Arbitration Law Bars Interim Relief Against Third Party Once Award Is Unenforceable: Bombay High Court

The Bombay High Court has dismissed a petition filed by Ningbo Aux Imp & Exp Co. Ltd. seeking interim relief against Vijay Sales, holding that such relief cannot be granted once a foreign arbitral award has already been found unenforceable against that party.

Justice Sandeep V. Marne noted that the foreign arbitral award in the case was passed only against Amstrad Consumer India Pvt. Ltd. Vijay Sales was not a party to the arbitration and had already been deleted from the award enforcement proceedings by an earlier court order that had attained finality.

In that background, the court said interim relief under Section 9 of the Arbitration Act cannot be used to revive or recreate liability.

“Once it is held in enforcement proceedings that there is no underlying liability against a third-party, Section 9 route cannot be adopted to fasten the very same liability against that party in an indirect manner. In the present case, it is held by the enforcement court that Vijay Sales has no liability to pay to the Petitioner under the award and enforcement proceedings are dismissed against it,” the court observed.

Ningbo, a Chinese trading company, had supplied air-conditioner units to Amstrad under a proforma invoice dated October 23, 2020, which contained an arbitration clause. Vijay Sales had issued a separate guarantee for Amstrad's future payment obligations up to USD 10 million.

The guarantee did not contain an arbitration clause. When payment disputes emerged, Ningbo initially named both Amstrad and Vijay Sales in arbitration proceedings before the Shanghai International Arbitration Centre. Vijay Sales was later dropped from the arbitration, and the foreign arbitral award was eventually passed only against Amstrad.

When Ningbo moved the Bombay High Court to enforce the award in India, Vijay Sales was deleted from the enforcement proceedings on the ground that no award existed against it. Despite this, Ningbo later filed a fresh petition seeking interim reliefs, including deposit of the awarded amount and asset disclosures, against both Amstrad and Vijay Sales.

Ningbo argued that Vijay Sales could still be subjected to interim measures because of its close business links with Amstrad and the guarantee it had issued.

Rejecting the plea, the court said interim measures against third parties are available only in limited situations.

“Interim measures can be made only when it is found that the third party is claiming through or under the party to arbitration and in case of post-award. However, while roping in third parties in exercise of powers under Section 9, the Courts needs to be mindful of the fact that interim measures can be made only when it is found that the third party is claiming through or under the part to arbitration and in case of postaward Petition, through or under the award debtor. Ordinarily, interim measures cannot be made against a third party who claims independent right in respect of subject matter of arbitration,” the court said.

It added that Vijay Sales' guarantee created an independent contractual arrangement and did not make it a party claiming through Amstrad.

The court also cautioned against using Section 9 as a substitute for execution.

“Direction for deposit of awarded amount under Section 9 of the Arbitration Act cannot be resorted to as a shortcut method to execution,” it said, before dismissing the petition.

For Petitioner: Advocate Kshama Loya and Sankriti Sharma, Link Legal, for Ningbo Aux Imp & Exp Co. Ltd.

For Respondents:  Advocate Karl Tamboly, Reehan Ajmerwala, Eshika Chandan, Siddharth Punj, Lodha & Lodha Advocates, for Amstrad Consumer India Pvt. Ltd. and Vijay Sales (India) Pvt. Ltd.