reliefs on the asking. Wherever the powers of the Court are invoked with the objective of supporting the arbitration, the Court must act with alacrity. This principle is recognised both in the United Kingdom and United States of America. The Supreme Court had cited with approval the English decision in The Channel Tunnel Group Vs. Balfour Beatty Construction Limited and Ors., (1993) (1) All. E. R.”

The court tried to further justify its order by stating that L & T was not a third party without notice and Puri was only acting as the agent of L & T.

National Highways Authority of India v. China Coal Construction Group Corpn. [2006 (1) Arb LR 265 (Delhi): AIR 2006 Delhi 134: MANU/DE/0488/2006] is perhaps the earliest case where the courts decided against the existence of power of a court to grant interim order against a Non-Signatory. In March 2002, NHAI and CCC entered into a contract for the construction of roads. Disputes arose between the parties and they invoked the arbitration clause. A petition was filed by CCC praying for restraining NHAI from invoking the contract bank guarantee. Arbitrator was nominated by NHAI in regard to the disputes. Further, a interim order was granted by the court restraining any attempt by CCC to remove equipment from the site. In view of the constitution of the arbitral tribunal, CCC sought the courts leave to withdraw it suit. Pursuant thereto, the court passed an order on 25 January 2005 dismissing the suit. On the same day, the arbitral tribunal passed an order restraining CCC from removing equipment from the site. The tribunal’s order, however, stated that its order would not affect any decision of the Kolkata High Court.  A petition was filed by the National Highways Authority of India (NHAI) against China Coal Construction Group Corp (CCC) for an order restraining CCC from interfering with the equipments lying on site. An interim order was passed on 25 January 2005 in the said petition. SREI International Finance Limited (SREI) filed an application as intervenor in the above proceedings and sought clarification of the above stated interim order. It may be noted that the tribunal’s order referred to the proceedings in the Kolkata High Court between the intervenor and CCC. CCC had, through hire purchase, purchased certain equipment, but according to the intervenor, had defaulted in payment. Hence, the intervenor had called upon CCC to remove the default or surrender possession of equipments lying in the site. Since NHAI was not a party to these proceedings before the Kolkata High Court but had a contractual right over the equipments lying on the site, it approached the Delhi High Court for an interim relief. After granting an interim measure of protection under S 9 as pleaded by NHAI, the High Court went on to decide if the intervenor could be impleaded as a party to the petition. Holding in the negative, the court held:

“Section 9 of the Act is with reference to arbitral proceedings just as the Intervenor cannot be a party in the arbitral proceedings pending between NHAI and China Coal, it has no locus standi in the present proceedings. The interim orders that may be passed under Section 9 or Section 17 are with respect to the parties to the arbitration and in connection with the subject matter thereof.”

The above decisions have been analysed to give instances of the kinds of justifications offered to either confirm or deny the existence of such a power against a non-signatory. In CREF Finance, the judge took the aid of principles like proactive role of court to support the arbitral process, power of the court to grant relief in equity when the situation demands it, etc. However, in NHAI v. CCC, Badar Durrez Ahmed, J simply ruled that an order under S 9 cannot be passed against a non-signatory. He stated that the purpost of S 9 was then to support the arbitral process by providing urgent relief before the constitution of the arbitral tribunal.

In the next post, we shall see certain other notable cases on this point. Once we are through with this, we would provide reasons why denial of existence of such a power is unnecessary and erroneous.

Delocalisation and Other Principles in Dallah Estate: A Descriptive Comment (Part I)

Dallah Real Estate and Tourism Holding Company v. Ministry of Religious Affairs, Government of Pakistan is one of the most important decisions in the recent past in international arbitration. The UK Supreme Court has not laid down something new here. Though it has reiterated what was the consistent opinion in international arbitration, the reiteration assumes significance in view of the widespread issues that the Supreme Court had to deal with. The judgement(s) provide a starting point for research on several topics in international arbitration such as delocalisation of international arbitration, validity of arbitration agreements, situations where award in the seat was not recognized but were nevertheless enforced, extension of arbitration agreement to non-signatories, competence of the tribunal to rule on its jurisdiction, renvoi etc.  In a few days (the judgement was delivered on 3^rd November 2010), there have been several comments in the blawgosphere on the case. We’ll give a list of the comments to this case at the end of this series of posts.

At the heart of the controversy was the question as to whether the Government of Pakistan (Pakistan) was a party to the agreement between Dallah Real Estate and Tourism Holding Company (Dallah) and the Awami Hajj Trust (Trust) as per French Law. Dallah argued that Pakistan did. It failed in convincing all tiers of the English courts. Facts first.

[Some facts are from the judgements of the lower courts. So don’t be surprised if you don’t find them in the UKSC decision]

24.07.1995:     Dallah enter into a Memorandum of Understanding (MOU) with Pakistan for providing houses for pilgrims and procuring necessary financing for the project. Under the said MOU, Pakistan was supposed to provide a sovereign guarantee to the creditors.

21.01.1996:     Pakistan promulgated an ordinance and Pakistan establishing the Trust. In accordance with Article 89 of the Constitution of Pakistan (quoted below), an Ordinance promulgated would be automatically repealed at the expiry of four months from the date of its promulgation

“89. Power of President to promulgate Ordinances.

 (1) The President may, except when the National Assembly is in session, if satisfied that circumstances exist which render it necessary to take immediate action, make and promulgate an Ordinance, as the circumstances may require.

 (2) An Ordinance promulgated under this Article shall have the same force and effect as an Act of  [Majlis-e-Shoora (Parliament)] and shall be subject to like restrictions as the power of  [Majlis-e-Shoora (Parliament)] to make law, but every such Ordinance-

(a) shall be laid-

(i) before the National Assembly if it  [contains provisions dealing with all or any of the matters specified in clause (2) of Article 73], and shall stand repealed at the expiration of four months from its promulgation or, if before the expiration of that period -a resolution disapproving it is passed by the Assembly, upon the passing of that resolution;

(ii) before both Houses if it [does not contain provisions dealing with any of the matters referred to in sub-paragraph (i)], and shall stand repealed at the expiration of four months from its promulgation or, if before the expiration of that period a resolution disapproving it is passed by either House, upon the passing of that resolution; and

        (b) may be withdrawn at any time by the President.

(3) Without prejudice to the provisions of clause (2) an Ordinance laid before the National Assembly, shall be deemed to be a Bill introduced in the National Assembly.”  

Further ordinances were promulgated, the last being on 12^th August 2006, to keep the Trust alive.

Under the Ordinances, the Secretary of the Ministry of Religious Affairs (MRA) was to be the Secretary to the Board of Trustees.

10.09.1996:     Dallah, who where advised by their legal counsel, entered into an agreement with the Trust to formalize the transaction. The proposal for structuring the transaction so that the Trust, rather than the government, signed the Agreement came from Dallah.

06.11. 1996:    The political party in Pakistan fell from power and a new government was formed. No other ordinance was passed to ensure continuity of the Trust. The Ordinance lapsed due to the operation of Article 89 and the Trust ceased to exist on 11.12.1996.

Arbitration was invoked by Dallah against the Government of Pakistan

26.06.2001:     First Partial Award on jurisdiction. The  Tribunal unanimously held that the Tribunal had jurisdiction and that "an agreement to arbitrate under the ICC Rules exists between the Claimant and the Defendant, and such Defendant is the proper Defendant party to the Arbitration". Further, it held that the arbitration agreement “is not to be assessed, as to its existence, validity and scope, either under the laws of Saudi Arabia or under those of Pakistan, nor under the rules of any other specific local law, connected or not, to the present dispute".

19.01.2004:     Second Partial Award on liability

23.06.2006:     Final award by the Tribunal consisting of Lord Mustill, Dr Nassim Shah and Dr Ghaleb Mahmassani, awarded US$ 20,588,040 in favour of Dallah and against Pakistan.

[Note that it had taken more than five years for the arbitration to be complete]

09.10.2006:     Dallah, vide an ex-parte order, obtained leave of the court to enforce the award as a judgement of the court.

23.03.2008:     Pakistan, through an arbitration application, asked the commercial court to set aside the ex-parte order on two counts:

1. Pakistan as a State was immune from enforcement proceedings
2. The award should not be enforced because there was no valid arbitration agreement.

The New York Convention has been incorporated in the Arbitration Act, 1996. S 103(2)(b) of the Act provides:

“103 Refusal of recognition or enforcement

…

(2) Recognition or enforcement of the award may be refused if the person against whom it is invoked proves—

…

(b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made;”

At the stage of arguments before the Commercial Court, both the parties agreed upon the following, in the words of the commercial court:

“(1) The GoP [i.e. Pakistan] is not named as a party to the Agreement or the arbitration clause (clause 23), nor did it sign any part of the Agreement.

(2) The Agreement named the Trust as a party and the Agreement was signed and concluded on behalf of the Trust.

(3) The Trust was, under Pakistani law, established as a statutory corporation with a legal personality and the capacity to contract.

(4) At all relevant times the GoP and the Trust were separate legal entities with distinct legal personalities as a matter of Pakistani law

(5) Upon the lapse of Ordinance LXXXI of 1996 at midnight on 11/12 December 1996, the Trust ceased to exist as a legal entity.

(6) The parties to the "arbitration agreement" (whoever they might be and whatever that is taken to be – see below) did not identify any particular law to which the "arbitration agreement" was "subjected" for the purposes of section 103(2)(b) of the Act. Therefore any question concerning the validity of the "arbitration agreement" had to be decided according to the law of the country where the Final Award was made, viz. France.

(7) No separate argument would be advanced by the GoP on its ability to claim state immunity from these proceedings in its capacity as a state entity, but it reserved its position on that issue both in this jurisdiction and elsewhere.”

The commercial court framed around eight issues:

1. What is the correct construction of section 103(2)(b) of the Act?
1. What is the meaning of arbitration agreement in S 103(2)(b)?
2. Whether the phrase in this provision, “the arbitration agreement was not valid” also covered a situation where the person against whom the award was made was not a party to the arbitration agreement?
3. Whether “within the law of the country where the award was made” would include the conflict of law rules of the seat which refer to a third country’s laws?
2. What is the scope of enquiry by a court when a party challenges the recognition and enforcement of a NYC award under S 103(2)(b)?
3. The parties are in agreement that the arbitration agreement would be tested on the touchstone of the French Law. But what are the French law principles applicable in the case?
4. According to Article 173 of the Constitution Of Pakistan, the State of Pakistan can only validly enter into and be bound by an agreement if the agreement mandatory procedure as stated therein was followed? In this case, it was not. So the question is whether the English court was bound to account for Pakistani Laws, including that of the Pakistani Constitution?
5. Whether Pakistan was bound by the arbitration agreement?
6. Since under Section 103(2)(b), the burden of proof is on the party seeking refusal to recognize and enforce the arbitral award, whether Pakistan has established that the arbitration agreement was not valid under the French Law?
7. Even if Pakistan has established the above, whether Pakistan is estopped from contending, due to issue estoppel, that the arbitration agreement was invalid?
8. Even if Pakistan has established 7 & 8 in its favour, whether  the court should exercise its discretion under S 103(2)(b) to enforce the award?

 We will analyse the decision in detail, and therefore, in several parts in view of its importance to international arbitration and the complexities involved. So far, we have, in detail, dealt with the relevant facts and the issues surrounding the case. We shall continue with our analysis on the commercial court in the next post. In the subsequent posts, we shall analyse the decisions of the Court of Appeal and the Supreme Court.

Before we sign off, we invite readers to note that it took more than five years for the arbitration to be complete. The tribunal consisted of eminent personalities of international arbitration. Yet, the case took this much time. Parties need a lot of time for the preparation of their respective cases. We do not have a record of the entire proceedings to comment on the reason for such delay. But five years is slightly more than the normal. How would international arbitration be called efficient if dispute resolution takes such a long time?

The decisions of the courts in this case can be accessed from the following links:

UK Supreme Court

Court of Appeal

Commercial Court

Interpreting the term “relationship in the nature of marriage”

Interpreting the term “relationship in the nature of marriage”

The Supreme Court in one of its recent decision has interpreted the expression “relationship in the nature of marriage” occurring in Section 2 (f) of the Protection of Women from Domestic Violence Act, 2005. The judgment has also triggered a controversy by the feminist vigilante for using the word “keep” to refer certain women in relationship with man.

The background

The occasion to interpret and decide on the conditions to qualify a relation as ‘in the nature of marriage’ had arisen in a petition filed by D. Patchaiammal for a relief under Section 125 Cr.P.C. in the year 2001 before the Family Court at Coimbatore. The petitioner alleged that she has been married to the appellant herein in 1986 and lived together for two or three years.

The appellant herein denied this claim and alleged that he is already married (in 1981) and have a son in that relationship. Since he is already married there is no possibility of Patchiammal being his wife. No relief under Section 125 therefore could be granted to the petitioner therein as per the definition of `wife' in Explanation (b) to Section 125(1) of the Cr.P.C.

Though the court echoes the object of Section 125 as to prevent vagrancy and destitution, holds that “there is no scope to include a woman not lawfully married within the expression of `wife”.

Search for solution in the Protection of Women from Domestic Violence Act

The court then widens its net in search of answers and captures the potential of the Protection of Women from Domestic Violence Act, 2005. Section 2 (f) of the Act defines domestic relationship as follows:-

"domestic relationship" means a relationship between two persons who live or have, at any point of time, lived together in a shared household, when they are related by consanguinity, marriage, or through a relationship in the nature of marriage, adoption or are family members living together as a joint family"

The exploration here is to find whether any relief is possible to be given under The Protection of Women from Domestic Violence Act, 2005, though at the time of petition the Act has not taken life. The court does not discuss and rule on this issue.

Concept and ingredients of Common Law Marriage

Though there is an argument that people in ‘living in’ relationship should get the benefit of the Act, the court dissected the expression ‘a relationship in the nature of marriage” in Section 2 (f) and equated it with ‘common law marriage’ or ‘de facto marriage’. The court list the ingredients of common law marriages using the aid of Wikipedia, which are

(a) The couple must hold themselves out to society as being akin to spouses.

(b) They must be of legal age to marry.

(c) They must be otherwise qualified to enter into a legal marriage, including being unmarried.

(d) They must have voluntarily cohabited and held themselves out to the world as being akin to spouses for a significant period of time.

In addition to these, the parties must have lived together in a `shared household' as defined in Section 2(s) of the Act. The court clarifies that a weekend relationships, one night stands and adds the part that created furor, “[i]f a man has a `keep' whom he maintains financially and uses mainly for sexual purpose and/or as a servant, would not, … , be a relationship in the nature of marriage”

The court clarifies that not all ‘live in’ relations qualify to be a ‘relationship in the nature of the marriage’, but only those that satisfies the conditions specified. In the light of this judgment the court remanded the matter back to the lower court to establish whether there was a live in relationship that could qualify under section 2 (f) between the petitioner and respondent.

Thoughts after

Apart from the gender insensitivity in the selection of expression, the case raises certain important issues.

The relief of maintenance under Protection of Women against Domestic Violence Act is under section 20 (1) (d) to be granted on an application to the magistrate under section 12. It is a very acceptable proposition that the court thought of extending the benefit of an Act which was not in existence at the time of original petition even without such a pleading in the original petition. It but certainly require an amendment on the original petition. The concern here is the absence of the petitioner/respondent in the current proceedings. It is ominous that the long wait of nine years on a plea of maintenance of Rs. 500/- per month has made the petitioner lose its value. The cases of this nature should be determined in a time bound manner, that it does not lose its relevance and misplace the objectives behind the Act. More than the benevolence shown by the court after nine years to enlarge its exploration for relief in other legislations, a judgment in time determining the right or no right would have saved the petitioner from misery.

In the process but the court gave a verdict for the later courts to interpret the expression “relationship in the nature of marriage”.

A mention about the research tools and approach used in the judgment will not be out of place as it is alarming. It uses Google to explain the concept of Common Law Marriage and Wikipedia to lay down the conditions of it. Treating information from the internet as authentic would not be a correct approach in judicial decision making. May be the information in the internet is correct but the best source is expected to be cited in the judgment not just the easily available one.

Section 69

All of us who say S 34(2)(b)(ii) should be restrictively read, all those who say Saw Pipes was wrong, all those who have decided RS Sharma, should know the story of S 69 of the English Arbitration Act, 1996. Read this post.