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ARCELOR MITTAL CASE: DISCERNING THE MEANING OF ‘ENTERTAIN’ IN THE ARBITRATION ACT

Background

The Hon’ble Supreme Court of India through Hon’ble Justice Indira Banerjee and Hon’ble Justice J.K. Maheshwari delivered a landmark judgment throwing light on the issues of the power of the court to ‘entertain’ the application under Section 9[1], and the examination of the efficacy of the remedy available under Section 17[2] under the Arbitration and Conciliation Act, 1996 (“The Act”). This judgment becomes even more special as it thoroughly defines the intent and purports behind the word “entertain” under Section 9 of the Act.

Facts of the Case

The Appellant and the Respondent entered into an agreement for Cargo Handling at Hazira Port. Article 15 of the said Cargo Handling Agreement provided that all disputes arising out of the Cargo Handling Agreement were to be settled in Courts, following the provisions of the Arbitration Act and be referred to a sole Arbitrator appointed mutually by the parties. Disputes and differences having arisen under the said Cargo Handling Agreement, the Appellant invoked the arbitration clause by a notice of arbitration.

Issues before the Court

There are three major questions raised for the adjudication before the Hon’ble Bench,

  1. Whether the court has the power to entertain an application under Section 9(1) of the Arbitration and Conciliation Act, 1996;
  2. What are the true meaning and purport of the expression “entertain” in Section 9(3) of the Arbitration Act;
  3. Whether the court is obliged to examine the efficacy of the remedy under Section 17 of the act, before passing an order under Section 9(1) of the Act, once an Arbitral Tribunal has been constituted.

It is at this stage, that the importance of the three questions is understood, where the amendment to the Arbitration and Conciliation Act, 1996 follows the intention to avoid the courts being flooded with the petitions under Section 9 under the Act, especially when an Arbitration Tribunal is constituted. The decongestion of the clogged court system and the institution of the Arbitral Tribunal comes with the power to the Tribunal to grant interim relief in a timely and efficacious manner.[3]

Whether the court has the power to entertain an application under Section 9(1) of the Arbitration and Conciliation Act, 1996?

This is already a prevalent contextual understanding of Section 9(1) of the Act, as amended, enables the parties to the arbitration agreement to apply to a court for interim measures of protection before or during the arbitral proceedings, or before the award is enforced as per Section 36 of the Arbitration Act. This results in a Civil Court of competent jurisdiction thus having the jurisdiction to admit, entertain and decide an application Under Section 9(1) of the Arbitration Act, any time before the final arbitral award is enforced in accordance with Section 36 of the Arbitration Act.

However, it has been taken into notice by the Hon’ble Bench that Section 9(3) of the Act, emphasis has been laid on the fact that once the Tribunal is constituted, the Court shall not entertain an application under Section 9(1), unless the court finds that circumstances exist which may not render the remedy provided under Section 17 of the Act efficacious.  

The Hon’ble Bench then proceeded to bifurcate Section 9(3) into two limbs. The first limb prohibits an application Under Sub-section (1) from being entertained once an Arbitral Tribunal has been constituted. The second limb carves out an exception to that prohibition, if the Court finds that circumstances exist, which may not render the remedy provided Under Section 17 efficacious.

The Hon’ble Bench went to great lengths to explore the applicability of the two sub-sections raised under the proposition. Taking into consideration the fact that Section 17 has also been amended to encapsulate the powers to grant interim measure to the Arbitral Tribunals, it essentially rendered the order passed by the Tribunals under Section 17 deemed to be the order of the Court for all purposes and enforceable as an order of the court. This has convinced the Bench that there seems to be no reason why the court should continue to take up the applications for interim relief, once the Arbitral Tribunal is constituted unless the relief is not adequately approachable vide the Arbitral Tribunals.

For this purpose, the ‘Adjudication’ becomes even more relevant, as the court relies on the Black’s Law Dictionary (6th Edition) to imply a hearing by a court, after notice, of legal evidence of the factual issue(s) involved. It is on this reading that the Hon’ble Bench read into Section 9 of the Act, stating that the parties invoking Section 9 must be ready and willing.

What is the true meaning and purport of the expression “entertain” in Section 9(3) of the Arbitration Act?

The Hon’ble Bench took specific notice of the fact that “entertain” had a specific purpose and meaning that needs to be supplied in the judgments. Relying on the Tufan Chatterjee[4] judgment, the Bench drew an elaborate distinction between “institution” of the suit and “entertaining” of the suit. To “entertain” is to mean entertaining the ground for consideration for adjudication on merits and not any stage prior thereto[5], unlike “institute” which essentially means the capacity to raise an issue before the court, or something that the Limitation Act can bar the institution of a suit after the expiry of the period of limitation.

The Hon’ble Bench, while referencing to the Banara Bearings & Pistons Ltd. case[6], also noted that there is no provision under the said Act which, even as a transitory measure, requires the Court to relegate or transfer a pending Section 9(1) application to the Arbitral Tribunal, the moment an Arbitral Tribunal has been constituted.

Hence, settling the discussion on the meaning and understanding of the word “Entertain” which has been raised before the Apex Court on many occasions, the Hon’ble Bench settled that the expression “entertain” means to consider by application of mind to the issues raised. The Court entertains a case when it takes a matter up for consideration.

Whether the court is obliged to examine the efficacy of the remedy under Section 17 of the act, before passing an order under Section 9(1) of the Act, once an Arbitral Tribunal has been constituted?

The Hon’ble Bench categorically stated in Para no. 93 of the judgment that once an Arbitral Tribunal is constituted the Court cannot take up an application Under Section 9 for consideration unless the remedy Under Section 17 is inefficacious. However, once an application is entertained in the sense it is taken up for consideration, and the Court has applied its mind to the Court can certainly proceed to adjudicate the application. The bar of Section 9(3) would not operate, once an application has been entertained and taken up for consideration, as in the instant case, where the hearing has been concluded and judgment has been reserved, even if the process of consideration continues till the date of pronouncement.

The question is whether the process of consideration has commenced, and/or whether the Court has applied its mind to some extent before the constitution of the Arbitral Tribunal. If so, the application can be said to have been entertained before the constitution of the Arbitral Tribunal. The Hon’ble Bench also noted that this is also in line with the UNCITRAL Model Law which discourages Court proceedings about disputes arising out of an agreement that contains a Clause for arbitration.

Hence, concluding the judgment, the Hon’ble Bench discerned that the appeal was allowed only to the extent of clarifying that it shall not be necessary for the Commercial Court to consider the efficacy of relief Under Section 17 since the application Under Section 9 has already been entertained and considered by the Commercial Court.

Authored by: Kaustubh Srivastava, (Dr. RML National Law University, Lucknow)

 References:

[1] Section 9, Arbitration and Conciliation Act, 1996.

[2] Section 17, Arbitration and Conciliation Act, 1996.

[3] Amazon.com NV Investment Holdings LLC v. Future Retail Limited and Ors (2021) 4 SCC 557

[4] Tufan Chatterjee vs. Rangan Dhar AIR 2016 Cal 213

[5] Martin & Harris Ltd. v. 6th Additional District Judge (1998) 1 SCC 732

[6] Benara Bearings and Pistons Ltd. vs. Mahle Engine Components India Pvt. Ltd. 2017 (162) DRJ 431

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