M J Antony: Injunctions during arbitration

OUT OF COURT

The choice of forum for seeking interim orders leads to litigation and delays.

Though arbitration as an alternative mode of settling disputes is increasingly becoming popular, there has always been a little tension between this system and the traditional courts. The Supreme Court remarked in a recent judgement that "the relationship between courts and arbitral tribunals have been said to swing between forced co-habitation and true partnership. The process of arbitration is dependent on the underlying support of the courts which alone have the power to rescue the system when one party seeks to sabotage it" (Adhunik Steels Ltd vs Orissa Managanese & Minerals Ltd).

One question which comes up very often is the power of the court to pass injunction or interim orders when the dispute is taken for arbitration. The issue is vital, because getting an injunction is more than half the battle won. Some civil courts have passed injunctions exercising their power under the Civil Procedure Code or the Specific Relief Act. On the other hand, the Arbitration and Conciliation Act sets its own rules for passing interim orders in Sections 9 and 17. Therefore, there is a possibility of conflict between the two systems. In recent weeks, the Supreme Court delivered two judgements dealing with injunctions in arbitration matters.

The Adhunik Steels case was one such. (The other was Himadri Chemicals vs Coal Tar Refining Co.) The Supreme Court did not draw clear lines, but declared that it was making only some general observations. In this case, OMM Ltd entered into a contract with Adhunik for raising the ore on its behalf. Later, it terminated the agreement when it realised that the contract violated the mineral concession rules. Adhunik moved the Sundargarh district court invoking Section 9 of the Arbitration Act, complaining that it had already mobilised huge resources for excavation. The court restrained OMM Ltd from dispossessing Adhunik from the mines. OMM Ltd appealed to the Orissa high court. It set aside the injunction. So Adhunik moved the Supreme Court and won partial success.

The argument in favour of passing an injunction is that the court must use its power to preserve and protect the property in dispute. The disagreement might be over perishable goods or a profit-earning article such as a ship. If there is no injunction till the end of the arbitration, it would cause hardship to some parties. Moreover, if the property is in the hands of one party, there might be a risk of it being misused and rendered useless at the end. The international commercial arbitration on the UNCITRAL model also supports this view, according to jurists. On the other hand, it was argued that it was not permissible to pass an injunction without reference to the other statutes on the subject.

The well-known principles for deciding whether an injunction order can be passed are: the balance of convenience, whether there was a prima facie case, irreparable injury to one party and the concept of equity. Section 9 of the Arbitration Act deals with interim measures for the protection, preservation, interim custody or sale of any goods which are subject matter of the arbitration agreement. However, it does not specify the situations under which interim orders could be passed. This leads to some uncertainty as in this case.

The Supreme Court ruled that normal rules that govern the grant of interim orders could be applied when arbitration is pending. "When a party is given a right to approach an ordinary court without providing a special procedure or a special set or rules in that behalf, the ordinary rules followed by that court would govern the exercise of power conferred by the Act," the Supreme Court said.

The English courts also seem to have faced the dilemma over injunction when arbitration is going on. In the Channel Tunnel Group case (1993), the trial court, the Court of Appeal and the House of Lords took different views. A jurist from that country suggests that ideally, the handling of arbitral disputes should resemble a relay race, in which both the arbitral tribunal and the courts act in co-operation. In the initial stages, before the arbitrators are seized of the dispute, the baton is in the grasp of the court. When the arbitrators take charge, they take over the baton and retain it until they have made an award. Then they hand back the baton so that the court can, in case of need, lend its coercive powers to the enforcement of the award.

But such an ideal situation is hard to come by. Most often, the contenders hand over the batons to the wrong players and lose time in the process. In this case, the application for the appointment of an arbitrator was pending before the Orissa high court for two years and the Supreme Court had to name one to end the stalemate.