Importance of contractual terms in determining interim relief in arbitration proceedings

The case of SDB Diamond Bourse vs. PSP Project Ltd underscores the importance of contractual terms in determining interim relief in arbitration proceedings and highlights the limitations of judicial discretion under Section 9 of the Arbitration and Conciliation Act, 1996. The Gujarat High Court’s ruling serves as a reminder that courts must exercise caution when interfering in commercial disputes where contractual procedures are already in place for dispute resolution.

The primary issue in this case revolved around whether the Commercial Court’s interim relief order was justified given the contractual provisions governing the final bill payment and defect liability period. The Appellant contended that the court erred by granting interim relief despite the contract explicitly stating that the final bill was only payable after the performance certificate was issued, which, in turn, was contingent on the completion of all necessary rectifications and documentation. On the other hand, the Respondent justified the relief on equitable grounds, arguing that the court was empowered to grant such measures to preserve the arbitral process and prevent prejudice to either party.

The Gujarat High Court’s ruling is significant for several reasons. First, it emphasizes the sanctity of contractual mechanisms, affirming that courts should not override clear contractual provisions unless exceptional circumstances exist. The court reiterated that under Sub-Clause 11.9, the contractor’s obligations are only deemed complete when the performance certificate is issued, meaning that any claims regarding the final bill were premature at the time of seeking interim relief. This reinforces the principle that interim measures should not preempt the contractual dispute resolution process.

Second, the ruling clarifies the judicial discretion under Section 9 of the 1996 Act. While courts have the power to issue interim relief to prevent injustice or maintain the status quo in arbitration, this discretion must be exercised judiciously and in alignment with the contract’s terms. The Commercial Court’s failure to balance the equities between the parties was a crucial factor in the Gujarat High Court’s decision to overturn the order. The ruling thus serves as a caution against excessive judicial intervention in matters where contractual provisions already define the rights and obligations of parties.

Moreover, the court’s observations that the ruling would not prejudice future proceedings indicate judicial restraint and respect for arbitration as the primary dispute resolution mechanism. By setting aside the interim relief without making substantive findings on the parties' claims, the court ensured that the arbitration process remained undisturbed and that contractual terms were upheld.

Overall, this case highlights the critical role of contractual clarity in commercial disputes and the need for courts to respect arbitration agreements. It also reinforces that interim relief should not be granted where the claim lacks a prima facie basis or when the balance of convenience does not favor the applicant. The ruling aligns with India’s pro-arbitration stance and the judiciary’s increasing reluctance to interfere with contractual dispute resolution mechanisms unless absolutely necessary.