THE SIERRA CONSTRUCTIONS CASE: ANALYSIS OF JUDICIAL DISPOSAL IN DENYING INTERIM PROTECTION
[Rohan Dembani and Adesh Arora are students at Institute of Law, Nirma University]
Recently, the Karnataka High Court (HC) in Smt. Padma Mahadev v. M/S. Sierra Constructions (Sierra Constructions) has demonstrated an unnoticeable nexus between Sections 9 and 34 of the Arbitration and Conciliation Act, 1996 (the Act). Significant for our analysis, the unsuccessful party challenged a final award under Section 34 and sought interim relief under Section 9 till the Section 34 proceedings get concluded. The Karnataka HC implicitly observed that interim relief can only be granted in aid of a final remedy, which means for interim relief to be granted under Section 9, there needs to be some final remedy available under Section 34. The High Court held that since a final remedy is unavailable under Section 34, the interim application filed by the losing party under Section 9 is non-maintainable.
This stance of the Karnataka HC demonstrates unqualified reluctance to recognise a final remedy under Section 34 which in turn has created an absolute bar against granting interim remedy under Section 9 to unsuccessful parties. This article analyses the reasonings applied in the Sierra Constructions case as they, for the most part, cumulatively account for holding up the judicial trend of not granting interim protection to unsuccessful parties under section 9.
Purpose of Section 9 and its Unseen Dependency on Section 34
An interim remedy under Section 9 aims at preserving a subject-matter of the arbitration till the dispute is disposed of and warrants a realizable claim to parties. It can be sought before or during the arbitral proceedings, or in the post-award period i.e., after the pronouncement of an award but before its enforcement under Section 36 of the Act. In the post-award period, generally, an unsuccessful party challenges a final award under Section 34 and also seeks interim protection under Section 9 till the Section 34 proceedings get completed. This simultaneous filing of applications under the said provisions formulates a relation between them to the effect that an interim remedy under Section 9 cannot be provided unless and until a final remedy is available under Section 34 to a losing party.
In the literal sense, Section 34 allows a losing party to seek quashing of a final award before the courts, based on the grounds mentioned therein. Notably, Section 34 can be interpreted to provide for a final remedy when the power to modify an award is inferred from the said provision. The rationale behind this is that if the courts can modify an award, they may transform the award into a losing party’s favor, thereby granting a final remedy under Section 34. Further, with the possibility of such transformation, the courts must ensure that the subject-matter is protected for unsuccessful parties by providing them the Section 9 remedy.
However, in the Sierra Constructions, the Karnataka HC explicitly held that a modification of an award by the courts cannot be made under Section 34. Thus, in the absence of the scope of such modification, and hence, of a final remedy under the provision, an interim remedy under Section 9 cannot be granted to a losing party.
Denial of the Section 9 Remedy and the Underlying Reasonings
The reasonings elucidated in the Sierra Constructions were: First, the legislature intended modifications, if any, to be made by an arbitral tribunal and not by the courts. Such intention was construed from Section 34(4) which empowers the courts to give the arbitral tribunal an opportunity to modify an award.
Owing to the said interpretation, the Karnataka HC highlighted that even when an award is illegal, it cannot be modified under Section 34. This unqualified restraint to modify an arbitral award is an outcome of a contradictory judicial trend formulated by the Hon’ble SC. Thus, it cannot be ascertained if this view of the Karnataka HC is in confirmation with the judgments of the SC. On numerous occasions, the SC has modified the arbitral award under Section 34 in terms of price, interest date, and awarded amount. Whereas, the SC has also denied modifying the award by declaring that there is no power to modify under section 34. This vaguely flexible approach has led to the contradictory trend of modifying an award which in turn has created confusion among the High Courts. Consequently, the High Courts have interpreted the same judgment of the SC differently as noted below.
Second, while placing reliance on Mcdermott International Inc vs Burn Standard Co. Ltd. (Mcdermott Case), the Karnataka HC held that under Section 34, the court cannot modify a final award but may only set it aside. However, in the Mcdermott Case, the Hon’ble SC not only enumerated a few grounds of interference by the courts but also modified the final award. Thus, the Karnataka HC erroneously interpreted the Mcdermott Case and did not look at the whole context in which, the limited intervention of the courts in arbitration matters was suggested. Conversely, in M/S. Saptarishi Hotels Pvt. Ltd. v. National Institute Of Tourism (Saptarishi Hotels), the Telangana HC referred to, inter alia, the Mcdermott Case to conclude that the courts can modify a final award.
Third, citing Dirk India Private Limited v. Maharashtra State Electricity (Dirk India), it was observed that since Section 9 provides for an application to be filed in the period between the pronouncement of the award and its enforcement, the purpose of the provision is to secure the subject-matter only for the parties who seeks enforcement, thereby not for losing parties.
The Bombay HC in the Dirk India seems to have missed out on the possibility that, after an award is quashed, the losing party could become the winning party and seek the enforcement of the award. After the court quashes an award, the parties reserve the right to repursue the arbitral proceedings under Section 43(4) of the Act. Hence, in the second proceedings, the former losing party might win and seek a claim over the subject-matter. Further, if the subject-matter was not preserved by providing interim protection in the first proceedings, the newly won party will not be able to get a realizable claim leading to failure of the purpose of Section 9.
Moreover, the observations made in the Dirk India vis-à-vis the distinction between winning and losing parties, have been put forth before several High Courts and have received contradictory responses. In the Saptarishi Hotels, the Telangana HC noted that as per Section 2(1)(h) of the Act, the term “party” under Section 9 means any party to an arbitration agreement. Moreover, the fabricated distinction between parties goes against the rule of literal interpretation. Further, for this reason, in Gail (India) Ltd v. Latin Rasayani Private Ltd (GAIL India), the Gujarat HC also disagreed with the observations made in Dirk India and accepted the interim application filed by the losing party under Section 9.
Therefore, the reasonings applied in Sierra Constructions and Dirk India contradict with those of Saptarishi Hotels and GAIL India wherein the respective High Courts have held that modification to an arbitral award can be made under Section 34 and either party can seek interim remedy under Section 9. This demands clarification from the Hon’ble SC in two respects i.e., the power of the courts to modify a final award under Section 34 and the maintainability of a Section 9 application filed by a losing party.
Particularly, in the wake of the 2019 Amendment to Section 17 of the Act, in the post-award period, a party can only seek interim relief from the courts and not from the arbitral tribunal. Thus, at such a stage, the only resort losing parties have is approaching the courts which when denied leaves them remediless.
Possible Implications and Conclusion
One of the possible implications for the courts could be to circumscribe the instances for providing interim protection to losing parties till the Section 34 proceedings get disposed of. For instance, where granting interim protection does not intervene with the rights of successful parties. Also, where an unsuccessful party has made a prima facie case of patent illegality of the award resulting in afresh arbitral proceedings under section 43(4) which might be in favor of the unsuccessful party; therefore, the subject-matter is required to be protected under section 9 to ensure realizable claim to such unsuccessful party.
As for Section 34, the courts should be restrictive about modification rather than being unqualifiedly reluctant. Further, any level of reluctance toward modification should be qualified by the limiting grounds under which the courts can reckon intervention in arbitration matters, such as biasness and miscarriage of justice, etc. Moreover, the court while modifying an award can remind the parties that if they do not want the court to modify, they may resume arbitral proceedings under Section 34(4). This further ensures respect for the principle of party autonomy. In any case, it is not suggested for the courts to be unqualifiedly reluctant about modification under Section 34 and thereby set an absolute bar against granting the Section 9 remedy to unsuccessful parties.
However, whether the Hon’ble SC upholds a qualified reluctance in modifying an award and/or removes the absolute bar against granting section 9 remedy to unsuccessful parties is yet to be seen.