CPC not applicable for granting interim reliefs under Arbitration Act

In India, procedural law relating to civil and commercial disputes is governed by the Code of Civil Procedure, 1908 (CPC). The CPC lays down the procedure for administration of civil proceedings including rules for filing of suits, written statements, filing of documents, evidence, permissible reliefs, and enforcement.  

While CPC is applicable to every commercial dispute dealt with by courts, the Arbitration and Conciliation Act, 1996 (Arbitration Act) comes into play when the dispute is to be resolved by way of arbitration. The Arbitration Act is a complete code and governs the procedural rights of parties as well as the conduct of arbitration proceedings. Moreover, it also provides for interim reliefs that may be sought by parties from a Court even before the arbitration has commenced in case of urgency. In such cases, the question arises as to whether the rigors of CPC will be applicable while granting interim reliefs under the Arbitration Act. The Supreme Court in Essar House Pvt. Ltd. v. Arcellor Mittal Nippon Steel India Ltd.i has answered the question in the negative.  

Facts of the case 

Essar House Pvt. Ltd. (Essar House) and Essar Services India Pvt. Ltd. (Essar Services) entered into a Rental Agreement and a Support Services Agreement, respectively (collectively Agreements) with Essar Steel India Ltd. (Essar Steel). Under the said Agreements, Essar Steel deposited certain amounts with Essar House and Essar Services for the purpose of security. Meanwhile, corporate insolvency resolution process was initiated against Essar Steel in which Arcellor Mittal Nippon Steel India Ltd. (Arcellor) emerged as the successful resolution applicant. 

Upon conclusion of Agreements with Essar House and Essar Services, Arcellor demanded that the security deposits be returned. It is to be noted that Essar House and Essar Services were part of the same group of companies as Essar Steel. They contended that on instructions of Essar Steel, they had discharged the loans of Essar Steel towards its creditors and had adjusted the security deposit payable to Essar Steel for this purpose. Therefore, no amount was due from Essar House and Essar Services to Arcellor. 

Arcellor approached the Bombay High Court seeking interim relief under the Arbitration Act for deposit of security amount by Essar House and Essar Services with the Court. A single judge bench of the Bombay High Court allowed the petition in favor of Arcellor and directed Essar House and Essar Services to deposit Rs.35,51,89,875/- with the Prothonotary and Senior Master of the Bombay High Court. Essar House and Essar Services filed an appeal against the order, but the division bench of the Bombay High Court dismissed the appeal. Thereafter, Essar House and Essar Services approached the Supreme Court challenging the order passed by the division bench of the Bombay High Court. 

Ruling of the Supreme Court 

Before the Supreme Court, Essar House and Essar Services contended that the Court would have to satisfy itself that the conditions laid down in the CPC have been fulfilled while granting interim reliefs under the Arbitration Act. Under the CPCii, a court may direct a party to furnish security if such party was about to remove or dispose of whole or part of its property with the intent to obstruct or delay the execution of the final order. It was contended that the Bombay High Court erred in directing Essar House and Essar Services to furnish security without considering the requisites of CPC for grant of interim relief. 

The issue before the Supreme Court was whether the provisions of CPC will be strictly applicable while seeking interim reliefs under the Arbitration Act. While the Supreme Court acknowledged that the Court cannot ignore the basic principles of CPC while granting interim reliefs, it also pointed out that the Court’s powers for deciding an application under Arbitration Act cannot be curtailed by rigors of every procedural provision in the CPC. Moreover, the technicalities of CPC cannot prevent the Court from securing the ends of justice. The Supreme Court held that the powers under the Arbitration Act are wider than the powers under CPC for grant of interim reliefs. Thus, it was held that courts can grant interim relief of security if there is a strong possibility of diminution of assets, despite there being no proof of actual attempts to remove or dispose of the property.  

The Supreme Court observed that for the purposes of granting interim reliefs under the Arbitration Act, the two conditions required to be satisfied are: (i) existence of a prima facie case and (ii) balance of convenience in favor of interim relief being granted. Once these two conditions are satisfied, interim relief must be granted. Accordingly, the Supreme Court dismissed the appeal and upheld the order of the Bombay High Court directing deposit of security amount. 

Our thoughts 

Section 9 of the Arbitration Act provides that a party can, before, during or after the commencement of arbitration proceedings but before the arbitral award attains finality, approach the Court for interim reliefs. Such relief can be granted for limited purposes as laid down under the Arbitration Act including for securing the amount in dispute in arbitration. On the other hand, for the purpose of directions for furnishing security, CPC provides a higher threshold. It has been recognized by Indian Courts in a catena of judgmentsiii that the powers of a Court for granting interim measures are wider under the Arbitration Act and such powers cannot be curtailed by mere technicalities of CPC. Although the exercise of powers for granting interim relief cannot be carried out ignoring the basic principles of procedural law contained in CPC, the rigors of every procedural provision in the CPC cannot be put into place to defeat the grant of relief which would sub-serve the paramount interests of justice. A balance is required to be drawn between the two based on the facts of each case. The judgment of the Supreme Court in Essar House Pvt. Ltd. v. Arcellor Mittal Nippon Steel India Ltd. is a pro-arbitration approach adopted by the Indian judiciary. The decision of the Supreme Court will further instill confidence in parties desiring to opt for the same as a dispute resolution mechanism. 

Authors: Renjith Nair, Altamash Qureshi and Richa Phulwani 

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