This article has been written by Yash Kapadia, from GLC Mumbai and pursuing the Certificate Course in Advanced Civil Litigation: Practice, Procedure and Drafting from LawSikho.
The Guest Speaker: Advocate Kunal Sabharwal, Managing Partner at IREGAL Advocates & Solicitors with a demonstrated history of working in the law industry. He is skilled in Civil Litigation, Arbitration, Dispute Resolution, Insolvency & Bankruptcy Law, Corporate Law, Joint Ventures and Intellectual Property. Mr. Sabharwal possesses more than a decade of hands-on work experience in the legal field. During his professional stint, he has worked with well-known law firms to name a few- Singhania & Partners LLP, DSK Legal, and Luthra & Luthra Law Offices. Working with the aforesaid firms not only gave abundant opportunities in order to render litigation & advisory services but also gain experience which has helped him in setting up his own practice.
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What is an injunction
Mr. Sabharwal explains that injunctions are the backbone of any litigating lawyer and a case, which is indeed a determinative factor as to how any litigation would go about, whether it will end up in a compromise or as we see in courts, it would give a certain upper hand to one party. Quoting Lord Halsbury’s definition of injunction, “Injunction is a judicial process whereby a party seeks to refrain someone from doing something or seeks a direction from a court to direct a person to perform a certain act.”
Mr. Sabharwal stated that he would cover injunctions under Civil Procedure Code, 1908 (CPC) and Arbitration Act. In the process of explaining the same, he would also discuss the Specific Relief Act (SRA) as a temporary and specifically mandatory injunction is ruled by Section 38 of SRA.
Injunctions under Civil Procedure Code, 1908
To begin with CPC, Section 94 and Section 95 provide that there are rules to be framed whereunder a court can direct injunctive reliefs in a particular case for which rules are prescribed under Order 39.
Order 39 (1) & (2) deal with injunctions, ex parte ad interim and permanent whereas interim measures which may not necessarily be interim injunctions are dealt with Order 38 and specifically Rule 5 where we seek someone to furnish security.
Order 38 Rule 5
Order 38 Rule 5 of the CPC provides interim measures; it requires a person seeking such relief to prove a higher pedestal than a prima facie case, balance of convenience and imminent threat of irretrievable harm or injury (three Parameters). Therefore, if a relief sought under Order 38 Rule 5 is not granted then the decree or entire judicial exercise will be futile. In those circumstances (which are very exceptional), the court directs the opposite party to preserve certain assets or furnish security in lieu thereof. This is to ensure that when a decree is passed it is sufficiently monetized and does not remain a paper decree. This may happen in cases wherein a party against whom the order has been passed has alienated his/ her property. The courts also have to ensure such a relief should not turn an unsecured debt.
Mr. Sabharwal gave the following example to explain the principle of Order 38 Rule 5.
For example: We’re suing for a money decree. The company we’re suing is a wholly owned subsidiary of a foreign entity. That particular company has no assets except one particular asset say X or some receivables under a particular contract. If the litigation goes away and the company is proposed/ any communication that it may have to shut its operations in India then the moment it shuts it is no more in existence thereby making the money decree a nullity. This is the principle of Order 38 Rule 5.
Order 39(1) and (2)
Order 39(1) and (2) primarily deals with ex parte interim relief. The ex parte ad interim relief is something where an injunction instante is needed so that the opposite party is not to be notified. There are certain guidelines that have been framed over a period of time by virtue of various judicial dictums.
One of them, Mr. Sabharwal mentioned in Morgan Stanley v/s Kartick Das1 the Hon’ble Supreme Court framed certain guidelines. The Supreme Court was of the view that usually a court should refrain from giving an ex parte ad interim relief behind the back of the party. If an interim injunction is to be granted let the opposite party be notified. Only in exceptional circumstances, where non grant of injunctions would cause serious injustice, irretrievable harm, only then such action must be taken.
Proviso to Order 39 Rule 3 categorically states that the rule in such scenarios is that the reasons are to be recorded. Apart from the three Parameters which are the standing pillars in case of injunctions, they have to see the conduct of the plaintiff; whether the plaintiff has approached the court within a reasonable period of time or if the plaintiff was lazing around his right and when the threat is on his door, he goes to court to sort relief, the prima facie averments of the plaintiff and if the same are supported by documents placed on record. All these factors collectively, will convince a court to grant/ refuse such a relief.
What happens when an ex parte interim relief is given
There are certain rules and regulations and practice directions which are essential when an ex parte interim relief is given. A party must immediately, after one gets an ex parte relief, inform the opposite party that a certain ex parte injunction has been granted against that opposite party and the party seeking the relief also has to supply a copy of the plaint and other documents on record. A party also has to file a compliance report under an oath, through an affidavit. It is also pertinent to note that there are serious consequences if the above requisites are not adhered to.
Mr. Sabharwal put forth the following example in order to explain the concept of temporary injunction.
For example: X has entered into an Agreement for Sale and has paid a substantial amount of consideration. He now wants to seek specific performance from Y but Y refuses to perform. Now it is eminent and has come to the knowledge of X that Y is trading the same real estate to a third party.
To put forth in simple words, let’s assume there is a Contract. There is a default by the other party. The other party is vested with rights included but not limited to terminate the agreement/ take away certain rights from the contract. In such cases, one can approach the court and seek an injunctive relief.
However, Mr. Sabharwal caveated that in such cases what one must see is whether the contract per se is determinable in nature or not. This is because if a contract per se is determinable in nature then Section 41 of SRA comes into picture and a relief that cannot be granted under SRA, cannot be governed under the CPC as well.
The principle of temporary injunction is covered under Order 39(1) of CPC. Mr. Sabharwal explained the history of the 3 Parameters and how a case needs to be established.
He stated that in the early 1900s the judicial view was that the plaintiff has to establish a prima facie case and that there is a question of dispute which needs a trial. If the same is established, an injunction is to be granted.
Subsequently in 1975, Mr. Sabharwal cited the American Cyanamid Co. v/s Ethicon Ltd.2 case which reviewed the entire history and literature of what is a prima facie case, balance of convenience, irretrievable harm or injury. The House of Lords held that “what needs to be established depends on the facts of every case and one must establish” a prima facie case which demonstrates that there is a serious legal threat to a person’s right, property or contract. The balance of convenience is to be measured to see that if that particular injunction is not granted, can the plaintiff be compensated in lieu of money. Irretrievable harm and injury will also be in the nature to see what the strength of the parties is at the time of entering into the contract. Whether the defendant is capable or not, has many assets and a reputation, that even if the injunction is not granted and suit is decreed against him, the plaintiff will not suffer loss. The decree could be enforced.
After this judgment, various courts in India started following this case to arrive at a conclusion as to whether a particular case falls within the four corners where a plaintiff is to be granted an injunction or not.
Perpetual and Mandatory Injunctions
Perpetual and Mandatory Injunctions’ principles are governed under SRA and not CPC.
When is a perpetual injunction sought?
A perpetual injunction is sought when a decree is given by the court injuncting someone permanently. Nowadays, we see such injunctions more so in IPR suits relating to trademark or copyright infringers or patent disputes. The standards remain the same of the three parameters. There are certain cases where the prima facie case is more than enough to grant the injunction and one does not have to show that an irretrievable harm will be suffered. However, those are cases where a person approaches the court for seeking the enforcement of a negative covenant. A negative covenant is often referred to as a pre-emptive right which is usually vested in terms of the contract.
For Example: In a Shareholders Agreement, we see pre-emptive rights such as the right to first refusal is vested with parties who are shareholders inter-se themselves. Where party A and B have entered into a contract and if party B wants to sells his shares has to first offer them to A. However, B signs a term sheet with a third party C. Now in such case, party A can approach the Court to seek an interim injunction. In this case, party A is not burdened to prove to the court or demonstrate at the very outset that if the injunction is not granted then A would be suffering irretrievable harm or injury. Mr. Sabharwal mentioned the M/S Gujarat Pottling Co.Ltd. & Ors v/s The Coca Cola Co. & Ors3 as a benchmark case on similar lines.
Mandatory Injunction is in the form of what we usually call “where we go to the court to seek status quo ante”.
When is Mandatory Injunction sought?
It is sought not to prevent something but to restore a wrong that has already been committed.
The celebrated case law which provides all the guidelines is Dorab Cawasji Warden v/s Coomi Sorab Warden & Ors4 ,wherein there was a joint dwelling house in Bombay and one of the joint owners sold his undivided share to a third party. The plaintiff thereafter approached the trial court and sorted an injunction/ status quo ante that the third party cannot come to this joint dwelling house and that Section 44 of Transfer of Property Act, 1882 prohibits a stranger from becoming a part/ owner of the joint dwelling house. The trial court gave an interim mandatory injunction but when the opposite party approached the High Court, the stay was vacated. The matter was appealed to the Supreme Court, wherein it was held that such reliefs in interim nature can be given only in exceptional cases where a wrong done, if not remedied at outset of the suit, will cause irretrievable harm to the plaintiff. In a case, where a suit was to go for years the plaintiff will be forced to share a joint dwelling house with a stranger. Therefore, a mandatory injunction was granted.
What should be proved for a mandatory injunction?
For a mandatory injunction to be granted, existence and validity of contract must be established by the party approaching the court.
This is where the difference between specific performance and mandatory injunction comes into play.
In a specific performance, we first go to court and establish a right under an agreement for sale and direct the opposite party to execute a sale deed and then have a consequential order to transfer possession. In the case of mandatory injunction, we have to prove to the court at the threshold that there is an existing Sale Deed, declare the plaintiff an owner and direct to transfer possession/ dispossess the plaintiff.
It was stated by Mr. Sabharwal that mandatory injunction cannot be sought on a stand-alone basis. It can only be a consequential relief and not be a main relief.
For example: Mr. A has a right to buy a property under an agreement with B where payments are made by him, without any delay. He goes to court to seek specific enforcement but cannot seek mandatory injunction plainly. He cannot ask the court to tell Mr. B to transfer his possession to him/her because at that point of time there is no right vested in A for possession being transferred. The rights Mr. A possesses is the right to have the sale deed executed, registered and once it is done then as consequential relief A can assert to the court that now that the registration is done, possession be transferred and B can be injuncted.
Mr. Sabharwal further stated that the three Parameters are nowhere to be defined. Therefore, one needs to cull out their meanings by referring to legal dictionaries and judgments. One has to convince the court that there is a prima facie injury and will be aggravated if the injunction isn’t granted.
What happens if a litigation is ensued but the case does not fall within the contours of Order 39 (1) and (2) or Order 38 Rule 5?Whether in that case can an injunction be granted or the court is devoid of powers to grant such an injunction.
In Manohar Lal Chopra vs Rai Bahadur Rao Raja Seth Hiralal5 it was held by the Court that they are not powerless. The Court, under Section 151 of the CPC has inherent powers to grant interim measures and relief. The factors given under Order 39 (1) and (2) and Order 38 Rule 5 are only the guiding factors. They are not the only conditions because when the code was formulated at that point of time no one speculated what measures may be required or what scenario in the future so as to remedy a wrong. Therefore, powers under Section 151 were vested and that can be exercised to grant certain interim measures and reliefs to a party.
Questions by audience
Could you explain what a John Doe Order is?
John Doe Order has no jurisdictional boundaries. When a John Doe order is passed, a right is declared where unknown people are injuncted from infringing anybody else’s right so that order is not only operational within the jurisdiction of that court but also all over Pan India. Therefore a John Doe Order applies against identified individuals and un-identified individuals.
Whether a Court can take help of the police department in a case for injunction under Section 151 of CPC or not?
When an injunction is to be granted and the court’s orders are breached, there is a debate whether you can file for contempt or you can enforce a specific remedy under Order 39 Rule 2A which also provides for civil prison and damages. Courts are of the view that the remedy under The Contempt of Courts Act, 1971 wouldn’t lie. In fact, the remedy under Order 39 Rule 2A would suffice. With respect to the police, it depends on the facts of every case and help can be taken from the nearby local police station.
Injunctions under Arbitration and Conciliation Act, 1996
Section 9 and Section 17 deal primarily with injunctions under the Arbitration and Conciliation Act, 1996 (Act). Section 9 deals with injunctions granted by the court whereas Section 17 deals with injunction granted by the arbitral tribunal.
Overview of Section 9
Section 9 is formed on the UNCITRAL articles and follows the Model Law.
Section 9 was recently amended in 2015 and post amendment, Sub-Section (3) has been added which states that when one seeks an injunction from court under Section 9, the arbitration must begin within a specified period of 90 days. If the same is not followed then the remedy will be held to be infructuous and the interim measures will be vacated.
What does a person seeking a relief under Section 9 have to prove and show the Court?
One must demonstrate a prima facie, balance of convenience, irretrievable harm and injury. Apart from that, one has to demonstrate that there is a dispute in existence, one has already invoked arbitration or one is invoking arbitration in due course. Sum and substance, one cannot go to the court and seek a Section 9 relief sans a dispute or if they do not have an intention to go in for arbitration.
Whether the provisions of CPC and principles governing injunctions under CPC are also applicable under Section 9 and Section 17 or not?
In Adhunik Steels Ltd. v. Orissa Manganese and Minerals Pvt. Ltd6, the Hon’ble Supreme Court held that Section 19 though states that principles of CPC and Indian Evidence Act, 1872 will not be applicable but that doesn’t mean one should diversify themself from that. While deciding an application under Section 9 of the Act, the court has to keep in mind the principles of CPC. The 3 Parameters have to satisfied and even if a relief is being claimed as an interim measure under akin to Order 38 Rule 5 which is contained in clause (b) of Section 9 then one must also show and satisfy the twin conditions that the opposite party is disposing assets rendering the award a mere paper decree or is taking away the assets beyond the jurisdiction of the court.
However there are divergent views like that in Delta Construction Systems Ltd v/s Narmada Cement Company Ltd.7 case, wherein it was held that the court is not bound by contours of CPC but they cannot alienate or ignore them completely.
Difference between Section 9 of the Act and Order 39 of CPC
With respect to the scope, Order 39 (1) and (2) deal with injunctions. Section 9 deals with interim measures. It includes in its ambit, injunctions and any other relief that would be essential to meet the ends of justice and can very well be granted by the court.
It is also to be noted that any order passed under Section 9 can be challenged under Section 37 of the Act in an appeal.
Which Court should be approached if a Section 9 application is filed?
Court is defined under Section 2 of Part 1 of the Act pertaining to Domestic Arbitration and Part 2 pertaining to International Commercial Arbitration (ICA).
The 2015 amendment inserted sub section (2) of Section 2 of the Act where it is stated that Part 1 shall apply to ICA unless the parties specifically oust the same. By virtue of thereof, provisions of Section 9 would be applicable to any ICA which is seated in India.
The determinative factor is Section 42 which states that the moment one approaches the court for a relief of Section 9 and it is granted, then for any other relief under the ambit of Section 9 or during the course or after the arbitration, that High Court which is approached first, shall be vested with its jurisdiction.
What happens when arbitration is not invoked?
One has to establish a dispute that is in existence, there is a remedy which needs to be addressed and either a notice invoking arbitration is already issued.
In Sundaram Finance v. Abdul Samad & Anr8, the Hon’ble Court held that in case one invokes Section 9 prior to the initiation of arbitration, atleast a notice in terms of Section 21 of the Act must be issued. This position was subsequently mellowed down and today the legal position is that either the notice should be issued or during the pendency of Section 9 application a notice should be issued or atleast a dispute must be in existence.
What is the position qua of Section 9 during the course of arbitration proceedings?
By virtue of 2015 amendments to the Act, Section 9 and Section 17 have become para materia so the reliefs given in Section 9 can also be given in Section 17 by the tribunal. Even then, if that be so, Section 9(3) also states that the moment an arbitrator is appointed the remedy should be under Section 17 and not Section 9.
There is no provision in the Act which states that the moment an arbitral tribunal is formed the remedy under Section 9 cannot lie. There are remedies that can be necessitated. One of them is that under Section 9 the court has power to injunct and grant interim measures and reliefs against third parties. On the contrary, under Section 17, an arbitrator cannot give orders injuncting any third party because an arbitrator per se is a creature of the contract and he cannot travel beyond the contract binding a third party.
What happens when there is a remedy under Section 9 in an ICA?
Under Section 9, there are different opinions as to what would happen when a foreign award is passed. In that case, when a party is seeking enforcement of the award in India can a Section 9 relief be claimed? The Bombay High Court, held that a Section 9 can be claimed and if the jurisdiction is not ousted specifically by parties and the applicability of Part 1 which essentially comes from Section 2(2) of the Act. If the same is not ousted then a foreign award holder can approach the Hon’ble Court within the jurisdiction of which the bank accounts or the assets sought to be enforced are lying.
Who can file a remedy under Section 9?
To file a Section 9, one must necessarily be a party to the contract which contains the arbitration agreement. If a party voluntarily wants to join itself in arbitration and the existing parties do not object to the same, in that case, the third party who is willingly submitting itself to the arbitration cannot take away the fact that they are bound by the arbitration.
Overview of Section 17
Section 17 deals with the interim relief sought from the Arbitral Tribunal. Per Amendment of 2015, Section 17 has been made para materia with Section 9. Arbitrators now have all powers to grant relief as available under Section 9. The enforcement thereof can be taken as a decree as a civil court. Only difference is the arbitrator cannot bind a third party as they can only bind the contractual parties to any injunction or any interim measures. In case a party seeks interim measures against a third party, in that case, the party has to approach the Hon’ble Court.
Difference between Section 9 and Section 17.
When we seek a relief under Section 17, if the arbitrator passes an interim measure even without considering the provisions of CPC, the courts have seen over time that when the principles by which the arbitrator was guided were not absolutely perverse, were not in teeth of the settled guidelines, then it may not strictly apply the principles of CPC ipso facto. However, while passing an order, it should be kept in mind that he should meet the ends of justice and sufficiently consider all documents, pleadings and evidence on record. In his opinion under the prevalent circumstances of the particular fact such a relief ought to be given otherwise the entire arbitral proceeding would be a joke. So the courts in those cases seek little restrain in setting aside such orders unless and until the arbitrator passes an order without giving a chance at all or considering material which was not supplied to the other party to contest or certain considerations beyond the four corners of the contract. In those cases orders can be interfered but not otherwise. Section 17 is also challengeable under Section 37.
What are anti-suit Injunctions?
Anti-suit Injunctions are a form of equitable remedies which are sort. One can refer to the Supreme Court’s decision in Modi Entertainment Network & Anr vs W.S.G.Cricket Pte.9 in which settled guidelines have been formulated. In brief the Hon’ble Court has stated that in what type of cases an anti-suit injunction will be granted. Principally, Section 41(b) of SRA bars any court to injunct any legal remedy filed in a subordinate court.
The question with respect to an anti-suit injunction arises when there is a suit or remedy filed overseas in a foreign jurisdiction. In such cases the court has to respect the principles of comity, consider the exclusivity under the contract, jurisdictional clause. The court also has to measure whether irretrievable injury will be caused. The court should not be solely guided by the forum of principles of non-conveniens. These are the few contours of an anti-suit injunction.
This precisely is the sum and substance of the practical law of injunction under CPC and arbitration.
What will be the situation, if an unregistered MOU language implies that both the parties had an intention to enter into an agreement and now the petitioner seeks a stay under the Act. What happens when the opposite party denies the existence of a contract, can they appoint an arbitrator from their end?
Considering the MOU will be in the form of a sale agreement with respect to a movable property because usually agreement with respect to immovable property is required to be registered. In that case, if it contains an arbitration agreement then they can approach the court and file a Section 9 petition and seek a stay. However, they have to demonstrate the 3 Parameters, their agility i.e. when they got the knowledge that the opposite party is breaching the MOU, they have approached the court instantly. The stay needs to be granted as the dispute is in existence and imminent intention for invocation of the arbitration agreement is to be expressed under such petition.
Under Section 9, one must see if there is an arbitration agreement or no. The moment they merely deny and are able to establish there is no agreement per se which contains an arbitration clause or there is no arbitration agreement coming out of a chain of communications, in that case it would be difficult to obtain relief as one of the primary conditions is the existence of an arbitration agreement. If they fail to do so, they would have to go to the ordinary civil courts exercising remedies under Order 39 (1) and (2) of CPC.
If an interim relief is obtained under Section 9, can a third party implead stating it is an innocent party and is affected by the order?
It certainly can because under Section 9, it is stated that only a party to an agreement can file a Section 9 petition but a relief can be claimed under Section 9 qua third parties who are not parties to the agreement. If such parties are affected they can definitely file an application seeking impleadment.
What are practice directions in CPC?
The mandate contained in Order 39 Rule 3 of CPC, wherein you get an ex parte ad interim relief, you need to inform the opposite party. There are Delhi High Court practice directions that mandate that the opposite party has to be informed immediately and an affidavit in respect thereof has to be filed with the registry informing the court that sufficient compliance of Order 39 Rule 3 has been made. The Supreme Court in the Morgan Stanley case has laid down guidelines that when an ex parte ad interim relief is given then such relief is to be valid only for a period of two weeks.
Can a defendant in an arbitration agreement, for extending the credit facility where certain properties are mortgaged and the said agreements are not registered, resist attachment of the properties?
It needs to be seen whether the mortgage is an equitable mortgage by deposit of title deeds because it is not necessary that mortgage deeds always need to be registered. Equitable mortgage need not be registered as it can be created by deposit of title deeds. If that is so, they certainly can. What can be an arguable defence is that in Garware Wall Ropes Ltd v. Coastal Marine Construction & Engineering Ltd10 judgment, where at times the companies in order to avoid stamp duty, they try to create an equitable mortgage in a neutral city and therefore at the time of enforcement they can use this technical defence. Otherwise, if it is mandatorily agreed that the mortgage is to be registered and if not, then it can be used for collateral purposes but not for attachment.
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