Status of Emergency Arbitration in India: Concept and Emerging Trends

(This is authored by Anubhav Sinha and Lohitaksh Shively of ILS Law College, Pune )

Introduction

With the increase in trade and commerce around the world, contractual relations between buyers and sellers are constantly increasing. Growth of legally enforceable relationships often gives rise to varied commercial disputes and consequently brings about the need for dispute resolution. In today's times “urgent remedial measures” are of grave importance, ergo parties opt for expeditious methods such as arbitration, to get out of the maze of litigation.

However, prior to the constitution of the arbitration tribunal, parties can opt for an Emergency Arbitration (“EA”), wherever required, for any immediate aid. The provisions of an EA will be discussed and analysed in this article.

Concept

As the name speaks for itself, it is an emergency relief in the field of arbitration usually agreed to by the parties without any such assistance of the arbitral tribunal. When the parties to an arbitration seek for an interim relief even before the constitution of an arbitral tribunal, an Emergency Arbitration panel is constituted whose sole objective is to provide a pro tem relief to the parties where those cannot wait for an arbitration tribunal to be constituted.

Therefore, it is important to be mindful of the fact that the Emergency Arbitrator only comes in for the purpose of granting emergency relief, and then steps out.

The emergency arbitrator applies a strict two-pronged test while granting reliefs -

1. Fumus Boni Iuris - reasonable possibility that the requesting party will succeed on merits

2. Periculum in mora - if the measure is not granted immediately, the loss would not and could not be compensated by way of damages.

The parties seeking for emergency relief will have to substantiate the above-mentioned test, and if the panel feels that there persists an inherent need of granting such relief, the panel will provide for it duly.

Position in India

Enforceability of Emergency Arbitration in India is still dubious due to numerous reasons -

● Firstly, “arbitral tribunal” under Section 2 (1)(d) of The Arbitration and Conciliation Act, 1996 (hereinafter the “the Act”) means a sole/ panel of arbitrators. The ambiguity and confusion arise as there is no clear and categorical usage of the term “emergency arbitral tribunal” in the definition of “Arbitration tribunal” and hence, there still exists a grey area wherein the recognition of Emergency Arbitrator in India is unknown. Furthermore, there is an absolute omission of the concept of an emergency arbitration in the Act. Subsequently, in order to remedy this plight, in 2014 the Law Commission in its 246th report recommended to include Emergency Arbitrator under the ambit of “arbitral tribunal” in Section 2(1)(d) of the Act. Unfortunately, the Arbitration and Conciliation (Amendment), 2015 did not incorporate such a recommendation and to this day, the Act lacks any such provision encompassing EA.

● Secondly, Section 17 of the Act which talks about interim measures by an arbitral tribunal is only applicable to domestic arbitrations, as it falls in Part I of the Act. It therefore becomes problematic for foreign seated arbitrations to approach courts in order to enforce EA awards. As EA is an interim relief and Part II of the Act lacks any provision which talks about the same, this leads to an ever-increasing uncertainty of foreign seated interim reliefs passed by Emergency arbitrators.

Notwithstanding the lack of support from the Act, there are several arbitration Institutes in India viz; Mumbai Centre for International Arbitration (“MCIA”), Delhi International Arbitration Centre (“DIAC”), which have categorically provided for provisions relating to an EA in their rules.

Clashing opinions by the courts

The Hon’ble Bombay High Court (“BHC”) in the judgement of Avitel vs HSBC (“HSBC”) considered the issue of EA. In this matter, the parties in their ‘dispute resolution clause’ had mentioned that they have reserved their rights to seek interim relief in the courts of India. However, the parties resorted to EA under the Singapore International Arbitration Centre (“SIAC”) rules, which granted a remedy in the favour of the appealing party. Consequently, the same interim relief was appealed before the BHC under Section 9 of the Act, and the court granted award in the lines of the EA award passed by the emergency arbitration tribunal formed under SIAC rules. Therefore, it can be understood that the BHC indirectly enforced the relief granted by the EA. The matter was appealed in the Apex Court, but the Apex Court failed to provide any interpretation with respect to the award by the Emergency arbitrator.

Moreover, the Hon’ble Delhi High Court (“DHC”) in the Raffles Design v. Educomp whilst dealing with the passage of an interim order by an Emergency Arbitration Tribunal, opined that since the Act lacked any provision of enforcement of ‘outside - India’ interim orders, the same would not be actionable. In this case, the governing law of the Arbitration Agreement was Singapore. The parties were barred from approaching the courts under Section 9 as a way to enforce the EA relief; however, the court observed that the parties to foreign seated arbitration, by the virtue of Section 9 of the Act could approach Indian courts for a “fresh” interim relief.

In the most recent case of Ashwani Minda v. U- Shin, the Appellant sought for interim relief through an Emergency Arbitrator under the rules of Japan Commercial Arbitration Association (“JCAA”), but the EA tribunal had denied to grant any interim relief to the Appellant. Subsequently, the Appellant approached the DHC by virtue of Section 9, praying for an interim relief. The court held that the parties cannot approach Indian Courts since the parties have implicitly excluded Section 9 of the Act, as the Rules governing the Arbitration were SIAC Rules. The court also applied the Doctrine of Election, which postulates that if there are two remedies available for the same relief then the parties will have to follow the path of one remedy and will be barred from reaping the benefits from both the remedies. Relying on the doctrine, the DHC held that the parties cannot have a second bite on the cherry by approaching domestic courts if they have already approached an emergency arbitrator for relief. The DHC further clarified that the courts cannot sit in an appeal for the order passed by the EA tribunal.

Unfortunately, in all the above-mentioned case laws, the courts have not laid down any proposition which validates the enforceability of EA. In the case of HSBC Verdict, the BHC has not recognised or upheld the award passed by SIAC but given an order on similar lines. Hence, it can be understood that the only way to get an interim relief of foreign seated arbitration in India is through the usual route of Section 9.

Analysis

As it is already mentioned earlier, to avail speedy remedial measures via arbitration, EA is quite an effective medium than approaching the overburdened state courts where the relief may get delayed.

Therefore, to ensure the enforceability of awards passed by an EA tribunal in India, the applicability of the EA would have to be carved out either from an existing provision, through statutory interpretation or via addition of an express provision i.e. through amendments or recognising the enforceability of foreign seated interim reliefs via EA tribunals by Indian courts.

As observed in the HSBC verdict, the court indirectly upheld the relief given by the EA tribunal, in its own order under Section 9 of the Act. Therefore, it is of great concern that if the BHC passed such an order, why wasn't the EA relief directly made enforceable?

The entire process of approaching the courts under Section 9 for a fresh interim relief would unnecessarily splurge valuable time along with added costs for both the parties. It is crucial to keep in mind that the central objective of an EA and the reason the parties opt for such is to obtain a remedy without any unnecessary delay. So, the extra effort to approach the court and sit through an entire proceeding to get a similar relief could have been avoided. Moreover, since the Emergency Arbitrators are typically experts in their respective industries, any relief administered by them would be after due thought and consideration.

Again, naturally the courts of law would too pass reliefs after duly considering the factual matrix, but the key concerns are the cruciality of the time factor and costs, due to which such a remedy was sought by the parties in the very first place.

As per Section 2(1)(c) of the Act, which talks about the scope of an arbitral award, it is clearly stated that interim award is included in arbitral award. Therefore, an interim relief granted by the domestic EA tribunal should fall under the ambit of Section 17 of the Act in Part I of the Act and thus be enforceable in India. Even after recommendations by the Law Commission, the Act has failed to incorporate EA as an arbitral tribunal which has created skepticism even about validity of orders passed by domestic EA in the Indian Courts.

The domestic arbitration institutes like the MCIA and DIAC via their respective rules have provided powers to Emergency Arbitrators in granting interim reliefs. For instance, the MCIA through rule “14.8” has explicitly said that “any interim relief ordered or awarded by the Emergency Arbitrator shall be deemed to be an interim measure ordered or awarded by a tribunal”. Therefore, the interim order as passed by the Emergency Arbitrator is treated as an award granted by a “tribunal”. Accordingly, such an award ought to be brought under the ambit of Section 17.

The enforceability of foreign seated Emergency arbitration award in India is a bit tricky as it can only be recognised under Part II of the act, which governs foreign seated arbitration. Though Section 17 of the Act gives the arbitral tribunal the power to grant interim relief to the parties, its scope is only limited to domestic arbitrations. Part II of the Act should be equipped with a similar provision or the power vested in Section 17 should have effect on foreign seated arbitration as well as; this will pave the way for Emergency arbitration in India.

Unfortunately, to every such mechanism there exists not only benefits but also a few drawbacks. EA faces downsides in being big-budgeted, causing delays in appointment of Emergency Arbitrators and the inability of the orders to be ex parte in nature. On this account, it is of great importance that the parties weigh their balancing interests and determine what approach is best to receive an interim award, keeping in mind the urgency for the same.

Recent Development

Recently, the Hon’ble High Court of Delhi in Future Retail Ltd. Vs. Amazon.com Investment Holdings LLC & Ors., taking a positive approach towards legal status of EA in India ruled that the concept of emergency arbitration is not alien to Indian Law.

The afore-mentioned case dealt with the dispute between the retail giants viz; Reliance and Amazon. The tussle was regarding the ownership of entities in the future retail group (“Future Group”). The dispute incepted when the Reliance group had entered into an acquisition deal with the future retail group for roughly 3 Billion dollars, to which Amazon contended that the abovementioned transaction is violative of Shareholders Agreement (“SHA”) which was between Amazon and the shareholders of future group. The Amazon group in order to avert the transaction sought emergency interim relief from the SIAC which was allowed in Amazon’s favour. Future group along with Reliance filed its plea in DHC for interim injunction to restrain Amazon from enforcing the emergency arbitral award passed by SIAC. Single Judge Bench of DHC on 20th December 2020 without delving into the merits of the matter, held that the parties had voluntarily chosen the arbitration to be governed by SIAC rules which have provision for approaching an emergency arbitrator for interim relief and such provisions are not contrary to any mandatory provisions of the Act. DHC further held that, even though the Parliament refused to incorporate the suggestions made by the Law Commission, it does not amount to complete exclusion of emergency arbitrators under the Indian law and that the validity of emergency arbitrator cannot be simply negated because Section 2 (1)(d) of the Act does not categorically define the same. Hence, the court adopted the expansive definition of the aforementioned provision. As a result, appeal made by the Future group challenging the emergency award passed by SIAC was dismissed.

Even after all the aforementioned judgements, the fact that there is still no provision which explicitly recognizes the validity of EA, leads to a great deal of dilemma, which calls for an amendment. Only time can tell us the future of enforcement of Emergency Arbitration in India.