Arbitration-Terminable
agreement and injunction u/s 9 OF A & C Act
The Section 9 of Arbitration
& Conciliation Act 1996 (as amended and up to date) is quite significant
with a view to accord interim protection to a party to the lis and subject to
arbitration dispute. The power of the courts are though quite limited in this
regard and as a short term measure interim protection accorded could be accorded
to aggrieved party, if the case is otherwise made out. The ultimate remedy
however shall be subj3ct to the decision by the Arbitrator u/s 17 of
Arbitration & Conciliation Act 1996 and till the pendency of arbitral
proceedings and till it culminates in publication of award, the interim
protection or order of injunction passed by the Arbitrator may continue. There
is another dimension which shall be emphasized herein i.e whether any
injunction against an agreement already terminated could be sought and effect
of such termination could be relegated back. In other words whether u/s 9 of A
& C Act whether even the termination notice could be set quashed or aside
or whether any order of injunction restraining the respondent from giving
effect to termination notice could be passed? What may follow hence is that
assuming termination to be illegal, whether, the same could be set aside or
restrain order could be passed by a competent court u/s 9 of the A & AC
Act? This aspect shall further be deliberated herein. It may be apt to
reproduce the provision for reference before proceeding further. The same is as
under:
Section 9: Interim measures, etc., by Court.
-
[(1)] [Renumbered as sub-section (1) by Act No. 3 of 2016 dated 31.12.2015.-] 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 authorising 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.
(2 ) Where, before the
commencement of the arbitral 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.
(3) Once the arbitral tribunal has been constituted, the Court
shall not entertain an application under sub-section (1), unless the Court
finds that circumstances exist which may not render the remedy provided under
section 17 efficacious.]
It is observed that often the
situation portrayed in this regard is that any predetermined action in
illegally terminating agreement shall always be amenable to restrain order
under Section 9 of A & C Act and if the action is replete with mala fide, the courts are not powerless
in passing restrain order u/s 9 of A & C Act.
It is no res integra that a determinable contract can always be determined
and no fetter could be attached thereto. Generally speaking no specific performance
could be granted in respect of determinable contract, more so in the
proceedings u/s 9 of A & C Act 1996. In any event, any declaration to the
effect that termination notice was bad in law would be the ultimate relief and
this could be adjudicated only by Arbitral Tribunal. It may further appear that
if the contract is determinable, and terminated by one party, Section 14 (1) of
Specific Relief Act 1963 comes in and the contract cannot be revived or
restored by a Court and specific performance cannot be enforced. Reliance in
this regard are as under:
(i)
Planet M Retail Limited Vs Select
Infrastructure Pvt Ltd [2014 SCC Online Del 4869
(ii)
MIC Electronics Ltd Vs Municipal
Corporation of Delhi (2011) 1 Arb LR 418 (DB)
(iii)
Rajasthan Breweries Ltd Vs The Stroh Brewery
Company 2000(55)DRJ (DB)
(iv)
VF Services (UK)Ltd Vs Union of India
& Ors 2011 X AD (Delhi) 268
(v)
Bharat catering Corporation Vs Indian
Railway catering and Tourism Corporation Ltd (IRCTC) and Ors 164 (2009) DLT 530
The Delhi High Court had to deal
with in RPS Educational Society (Regd) Vs DDA OMP 538/2008 with the
following prayer u/s 9 of A & C Act as under:
“5. It appears that in terms of
license deed, the respondent has authority to cancel the license. Under Section
9 of the Arbitration & Conciliation Act, the Court can pass an interim
order to preserve such subject matter of dispute which it considered was
necessary to be preserved for adjudication of the dispute. However, an order
under section 9 of the A & C Act cannot be passed by the Court directing
specific performance of the contract, the breach of which is alleged by the
petitioner. This Court in Excel
Generators Pvt Ltd Vs IJ M Corporation Berhead OMP No. 241/09( decided on
13th May 2009) had observed that where a contract is terminable
contract and it can be foreclosed, the interim relief under section 9 of the A
& C Act cannot be granted for specific performance of the contract. In all
those cases where monetary damages can compensate the breach of contract, the
Court cannot insist upon the parties that the contract should be specifically
enforced”.
The Division bench of Delhi High
Court in Rajasthan Breweries Ltd Vs The
Stroh Brewery Company 2000(55)DRJ (DB) has held as under:
19. Even in the absence of
specific clause authorizing and enabling either party to terminate the
agreement in the event of happening of the events specified therein, from the
very nature of the agreement, which is a private commercial transaction, the
same could be terminated even without assigning any reason by serving a
reasonable notice. At the moist, in case, ultimately it is found that
termination was bad in law or contrary to the terms of the agreement or of any
understanding between the parties or for any other reason the remedy of the
appellant would be to seek specific performance of the agreement and for that
view of the matter learned single judge was justified in coming to the
conclusion that the appellant had sought for an injunction seeking to
specifically enforce the agreement. Such an injunction is statutorily
prohibited with respect of a contract which is determinable in nature. The
application being under the provision of Section 9 (ii)(e) of the A & C
Act, relief was not granted in view of Section 41 (i)© read with Section 41 of
the Specific relief Act. It was righty held that other clauses of section 9 of
the Act shall not apply to the contract, which is otherwise determinable in
respect of which the prayer is made specifically to enforce the same”.
In Bharat catering Corporation Vs
Indian Railway catering and Tourism Corporation Ltd (IRCTC) and Ors 164
(2009) DLT 530 it is held by the Division bench of Delhi high Court that:
“5…the scope and ambit of
Section 9 is not to restore the contract which has already been terminated. The
contract between the respondent and the petitioner created a commercial
relationship between the parties. The termination of contract is one of the
factors of the contract and as per contract entered into between the parties,
the contract could be terminated by the respondent by respondents for various
reasons given therein. If the petitioner is aggrieved by the act of the
termination of the contract by respondent and considers that the termination
was bad or illegal, the petitioner is at liberty to invoke the arbitration clause
and claim damages if any, suffered by the petitioner. The contract cannot be
restored by the Court under Section 9 nor is it a case where the Court should
interfere. In my view prima facie there is no case made out in favour of the
petitioner. The petitioner’s conduct as reflected from the impugned letter of
termination justifies termination of the contract.”
M/s Sundaram Finance Limited Vs
M/s NEPC India Ltd AIR 1999 SC 565
Firm Ashok Traders vs Gurumukh
Das Saluja AIR 2004 SC 1433.
In
Sundaram Finance (Supra) and Firm Ashok (Supra) it is held that while
preferring Section 9 petition, there should be manifest intention and action
for seeking invocation of arbitration clause and steps taken in this regard.
The
Delhi High Court in a matter captioned as M/s Inter ADS Exhibition Pvt Ltd Vs Busworld
International Cooperative Venootschap Met Beperktee Anasprakelijheid had
to deal with the following prayer us 9 of A & C Act.
(a) The
termination notice dated 15.03.2019 issued against the terms of JVA-II, be
quashed and set aside;
(b) Pass ex-parte interim orders(s) restraining
the Respondent to give effect to the termination notice dated 15.03.2019
The
Delhi High Court in M/s Inter ADS Exhibition Pvt Ltd (Supra) bearing no. OMP(I)
(Comm) 273/2019. In para 40 it is held as under:
“40. Section 41 (e) of Specific
Relief Act 1963 (SRA) further provides that an injunction cannot be granted to
prevent breach of a contract, the performance of which would not be
specifically enforced. In my view the contract between the parties to terminate
the same, on breach of the obligation under the contract, cannot be enforced,
the bar u/s 41(e) prevents this Court from granting any injunction. Thus, the
first relief prayed by the petitioner is declined”.
In
M/s
Inter ADS Exhibition (Supra) para 46 and 47 are worthy of
reference. The same is as under:
46.
A joint venture agreement was terminated by one party to the contract. The
Division Bench relying on the judgment in the case of Rajasthan Breweries Ltd (
Supra) as well as Section 14 of the SRA held that once the lease had been
terminated, passing of mandatory injunction would amount to first creating an
agreement between the parties and then enforcing the same. The Division bench
set aside the judgment of ld single judge whereby the ld single judge had by
way of an interim measure allowed the running of train under the contract in
question on the ground of irreparable loss to the Company and inconvenience to
public. The Division bench held that the interim arrangement was neither
justified nor legally sustainable….”
47. It is clear that in law,
once termination of contact takes effect the operation cannot be stayed by an
interim injunction. Thus, the second relief sought in the present petition
cannot be granted and is hereby rejected.”
The
most recent judgment of Delhi High Court in the context is captioned as GHH
Bumi Mining Services Pvt Ltd Vs Hindustan Zinc Ltd bearing OMP (I)
(Comm) 204/2023 had relied upon ABP
Network Private Ltd Vs Malika Malhotra 2021 SCC Online 4733. The disputes
arose in respect of execution of a project for providing services to ore body
to produce mines at Zwarmala Mine in Udaipur District, Rajasthan. It was an
extremely capital intensive project and required huge investments of creating
resources and creating of infrastructure. The contract was however terminated. The reliance was placed on ABP Network (Supra) to the effect that:
47. A contract which is
determinable, whether by efflux of time or at the option of either of, or both
the parties and whether preceded by the requirement of issuance of notice or
any other pre-termination formality, or not, is, therefore, to be regarded as
“in its nature determinable” within the meaning of Section 14(d) of Specific
relief Act.:
In GHH
Bumi Mining Services (Supra) it is accordingly held as under:
“27.
It was thus held that the remedy, in the event of an illegal termination, would
only be seek compensation for wrongful termination and not to maintain a claim
for specific performance of the agreement was statutorily prohibited, as they
were determinable in nature”
In GHH
Bumi Mining Services (Supra) para
32 shall be of worth reference:
32. The Specific Relief Act 1963 was amended in the year 2018 with the
objective to give impetus to the legal regime governing enforceability of contract
in India. The pre 2018 amendment position was that specific performance of an
agreement was an equitable and discretionary relief but after the 2018
amendment, the words “specific performance of any contract may, in the discretion
of the court may be enforced” in section 10 of the Act have been substituted
with the words “specific performance of a contract shall be enforced subject to
[Section 11(2),14 and 16 of the Act]”. Thus, once the factors mentioned in
Section 11(2),14 and 16 of the Act are met, it is obligatory upon the Courts to
order specific performance of a contract. Fact however, remains that section
41(e) of the Act provides that an injunction can be grated “to prevent the breach of a contract which
would not be specifically enforced”. Furthermore, section 14(d) of the amended
Act provides that a contract which is “in its nature determinable” cannot be
specifically enforced. fact remains that a contract which is “in its nature
determinable” was incapable of specific performance by virtue of the erstwhile
section 14 (1) ( c) continues to remain so even by virtue the present section
14(d)..
Finally
in GHH Bumi Mining Services (Supra)
it is held as under :
34…The question as to whether
the termination was strictly in consonance with the contractual terms or not is
not to be looked into by this Court, in elaborate and exhaustive manner.
Suffice it to say, prima facie, there are braech-notices herein. Even if it was
to be held that the termination was bad in law or contrary to the terms of the
agreement or understanding between the parties, the remedy for the petitioner
would be to seek compensation for the wrongful termination and therefore, in
the garb of interim relief under Section 9 of the said Act, the petitioner cannot
claim for specific performance of the Agreement. Such grant of injunction is
rather expressly proscribed in case of a contract like the present one”.
The Supreme Court has held in
the case captioned as Cotton Corporation Ltd Vs
United Industrial bank Ltd & Ors (1983) 4 SCC 625 that
Section 41 (b) & other provisions of Specific relief act with reference to
grant of interim injunction. It is further held that power to grant temporary
injunction conferred in aid or as auxillary to the final relief that may be
granted. If the final relief cannot be granted in terms of prayer, temporary
relief in the same term can hardly if ever be granted.
On
the basis of the aforesaid discussion what clearly emerges is that the relief
sought u/s 9 of A & C Act 1996 shall relates to the following:
(i)
Extremely
urgent relief;
(ii)
For
a short duration;
(iii)
For
protecting subject matter, preserving it;
(iv)
Securing
money in dispute;
(v)
The
intention to initiate arbitration and steps of initiating arbitration should be
evident;
(vi)
No
relief u/s 9 of A & C Act can be granted for restoring terminated agreement
or restrain order against termination notice shall not fall within the domain
of section 9.
(vii)
No
temporary injunction in respect of the terminable agreement;
(viii) Section 14 (1 (c) (d) and
section 41 of Specific Relief Act shall be applicable;
(ix)
Within
a short span , in case interim relief is granted (or not granted), the Arbitral
tribunal is to be constituted and the Arbitral tribunal shall be competent to
extend or to make absolute interim relief if any or grant interim relief in the
first instance .
(x)
The
gamut of agreement whether termination was bad or claim of damages, if found
payable due to breach shall be the domain of Arbitrator.
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Anil K Khaware
Founder & Senior Associate
Societylawandjustice.com
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