Annual Arbitration Review- 2017,  Arbitration

Alka Chandewar v. Shamshul Ishrar Khan: Applicability of Section 27(5) of the Arbitration and Conciliation Act, 1996

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This case clarified the position of law with regard to Section 27(5) of the Arbitration and Conciliation Act, 1996 (Act) insofar as it allows the arbitral tribunal to make a representation to court for contempt if interim orders are violated by any of the parties to arbitral proceedings.

FACTS: On an application filed by the Appellant, an interim order under Section 17 of the Act, dated October 7, 2010 directed the Respondent not to sell any more flats until the tribunal had granted leave to do so. The same was allegedly not complied with by the Respondent, who transferred five flats during the pendency of the proceedings. On May 5 2014 the arbitral tribunal referred the matter of contempt to the Bombay High Court. Interpreting Section 27(5) of the Act, the Bombay High Court held that the tribunal could not approach the court to take necessary actions in cases of contempt of interim orders. It allowed court interference only when it related to matters of evidence collection. The same was appealed to the apex court.

ISSUE/S: Whether non-compliance with an arbitral order falls within the ambit of Section 27(5) of the Act?

DECISION AND ANALYSIS: The court held that Section 27(5) of the Act empowered the court to look into a matter of non-compliance or misconduct of an order passed by an arbitral tribunal by virtue of the Contempt of Court Act, 1971. The Supreme Court had set aside the judgment of the Bombay HC since it had taken a narrow approach while interpreting the section. They had differed from the order of the Delhi High Court in Sri Krishnan v. Anand 2009 3 Arb LR 447 (Del), which had allowed a representation under Section 27(5) for contempt proceedings could be made if a Section 17 order of the tribunal was not complied with. It is noteworthy that under Section 17(2) in the post-amendment law, the procedure of a tribunal approaching the higher courts in each case of contempt is not a requirement and an arbitral order is now treated as equivalent of a court order. The apex court clarified that those who do not follow the court process come under the category of “any other default” under Section 27(5). It thus made it clear that this section did not only relate to failure to attend in accordance with the arbitral process. Thus, persons guilty of any contempt would allow the court to decide such matters.  The judgment read, “the entire object of providing that a party may approach the arbitral tribunal instead of the court for interim reliefs would be stultified if interim orders passed by such tribunals are toothless…”. The court observed that through M/s Ambalal Sarabhai Enterprises vs. M/s Amrit Lal & Co. & Anr. (2001) 8 SCC 397, parties either applied for interim relief either to the court u/s 9 or the tribunal u/s 17. It was thus held that the same would become futile if the orders of an arbitral tribunal would be unenforceable, parties would go to court as the only option and make the entirety of Section 17 completely useless. Allowing the appeal, the court adopted a literal approach to interpret Section 27(5) not beyond its purport and within its plain meaning, to cases beyond that of evidence collection. Remanding the matter and instructing the court to decide it on facts, it was observed that on the referral from an arbitral tribunal, the court could decide the matter under the Contempt of Court Act, 1971 or Order 39 Rule 2A of the Civil Procedure Code, 1908.

CONCLUSION: An express provision under Section 27(5) of the Act allows court intervention in contempt matters. This helps aggrieved parties who want to appeal the order of an arbitral tribunal before the 2015 amendments. This also gives teeth to an order passed by the arbitral tribunal by giving it the same weight as a regular court order. This judgment gives clarity to the kind of court reliefs that can be granted and gives the court the power to punish for contempt in case of any violation of an order passed by an arbitral tribunal.

This case comment is a part of our Annual Arbitration Review of the year 2017.

CITATION/ORDER: (2017) 16 SCC 119

COURT: SUPREME COURT OF INDIA

CORAM: JUSTICE ROHINTON FALI NARIMAN and JUSTICE SANJAY KISHAN KAUL

DATE: 06.07.2017

[This article has been contributed by Dushayant Kishan Kaul, 4th year law student of Jindal Global Law School]

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