Court’s decision
The Bombay High Court, exercising its Ordinary Original Civil Jurisdiction, has dismissed a post–foreign award petition under Section 9 of the Arbitration and Conciliation Act, holding that interim measures cannot be granted against a third party once the enforcement court has conclusively held that the foreign award is not enforceable against such party. The Court ruled that Section 9 relief is not a standalone remedy and cannot be used to indirectly fasten liability on a non-award party by invoking doctrines such as “group of companies” or “lifting the corporate veil” after the third party has been deleted from enforcement proceedings.
Facts
The petitioner, a Chinese company engaged in international trade of air-conditioners, entered into commercial transactions with an Indian company for supply of AC units pursuant to a proforma invoice containing an arbitration clause. A separate Indian retail company, having common promoters and directors with the buyer, issued a guarantee certificate assuring payment up to a specified limit for future orders.
Disputes arose when the petitioner alleged non-payment of invoice amounts. Arbitration proceedings were initiated before the Shanghai International Arbitration Centre. Although the petitioner initially attempted to include the guarantor company, it ultimately proceeded with arbitration only against the buyer. A foreign arbitral award was passed directing the buyer to pay the outstanding dues.
The petitioner thereafter initiated enforcement proceedings in the Bombay High Court against both the award debtor and the guarantor. The Court, by a prior order, directed deletion of the guarantor from the enforcement petition, holding that the award was not made against it and could not be enforced against a non-party. That order attained finality. While enforcement against the award debtor remained pending, the petitioner filed the present Section 9 petition seeking asset disclosure, injunctions, and deposit of the awarded sum against both entities.
Issues
The principal issues before the Court were whether interim measures under Section 9 can be granted against a third party against whom the foreign award is admittedly not enforceable, whether doctrines such as group of companies or lifting of corporate veil can be invoked at the Section 9 stage to secure the awarded amount, and whether a Section 9 court can pass orders inconsistent with findings already recorded in enforcement proceedings under Sections 48 and 49 of the Act.
Petitioner’s arguments
The petitioner argued that Section 9 confers wide powers on courts to secure the “amount in dispute” and that such powers can extend even to third parties having a close nexus with the transaction. Emphasis was placed on the guarantee certificate, overlapping management, shareholding links, and common control between the award debtor and the guarantor. It was contended that the commercial transaction was composite in nature and that the guarantor had actively induced and secured performance of the contract.
The petitioner relied on Delhi High Court precedents permitting Section 9 reliefs against non-signatories and guarantors, as well as the Supreme Court’s exposition of the group of companies doctrine. It was argued that unless interim measures were granted, the petitioner would face irreparable harm due to alleged asset dissipation and weak financial position of the award debtor.
Respondents’ arguments
The respondents opposed the petition contending that the guarantor was not a party to the arbitration agreement, the arbitral proceedings, or the foreign award. They emphasised that the Bombay High Court had already deleted the guarantor from enforcement proceedings, holding that the award could not be enforced against it. That finding, according to the respondents, could not be circumvented by filing a Section 9 petition.
It was argued that Section 9 relief is ancillary to substantive arbitral or enforcement proceedings and cannot be used to impose liability where none exists. The respondents further submitted that the guarantee was an independent contract without an arbitration clause and that the petitioner had consciously chosen not to pursue arbitration or enforcement remedies against the guarantor.
Analysis of the law
The High Court analysed the scope of Section 9 read with Section 2(2) of the Arbitration Act. It reiterated that post-award interim measures are maintainable even in foreign-seated arbitrations, but clarified that such measures must remain in aid of enforceable substantive proceedings. The Court emphasised that Section 9 cannot operate in isolation or be employed to defeat or contradict findings recorded in enforcement proceedings.
While acknowledging that courts may, in appropriate cases, grant interim reliefs against third parties, the Court stressed that this is permissible only where the third party is claiming through or under the award debtor or where underlying liability subsists. Once a competent court has ruled that no such liability exists, Section 9 cannot be invoked to revive or recreate it.
Precedent analysis
The Court distinguished Delhi High Court judgments where Section 9 reliefs were granted against group entities or guarantors, noting that in those cases the issue of enforceability against such parties had not been conclusively rejected in prior proceedings. The Court relied on its own precedents and those of other High Courts holding that interim measures cannot interfere with independent third-party rights or be used as a substitute for execution.
The Court reaffirmed the principle that doctrines like group of companies and veil piercing must be examined in substantive proceedings and cannot be selectively applied in collateral interim applications to obtain contradictory outcomes.
Court’s reasoning
Applying these principles, the Court held that the petitioner was seeking a “second bite at the cherry.” Having failed to establish enforceability of the foreign award against the guarantor in enforcement proceedings, the petitioner could not seek to secure the same amount against that entity through Section 9. Doing so would amount to recording findings inconsistent with a final and binding order passed in enforcement proceedings.
The Court further held that Section 9 is intended to protect the subject matter of arbitration or enforcement, not to implement or execute an award, nor to determine fresh questions of liability. Since the guarantor had been judicially held to be outside the scope of the award, no interim measures—whether disclosure, injunction, or deposit—could be granted against it.
Conclusion
The Section 9 petition was dismissed insofar as it sought reliefs against the guarantor company. The Court held that no interim measures could be granted against a party against whom the foreign award was not enforceable. Reliefs against the award debtor were also declined in the present petition, noting that appropriate remedies were already being pursued in pending enforcement proceedings.
Implications
This judgment provides crucial clarity on the limits of Section 9 in foreign award scenarios. It firmly establishes that interim measures cannot be used to circumvent or undo findings recorded in enforcement proceedings. For award creditors, the ruling underscores the importance of correctly identifying parties at the arbitration stage itself. For guarantors and group entities, it offers protection against being indirectly roped into enforcement through collateral interim applications. The decision reinforces doctrinal discipline by ensuring consistency between interim and substantive arbitral remedies.
Case law references
- Heligo Charters Private Limited v. Aircon Belbars FZE: Held that Section 9 is maintainable post foreign award but remains ancillary to enforceable proceedings.
- Chloro Controls (India) Private Limited v. Severn Trent Water Purification Inc.: Explained group of companies doctrine; distinguished on facts.
- Shoney Sanil v. Coastal Foundations: Held that Section 9 cannot interfere with independent third-party rights; applied to deny relief.
- Girish Mulchand Mehta v. Mahesh Mehta: Reiterated that interim measures against third parties are limited to those claiming through or under a party.
FAQs
Q1. Can Section 9 interim relief be granted against a guarantor not party to the arbitration?
Only if the guarantor’s liability subsists and the award is enforceable against it. Section 9 cannot be used once enforceability has been judicially rejected.
Q2. Can courts use Section 9 to apply the group of companies doctrine after enforcement fails?
No. Such doctrines must be established in substantive proceedings and cannot be invoked to contradict enforcement orders.
Q3. Is Section 9 an independent remedy for execution of foreign awards?
No. Section 9 is an ancillary remedy and cannot be used as a substitute for execution or enforcement.
