The Arbitration and Conciliation Act, 1996, shaped significantly by the UNCITRAL Model Law on International Commercial Arbitration, seeks to curtail unnecessary court involvement in arbitration proceedings. In Lava International Ltd vs Mintellectuals LLP, the Delhi High Court reaffirmed the importance of limited judicial intervention regarding interim orders issued by arbitral tribunals under Section 17 of the Act.

The decision arose from an appeal under Section 37 of the Act against an interim order, wherein the tribunal had, among other things, reduced the quantum of security originally granted in respect of royalty payments due under the contract, and directed for a robust form of security, such as property or bank guarantee.

The single-judge bench scrutinised the scope of appellate jurisdiction under Section 37(2)(b) of the Act and emphasised that court interference should be minimal when an appeal is made against an interim order issued by an arbitral tribunal. A discretionary interim order from an arbitral tribunal should only be overturned if it is found to be perverse or manifestly arbitrary.

As such, the court will only step in to interfere with the order of the tribunal where the order suffers from patent illegality or perversity.

Patent illegality

The term “patent illegality” is understood in the context of public policy of the country. The Supreme Court, in an earlier decision in Ssangyong Engineering & Construction Co. Ltd vs National Highways Authority of India, interpreted “patent illegality” and observed that an arbitral award can be set aside on this ground if it is either contrary to the fundamental policy of Indian law or is against basic notions of justice or morality. This means that if an award is based on no evidence or ignores crucial evidence, it can be deemed “perverse” and is set aside for being patently illegal.

The single-judge bench further examined the application of Orders XXXVIII and XXXIX of the Code of Civil Procedure, 1908 while granting interim relief. The courts have broad powers to grant interim measures of protection under Section 9 of the Act.

To ensure that such broad powers are not exercised arbitrarily, the courts are guided by established principles which the civil courts routinely employ for granting interim relief, particularly under Order XXXIX Rules 1 and 2 and Order XXXVIII Rule 5, CPC.

The single-judge bench observed that the court while exercising powers under Section 9 of the Act is not strictly bound by the text of these provisions but have to adhere to their underlying principles, which act as a safeguard against any damage to the suit property during the pendency of the suit by requiring the furnishing of security.

The single-judge bench reiterated that interim orders for furnishing security must be passed where it prima facie appears that without such security, the claimant may not be able to benefit from a favourable award. Accordingly, the interim orders had been passed by the tribunal after a detailed examination of the evidence to determine the quantum of security.

Furthermore, the tribunal ordered for a robust security to be provided on the basis that there had been a diminution in the liquidity of the appellant and a cheque may not, in these circumstances, continue to provide adequate security. The single-judge bench concluded that the interim order passed by the arbitral tribunal was well-reasoned and was neither perverse nor arbitrary. Therefore, it did not warrant interference by the court under Section 37.

Through this interpretation, the bench has given primacy to the overarching principles of party autonomy and minimal curial intervention in arbitration matters, bolstering the integrity of the arbitration process. It has reinforced the principle that an unfettered scope of intervention in the arbitral process would undermine the spirit and purpose of the Act.

Bindra is Partner, and Lakhina is Associate, Cyril Amarchand Mangaldas

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