Emergency Arbitration in India: Law and Recent Developments

The Author, Mr. Divyansh Hanu Rathi is the Managing Partner at Lexidem & Rathi - A Global Law Firm and the Founder of LatestLaws.com. Mr. Rathi is a Core Team Member of the Indian Dispute Resolution Centre (IDRC). He has done his Masters in International Dispute Resolution from King's College, London.

Introduction:

In the past decade, Emergency arbitration is being increasingly recognised and adopted by several jurisdictions and institutional arbitration centres around the globe.

The Law Commission of India’s 246th Report (2014) pertaining to the amendments in the Arbitration and Conciliation Act, 1996 (“the Act”), proposed an amendment to the wordings of Section 2(d) of the Act. This amendment was proposed to ensure that institutional rules such as the SIAC Arbitration Rules, or the ICC Arbitration Rules or any other Institutional Arbitration Rule’s which provide for an appointment of an emergency arbitrator are given statutory recognition in India.

Emergency arbitration has recently been in controversy in India due to the dispute between Amazon and Future Group before the Delhi High Court and the Supreme Court of India, scrutinizing the powers of an Emergency Arbitrator and the award passed by the Emergency Arbitrator.

The Supreme Court's decision in Amazon.com NV Investment Holdings LLC v. Future Retail Limited & others has to a great extent cleared the air on the question of validity of Emergency Arbitration in India the award passed in such proceedings.

What is Emergency Arbitration?

Emergency Arbitration is a procedure through which parties to the dispute can seek interim relief, even before the constitution of an Arbitral Tribunal. It is usually opted for in the cases where a delay in granting interim relief will result in irreparable loss to a party to the dispute. The role of an Emergency Arbitrator comes to an end after passing of the Interim Emergency Award. Thus, it is considered an alternative to interim relief granted by the Courts.

Major benefits of Emergency Arbitrations are that it is more expeditious than Court Procedure, it is cost effective and extra judicial intervention is avoided. However, if the order of the Emergency Arbitrator is not enforced, it would render the entire mechanism of Emergency Arbitration redundant.

Who is an Emergency Arbitrator?

An Emergency Arbitrator is a sole arbitrator appointed by an Arbitration Institution to consider an Emergency Interim Relief Application. In cases where the parties have agreed to arbitrate according to the Rules of an Arbitration Institution which contain provisions relating to the Emergency Arbitration. The status of the Emergency Arbitrator is based on party autonomy as the law gives complete freedom to the parties to choose an arbitrator or an Arbitral Institution. The powers of the Emergency Arbitrator are the same as that of an Arbitral Tribunal to decide the interim measures. The award passed by the Emergency Arbitrator is binding on all the parties. However, that does not bind the subsequently constituted Arbitral Tribunal and the Arbitral Tribunal is empowered to reconsider, modify, terminate or annul the order/award of the Emergency Arbitrator.

What are the Powers of an Emergency Arbitrator?

Emergency Arbitrator carries out the following functions and becomes functus officio after the Interim Order is made:

1. Emergency Arbitrator shall establish a schedule for consideration of the application for emergency relief in accordance with the institutional arbitration rules under which he has been appointed.
2. Such a schedule shall provide a reasonable opportunity to all the parties to be heard. It may provide for proceedings by way of telephonic conference or on written submissions as alternatives to a formal hearing.
3. In certain conditions due to strict timelines, the emergency arbitrator may never actually hear or consult with the parties apart from certain major clarifications and simply give his order on the basis of the documents and written submissions placed before him.
4. Timelines vary as per various International Arbitration rules, but a typical emergency arbitration takes around ten to fifteen days from the date of application to the date of the award.
5. The Emergency Arbitrator shall have the powers vested in the Arbitral Tribunal pursuant to these Rules, including the authority to rule on his own jurisdiction, and may order any party to take such interim measure of protection, as the arbitrator may consider necessary considering the subject matter of the dispute.
6. The nature of the interim orders include: asset freezing orders, both prohibitive and mandatory injunctions, orders for the preservation and inspection of evidence, preventive orders to avoid misuse of intellectual property or confidential information as well as anti-suit injunction.

An order passed by the Emergency arbitrator is not binding on the arbitral tribunal with respect to any question, issue or dispute determined, yet, the interim order has to be definitely varied, discharged or revoked, in whole or in part, by a subsequent order or award made by an Arbitral Tribunal upon application by any party or upon its own initiative.

Regime of Emergency Arbitration: International and Indian Perspective

The Indian Arbitration and Conciliation Act, 1996 provides that Courts and arbitral tribunals seated in India with identical powers to grant interim reliefs under Section 9(1) and Section 17(1) during the course of arbitration proceedings. Section 17(2) of the Arbitration Act allows a Court to enforce an interim order made by the arbitral tribunal under Section 17(1) in the same manner as if it were an order made by the court itself. But interestingly, neither Section 9(1) nor Section 17(1) of the Arbitration Act expressly mention an interim order or award made by an emergency arbitrator.

Emergency Arbitration as a concept has been widely accepted worldwide by major international and domestic arbitration institutions such as the International Centre for Dispute Resolution (ICDR), the Stockholm Chamber of Commerce (SCC), the International Chamber of Commerce (ICC), the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC), Indian Dispute Resolution Centre (IDRC) who have incorporated this mechanism in their arbitration rules, on an ‘opt-out basis’, thus, making it applicable unless otherwise agreed by the parties.

Jurisdictions such as Singapore, Hong Kong, New Zealand have given statutory recognition to Emergency Arbitration regime in order to ensure a harmonious adaptation of international arbitration practices into their domestic regimes. While the United Kingdom and United States have not enacted specific legislation in this regard, several judicial rulings have recognized and allowed enforcement of emergency awards and orders.

In India, following the best practices, various arbitration institutions such as follows:

1. Delhi International Arbitration Center (DIAC⁴), of the Delhi High Court in Part III of its Arbitration Rules includes "Emergency Arbitration". Further, Section 18A enumerates 'Emergency Arbitrator' and explains the appointment, procedure, time period and powers of an Emergency Arbitrator.
2. Court of Arbitration of the International Chambers of Commerce-India, under Article 29 of the 'Arbitration and ADR Rules' r/w Appendix V enumerate the provisions of EA and Emergency Arbitrator.
3. International Commercial Arbitration (ICA), under Section 33 r/w Section 36(3) w.e.f 01.01.2014, enumerates the provisions of EA and Emergency Arbitrator.
4. Indian Dispute Resolution Centre (IDRC) provides for Emergency Arbitration under Article 24 of IDRC Domestic Arbitration Rules, 2019.

Indian Courts and Emergency Arbitrator’s Awards:

Although the development of judicial jurisprudence on concept of Emergency Arbitral Awards in India is scarce but there have been few notable cases where the High Courts have dealt with emergency arbitrator and award passed by him on one way or other.

In the case titled, Raffles Design International India Pvt. Ltd. & Anr. v. Educomp Professional Education Ltd.& Ors.[1], the Delhi High Court granted interim relief to the applicant in whose favour the emergency award had been issued.

In HSBC PI Holdings (Mauritius) Ltd. v. Avitel Post Studioz Ltd.[2], the Bombay High Court granted relief similar to that granted in the emergency arbitrator’s award (in a Singapore seated EA), and the applicant accordingly succeeded in enforcing it.

Recently, the Delhi High Court passed a judgment in the case of Ashwani Minda and Ors. v. U-Shin Ltd. and Ors.[3], rejecting a party’s request for interim relief under Section 9 of the Indian Arbitration Act, when the party had failed to obtain the same relief at first instance before the emergency arbitrator. In doing so, the court in effect recognised the outcome in the EA.

The Delhi High Court in the above stated case held that ‘having invoked the mechanism of the emergency arbitrator and invited a detailed and reasoned order, it is not open for the applicants to take a second bite at the cherry. There has been no change of circumstance after the said order as none has been pleaded or even argued.’

The above set of rulings provide insight into recognition value of awards issued by emergency arbitrators when parties approach courts for interim relief. However, the burning issue is of direct enforcement of emergency awards/orders which remains unresolved.

What is the infamous Amazon and Future Group Dispute?

Background Facts:

The case pertains to Amazon.com NV Investment Holdings LLC ("Amazon"), on the one hand, and Future Retail Limited ("FRL"), India's second-largest offline retailer, and its shareholders, including Future Coupons Private Limited ("FCPL") and the members of the Biyani family (together, the "Biyani Group"), on the other hand. Amazon agreed to invest a sum of approximately USD 190 million in FCPL, on the condition that FRL could not transfer its retail assets to certain "restricted persons" (including the Mukesh Dhirubhai Ambani ("MDA") group) without Amazon's consent. A dispute arose when the Biyani Group entered into a transaction for the amalgamation of FRL with the MDA group without Amazon's consent.

Amazon initiated arbitration proceedings against the Biyani Group under the SIAC Rules and an Emergency Arbitrator was appointed who, by way of an award, granted a stay on the impugned transaction. Despite this award, Biyani Group proceeded with the impugned transaction. Amazon then filed an application under Section 17(2) of the Arbitration Act before a single judge bench of the Delhi High Court requesting the enforcement of the Emergency Arbitrator's award.

Litigation before the Delhi High Court

In the suit filed by Future Retail, a single judge of the Delhi High Court recognised the validity of the Emergency Arbitration award. The High Court went on to note that the parties had agreed to arbitrate under the SIAC Rules, which allowed parties to approach an emergency arbitrator for grant of any interim relief and that accordingly, an emergency arbitral order/award would be valid and enforceable, unless it was against India’s public policy or the mandatory requirements of the Indian Arbitration Act.

In the second round of litigation in this case, relying on the observations of the single judge, Amazon sought to enforce the EA order under Section 17(2) of the Indian Arbitration Act, pursuant to which, another single judge of the Delhi High Court directed the parties to maintain the status quo pending his pronouncement of orders (which were reserved). The High Court nevertheless made a prima facie observation to the effect that the EA order was enforceable as an order of the court under Section 17(2).

Without waiting for a detailed order, Future Retail filed an appeal before a Division Bench of the Delhi High Court. By way of an interim order pending final disposal of the appeal, the Division Bench stayed the single judge’s status quo order – effectively staying also the enforcement of the EA order and in doing so observing that one effect of the injunction granted was to restrain other regulatory authorities (such as the Securities and Exchange Board of India and National Company Law Tribunal) from discharging their statutory duties with regards to the transaction, this should not be allowed.

Amazon in turn filed an application before the Supreme Court for special leave to appeal the order of the Division Bench.

Supreme Court issued notice and directed that no final orders be made in proceedings before the National Company Law Tribunal for approval of the proposed transaction between Future Retail and Reliance Retail.

In the meantime, the single judge of the Delhi High Court passed a detailed order on 18th   March 2021 in the enforcement application filed by Amazon. In another impetus to the enforcement of EA awards/orders in India, the single judge categorically held that the current legal framework is sufficient to recognise EA in India. The single judge, inter alia, imposed costs of INR 2 million on the Future Group, and held that:

• they have deliberately and wilfully violated the EA order;
• directed attachment of their assets;
• issued a notice on the respondents to show cause why they be not detained in civil prison for up to three months for violation of the EA order; and
• directed them to not to take any further action in violation of the EA order.

In an appeal preferred by the Future Group against such order, a Division Bench of the Delhi High Court stayed the decision of the single judge till the next date of hearing. 

Litigation before the Supreme Court of India

Against this order of the Division Bench of the Delhi High Court, Amazon approached the Supreme Court.

The Supreme Court found in favour of Amazon and ruled that:

• an award made by an emergency arbitrator is an order made under Section 17(1) of the Arbitration Act and can be enforced by Indian courts under Section 17(2); and
• no appeal would lie under the Arbitration Act against an order made under Section 17(2) of the Arbitration Act for enforcement of an emergency arbitrator's award.
• An Emergency Arbitration award is recognised and enforceable under the Arbitration Act.

Supreme Court noted that parties to an arbitration agreement are free to agree on a procedure administered by an arbitral institution, like SIAC. It held that the arbitral proceedings had already commenced in this case as per Rule 3.3 of the SIAC Rules with the receipt of Amazon's Notice of Arbitration by SIAC. Given that Section 17(1) of the Arbitration Act empowers an arbitral tribunal to order interim measures on a party's application "during the arbitral proceedings", the Supreme Court observed that an order made by an emergency arbitrator under the SIAC Rules is covered under Section 17(1) and is, therefore, enforceable under Section 17(2) of the Arbitration Act. This, in the Supreme Court's view, is further confirmed by the absence of any express or implied bar against emergency arbitration proceedings in the Arbitration Act.

The Supreme Court also noted that the legislative history of Section 17(2) favours a pro-enforcement approach for emergency awards in India-seated arbitrations. Enforcing emergency awards, the Supreme Court opined, would increase efficacy in granting interim reliefs and decongest the clogged court system in India. Thus, having agreed to arbitrate under the SIAC Rules and participate in the proceedings before the Emergency Arbitrator, the Supreme Court held that the Biyani Group could not ignore compliance with the Emergency Arbitrator's award.

An order enforcing Emergency Arbitration award is not appealable under the Arbitration Act. In the Supreme Court's view, Section 37 of the Arbitration Act provides an exhaustive, self-contained code for appeals from orders made under the Arbitration Act. The Supreme Court held that Section 37 provides for appeals only from orders made by an arbitral tribunal granting or refusing to grant interim measures under Section 17(1), but not against orders made by an Indian court under Section 17(2) of the Arbitration Act for the enforcement of a tribunal's interim order. Therefore, the Supreme Court held that an appeal against an order enforcing an emergency award under Section 17(2) would not be maintainable.

Conclusion:

The Delhi High Court and the Supreme Court’s decision in the Amazon v. Future sets an important precedent giving importance to the party autonomy as one of the prime pillars of arbitration in India. The decision gives legitimacy to an emergency award made under the rules of an arbitral institution like SIAC by treating it on par with an interim order made by an arbitral tribunal seated in India.

Supreme Court’s judgment paves the way for an emergency arbitration award in an India-seated arbitration to be enforced by Indian courts in the same way as if it were a decree of an Indian court. In addition, given that the order for enforcement of such emergency award would be final and non-appealable, parties can expect the enforcement proceedings to be more efficacious and less time consuming.