Power of a State Arbitral Tribunal to Grant Interim Orders: The Transformation of a Toothless Tiger

Section 17 of the Arbitration and Conciliation Act, 1996 (“Act”) has been recognized as an important provision for the smooth and efficient working of the arbitral process as it ensures that the Parties seek interim measures from the arbitral tribunal itself rather than approach the Courts[1]. The 2015 amendment to the Act (2015 Amendment”) has been a necessary and significant amendment. Prior to the 2015 Amendment, the power of an arbitrator was a limited one. The arbitral tribunal could not issue any direction which would go beyond the reference or the arbitration agreement[2]. Further, the efficacy of Section 17 of the Act was considered “compromised because of the lack of a suitable statutory mechanism for the enforcement of such interim orders ordered by the arbitral tribunal[3].

Not only did the 2015 Amendment define the scope of relief granted by an arbitral tribunal under Section 17 of the Act, but it also brought the powers of arbitral tribunals to issue interim measures at parity with those of courts. It is also pertinent to note that even though the 2019 amendment to the Act (“2019 Amendment”) has made an amendment to Section 17(1) of the Act, the 2019 Amendment has not altered the scope of the reliefs that an arbitral tribunal can grant under Section 17.

In India, it is common practice when a private company executes a work contract with a State Government or a Public Sector Undertaking (“PSU”), the arbitral tribunal is usually comprised of arbitrators nominated by the Managing Director of that PSU or the arbitral tribunal is governed under a special enactment. Recently, the Supreme Court through the case of the State of Gujarat & Anr. v. Amber Builders[4] (“Amber Builders Case”) clarified the jurisdiction of such arbitral tribunals to make interim orders under Section 17 of the Act.

The Dispute

Amber Builders was awarded a contract by the State of Gujarat for strengthening a section of a national highway under which it was agreed that any dispute would be resolved by an arbitral tribunal formed in accordance with the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 (“Gujarat Act”). The dispute arose between the Parties when the State of Gujarat issued a notice to Amber Builders: (i) to pay a sum of Rs. 1,09,00,092/- for not carrying out repair works on the road in accordance with the contract; and (ii) threatened to withhold the payments from the security deposits and bills of other pending works. Amber Builders challenged this notice by filing a Writ Petition before the High Court of Gujarat on the ground that the State was not competent to withhold the amount or recover the amount from payments made under other contracts until the liability of the contractor was determined and quantified by a Court or forum of competent jurisdiction.

The High Court of Gujarat after hearing both parties held that without quantification or crystallization of the amount sought to be recovered, the employer or the contractor cannot unilaterally recover the said amounts from the ongoing contract work of the same contractor in connection with another contract. It was further directed that the State could not recover the amounts sought to be recovered from the payments due and payable to the contractor in other contracts.

Power Granted Under Section 17

Section 17 of the Act grants either party to an arbitration the right to make an application for an interim order at anytime during the proceedings or after the arbitral award is enforced seeking an interim order for either (i) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement; (ii) securing the amount in dispute in the arbitration; (iii) 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; (iv) interim injunction; (v) the appointment of a receiver; (vi) any other interim measure of protection which may appear to the arbitral tribunal to be just and convenient.

Applicability of the Act in light of the Gujarat Act

Section 2(2) of the Act states that the Act would apply to all arbitrations that take place in India, whereas Section 2(4) of the Act states that apart from Sections 40(1), 41 and 43 of the Act, the Act would apply to all arbitrations, even if they are carried pursuant to any other enactment. Therefore, even if an arbitration is governed in accordance with any special enactment such as the Gujarat Act, the arbitration would still be subject to the provisions of the Act. The only scenario in which the special enactment would prevail over the Act, is if there is any departure from Part I in the special enactment, then the special enactment would prevail over the Act.

The Gujarat Act makes it mandatory to refer all disputes relating to works contracts between the State Government and private parties to the Gujarat Public Works Contract Disputes Arbitration Tribunal (“Gujarat Arbitral Tribunal”) even if there is no arbitration clause in the agreement between the parties[5].

Departure of the Gujarat Act from the Act

Section 13 of the Gujarat Act specifically bars “Civil Courts” from granting injunctions in respect of any action taken or to be taken under the Gujarat Act or from dealing with or deciding any question which the Tribunal is empowered to deal with under the Gujarat Act. Further, Section 21 of the Gujarat Act explicitly states that the Act would not be applicable to any provisions of the Gujarat Act if the provisions of the Act are inconsistent with the Act.

Gujarat Act and the Power to Grant Interim Measures

Under Section 8(3) of the Gujarat Act, when a tribunal admits a reference of a dispute, it is required to pass an award or an interim award with detailed reasons. Further, Section 12 of the Gujarat Act grants the High Court of Gujarat revisional powers where an award or any interim award can be challenged on the grounds set out in accordance with Section 12 of the Gujarat Act. Upon a reading of these provisions of the Gujarat Act it was evident to the Supreme Court that the provisions of the Gujarat Arbitral Tribunal were consistent with the Act with respect to granting a party any interim measure under Section 17 of the Act.

In light of the same, the Supreme Court set aside the decision of the High Court as the appropriate remedy for Amber Builders in the present case was to approach the Gujarat Arbitral Tribunal which would have jurisdiction to decide whether the notice issued by the State of Gujarat was a legal notice and whether the State of Gujarat was, in fact, entitled to recover any amount from them. It was also held that it would be within the jurisdiction of the Gujarat Arbitral Tribunal to decide whether Amber Builders made out a prima facie case for grant of interim relief.

It is important to provide teeth to the interim orders of the arbitral tribunal and this has only been achieved after the 2015 Amendment. In light of the same, the Amber Builders Case assumes significance. The Amber Builders Case makes it clear that all arbitral tribunals regardless of it being formed under a special enactment, would have the power bestowed upon arbitral tribunals through Section 17 of the Act, which can only be taken away from an arbitral tribunal if there is any explicit provision in the special enactment under which that arbitral tribunal is formed.

[1] Law Commission of India, Report No. 246 http://lawcommissionofindia.nic.in/reports/Report246.pdf
[2] M.D. Army Welfare Housing Organisation vs. Sumangal Services Pvt. Ltd. (2004) 9 SCC 619
[3] Law Commission of India, Report No. 246 http://lawcommissionofindia.nic.in/reports/Report246.pdf
[4] (2020) 2 SCC 540
[5] Section 8(1) of the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992