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‘Attachment of Property’ under Section 9 of the Arbitration & Conciliation Act, 1996: Whether Court can oversight the Prerequisites under Order 38 Rule 5 of the CPC

Article by Sahil Kumar Purvey

‘The Arbitration and Conciliation Act, 1996’ (the Act/the 1996 Act), is the cardinal law on arbitration and aimed to expeditiously dissolve disputes following the principles of party autonomy and minimum judicial interference[1]. Once the arbitral tribunal commences, a party can seek interim relief from the arbitral tribunal under Section 17 of the Act to ensure the prospective arbitral claims of a party are protected in the form of security, guarantees or any other measures. However, in certain cases, the paucity of time makes remedy under Section 17 of the Act inefficacious. Therefore, in urgent matters, the Act allows a party to seek similar interim relief under Section 9 of the Act from the court prior to commencement or during the arbitration proceeding, or at any time after the passing of the award but before it is enforced under Section 36 of the Act.

The 2015 Amendment Act mandates that once the arbitral tribunal has been constituted, the Court shall not entertain an application under Section 9 of the Act. However, the role of Judiciary in granting interim relief under Section 9 of the Act becomes significant prior to commencement of the arbitral proceedings or even after the constitution of arbitral tribunal if the circumstances exists which render the remedy provided under Section 17 inefficacious[2].

One of the remedy under Section 9 is securing the amount in dispute in the arbitration by attaching the property[3]. However, the Act does not laid down criteria for granting relief of attachment of property under Section 9. Therefore, Court relies on CPC while hearing the application under Section 9. Order 38 Rule 5 of the CPC provides the procedure to be followed for attachment of defendant/respondent’ property prior to completion of trial. The Supreme Court had led down three prerequisites for attachment of property under the Order 38 Rule 5 of the CPC[4]. First, the court should be satisfied that the plaintiff has a prima facie case and balance of convenience favors him. Second, Plaintiff has a bonafide case. Third, the plaintiff must also establish that the defendant is attempting to remove or dispose of his assets with the intention of defeating the decree that may be passed. However, Pro-arbitration approach advocates that the aforesaid three requisites is a high threshold for the relief of attachment of property and the Court while hearing the application under Section 9 of the Act should not follow rigors under Order 38 Rule 5 of the CPC. The same has been a judicial quandary. Therefore, this article analyses whether the high bar of Order 38 Rule 5 of the CPC could be waived in the case of Section 9 application or not.

View of High Courts

Various High Courts have given different findings on the question of extent to which the provisions of the CPC would apply to proceedings under Section 9 of the Act. Approach of several high courts could be divided into two parts as follows;

  1. Inclusive Approach[5]: This approach advocates that proceedings under Section 9 of the Act to be in line with the procedures under Order 38 Rule 5 of the CPC. Therefore, the principles of Order 38 Rule 5 must be followed[6] while granting interim relief under Section 9 of the Act despite CPC is not binding on the arbitral proceeding[7].
  2. Exclusive Approach[8]: This approach advocates that the technicalities of Order 38 Rule 5 of the CPC will be merely a guideline[9] and need not be mandatorily adhered while granting relief under Section 9 of the Act.

View of Supreme Courts

The Supreme Court in Arvind Constructions v. Kalinga Mining Corporation[10] acknowledge that several High court have diverse opinion on the issue of extent to which the provisions of the CPC would apply to proceedings under Section 9 of the Act. However, Court therein did not settle the issue and left this to be examined in an appropriate case.

On September 14, 2022, in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited[11], (Essar), a Division Bench of the Apex Court settled the quandary by observing that technicalities under Order 38 Rule 5 of the CPC will not be applicable while granting interim relief of “attachment before judgment” under Section 9 of the Act. The Apex Court observed that the power of the Court while granting interim relief under Section 9 of the Act is wider than the powers under the provisions of the CPC[12] and procedural technicalities of Order 38 Rule 5 of CPC cannot constrain the Court. However, basic principles of procedural law ought not to be ignored. Therefore, if the Applicant establishes a prima facie case and the balance of convenience favours him then court should grant interim relief under Section 9 of the Act. Defendant does not need to establish actual threat to the property required to be attached and a possibility of asset diminution would be sufficient.

On September 30, 2022, in Sanghi Industries Ltd. v. Ravin Cables Ltd.,[13] (Sanghi), another Division bench of the Supreme Court observed that the Court while granting interim relief of “attachment before judgment” under Section 9 of the Act must follow all the requisites of the Order 38 Rule 5 of the CPC. Before passing such relief the Court must satisfy itself that the conduct of defendant would defeat the award that may be passed in the arbitral proceeding.

Way forward

Both the judgments of Apex Court are conflicting. Though, Sanghi was later in time, but cannot be considered as precedent because both the judgment are of a division bench. Therefore, the contrary opinion of the Apex Court causing diverse opinion from different High Courts on the issue that whether the Court while hearing the application under Section 9 of the Act for “attachment before judgment” should follow all the prerequisites under Order 38 Rule 5 of the CPC or not.

On 06.10.2023, the Calcutta High Court in Prathyusha AMR JV vs. Orissa Steel Expressway Private Limited.[14], while following Essar, held that the Court in Section 9 proceeding, should does not compel a party to satisfy the rigours of Order 38 Rule 5 and ask him to substantiate the apprehension on which an order for security is prayed for. Otherwise, the same would result in nullifying the object of Section 9. Whereas on 10.11.2023, the Delhi High Court in Skypower Solar India Private vs. Sterling and Wilson[15], while following Sanghi, held that the Court while exercising powers under Section 9 of the A&C Act cannot disregard of the provisions of the CPC or their underlying principles. Therefore, the 3-judge bench of the Supreme Court have to settle the issue.

The 1996 Act does not contain any provision, which entirely excludes the applicability of the CPC to Section 9 of the Act. Certain provisions of the Act clearly provides where the CPC will be applicable[16] or where it would be excluded[17]. Therefore, even if the rigors of general laws of the CPC is not applicable on the 1996 Act[18], the Court should adhere to the basic principles of CPC while hearing the application under Section 9 of the Act.  An interim order granting “attachment before judgment” is a more stringent interim order than other interim relief against defendant. Therefore, threshold of granting such relief should be higher. The Court should follow a middle path of both the extremes i.e. Order 38 Rule 5 of the CPC need not to be followed at all and all rigors of Order 38 Rule 5 of the CPC must be satisfied. Therefore, as held in Essar, the Plaintiff praying for interim relief must have to establish prima facie case, balance of convenience in his favour and demonstrate, and not simply aver, that the conduct of defendant will defeat the purpose of arbitral proceeding. Plaintiff need not establish the actual threat by defendant to the property or the intent of defendant to defeat the purpose of arbitral proceeding. Therefore, the threshold for the relief of attachment of property would be lower than the rigors of Order 38 Rule 5 of the CPC. This approach would be pro-arbitration while balancing the interest of both the parties and will not lead to unnecessary attachment of property of the defendant.

 

[1] Uttarakhand Purv Sainik Kalyan Nigam Ltd. vs. Northern Coal Field Ltd. (2020) 2 SCC 455
[2] The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 9(3); and Arcelor Mittal Nippon Steel India Ltd. Vs. Essar Bulk Terminal Ltd., (2022) 1 SCC            712
[3] The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 9(1)(ii)(b)
[4] Raman Tech v. Solanki Traders(2008) 2 SCC 302
[5] Om Sakthi Renergies Limited vs Megatech Control Limited, MANU/TN/8146/2006; and Anantji Gas Service v. Indian Oil Corporation, MANU/DE/2344/2014
[6] ITI v. Siemens Public Communication, AIR 2002 SC 2308
[7] The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 19(2)
[8] National Shipping Company of Saudi Arabia v. Sentrans Industries Ltd, AIR 2004 Bom 136; and Delta Construction Systems Ltd, Hyderabad v. Narmada Cement Company Ltd, Mumbai, (2002) 2 BOMLR 225
[9] Steel Authority of India v. AMCI Pty Ltd, MANU/DE/3413/2011; and Ajay Singh v. Kal Airways Private Limited, MANU/DE/1820/2017
[10] Arvind Constructions v. Kalinga Mining Corporation, AIR 2007 SC 2144
[11] Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited2022 SCC Online SC 1219
[12] Jagdish Ahuja & Anr v. Cupino Limited, MANU / MH / 0925 / 2020; and Valentine Maritime Ltd v. Kreuz Subsea Pte Ltd & Anr., MANU/MH/0062/2021
[13] Sanghi Industries Ltd. v. Ravin Cables Ltd., 2022 SCC OnLine SC 1329,
[14] Prathyusha AMR JV vs. Orissa Steel Expressway Private Limited, MANU/WB/2128/2023
[15] Skypower Solar India Private vs. Sterling and Wilson, 2020 SCC OnLine Del 7240
[16] The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 36
[17] The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), Section 45
[18] Union of India v. Popular Construction Co., (2001) 8 SCC 470
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