The Conundrum of Emergency Arbitration in India
Written by Nakul Chengappa
Research Associate at Law & Order (Nov-Dec 2021)
Fifth Year, School of Law, Christ (Deemed to be University)
Disclaimer: Please note that the views expressed below represent the opinions of the article's author. The following does not necessarily represent the views of Law & Order.
Introduction:
The increasing discontent with the present legal system has concreted the foundation for establishing the Alternative Dispute Resolution Mechanism, creating arbitration as one of the most effective approaches for resolving disputes between parties. The primary objectives of the Arbitration and Conciliation Act of 1996 ("Act") are fast-tracked case resolution, party autonomy, the efficiency of doing business, and marginal judicial intervention in the arbitral process.
Emergency arbitration is a relatively new concept of arbitration that enables stakeholders to seek injunctive relief in cases in which the formation of an arbitral tribunal is not plausible. An emergency arbitral tribunal, similar to an ad-hoc tribunal, is formed for a specific purpose and then dismantled once that goal is accomplished. In matters explicitly referred to the ad-hoc tribunal, the emergency arbitrator has the authority to issue orders that preserve the status quo, conserve securities, corroboration, or provide any other conservatory relief.
To achieve a remedy in an emergency arbitration, the stakeholders should first illustrate that they have a "rational potential to succeed on merits" and are likely to incur a loss that cannot be reimbursed through damages.
This order of the arbitrator shall be in effect until an arbitral tribunal is established as per the memorandum of understanding of the arbitration. Evolution of Emergency Arbitration on a Global Forum: In 1990, the International Chamber of Commerce established rules for a pre-arbitral referee methodology that provided interim reliefs, giving birth to Emergency Arbitration. Not all contracts try to emulate the expected course. Since problems arise from time to time and require immediate attention, the International Chamber of Commerce set up the pre-arbitral procedure to serve as a convenient alternative, independent of a court or arbitral tribunal, to provide stakeholders with a quick option for an empowered person to make an order on an emergent issue. Regarding the substance of a dispute, the pre-arbitral procedure is not an alternative for arbitration or state courts. Instead, it's merely a means of obtaining a rapidly required temporary relief. Unsurprisingly, these rules did not accomplish the primary objective for which it was implemented.
The International Centre for Dispute Resolution, which is an international division of the American Arbitration Association, issued rules for emergency arbitration in 1999, mandating parties to consent to the rules' application.
It amended the regulations in 2006, culminating in the automatic application of emergency provisions to arbitral proceedings between the stakeholders.
Furthermore, the United Nations Commission on International Trade Law ("UNCITRAL") Model Law's inclusion of interim measures provisions empowered the Arbitral Tribunal to grant interim reliefs. Several other predominant arbitral institutions, such as the Singapore International Arbitration Centre (SIAC) and the London Court of Arbitration, have incorporated the Emergency Arbitration's policies and procedures. In India, the Delhi International Arbitration Centre and the Mumbai Centre for International Arbitration adopted the idea of the prime global arbitration centers by including provisions for emergency arbitration. Section 14 of The New Delhi International Arbitration Centre Act has prescribed functions of the center under the provision. The pivotal functions are facilitating the conduct for international and domestic arbitration with professionalism and transparency. The lack of necessary legislative framework for the recognition and enforcement of emergency awards, on the other hand, is a significant hindrance for emergency arbitration in India. Emergency Arbitration in re the Indian Framework: Only a few cases involving the enforcement of emergency arbitration awards have been heard in Indian courts. In all of these cases, the courts were never offered the option to determine the legal status of emergency arbitration in India. In all of these instances, the primary issue was whether an application under Section 9 of the Act to obtain court-ordered interim relief on matters that had already been referred to an emergency arbitrator could be maintained. The Bombay High Court granted interim relief under Section 9 in HSBC PI Holdings (Mauritius) Ltd. v. Avitel Post Studioz Ltd. & Ors.[1] on the grounds that this section applies to a foreign-seated arbitration. The court upheld similar reliefs to the emergency arbitrator, although its decision was distinct from the order. In Raffles Design International v. Educomp Professional Education[2], the Delhi High Court permitted the applicant to file a Section 9 petition in a Singapore seated arbitration. However, the same issue had already been brought before the Emergency Arbitrator.
The court emphasized the significance of party autonomy in arbitration, stating that the parties voluntarily consented to be governed by the SIAC rules that do not restrict India's judicial authority to hear an application under Section 9, enabling the stakeholder to approach it.
The court noted that freely deciding an international seat would not necessarily prevent the implementation of Section 9 under Part I of the Act, either expressly or by necessary implication. Furthermore, in Ashwani Minda & Anr. v. U-Shin Ltd. & Anr[3], the court rejected the contention under the same section because the parties chose to be governed by the Japan Commercial Arbitration Association rules, which confined the courts' interference in matters dealt with by the emergency arbitration, thereby prohibiting the application of Part I. As a byproduct, all of these cases were merely a backdoor way for the parties seeking interim relief to have the emergency awards enforced. In Amazon.com NV Investment v. Future Retail Limited & Ors[4]., the Hon'ble Supreme Court of India cleared the air around emergency arbitration in India in the long-running dispute between Amazon and Future Retail Limited ("FRL"). Based on certain privileges granted to FCPL in FRL, Amazon agreed to invest INR 1431 crores in Future Coupons Private Limited ("FCPL"). Eventually, the investment in FCPL had to flow to FRL, and under the provisions of the contract, FRL could not sell its retail assets without Amazon's approval. In contravention of the agreement, FCPL then entered into a transaction with Reliance Industries to sell its retail assets. As a direct consequence, there were some differences of opinion between the parties, and Amazon invoked emergency arbitration, as the parties had agreed in the arbitration agreement. The emergency tribunal, which was established in conformity with SIAC rules, issued an interim order in favor of Amazon, forbidding FRL from pursuing the transaction with Reliance through any regulatory authority. FRL, on either side, filed a petition in which a single judge concurred with Amazon and recognized the concept of emergency arbitration in India. The Delhi High Court's division bench ordered for a stay on the judgment of the single judge. Subsequently, Amazon filed a Special Leave Petition in the Supreme Court, requesting a final ruling on the case.
The Supreme Court was required to assess whether an award in emergency arbitration can be regarded as an order under Section 17(1) of the Act and whether or not an order made under Section 17(2) for the enforcement of an emergency arbitration award is subject to appeal. Following a comprehensive evaluation of both sides' arguments, the court made the following observations:
The Hon'ble Supreme Court interpreted Section 2(1)(a) extensively to include the concept of emergency arbitration within its purview. The expression 'permanent arbitral institution' in section 2(1)(a) of the Act refers to an arbitral institution that facilitates specific institutional rules, such as provisions for emergency arbitration. The court based its interpretation on Sections 2(6), 2(8), and 19(1), which set the standard for party autonomy, enabling parties to choose a procedure with their informed consent.
The definition of an arbitral tribunal in Section 2(1)(d) ought not to be construed in such a way as to restrict Section17(1) to arbitral tribunals that provide final relief in the form of interim relief or a final award. The expression 'during arbitral proceedings' includes emergency arbitration proceedings, as arbitral proceedings begin when the request for arbitration is conveyed to the respondent, according to Section 21 of the Act, read with SIAC rules.
Section 9(3) and Section 17 are components of the same framework; for example, the arbitral tribunal described in Section 9(3) is identical to the ones described in Section 17(1), which involves an emergency arbitrator appointed under institutional rules.
Since the arbitral tribunal has the same powers as the court under Section 9, the court's enforcement of an order under this section by way of Order 39 Rule 2A will be governed by Section 17. As an outcome, the arbitral tribunal's ruling will be enforced under Section 17(2) of the Code of Civil Procedure, and this order will not be subject to appeal.
In terms of appeals from orders and awards made under the Act, Section 37 is a comprehensive provision. The court further stated that appeals under Order 43 Rule 1 of the CPC could not be used to enforce orders made under the act, citing cases like BGS SGS Soma JV v. NHPC[5] and Kandla Export Enterprises v. OCI Corporation[6].
The grant or non-grant of provisional relief under Section 37(2)(b) of the Act only pertains to Section 17(1) of the Act, not to Section 17 of the Act (2). Section 17 was bifurcated into two after the 2015 amendment, and there was no further amendment to Section 37(2)(b) to include the amended Section 17 within its purview. As an outcome, the court determined that the emergency arbitration award will indeed be considered as an order under Section 17(1) and that no appeal under Section 37 will be permitted against an order of enforcement of an emergency arbitration award made under Section 17(2) of the Act.
Conclusion:
At a great length, the issues surrounding the concept of emergency arbitration and the absence of sufficient statutory provisions and precedents in India have been a topic of contention among arbitrators.
This decision is highly deliberate and contextual, and it serves as a definite call for the Indian judiciary's pro-arbitration viewpoint. This decision sets a substantial precedent by recognizing the concept of an emergency award, which has its seat in India, and its enforcement mechanism.
However, in the present predicament, the dilemma of enforcement of an emergency award issued by a foreign-seated arbitration holds significance. As has been the case in several other precedents discussed in this article, such awards may be enforceable under Section 9 of the Act. Furthermore, the judgment in Amazon.com NV Investment v. Future Retail Limited & Ors[7] has placed the order of an emergency arbitration within the context of Section 17(1), which enables for interim relief. Thus, the Emergency arbitrator's award or lack of willingness to grant temporary relief (which is considered to be an Arbitral Tribunal) may be appealed under Section 17(2) under Section 37(2)(b) of the Act. Though legal analysts applauded the court's decision, it remains to be seen whether this interpretation will support the stakeholders or merely relieve the courts of emergency award appeals under Section 37 of the Act.
[1] CIVIL APPEAL NO. 5145 OF 2016 [2] MANU/DE/2754/2016 [3] 2020 SCC OnLine Del 721 [4] CIVIL APPEAL NOs. 4492-4493 OF 2021 [5] 2019 SCC Online SC 1585
[6] (2018) 14 SCC 715 [7] CIVIL APPEAL NOs. 4492-4493 OF 2021
BIBLIOGRAPHY
Books:
FOUCHARD GAILLARD GOLDMAN “International Commercial Arbitration”
Justice R.F Nariman “Enforcing Arbitral awards in India”
Douglas R. Richmond “Other People’s Money: The Ethics of Litigation Funding”
P.C Markanda “Arbitration Step by Step”
Saraf & Jhunjhunuwala’s “Law of Arbitration & Conciliation”
Articles:
Hiroo Advani, Kanika Arora, Manav Nagpal and Surbhi Ahuja “The conundrum of emergency Arbitration in India: the Amazon-Future dispute” SCC ONLINE
Nishant Nigam and Anjali Dwivedi “The Viewpoint: Emergency Arbitration – An Absent Concept” Bar & Bench
George Kahale, III, Is Investor-State Arbitration Broken?, 7 TRANSNAT’L. DISP. MGT. 33 (2012)
William Kirtley & Koralie Wietrzykowski, Should an Arbitral Tribunal Order Security for Costs When an Impecunious Claimant is Relying upon Third-Party Funding?, 30 J. INT’L ARB. 17, 19 (2013).
Reports:
Justice Srikrishna Committee Report on the Amendments to the Arbitration & Conciliation Act, 1995
Dept. of legal affair, report of the high level committee to review the institutionalization of arbitration mechanism in india 43 (2017)