Section 9 (2) of the Arbitration & Conciliation Act, 1996: A voluntary / mandatory provision?

By - Nikhilesh Koundinya, Associate, Solomon & Co.

Introduction

Section 9 of the Arbitration and Conciliation Act, 1996 (“Act”) deals with interim measures granted by a court before or during arbitral proceedings or at any time after the making of the arbitral award but prior to enforcement thereof. While the statute clearly lays down that any protection granted to both parties is for an interim period, some parties having obtained the said order do not invoke arbitration which leads to a peculiar situation whereby while parties are protected by interim relief for months / years, final adjudication of rights and obligations remain pending between parties. The same is also bound to affect one party in an unfair manner and alter the balance of convenience which cannot be permitted.

The Hon’ble Supreme Court in its judgment of Sundaram Finance Ltd. v NEPC India Ltd. recognized the aforesaid problem and opined that courts while interpreting provisions of Section 9 of the Act and granting reliefs therein, can pass a conditional order to put the party who is intending to get an order from the court to terms as it may deem fit with a view to ensure that effective steps are taken by the party for commencement of arbitration proceedings.

The principle as laid down by the Hon’ble Supreme Court also found legislative sanctity when the legislature vide its amendment in 2015 to the Act introduced Section 9 (2) which put a timeline on parties invoking arbitration having secured interim relief. The section states “Where before the commencement of arbitration proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.”

While the legislature has laid down that the timelines under Section 9 (2) of the Act ought to be strictly followed, the article analyses the judgments pronounced by courts in India where some have taken an opinion in favor of implementing the mandatory language of Section 9 (2) of the Act while others have held the said period to be voluntary.

One of the earliest judgment’s interpreting the mandatory nature of Section 9 (2) of the Act was pronounced by the Hon’ble Karnataka High Court titled M/s. Paton Constructions Pvt. Ltd. v M/s. Lorven Projects Ltd. & Anr. In the said judgment while interpreting the legislative mandate of the parliament in drafting and implementing Section 9 (2) of the Act, the Hon’ble Karnataka High Court held that the intent of the section is to obviously hold the terms of the section as mandatory and hence if arbitration proceedings with respect to the dispute / differences are not commenced within a period of 90 (Ninety) days, the order granting any interim measure under Section 9 (1) of the Act shall automatically stand vacated on the expiry of the said period. The Hon’ble Karnataka High Court held that while the automatic vacation of the order has not been mentioned expressly in the section, any other interpretation of Section 9 (2) of the Act will defeat the intention of parliament in making such commencement within the said period mandatory.

Similarly, the Hon’ble Hyderabad High Court in its judgment of Velugubanti Hari Bhau v Parvathini Narasimha Rao & Anr., while enunciating on the object of the said section held that the same was inserted to ensure that a party securing an order of interim measure does not continue to enjoy such measure beyond the stipulated period without initiation of arbitration proceedings. The Hon’ble Hyderabad High Court hence echoed the findings of the Hon’ble Karnataka High Court and held that if arbitration proceedings are not initiated within a period of 90 (Ninety) days from date of order on an application under Section 9 of the Act, the order would automatically stand vacated.

While there are plethora of other judgments where the courts have strictly interpreted the provisions of Section 9 (2) of the Act and have provided the repercussions of not adhering to the timelines specified in the said section, there are two judgments passed by the Hon’ble Bombay High Court and the Hon’ble Calcutta High Court, respectively which take a different view to the aforesaid judgments. In the judgment of Epimoney Private Ltd. v Manidhari Oils Pvt. Ltd. the Hon’ble Bombay High Court was dealing with a petition under Section 9 of the Act whereby way of order dated 22^nd June 2018 ad-interim reliefs were granted to the Petitioner. The Petitioner also addressed a notice informing the Respondent that it was going to appoint a sole arbitrator. The Hon’ble Bombay High Court upon observing the conduct of the parties decided to extend the timeline for the ad-interim reliefs beyond the statutorily mandated period. It is clear that the above relief was granted in terms of the facts of the case and the principles of justice therein.

On the other hand, in the case of Abdul Vaheed v Srei Equipment Finance Ltd., the Hon’ble Calcutta High Court while enunciating on Section 9 (2) of the Act held that as per its interpretation of the section the language of the Section did not mandate a subsisting interim order to be vacated merely because the arbitral proceedings had not commenced, though the same may be done by the court if it deems appropriate in a situation.

Hence, it is clear that the judicial pronouncements with respect to Section 9 (2) of the Act are not clear and the same may be interpreted upon perusal of the facts and circumstances of a case. But a question emerges as to what the legislative mandate is when the legislature prefaces the timeline in any section with the word “shall”. The answer lies in the interpretation of the word “shall”. The Hon’ble Supreme Court in its judgment of State of Haryana and Anr. v Raghubir Dayal held that, the use of the word “shall” mean mandatory. While the court went on to hold that the interpretation given to the word “shall” will depend on the facts and circumstances of the case, it categorically held that when a statute is passed for the purpose of enabling the doing of something and prescribes the formalities which are to be attended for the purpose, those prescribed formalities which are essential to the validity of such thing would be mandatory. Section 9 (2) of the Act clearly requires parties to invoke arbitration proceedings and prescribes 90 (Ninety) days for invocation of the same. Hence, it is clear that the use of word “shall” in this section will have to be read as mandatory and the timeline therein cannot be extended on a case-to-case basis as the same is bound to defeat the legislative intent therein.

Conclusion

The aforesaid leaves no doubt that the timeline and mandate under Section 9 (2) of the Act is mandatory in nature. While some courts have extended the timeline basis the facts of the case, the same is impermissible and the courts ought to stick to the timelines enshrined under legislations as the same ensure judicial discipline.

Nikhilesh Koundinya, Associate, Solomon & Co.

About Solomon & Co.

Solomon & Co. (Advocates & Solicitors) was founded in 1909 and is amongst India’s oldest law-firms. The Firm is a full-service firm that provides legal service to Indian and international companies and high net-worth individuals on all aspects of Indian law.

“Disclaimer”

The information contained in this article is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. The application and impact of laws can vary widely based on the specific facts involved. As such, it should not be used as a substitute for consultation with a competent adviser. Before making any decision or taking any action, the reader should always consult a professional adviser relating to the relevant article posting.