Legality of Emergency Arbitration In India: Understanding Future Retail Group vs. Amazon

INTRODUCTION

After a highly publicized conflict between Future Retail Ltd. and Amazon.com Investment Holding LLC, the field of emergency arbitration resurfaced in India. There have only been a few cases in India that have dealt with the enforceability of an emergency arbitrator’s decision. In an interim order dated December 21, 2020, the Delhi High Court Bench of the Ld. Single Judge addressed in detail how the emergency arbitrator’s award is enforceable in India. Despite the fact that there are several other issues in the conflict, the focus of this article will be on the issue of emergency arbitration and its legal status in India.

WHAT IS EMERGENCY ARBITRATION (EA)?

Emergency Arbitration is the mechanism through which parties to the agreement can seek for interim relief, even before the constitution of Arbitral Tribunal. It is opted in the cases when the parties cannot wait for the formation of Arbitral Tribunal as it would cost irreplaceable loss to the party seeking it.  This type of Arbitration becomes dead once the purpose for which it was formed is achieved. EA is an alternative to the interim relief granted by the Courts. Usually EA awards are granted only in cases when the interim relief is in the aid for the final award. Cost effective and extra judicial intervention are the main reasons for the parties opting for Emergency Arbitration over interim reliefs from Courts.

EMERGENCY ARBITRATION IN INDIA

The Arbitration and Conciliation Act, 1996 does not contain any provision which provides statutory legality to the Emergency Arbitration in India. The definition of ‘Arbitral Tribunal’ under section 2(1)(d) of the Arbitration Act, defines the ‘Arbitral Tribunal’ as compositions of either sole arbitrator or panel of arbitrators, but does not contain the enabling provisions regarding Emergency Arbitration.[1] Therefore the 246th Law Commission in its report recommended to add the word ‘Emergency Arbitration’ under section 2(1)(d) of the Act.[2] The aim was to lessen the judicial intervention under section 9 for interim relief and to pave a way for the promotion of Institutional Arbitration in India. But this recommendation could not be materialized and didn’t become the part of the 2019 Amendment Act.[3] Even though there is no enabling provision regarding the emergency arbitration in India, various major Arbitration Institutions such as Delhi, Mumbai and Chennai are following the internationally recognized set of rules of arbitrations containing provisions permitting the parties to the agreement to opt for Emergency Arbitration. As far as the foreign seated arbitrations are considered, the award from such Emergency Arbitration is strictly prohibited from enforcing in India. Even in the absence of any provision of EA in India, several High Courts have paved the way of EA in India, by adopting the interpretation which favors the enforceability of emergency awards of Indian seated arbitrations. It was in the case of HSBC PI Holdings (Mauritius) Ltd. v Avitel Post Studioz Ltd[4]. where the Bombay High Court granted a favorable order to the parties seeking to enforce an emergency award from Singapore Arbitration. Similarly in Raffles Design International Private Limited v Educomp Professional Education[5] the Delhi High Court upheld the interim emergency award of Singapore seated arbitration.

Therefore the parties in India often make recourse to Section 9 of Arbitration Act for interim reliefs from Courts, but such application under section 9 is often given an independent view apart from Emergency Arbitration.[6]

THE INTERESTING CASE OF FUTURE RETAIL V AMAZON

In this case the legality of emergency arbitration was challenged before the single judge bench of Delhi High Court.[7] For the first time the Court upheld the emergency award passed by the emergency arbitrators in this case.

Facts: The dispute arose between the Future Retails Group and Amazon on the basis of a Shareholder Agreement between both the parties. This agreement prohibits the Future Retails Group from selling its assets to the entities listed in the agreement. Meanwhile the Future Retail group entered into an acquisition transaction with Reliance under which shares were decided to be transferred to Reliance group. Since the deal was contrary to the shareholder agreement, the Amazon invoked the arbitration clause contained under the agreement and filed an application before the SIAC for emergency arbitration. Amazon was successful in obtaining an emergency award restraining the Future group to proceed with the acquisition deal with Reliance.

Amazon with the EA award knocked the door of all the regulatory authorities governing the acquisition transaction between the Future Group and Reliance. Aggrieved by this the Future Group filed an interim application before the Indian Court, seeking permanent and temporary injunction against Amazon.

Contentions:

  • The EA award passed is null and void as the Arbitration Act contain no provision upholding the legality of EA.
  • The SIAC rules are against the public policy as they take away the right of Indian parties to approach the Court for interim reliefs.
  • The EA is not an Arbitral Tribunal as required under section 2(1)(d) of the Arbitration Act.

Judgment

  • The Court emphasized on the importance of party autonomy and held that since both the parties mutually agreed to be governed by the SIAC rules, all the SIAC rules includes emergency arbitration forms the part of proceedings between both the parties, unless its contrary to public policy or prohibited by any law in force. Further Section 2(8) of the Arbitration Act provides the parties an option to chooses the procedural law to govern the arbitral proceedings[8] and in this case selecting SIAC rules makes no difference.
  • The parties are not prohibited from getting interim (under Section 9) relief under SIAC rules as rule 30.3 of SIAC prescribes provision to seek interim from competent judicial authority.
  • Section 9 of Arbitration Act is not a mandatory requirement and in case of commercial arbitration parties can choose their mode for seeking interim relief, which includes emergency arbitration.
  • The Court further emphasized on the fact that just because a recommendation from certain commission (in the present case recommendation of 246th law commission to incorporate emergency arbitration under section 2 of Act) is not accepted, it does not mean that such laws are bad and can’t be developed in future.

Based on this reasoning the Court upheld the validity of the Emergency Award in the present case.

ANALYSIS

It can be very easily concluded from the ratio of above judgment that the Emergency Arbitration does not hold legal backing in India under the Arbitration Act. Despite this fact EA is gaining high relevance in the Indian legal jurisprudence to the active role played by the Courts in interpretation the EA friendly provisions of the Arbitration Act. This is the high time to recognize EA in India, in order to fulfil the dream of India becoming the hub of Institutional Arbitration at international level.

Other than the need of EA in India, the benefits which EA bring can never be overlooked and underestimated, especially in these uncertain times of Coronavirus when the Courts are functioning virtually. One of the main reason of preferring EA over Section 9 of Arbitration Act in India, is that EA awards must be passed in a prescribed time frame, whereas there is no such time frame within which the interim awards must be granted by the Courts. Especially post COVID-19 the things are going to change at greater pace and ‘time’  would be the essence of every arbitration proceeding. Other than this the party autonomy, which forms the foundation of Arbitration laws, should always be prioritized at every cost unless it’s either contrary to the public policy or to the law of the land.

Therefore at the time when Emergency Arbitration is considered to be the turning tide in the field of Arbitration regime all across the globe, even India should make the necessary statutory changes and make EA part of the legal regime of Arbitration in India.

CONCLUSION.

The concept of emergency arbitration is still new to Indian arbitration field as there are not many judgments discussing the legality of emergency arbitration in India. Despite the fact that Emergency Arbitration serves as a turning point in the global scenario in light of injunctions in arbitration proceedings, India has yet to receive formal legislative approval of the Emergency Arbitrator’s awards. Even the law commission understood the importance of Emergency arbitration and recommended its inclusion in the Arbitration Act, but unfortunately it couldn’t be materialized.

But the recent developments in the judicial pronouncements and the trend of major arbitration institution in India in recognizing the emergency arbitration in their arbitration rules is a one step towards the inclusion of EA in the Act. The party autonomy must always be respected and judicial intervention must be minimized. Going forward, with the judicial orders validating the emergency arbitration, it appears that the field of emergency arbitration is bound to grow in India.

[1] Section 2(1)(d) of the Arbitration and Conciliation Act,1996.

[2] The Law Commission’s 246th Report dated 05.08.2014.

[3] The arbitration and conciliation (amendment) act 2019, (No. 33 of 2019), dt. 09.08.2019, w.r.e.f. 09.08.2019.

[4] HSBC PI Holdings (Mauritius) Ltd. v. Avitel Post Studioz Ltd & Ors., Arbitration Petition No. 1062/2012 dated January 22nd, 2014.

[5] Raffles Design International India Private Limited & Ors. v. Educomp Professional Education Limited & Ors, O.M.P (I) (Comm.) 23/2015, CCP(O) 59/2016 and IA Nos. 25949/2015, 2179/2016 dated October 7th, 2016.

[6] HSBC PI Holdings (Mauritius) Ltd. v. Avitel Post Studioz Ltd & Ors., Arbitration Petition No. 1062/2012 dated January 22nd, 2014.

[7] Future Retail v Amazon.com Investment Holdings, decided on 21st December 2020

[8] Section 2(8) of the Arbitration and Conciliation Act,1996

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Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

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One Comment

  1. manmohan khetan says:

    Kudos! Dear Sajjan. Nicely articulated article on a contemporary issue. Can you throw some more light on this famous litigation

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