In a recent decision, the High Court of Bombay (Court) held that the applicability of Section 9 to foreign arbitral awards under Part-II of the Arbitration and Conciliation Act 1996 (Act) can be restricted only if the agreement states so in specific terms and a mere designation of an overseas venue or applicable law would not be sufficient. In other words, applications for interim protection under Section 9 of the Act may be filed to secure the interests of the award holder even in case of a foreign award, unless express exclusion of this Section is made in the agreement between the parties.
The parties had entered into a contract for the sale of a helicopter by the petitioner to the respondent. The said contract was to be governed in accordance with Singapore law and further provided that any dispute would be referred to arbitration in Singapore to which the SIAC Rules would be applicable.
As per the contract, parties subjected disputes that arose between them to arbitration, pursuant to which an arbitral award (Foreign Award) was rendered on 25 January 2017 in favour of the petitioner amounting to approximately USD 7 million.
The petitioner had made an application for certain urgent ad-interim reliefs under Section 9 of the Act on 17 April 2017 before the Hon’ble Court on the ground that the respondent has only one asset in India, namely the ‘Augusta Helicopter’. This asset was valued at approximately USD 11 million and was being used in the respondent’s ONGC operations. In view of these facts, an ad-interim injunction was granted in favour of the petitioner by the Hon’ble Court.
Contentions of Parties
The present petition under Section 9 came up before the Hon’ble Court on 28 April 2017 for confirmation of the ad-interim reliefs that had been granted on the previous occasion.
The said petition was filed on the ground that the ‘Augusta Helicopter’ is the only substantial asset of the respondent and lies within the jurisdiction of the Hon’ble Court and the petitioner apprehended that the respondent would alienate or encumber the helicopter in order to prevent it from being used in the enforcement of the Foreign Award. Therefore, in order to secure the amount under the Foreign Award, the petitioner prayed for interim reliefs restricting the respondent from disposing of or encumbering the helicopter in any manner and from removing it from the jurisdiction of the Hon’ble Court except for the purposes of its operations in its base in Mumbai.
The respondent resisted the petition on two grounds:
- Section 2(2) of the Act provides that Section 9 of the Act would be applicable to a foreign award rendered under Part II of the Act only in the absence of an agreement to the contrary. However, in the present case, the parties had entered into an agreement in 2014 which specifically subjected disputes arising between the parties to arbitration under the laws of Singapore and the SIAC Rules, thereby excluding the applicability of Section 9 of the Act. Therefore, the petitioner could not invoke Section 9 of the Act for interim reliefs.
- In any event, assuming but not conceding that the arbitration agreement itself does not constitute an agreement to the contrary under Section 2(2) of the Act, Section 9 still cannot be invoked as the Foreign Award is not one that is ‘enforceable and recognised’ as per Section 2(2) as it has not been made enforceable under Section 48 of the Act (which lays down the procedure for enforcement of foreign awards). Therefore, the protection afforded under Section 9 can be utilised only in the period between when an award is made enforceable under Section 48 and is pending to be executed.
Decision of the High Court
However, the Hon’ble Court rejected both the contentions of the respondent as follows:
- An arbitration agreement that merely provides for a venue and applicable law not being India would not satisfy the intent of the proviso. The agreement must, in specific terms, provide that Section 9 of the Act will not apply to any award rendered pursuant to the arbitration agreement.
- Section 48 is merely a discretionary remedy and permits refusal of enforcement in the event one or more of the conditions listed under Section 48 have not been satisfied. If the contention of the respondent is accepted and no protection is afforded under Section 9, it would permit the removal, encumbrance or destruction of the only asset remaining in India. This would be contrary to the purpose of Section 2(2) of the Act, which is to make available a remedy afforded to domestic awards to foreign awards as well by ensuring that the holder of the foreign award has an asset against which he can proceed if he is able to get the award enforced. Therefore, the protection afforded to a foreign award would be available from the time the award is pronounced until the beginning of execution proceedings under Section 49.
Therefore, while noting that failure to grant interim reliefs in such a case could cause irreparable prejudice to the petitioner, the Hon’ble Court confirmed the grant of the ad‑interim reliefs preventing dissipation of ‘Augusta Helicopter’ in any manner including disposing of and creating any encumbrance on it. The respondent was permitted to use ‘Augusta Helicopter’ for operations other than the ONGC operations as well.
However, the interim relief was to be subject to a first charge held by Union Bank of India (Bank) created as security for the borrowings of the respondent from the Bank and would be without prejudice to the right of the Bank to enforce its security in the event it is required.
It is of note that according to the Hon’ble Court, the only alternative to an injunction of this nature under Section 9 would be for the respondent to deposit sufficient money in court or to secure the asset for a potential enforcement action in respect of the Foreign Award.
Through this decision, the Hon’ble Court has attempted to balance the intention behind the amendment to the Act to ensure that the situation that resulted post the decision in Bhatia International does not occur, with the need for court intervention to protect the interests of foreign award holders when the judgment debtor has limited assets in India. The Hon’ble Court has clarified when holders of foreign awards can approach the courts in India under Section 9 for interim and ad-interim relief and this will go a long way in providing confidence to foreign investors and foreign award holders.