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Emergency Arbitration And Its Validity In India

Shivani Kumbhojkar

The area of Emergency Arbitration came to light after a much publicised dispute between Future Retail Ltd. and Investment Holding LLC (“Amazon”). There have been only a handful of cases in India which discuss the enforceability of the award passed by an emergency arbitrator. The Bench of the Ld. Single Judge of the Delhi High Court, in its interim order dated 21 December 2020, discussed in detail how the award passed by the emergency arbitrator is enforceable in India. Though there are many other issues regarding the dispute, the focal point of this article shall only be the issue of emergency arbitration and its legal standing in India.

What is an Emergency Arbitrator (“EA”)?

An EA is a tool used for seeking emergency interim relief, concurrent with or following the issuing of the notice of arbitration, but prior to the arbitral tribunal is formed. Many international arbitration institutions, such as the Singapore International Arbitration Centre (“SIAC”), the London Court of International Arbitration, and the International Chamber of Commerce, have made provisions for the appointment of an EA under their respective rules. Under most of the rules, the EA, upon passing the interim award, becomes functus officio. Further, though the UNCITRAL Model Law does not itself contain provisions for Emergency Arbitration, the power to exercise the route of emergency arbitration is indirectly included in the definition of ‘Arbitration’ thereunder. Article 2(a) of the UNCITRAL Model Law defines arbitration as “any arbitration whether or not administered by a permanent arbitral institution.” As many of the arbitral institutions’ rules provide for emergency arbitration, the Model Law does indirectly cover emergency arbitration under its scope.

The History of Emergency Arbitration in India

The 246th Law Commission Report had recommended an amendment to the definition of an “arbitral tribunal” under Section 2(1)(d) of the Arbitration and Conciliation Act, 1996 (“the Arbitration Act”), to add – “in case of an arbitration conducted under the rules of an institution providing for appointment of an emergency arbitration, includes such emergency arbitrator”. The object behind this recommendation was to encourage the culture of institutional arbitration in India as well as to ensure that institutional rules such as the SIAC Arbitration Rules, which provide for an emergency arbitrator, are given statutory recognition in India. However, this recommendation did not materialise when the Arbitration and Conciliation (Amendment) Act, 2015 came into force.

However, it is most pertinent to note that the rules of many arbitral institutions, which were established in India even prior to the 246th Law Commission Report, consist of provisions for emergency arbitration therein. For example, Rule 14 of the Delhi International Arbitration Centre (Arbitration Proceeding) Rules makes procedural rules for the conducting of Emergency Arbitrations. Similarly, the Mumbai Centre for International Arbitration Rules and the Madras High Court Arbitration Centre Rules also make provisions for Emergency Arbitrations and interim awards passed therein. Therefore, in this backdrop, it is germane to analyse how a legal status came to be granted to an EA in the recent interim order passed by the Hon’ble Delhi High Court.

The Legal Status of an EA

A single judge of the Hon’ble Delhi High Court (“the Court”) has examined the legal position of an EA in the suit filed by Future Retail Ltd against Amazon. The Court, while discussing the legal status of the EA, does not venture into the legality of the merits of the EA order as the same was not under the challenge before the Court in the said suit.

Quick facts of the dispute: After learning of the acquisition by Reliance Retail Ventures ltd. (“Reliance”) of the assets of Future Retail Ltd. (“FRL”), Amazon invoked the arbitration clause in the Shareholders Agreement between Amazon and Future Coupons Pvt. Ltd. and the promotors of FRL. The arbitration clause was invoked because the deal of acquisition was contrary to the said shareholders’ agreement. The arbitration clause, as agreed between the parties to the agreement, stated that (i) any dispute would be referred to arbitration in accordance with the arbitration rules of the SIAC, (ii) the seat and venue of the arbitration would be New Delhi, and (iii) the choice of jurisdiction and venue shall not prevent either Party from seeking injunctive reliefs in any appropriate jurisdictions.

After invoking arbitration, Amazon made an application to the SIAC for conducting Emergency Arbitration and obtained an injunction against FRL from proceeding with the transaction of acquisition with Reliance.

Suit filed by FRL

Amazon, by using the EA order, made representations to various statutory and regulatory bodies in India and attempted to thwart the approval procedures in India that are necessary for the transaction of acquisition. Therefore, FRL filed a suit and an interim application therein, to seek permanent and temporary injunction against Amazon. The key contentions made by FRL were that – (i) the Emergency Arbitration is outside the scope of the Arbitration Act, and therefore, the award passed by the EA is in nullity, (ii) the SIAC Rules take away the right of the parties to approach the Courts in India, and (iii) the EA is not an arbitral tribunal under Section 2(1)(d) of the Arbitration Act as the Parliament did not amend the definition of ‘arbitral tribunal’ despite the recommendation made by the Law Commission in that regard.

The issue qua EA: The issue before the Court was whether the provisions of Emergency Arbitration of the procedural law (SIAC Rules) are in any manner contrary to the public policy of India or the mandatory requirements of the procedural law under the Arbitration Act.

The Court held that –

  1. Party autonomy is the backbone ofarbitration. Therefore, as the parties to the agreement had chosen the curial law being the SIAC Rules, the arbitration arising out of that agreement would be governed by the procedure as prescribed under those rules, subject to the public policy of India and the mandatory provisions of the Arbitration Act.

[Reliance placed on National Thermal Power Corporation Vs. Singer Company and Ors., 1992 (3) SCC 551; and Centrotrade Minerals & Metal Inc. Vs. Hindustan Copper Ltd., (2017) 2 SCC 228 ]

Further, the Arbitration Act, under Section 2(8), allows parties to choose a procedural law different from the proper law of contract, and therefore, there is nothing in the Arbitration Act that prohibits the contracting parties from obtaining emergency relief from an emergency arbitrator;

  1. The SIAC Rules, under Rule 30.3, make provisions for a party to approach a judicial authority for grant of interim relief. Therefore, the said rules themselves recognise and uphold the right of a party to avail interim relief under Section 9 of the Arbitration Act. Thus, the SIAC Rules do not take away the substantive right of the parties to approach the Courts in India for interim relief;

  1. The EA is not outside the scope of Section 2(1)(d) of the Arbitration Act, because the Parliament did not accept the Law Commission’s recommendation to include an EA in the definition of an “arbitral tribunal”. Relying upon Avitel Port Studioz Ltd. & Ors. Vs. HSBC Pl Holdings (Mauritius) Ltd. [2020 SCC OnLine 656], the Court held that development of the law cannot be thwarted merely because a certain provision recommended by Law Commission is not enacted by the Parliament. Therefore, it cannot be held that an EA is outside the scope of Section 2(1)(d).

  1. By virtue of Section 2(2) of the Arbitration Act, the parties, by agreement, can derogate from the applicability of Section 9 in case of international commercial arbitrations. Therefore, Section 9 is not a mandatory requirement of the procedural law under the Arbitration Act.

[Reliance placed on BALCO v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 522];

  1. Due to the aforesaid reasons, the Emergency Arbitration is not a coram non judice and the consequential EA order not invalid.

Enforcement proceedings by Amazon

Simultaneously, after securing the interim protection, Amazon filed an application under Section 17(2) of the Arbitration Act read with Order XXXIX Rule 2A of the Code of Civil Procedure, 1908, for enforcement of the EA Order.

In the above case, the Ld. Single Judge passed an order of status quo while reserving the final order, which has not been pronounced yet. The Ld. Single Judge was also of the prima facie view that – (i) an EA is an Arbitrator under the Arbitration act; (ii) the EA Order is not a nullity; (iii) the EA order is an order under Section 17(1) of the Arbitration Act; (iv) the EA Order is appealable under Section 37 of the Arbitration Act; (v) the EA Order is enforceable under Section 17(2) of the Arbitration Act.

The interim order passed under the above enforcement proceedings does not give reasons in detail regarding the observations stated in the above paragraph.

Scope of Emergency Arbitration in India

Going forward, with both the above orders validating the emergency arbitration, it appears that the field of emergency arbitration is bound to grow in India. The Arbitration and Conciliation (Amendment) Act, 2019, for promoting institutional arbitration, included explicit provisions for arbitral institutions and grading thereof. As discussed hereinabove, many of the pre-existing institutions have provisions for Emergency Arbitrations; it is incumbent that emergency proceedings will increase and accordingly, so will appurtenant court proceedings.

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