In the case of State Bank of India v. Ericsson (India) (P) Ltd, the apex court ruled that the arbitral tribunals are governed by the terms of the arbitration agreement. Thus, they have jurisdiction only over the parties to such an arbitration agreement. The Court stated that, “Arbitral Tribunal has no jurisdiction to affect the rights and remedies of the third party-secured creditors in the course of determining disputes pending before it.” Following this, the Delhi High Court, in the case of Asset Reconstruction Company India Ltd v. ATS Infrastructure Limited, held that the arbitral tribunal under Section 17 has no power to create security interest on a property over which a charge is created by any third party. This brings us back to the position taken by the Supreme Court in the case of MD, Army Welfare Housing Organization v. Sumangal Services Pvt. Ltd., wherein the apex court had categorically stated that the power of the arbitrator is limited to the agreement, and it cannot issue orders that go beyond the terms of reference or the agreement.
On the other hand, the power of the Court under Section 9 is not just limited to the signatories of the agreement but also can be exercised against third parties as well. The courts have taken a view that if the interim relief sought by a party incidentally affects any third party, then such relief is within the ambit of Section 9, but this power should be used cautiously. Particularly, if the third party is a complete stranger to the proceedings, then such relief should be granted only in extreme circumstances. The Delhi High Court in Blue Coast Infrastructure Development (P) Ltd. v. Blue Coast Hotels Ltd held that the arbitrator is a creature of the contract and it cannot pass interim measures against a non-party to the contract. For an efficacious remedy, it is best suited that such interim measure against third party should be granted under Section 9 of the Act.
From the jurisprudence stated above, it can be concluded that if any interim remedy is sought against a third party, then the courts have the power to pass an efficacious remedy. The courts under Section 9 have the proper jurisdiction to pass such a remedy. Before the issuance of any order in proceedings under Section 9, the courts are empowered to afford the third party, against whom the remedy is sought, an opportunity to represent themselves, thereby upholding the principles of natural justice. For a pro-arbitration environment, powers under Section 17 should be expanded to allow the arbitral tribunal to implead third parties into proceedings for interim measures. Granting such powers would enable the tribunal to provide effective remedies, saving the parties time and the cost of litigation.
Source: Barandbench
