Emergency Arbitration: A Necessity for Legislative Clarifications?

By Saumya Vanwari, Fourth Year Student at Institute of Law, Nirma University

The long-awaited dispute on the enforceability of “Emergency Award” was finally settled by the Supreme Court in ‘Amazon.com NV Investment Holdings LLC v. Future Retail Limited & Ors. The two-judge bench ruled in favour of Amazon and declared the Emergency Arbitration (“EA”) passed by the Singapore Arbitrator as enforceable in India. It also concluded that except SLP, the single judge’s order on emergency award was not appealable within Section 37(2) of the Arbitration and Conciliation Act (“A&C Act”).

In this article, the author intends to explore the intricacies of the case that led to the dispute of EA. The article will analyse (i) the arguments of the respondent and (ii) the Court’s approach towards the EA in light of the A&C Act. It will also shed the light on the complexities which can arise due to the lack of legislative provisions concerning EA.

Background

On 29August 2020, Reliance Retail Ventures Limited (“RRVL”) entered into an agreement to acquire assets of Future Retail Limited (“FRL”) – a subsidiary of Future Coupons Private Limited (“FCPL”). However, Amazon challenged this agreement on the ground that it violated the Shareholders agreement (“SHA”) signed between Amazon and FCPL. The terms of the Share Subscription Agreement clearly state that Amazon’s ‘investment on FCPL would “flow down” to FRL’. The agreement was based on the premise that after the investment of Amazon in FCLP, FRL cannot take the decision to transfer its retail asset until FCPL, and ultimately Amazon provides its consent. Further, within Schedule III of the SHA, FRL was restricted from entering into an agreement with a ‘certain group of entities’ and that included “RRVL”.

Thereby, Amazon opposed the RRVL-FRL Agreement and appeared before the EAr of Singapore International Arbitration Centre (“SIAC”). The EAr voted for Amazon and restrained the enforcement of 24, 731 crore deal until the arbitral tribunal gave its final decision.

Following the Emergency Arbitrator’s order, Amazon moved to the Delhi High Court (seat being Delhi) via Section 17(2) of the A&C Act. The Single-judge bench of the HC upheld the Emergency Award and restraint the RRVL-FRL acquisition agreement. Contesting this order, FRL appealed before the division bench of the HC under Order 43, Rule 1(3) of Code of Civil Procedure, 1908 (“CPC”) which put a stay on the Single-bench Order.

Through the Special Leave Petition filed by Amazon, the Apex Court stayed the proceedings of the High Court and framed two issues- firstly, whether the “award” passed by Emergency Arbitrator under the SIAC rules is enforceable in India. Secondly, whether the order passed by the single-judge bench of Delhi High Court under Section 17(2) of the Arbitration Act to enforce emergency award be appealable-under Arbitration Act or CPC?

In this article, the author will deal with the first issue on ‘enforceability of EA’. Before analysing the issues, it is essential to understand the term “EA”. In simpler terms, ‘Emergency Arbitration’ is the process of providing urgent relief before the constitution of actual/permanent tribunal. The award granted by Emergency Arbitrator is temporary and can be modified later by the arbitral tribunal.

Recognition of Emergency Award-Section 17(1)

1. Section 2(1)(d) being exhaustive in nature

Future Retail argued that Section 2(1)(d) of the A&C Act is exhaustively defined and ‘Arbitral Tribunal’ only includes ‘sole arbitrator or panel of arbitrators’. The tribunal is constituted by the parties to not only pass interim orders but also render the final award. As the emergency awards are temporary orders and never result in final award, the ‘Emergency Arbitrator’ cannot fall under the ambit of arbitral tribunal defined within Section 2(1)(d) of the act.

The Court rejecting respondent’s contentions stated that although Section 2(1)(d) of the Act does not explicitly includes ‘Emergency Arbitrator’. But the definition only applies ‘unless the context otherwise requires’. Section 2(1)(a) defines arbitration to include both domestic and institutional arbitration. While Section 2(6) and Section 2(8) highlight the party autonomy and make it clear that if the parties have agreed to be governed by institutional rules or administered by permanent arbitral institutions in their agreement, then the provisions of those rules certainly would be applicable. In other words, the parties herein have referred to SIAC rules (i.e. institutional form of arbitration), thus the ‘emergency arbitrator’ provisions would be included within the definition of ‘arbitral tribunal’.

2. Emergency Arbitrator not akin to Arbitral Tribunal

Future Retail relied on Schedule 1 and Rule 3 of SIAC rules to point out that the President of SIAC has to decide whether the Emergency Arbitrator is to be appointed or not. Further, the Emergency Arbitrator holds no power once the arbitral tribunal is constituted. As the Emergency Arbitrator is not an independent quasi-judicial body like tribunal, so it cannot be an ‘arbitral tribunal’ within the A&C Act.

Additionally, they contended that the SIAC rules agreed between the parties were subject to the provisions of A&C Act. However, the Act does not deal with EA, so the Emergency Arbitrator lacked inherent jurisdiction. Thus, the SIAC rules concerning Emergency Award cannot be applied in this case.

Contesting the above-mentioned arguments, the Court stated that there has been no interdict, either express or necessary implication, against an Emergency Arbitrator. There has been nothing contrary to the A&C act when SIAC rules are applied. As per Rule 1.3 of SIAC, an ‘award’ includes ‘emergency award’ and an ‘Emergency Arbitrator’ includes an arbitrator appointed under Schedule 1. This indicates that the Emergency Arbitrator’s order provided under Institutional rules are similar to interim order provided by Arbitral Tribunal, and accordingly included within Section 17(1) of the Act. The Court also stressed upon the fact that party cannot deny the ruling of the EAs award and declare it as a nullity later if they have earlier participated in EA proceedings and expressly agreed to SIAC institutional rules.

3. 246th Law Commission Recommendations-Not Adopted

Future Retail referred to the 246th Law Commission Report which suggested the amendment under Section 2(1)(d) to include ‘EA’. Notably, the Parliament did not incorporate this amendment into the Arbitration Act. This shows that ‘emergency awards’ cannot be included within Section 17(1) of the act.

The Court, however, nullified the above argument by citing Avitel Post Studioz Ltd. & Ors. v. HSBC PI Holdings (Mauritius) Ltd., wherein it was rendered that just become the recommendation of Law Commission Report was not accepted by Parliament, it would not conclude that it cannot become part of the statute even if the Courts have properly interpreted it. Moreover, the B.N. Srikrishna Committee Report also suggested the insertion of provisions concerning emergency arbitrators within the A&C Act.

4. Section 17(1) application to ‘during the arbitral proceedings’

Future Retail argued that under Section 17(1), parties are allowed to approach tribunal for interim relief only ‘during the arbitral proceedings’. By contract, in the SIAC Rules, the EA usually commences before the constitution of an arbitral tribunal, thus the ‘EA’ cannot fall within Section 17(1).

The Court set aside the above argument by relying on Section 21 and section 17(1) of the Act. As per Section 21, the arbitral proceeding begins when the notice to refer dispute to arbitration is received by the respondent. However, this provision is subject to “agreement between the parties”. In the present case, the ‘parties have agreed’ to adopt SIAC Rules as the procedural law of the arbitration. As per which, the arbitral proceedings commence when the date of receipt of complete notice of arbitration is received by Registrar of the SIAC. Therefore, the provisions for ‘EA proceedings’ (agreed between the parties) can be said to part of Section 17(1) when  read with Section 21 of the A&C Act.

Analysis

The Judgment creatively interpreted the provisions and loopholes of the A&C Act to include ‘EA’ within its domain. Relying on Section 2(8) and Section 19(2), the Court has emphasised the significance of the ‘party autonomy’ in arbitration. The Court held the ‘EA’ as the creature of institutional rules adopted by parties in the contract, and thus Emergency Arbitrator as the ‘arbitral tribunal’ within Section 2(d) of the A&C Act. By enforcing the ‘Emergency Award’ which is majorly found in Institutional rules, the Court has propelled the development of ‘Institutional Arbitration’ and ‘Ease of doing business’ in India. It has also brought the recommendations of the 246th Law Commission of India into action.

However, several questions still remain unresolved. Firstly, the Judgment is only limited to arbitrations seated in India’. Now, the emergency award passed in India seated arbitration would have the similar effect to the decree of the Court. But the applicability of EA for foreign seated arbitration is yet to be decided. Secondly, another major concern is the impact of emergency award on third parties. For instance, if the emergency award has earlier been made enforceable against a third party and later the arbitral tribunal reverses that emergency award. In such cases, the parties have to approach the court again to modify the enforceability of such an award against third party. In this judgment, the Court stated that the entire purpose of the EA was to decongest the Court’s system and to provide urgent interim reliefs to the parties. But the burden of the court seems to be never-ending.

Thirdly, it is much easier for Indian parties to approach the court for interim relief under Section 9 than to indulge in EA. Compared to Section 9 interim relief, the EA is nothing but a mini-trial that involves involves more compliances, hefty documents, and rigours.

Lastly, the judgment is too exclusive to SIAC rules. The Judgment has also blurred the difference between interim order and interim award by using it interchangeably. To conclude, although the Judgment brings out the relevance of Party Autonomy and Minimum Judicial Intervention in Arbitration but India still lacks  infrastructure and specialised arbitration rules for smooth functioning of emergency arbitration. Such afore-mentioned procedural complexities indicate the dire need of legislative provisions for EA seated in India. Further, a clarification for foreign seated arbitration and amendments within the second part of the act is also required.