EMERGENCY ARBITRATION UNDER INDIAN LAW: NAVIGATING A COMPLICATED MAZE
- Nusrat Hassan, Sameer Thakur
Speed is the essence of arbitration. Parties opt for arbitration proceedings believing that it is a quicker dispute resolution mechanism. However, complex commercial arbitrations take considerable time to conclude, leaving successful parties in a challenging position as they struggle to enforce the arbitral award. In such disputes, often obtaining an urgent interim relief becomes essential to safeguard the subject matter of the arbitration. The concept of Emergency Arbitration (“EA”)has emerged as a tailored solution to these challenges in Institutional Arbitrations.
Three or four decades ago, when arbitration was not as widely used as it is today (for both domestic and international disputes), there was widespread academic debate about whether arbitral tribunals, after they had been constituted, could provide interim measures.
Parties who had elected to step out of the judicial system to resolve their disputes thorough arbitration, instead of courts, did not wish to return to courts to seek interim relief, and over time, tribunal’s authority to grant interim measures began to be seen as the norm. In fact, students who may have started reading about arbitration in the last 10 or 15 years would be surprised to note that a Tribunal’s power to grant interim relief was ever in doubt.
However, despite this progress, a lacuna remained. What was a party that intended to resolve its disputes via arbitration to do if it needed urgent interim relief (one could say, emergency relief) prior to the constitution of the arbitral tribunal? In such a situation, a few years ago, a party would have no choice but to approach a court to secure such relief. This was a particularly problematic issue in international arbitration where issues of language, access and neutrality could create significant hurdles for a party seeking urgent interim relief.
Arbitral institutions across the world responded to this problem with a novel solution — provisions in institutional rules providing for emergency arbitration. While users of international arbitration have generally welcomed this initiative, there were doubts about whether this would be accepted by domestic courts — effectively, how would one enforce a decision of an emergency arbitrator. Would an order be considered an “award” under the New York Convention, or would one have to seek judicial assistance to enforce such an order, which may often lead to a situation where the emergency arbitration order is rendered meaningless as its enforcement takes too much time.
Certain jurisdictions (like Singapore and Hong Kong) amended their arbitration legislation to have emergency arbitration orders be treated the same as an interim measures’ decision by an arbitral tribunal (which would let them be enforced as civil court decisions directly). Despite the growing recognition of emergency arbitration, the legal status of the emergency arbitrator and the enforceability of EA orders in India remained uncertain.
EMERGENCY ARBITRATION IN INDIA: A COMPLICATED MAZE
The Arbitration and Conciliation Act, 1996 (“Act”) does not provide for Emergency Arbitration. Therefore, it can be invoked only if the parties agreed to institutional arbitration providing the option of Emergency Arbitration. This article focuses on significant recent developments in India regarding the enforceability of orders issued by emergency arbitrators. These developments have occurred in the much-publicized dispute between Amazon.com NV Investment Holdings LLC v. Future Retail Ltd. (“Amazon- Future dispute”).
A. 246TH REPORT OF THE LAW COMMISSION OF INDIA:
In 2014, amendments to the Arbitration and Conciliation Act were proposed by the Law Commission of India in their 246th Report. The rise of emergency arbitration was taken into account and the commission suggested that an emergency arbitrator be included in the definition of arbitral tribunal in section 2(1)(d) of the Act, provided that the rules of an arbitral institution allowed for such an appointment. This was similar to the Singaporean approach where an emergency arbitrator was included in the definition of an arbitral tribunal.
However, when the Indian government presented the proposed amendments to Parliament in 2015, the recommendation to include emergency arbitrators was not included, despite being in line with the Law Commission’s report.
B. JUDICIAL DECISIONS PRIOR TO AMAZON – FUTURE DISPUTE:
The legal status of emergency arbitrator orders in India was largely uncertain before the Amazon-Future dispute.
Judgments like Rafes Design v Educomp, saw the Delhi High Court rule that an emergency arbitrator’s order could not be enforced under Section 17 of the Act in a foreign-seated arbitration. This decision of the Delhi High Court diluted the essence of the EA order, leaving parties with no option but to seek recourse under Section 9 of the Act.
This was followed by conflicting observations by the Delhi High Court in Ashwani Minda v U-Shin Limited and the Bombay High Court in Plus Holdings v Xeitgeist Entertainment Group, where the courts held that intervention under Section 9(3) of the Act was unnecessary if an emergency arbitrator had already been appointed under the Institutional Rules. Such conflicting judgments created a fog of uncertainty shrouding the legal status of emergency arbitration orders in India.
The murky and unsettled legal waters surrounding the enforceability of emergency arbitration orders in India were finally cleared by the significant judgment in the Amazon- Future dispute.
C. AMAZON – FUTURE DISPUTE:
This decision is one part of a series of judgements issued by the Delhi High Court and the Indian Supreme Court — all of which arise from an ongoing dispute between the two parties that is playing out in multiple forums: an arbitral tribunal, a regulatory authority, and two constitutional courts.
The genesis of the larger dispute is an arbitration initiated by Amazon.com NV Investment Holdings LLC (“Amazon”) against Future Retail Ltd. (“Future”) seeking the prohibition of Future’s retail business to a third party. Amazon initiated an arbitration under the rules of the Singapore International Arbitration Centre (“SIAC”) and secured an interim award in its favour from the EA. Subsequently, Amazon sought to enforce this interim award in India through a petition under Section 17(2) of the Arbitration & Conciliation Act (the “Arbitration Act”).
On 2nd February 2021, a single judge bench of the Delhi High Court issued an order in which it held that the emergency arbitrator should be recognized as an arbitratorand that the interim award issued by the emergency arbitrator would be enforceable under Section 17(2) of the Arbitration Act. This order was reiterated by the same single judge bench of the Delhi High Court on 18th March 2021.
Future filed an intra-court appeal against the second order and obtained a stay from a division bench of the Delhi High Court. Amazon filed an appeal with the Supreme Court against the stay order. The Supreme Court consolidated various appeals filed by Amazon and passed a final judgement on 6th August 2021.
The Court’s decision on the enforceability of EA decisions:
The Supreme Court’s judgement on 6th August 2021 answered two legal questions:
- Whether an EA award can be enforced under the Arbitration Act?
- Whether an order passed under Section 17(2) if the Arbitration Act is appealable under Section 37 of the same act?
With regards to the first question, the Supreme Court held that there is nothing in the Arbitration Act that would preclude commercial parties from agreeing to procedural rules that allow an emergency arbitrator to provide interim relief. The decision clarified that the definition of the term “Arbitral Tribunal” in Section 2(1)(d) of the Arbitration Act is broad enough to include an emergency arbitrator.
As such, an “award/order” issued by an emergency arbitrator could be enforced under Section 17(2) of the Arbitration Act, as long as the underlying institutional rules grant an emergency arbitrator that power. The Supreme Court stressed that parties are provided with the autonomy to select institutional rules to govern their arbitration proceedings — and once that selection is made, the institutional rules govern the rights between the parties.
With regards to the second question, the Supreme Court held that an order passed under Section 17(2) of the Arbitration Act was not appealable. The Supreme Court found that Section 37 of the Arbitration Act provides for appeals from orders made by an arbitral tribunal in relation to interim measures under Section 17(1) and not against orders by an Indian court under Section 17(2) for the enforcement of an arbitral tribunal’s decision on interim measures.
Subsequently, a three-member bench of the Supreme Court clarified in its judgement of 1st February 2022, that the Court’s decision of 6th August 2021 did not adjudicate the merits of the Amazon-Future dispute and only answered legal questions regarding the enforceability of EA decisions in India. The Supreme Court filled this gap by overturning the Delhi High Court’s order providing for the enforcement of the EA’s interim award in the dispute between Amazon and Future on the ground that there had been a violation of the principle of natural justice in the Delhi High Court proceedings.
However, the Supreme Court did not in any manner suggest that the decision of 6th August 2021 dealing with the legal question of whether EA decisions are enforceable in India was bad law, and the decision to overturn the Delhi High Court order on grounds of natural justice has no impact on the legal conclusions reached in the decision of 6th August 2021.
Therefore, it is clear that the Supreme Court’s position regarding the enforcement of EA decisions for India seated arbitration is that an emergency arbitrator can be treated as Arbitral Tribunal under Section 2(1)(d) of the Arbitration Act, and its decision can be enforced in India under Section 17 (2) of the Act.
THE WAY FORWARD:
This judgement reinforces the notion that the Act provides parties with broad autonomy to determine procedural rules that will govern the arbitral proceedings. It will also provide users of institutional arbitration with certainty that emergency relief granted by an emergency arbitrator can be enforced expeditiously under Section 17(2) in India.
This holistic approach strengthens the arbitration mechanism in India and paves the way for India to become an international arbitration hub. This judgment also aligns with the principle of minimum judicial intervention in arbitration proceedings, as envisaged in Article 5 of the UNCITRAL Model Law on International Commercial Arbitration. However, it is important to note that the Supreme Court’s decision is limited to India seated arbitrations. For foreign-seated arbitrations, if a party obtains an EA order, they can enforce it by relying on the said order in following manner:
i) Filing a petition for interim measures under Section 9 of the Act, when both the parties have agreed to be governed by the Indian law;
ii) Where the option of Section 9 of the Act has been expressly excluded by the parties, file a civil suit under the relevant provisions of the Civil Procedure Code, 1908 seeking the same reliefs that are the subject matter of the EA.
(2022) 1 Supreme Court Cases 209
(2016) SCC Online Del 5521
(2020) SCC Online Del 721
(2019) SCC Online Bom 13069
2022 SCC OnLine SC 126