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Conundrum of Emergency Arbitration in India

Akash Gupta[1] Animesh Bordoloi[2]


Background


Commercial parties opt for Emergency Arbitration (‘EA’) to receive a quicker interim measure. Leading arbitration centre’s statistics showcases that parties from different jurisdiction have exercised EA option to seek interim measure.[3] Generally, the emergency award is rendered within 10 days from the date of the application of EA.[4] As the Foreign Direct Investment is increasing in India,[5] there exist a high probability that the foreign companies will be willing to exercise EA while contracting with the Indian parties.


The Arbitration and Conciliation Act, 1996 (‘the Act’) does not provide for Emergency Arbitrator under Section 2(d) of the Act. Under Section 9 of the act, the courts may grant interim measurers in a domestic as well as foreign seated arbitration. The parties may also choose a pathway of Section 17(2) to enforce the emergency award.


To resolve this issue of recognition of EA in India, the 246th Law Commission Report suggested the inclusion of an ‘emergency arbitrator’ in the definition of ‘tribunal’.[6] However, this recommendation was not incorporated under the 2015 Amendments. In 2017, the High-Level Committee to Review the Institutionalization of Arbitration Mechanism in India reiterated the amendment under Section 2(d) to recognise emergency arbitration in India.[7] This Committee also suggested inclusion of the term ‘emergency award’ in the definition of ‘arbitral award’ under Section 2(c).

Judicial Trend


In absence of the legislation backing for EA in India, it is important to note the way judiciary deals with this issue of enforcement. The first case addressing emergency arbitration is HSBC PI Holdings (Mauritius) Limited v. Avitel Post Studioz Limited and Ors. (HSBC).[8]

The Division Bench of the Bombay High Court upheld the judgment by the Single Bench where the court granted interim relief under Section 9 in line with the SIAC emergency award. However, there was a modification in terms of the amount of minimum balance to be maintained, i.e, USD 60 million to USD 30 million. Notably, the Division Bench decision was challenged in the Supreme Court, however, the issue of enforcement of the emergency award was not raised during the challenge. This was a missed opportunity for laying down the jurisprudence about emergency arbitration in India.


The second case concerning the enforcement of Emergency Arbitrationis Raffles Design International India Private Limited & Ors. v. Educomp Professional Education Limited & Ors.[9] The Delhi Court held that the emergency award cannot be enforced under the Act. The parties are required to file a suit for the enforcement of the emergency award.[10] Besides, the court observed: “Needless to state that the question whether the interim orders should be granted under section 9 of the Act or not would have to be considered by the Courts independent of the orders passed by the arbitral tribunal”.[11]


In the third case involving emergency arbitration, Ashwani Minda & Anr vs U-Shin Ltd & Anr,[12] the Delhi High Court held that the Applicants cannot “take a second bite at the cherry” by seeking the same interim relief which was rejected by the emergency arbitrator.[13]

Besides these cases, there is an ongoing dispute between Amazon.Com NV Investment Holdings LLC and Future Retail Limited which is pending in the Delhi High Court.


Amazon and Future Group Dispute


The dispute arose when Amazon alleged the Future Retail Limited Group (‘FRL’) of violating its shareholder agreement while entering into a 3.38 billion deal with Reliance Retail Ventures Limited (‘RRVL’) in which FRL was to see off its retail, wholesale, logistics and warehousing units (assets). Earlier, Amazon had acquired a 49 per cent stake in the Future Group’s promoter firm, a part of which deal required them to be kept in the loop for any third-party transaction with FRL and also included for them a right to the first refusal. Alleging dishonoring of this contract, Amazon to stay the deal between RRVL and FRL decided to invoke an arbitration before the Singapore International Arbitration Centre (SIAC), along with seeking interim measures before an Emergency Arbitrator (EA), which is a recognized practice under the SIAC Rules. The EA rendered the award in favour of Amazon opining that FRL had breached the contract terms and thereafter barred them from going ahead with the deal.


Given that there is no defined procedure for enforcement of an Emergency Award in India, Amazon thereafter decided to write to the Indian regulatory authorities to stall the deal. In response, FRL filed a petition before the Delhi High Court arguing that Amazon’s measures against them amounted to ‘tortuous interference’ with lawful contracts entered between RRVL and FRL. They further introduced a two-prong argument against Amazon – first, that Amazon does not have ‘control’ [ defined under Rule 23(1) of the Foreign Exchange Management Act (‘FEMA’) FDI Rules] over FRL; Second, that the EA order passed is bereft of jurisdiction and is a nullity. Reasoning that Emergency Arbitrator prima facie is not a coram non judice the court decided against both these arguments and rejected an interim injunction. Interestingly, although a subsequent order dated February 2nd, 2021 by a Single Judge Bench[14] recognized that such EA orders can be recognized under Section 17 (1) of the Act, the said order has been stayed in favour of FRL under a Section 17(2) petition[15] as the court was of the opinion that FRL had established a prima facie case on merits. Whether this would have any implications on impending final order while enlisting its views on the EA award is set to attract a lot of eyes.


Remarks


While deciding EA cases, the courts must also give due consideration to the ‘parties consent’ to conduct EA. When the parties choose Arbitration Rules (containing EA), they impliedly give their consent to undergo EA as well. If the emergency award cannot be enforced, it frustrates the parties intention to resolve disputes. Therefore, the domestic courts while deciding on the issues of enforcement of EA must give due regard to the idea of party autonomy and party consent which inevitably form the cornerstone of any arbitration agreement.


Given that there no legal backing to EA in India, the way forward to enforce the emergency award in India as highlighted in the Amazon case is through Section 17 of the Act. The dilemma though with Section 17 is that it is unclear as to whether such EA awards can be directly enforceable unlike in case of interim reliefs in foreign seated arbitrations where parties must recourse to courts under Section 9. With no clarity on these procedural aspects, the parties will have to either inform the concerned authorities (as was the case with Amazon Investment Holdings) or seek recourse in courts. This vicious circle undermines the very core of EA awards, ensuring urgency and emergency relief thereby also sabotaging the idea of an arbitration-friendly jurisdiction.


With there being no clarity so far from the apex court or legislature it remains tricky how the future EA cases will be decided. In the past, the Bombay High Court recognizes the emergency award while the Delhi High Court has had conflicting judgements. Whereas in Raffles, the Delhi High Court did not recognize the EA award, however they recognize EA in the Ashwani and Amazon Case. While it is noteworthy to mention that only a few countries have provisions for direct enforcement of EA awards, it is significant to realize that for most situations relating to international commercial arbitration it is the comity of nations and pressure of upholding the best practices that must find precedence while trying to build a preferred ecosystem for arbitration. Moreover, non-enforcement of the emergency award may affect the foreign companies’ investment in India. Besides, as a developing arbitration jurisdiction, this non-enforcement may result in a roadblock towards India’s dream of becoming an international hub for arbitration.

 

[1] Assistant Lecturer, Jindal Global Law School, O.P. Jindal Global University; akash@jgu.edu.in

[2] Assistant Lecturer, Jindal Global Law School, O.P. Jindal Global University; abordoloi@jgu.edu.in

[3] ‘ICC Releases 2019 Dispute Resolution Statistics’ International Chamber of Commerce (Paris) <https://iccwbo.org/media-wall/news-speeches/icc-releases-2019-dispute-resolution-statistics/&gt> accessed 6 February 2021. The ICC Commission Report on Emergency Arbitrator Proceeding provides that 117 EA cases have been filed in the course of seven years ranging from 2012-2019.

[4] ‘SCC Statistics 2019’ Arbitration Institute of the Stockholm Chamber of Commerce (SCC) (Stockholm) <https://sccinstitute.com/statistics/&gt> accessed 7 February 2021. Under the SCC, EA award is being render in 6.25 days from the date of application for an EA.

[5] ‘Strategy for New India @ 75’ (Niti Aayog 2018) <https://niti.gov.in/writereaddata/files/Strategy_for_New_India.pdf&gt; accessed 7 February 2021; ‘India Records 13% FDI Growth in 2020, Higher than Major Economies. 5 Reasons Why’ mint (26 January 2021) <https://www.livemint.com/mutual-fund/mf-news/fdi-inflows-in-india-was-higher-than-major-economies-5-reasons-why-11611617341632.html&gt> accessed 7 February 2021.

[6] ‘Amendments to the Arbitration and Conciliation Act 1996’ (Law Commission of India) 246 <http://lawcommissionofindia.nic.in/reports/Report246.pdf&gt> accessed 21 November 2019.

[7] ‘High-Level Committee to Review the Institutionalization of Arbitration Mechanism in India’ (2017) <https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf&gt> accessed 7 February 2021.

[8] 2014 SCC OnLine Bom 929

[9] 2016 SCC OnLine Del 5521

[10] Para 104

[11] Para 105

[12] OMP (I) Comm 90/2020, Judgment dated 12 May 2020

[13] Para 55

[14] Amazon.Com NV Investment Holdings LLC v. Future Coupons Private Limited, 2021 SCC Online Del 279

[15] Future Retail Ltd v. Amazon.Com NV Investment Holdings LLC, 2021 SCC Online Del 412


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