Application for Interim Measures by Non-Signatories to an Arbitration Agreement: A Continuing Enigma?

Introduction

The judgment of the Constitution Bench of the Supreme Court of India in Cox & Kings Ltd. v. SAP India (P) Ltd.¹ (Cox & Kings II) has sought to address one of the key issues flagged by the three-Judge Bench in its reference viz. the right of a non-signatory to an arbitration agreement to seek interim reliefs under Section 9² of the Arbitration and Conciliation Act, 1996 (the Act). Although the intent of the judgment was to affirm this right, the plain text of the findings may potentially prolong the enigma.

Background

Courts have often grappled with the question as to whether interim reliefs can be granted in favour of and against non-signatories to an arbitration agreement under Section 9 of the Act. The earlier judicial trend was that orders of interim protection cannot be passed against a stranger to an arbitration agreement.³ However, in later cases, courts have categorically held that interim measures can indeed be ordered against non-signatories for protection of the subject-matter of the arbitration agreement.⁴

Nevertheless, the converse position remained unaltered. Despite the introduction of various doctrines and principles to extend the arbitration agreement to non-signatories in Indian jurisprudence, their right to seek interim reliefs under Section 9 of the Act remained curtailed.

Whilst referring the question relating to the validity of the Groups of Companies doctrine as expounded in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc.⁵ (Chloro Controls) to the Constitution Bench, a three-Judge Bench of the Supreme Court of India in Cox & Kings Ltd. v. SAP India (P) Ltd.⁶ (Cox & Kings I) noticed the anomaly arising on account of the dicta in Chloro Controls and the 2015 Amendments⁷ to the Act.⁸ Chloro Controls case⁹ identified the foundation for applying the “group of companies” doctrine in the phrase “person claiming through or under” as used in Section 45¹⁰ of the Act. Despite the Law Commission’s recommendation in its 2014 Report¹¹, although Parliament incorporated the same terminology in Section 8¹² of the Act, the definition of “party” in Section 2(1)(h)¹³ of the Act remained unaltered. This variance resulted in the inapplicability of the doctrine to Section 9 of the Act which uses the term “party” instead of the phrase “person claiming through or under”. Consequently, in para 34 of Cox & Kings I case¹⁴, the three-Judge Bench highlighted the anomalous situation where a non-signatory to an arbitration agreement could be referred to arbitration but would not be entitled to seek any relief under Section 9 of the Act.

Findings in Cox & Kings II

The Constitution Bench in Cox & Kings II case¹⁵ was tasked to address this issue. In para 152 of Cox & Kings II case¹⁶, the Constitution Bench acknowledged the concern expressed by the three-Judge Bench and sought to address it by holding that the “group of companies” doctrine finds its basis in the definition of “party” under Section 2(1)(h) read with Section 7¹⁷ of the Act. Through the application of the doctrine, the Constitution Bench has dispensed with the conservative interpretation of the term “party” in Section 9 of the Act, as previously endorsed in its earlier decision in Firm Ashok Traders v. Gurumukh Das Saluja¹⁸, and followed by various High Courts¹⁹. This interpretation previously confined the ability to invoke Section 9 of the Act to only the signatories to the arbitration agreement.

However, despite the expansive definition of “party” propounded in Cox & Kings II case²⁰, the anomaly may potentially continue in view of certain observations made by the Constitution Bench. The Constitution Bench, while leaving the determination of whether a non-signatory is a party to the arbitration agreement to the Arbitral Tribunal, in para 159 has held that:

159. … Once a tribunal comes to the determination that a non-signatory is a party to the arbitration agreement, such non-signatory party can apply for interim measures under Section 9 of the Arbitration Act.

The above finding of the Constitution Bench seems (or is at least capable of being misconstrued) to suggest that the right of a non-signatory to seek interim relief under Section 9 of the Act would be deferred and only accrue once the Arbitral Tribunal holds the non-signatory to be a party to the arbitration agreement.

Analysis

The above observation (or its possible misconstruction) in Cox & Kings II case²¹ does not appear to be in consonance with other findings rendered by the Constitution Bench and the overall scheme of the Act, and in fact, can be misinterpreted to defeat the purpose of Section 9 of the Act.

The overarching theme of the judgment in Cox & Kings II case²² strongly implies that a referral court under Section 8 or Section 11²³ of the Act, when confronted with the question of whether a non-signatory is a party to the arbitration agreement, can make a prima facie determination of the existence of the arbitration agreement and whether the non-signatory is indeed a party to the arbitration agreement. And the final determination on this issue is left to the Arbitral Tribunal. The interim measures under Section 9 aim to preserve the subject-matter of arbitration, preventing one party from detrimentally affecting the outcome of the arbitration. The contours of examination by the referral court under Sections 8 and 11 of the Act have also been applied in the context of a court entertaining a Section 9 application. It has been held that a court under Section 9 of the Act if faced with an objection regarding the existence of the arbitration agreement can make a prima facie determination of the existence of the arbitration agreement.²⁴ This determination is crucial as Section 9 serves to offer interim protection ancillary to arbitration proceedings. Therefore, there does not appear to be any reason for a court under Section 9 of the Act to not have the same powers (as a referral court) to prima facie examine the issue regarding whether the non-signatory is a party to the arbitration agreement and consequently, the maintainability of the application.

The Constitution Bench’s observation also appears to be paradoxical as it overlooks Section 9(3) of the Act, which restricts a court’s jurisdiction to entertain a Section 9 application once an Arbitral Tribunal is constituted. Notably, para 153 in Cox & Kings II case²⁵ assumes the existence or formation of the Arbitral Tribunal responsible for determining the status of a non-signatory. Consequently, if the Arbitral Tribunal is already in place, an application under Section 9 (even after such determination) would not be ordinarily maintainable, limiting the party’s recourse to post-award applications for interim relief.

The above finding in Cox & Kings II case²⁶ also disregards practical considerations vis-à-vis timelines of arbitration proceedings. Arbitral Tribunals would typically take substantial time to decide whether a non-signatory is a party to the arbitration agreement. If the right of a non-signatory to seek interim relief under Section 9 of the Act is deferred and made subject to such determination by the Arbitral Tribunal, it would undermine the purpose of Section 9 of the Act, which envisages grant of urgent interim measures for protection.

Conclusion

Therefore, while the intent of the judgment in Cox & Kings II case²⁷ regarding the right of a non—signatory to seek interim reliefs under Section 9 of the Act is progressive, the ultimate finding and conclusion do not effectively resolve the anomaly pointed out in Cox & Kings I case²⁸.