India: Locus Standi Of Third Parties Under Section 9 Of The Arbitration And Conciliation Act, 1996

INTRODUCTION

Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "Act") is broadly based on the UNCITRAL Model Law on International Commercial Arbitration, 1985. Section 9 of the Act, provides opportunity to the parties to an Arbitration Agreement, to not only seek relief before or during the commencement of the arbitral proceedings but also after the passing of the arbitral award, provided such relief is sought by the parties before the enforcement of the award. However, in cases where third party rights are getting affected, only a court can grant such reliefs. Such third party to the Arbitration Agreement can always avail the remedy in law and approach the Court to resolve and claim the damages for the grievance arisen with the parties to the Arbitration Agreement, showing separate cause of action and engage into litigation in its own individual capacity but not under the ambit of the Arbitration Agreement to which it was never part of. A third party to an Arbitration Agreement has no Locus Standi to seek a remedy from the Court under Section 9 of the Act since it is not a party to the Arbitration Agreement in the first place.

Section 9 of the Arbitration and Conciliation act, 1996 reads as:

"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 a person of unsound mind for the purposes of arbitral proceedings; or

(ii) for an interim measure of 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 authorizing 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."1

QUALIFICATION FOR INVOKING JURISDICTION OF THE COURT UNDER SECTION 9 OF THE ACT

On literal interpretation of the Section 9 of the Act, it can be ascertained that the section has a limited scope and is only confined to the parties to the Arbitration Agreement. The definition of the word, "Party" has been precisely stated in Section 2(h) of the Act. Section 2(h) of the Act defines a "Party" as "a Party to the Arbitration Agreement". Thus, the right conferred under Section 9 of the Act is only available to a Party to an Arbitration Agreement before or during the ongoing arbitral proceedings. The existence of an arbitration agreement or an arbitral clause is the sine quo non for the contracting parties to refer their disputes to arbitration and avail from the court any interim relief in terms of this section. The Hon'ble High Court of Madras in the matter of Harita Finance Ltd. vs ATV projects India ltd.2, has observed that,

"10. From the above it is clear that to invoke Section 9 of the Act –

(i) There should be a dispute which had arisen with respect to the subject matter in the agreement and referable to the arbitral Tribunal.

(ii) There has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings at the time of filing application under Section 9 of the Act. The issuance of a notice in a given case is sufficient to establish the manifest intention to have the dispute referred to an arbitral Tribunal. But it is also not necessary that notice as contemplated under Section 21 of the Act invoking arbitration clause must be issued to the opposite party before filing the application under Section 9 could be filed. But, if an application is made in such circumstances under Section 9 of the Act, the Court must satisfy that the arbitration agreement is in existence and the applicant intends to take the dispute to arbitration.

(iii) Apart from this, the application can be entertained under Section 9 of the Act before this Court only if in a given case the subject matter of the arbitration comes within the original civil jurisdiction, both pecuniary and territorial." Thus, the right conferred by this section cannot be said to be one arising out of a contract. It is a right conferred on a party to an Arbitration Agreement. Thus, only a person who is a party to an Arbitration Agreement can invoke the jurisdiction of the Court. A person who is not a party to the Arbitration Agreement cannot enter the Court for protection because a "Party" means a party to the "Arbitration Agreement". The relief sought under Section 9 of the Act is intended to safeguard the justice to the aggrieved party until the eventual enforcement of the award. Here, the measure of protection is a step in aid of enforcement. It is intended to ensure that enforcement of the award results in a realizable claim and that the award is not rendered illusory by dealings that would put the subject of the award beyond the ambit of execution. Contextually, therefore, the scheme of Section 9 postulates an application for the grant of an interim measure of protection after the making of an arbitral award and before it is enforced for the benefit of the party which seeks enforcement of the award.3 The significant qualification which the person invoking jurisdiction of the Court under Section 9 must possess is of being a 'party' to an arbitration agreement. In short, filing of an application by a party by virtue of its being a party to an Arbitration Agreement is for securing a relief which the Court has power to grant before, during or after arbitral proceedings by virtue of Section 9 of the Act.4

The Hon'ble Supreme Court in the matter of Ashok Traders vs. Gurumukh Das Saluja (A.I.R. 2004 SC 1433) has held, "13. A & C Act, 1996, is a long leap in the direction of alternate dispute resolution systems. It is based on UNCITRAL Model. The decided cases under the preceding Act of 1940 have to be applied with caution for determining the issues arising for decision under the new Act. An application under Section 9 under the scheme of A & C Act is not a suit. Undoubtedly, such application results in initiation of civil proceedings but can it be said that a party filing an application under Section 9 of the Act is enforcing a right arising from a contract? 'Party' is defined in Clause (h) of Sub-section (1) of Section 2 of A & C Act to mean a party to an arbitration agreement. So, the right conferred by Section 9 is on a party to an arbitration agreement. The time or the stage for invoking the jurisdiction of Court under Section 9 can be (i) before, or (ii) during arbitral proceedings, or (iii) at any time after the making of the arbitral award but before it is enforced in accordance with Section 36. With the pronouncement of this Court in Sundaram Finance Ltd. v. NEPC India Ltd. - MANU/SC/0012/1999: [1999]1SCR89 the doubts stand cleared and set at rest and it is not necessary that arbitral proceedings must be pending or at least a notice invoking arbitration clause must have been issued before an application under Section 9 is filed. A little later we will revert again to this topic. For the moment suffice it to say that the right conferred by Section 9 cannot be said to be one arising out of a contract. The qualification which the person invoking jurisdiction of the Court under Section 9 must possess is of being a 'party' to an arbitration agreement, A person not party to an arbitration agreement cannot enter the Court for protection under Section 9. This has relevance only to his locus standi as an applicant."

The Hon'ble High Court of Madras in matter of L & T Finance Limited vs. C.T. Ramanathan Infrastructure Pvt. Ltd.5 has placed its reliance upon the above said judgment and has stated, "The Hon'ble Supreme Court in Firm Ashok Traders vs. Gurumukh Das Saluja (A.I.R. 2004 SC 1433) was pleased to lay down that since remedy under section 9 flows from arbitration agreement, a third party who is not a party to the arbitration agreement or arbitration proceedings, cannot seek any relief in this section, nor he can be pleaded as party in any application under section 9 of the Arbitration and Conciliation Act, 1996. Therefore, it is in the rarest of rare case, that the relief against Garnishee would be competent under Sec. 9 of the Arbitration and Conciliation Act and not otherwise." For appreciating the scope of Section 9, and locus standi of the party, the term 'Party' has to be understood, following the definition of the said term in Section 2(1)(h), which states that unless the context otherwise requires 'party' means a party to an arbitration agreement.

CONCLUSION

The qualification, which the person invoking jurisdiction of the Court under Section 9 must possess is of being a 'party' to an Arbitration Agreement; a person not a party to an Arbitration Agreement cannot enter the Court for protection under Section 9. Hence, the Courts should be extra vigilant while granting such interim relief to the parties and ensure that a party who doesn't have a locus standi in light of the Arbitration Agreement in issue, do not derive any benefit and further burden the Courts with frivolous litigation. The Courts shall take extra caution while adjudicating upon the applications filed under Section 9 of the Act and always ensure that the interim orders are issued to facilitate the arbitration and not otherwise.

Footnotes

1. Section 9, Arbitration and Conciliation Act, 1996

2. 2003(2)ArbLR376

3. Dirk India Private Limited vs. Maharashtra State Electricity Generation Company Limited, 2013 (7)BomCR 493

4. Firm Ashok Traders and Ors. vs. Gurumukh Das Saluja and Ors., AIR 2004 SC 1433

5. A. No. 5314 of 2012

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