17 January 2023 Arbitration Law >> Business & Commercial Law   |   Banking Law >> Business & Commercial Law  

A recent court case has shed light on the power of Arbitral Tribunals in India regarding interim measures during arbitration proceedings. The case clarifies the distinction between ordering and enforcing such measures.

Background:

A non-banking financial institution (NBFC) lent money to borrowers with vehicles as collateral. When the borrowers defaulted on the loan, the NBFC approached the Arbitral Tribunal for an interim order. They sought repossession of the secured vehicles with the help of an advocate commissioner.

The Dispute: Can Tribunals Enforce Their Own Orders?

The Arbitral Tribunal granted the interim order allowing repossession. However, the borrowers challenged this decision in the lower court. The key question was whether Arbitral Tribunals have the authority to enforce their own interim measures under the Arbitration and Conciliation Act, 1996 (Act 1996). The court sided with the borrowers, upholding the lower court's decision. The court clarified that while Section 17(1) of the Act empowers Tribunals to order interim measures like repossession, Section 17(2) creates a crucial distinction.

Legal Fiction for Enforcement Purposes Only:

Section 17(2) establishes a legal fiction. It treats the interim order "as if" it were a court order, but solely for enforcement purposes. This allows the order to be enforced under the Code of Civil Procedure (CPC). However, it doesn't grant the Tribunal the power to directly enforce the order like a civil court.

Conclusion:

The court cited past Supreme Court judgments to support its interpretation. These rulings emphasized that the "as if" clause in Section 17(2) has a limited scope. It facilitates enforcement through the CPC, not through the Tribunal acting as a civil court itself. The court dismissed the NBFC's appeal, upholding the lower court's decision. The NBFC was directed to utilize the CPC provisions for enforcing the final award (if any) passed by the Tribunal. This case clarifies the division of responsibility in enforcing interim measures during arbitration. While Arbitral Tribunals can order them, courts play a crucial role in their enforcement through the CPC. This distinction ensures a clear framework for dispute resolution and enforcement of arbitral decisions in India.

  Arbitration and Conciliation Act, 1996    INSOLVENCY AND BANKRUPTCY CODE, 2016    Code of Civil Procedure, 1908