[Aakanksha Jadhav and Mustafa Rajkotwala are 3rd year B.A. LL.B. (Hons.) students at NUJS, Kolkata and NALSAR, Hyderabad, respectively]
In a significant boost to party autonomy in India, the Delhi High Court explicitly recognised the compatibility of emergency arbitrations with the Arbitration and Conciliation Act, 1996 (the ‘Act’) in the recent decision in Future Retail Limited v. Amazon Investment Holdings LLC. The case arose out of an elaborate transaction between multinational corporate giant Amazon and the Future Retail Group. Amazon’s attempts to thwart Future Retail Ltd.’s (‘FRL’) on-going deal with Reliance led to FRL filing a petition for an interim injunction on Amazon’s contact with regulatory authorities.
Although Amazon had earlier succeeded in obtaining an order from an emergency arbitrator in Singapore (‘EA Order’), FRL and its associates argued in the proceedings before the Delhi High Court that Amazon’s reliance on this award was untenable, as an emergency arbitration finds no recognition under the Act. Rejecting FRL’s arguments, the Court held that approaching an emergency arbitrator was compatible with the Act. In view of the decision, Amazon would be free to continue approaching regulatory bodies on the basis of the EA Order obtained. The decision provides a nod to emergency arbitrations, but much is left in the hands of the legislature. Without an effective system to enforce emergency arbitral orders, this bare recognition remains without teeth in India.
Factual Background: The Tussle to Control India’s Retail Market
The case arose out of a petition filed by FRL asking the Court to prohibit Amazon from interfering in its on-going transaction with Reliance. Amazon had earlier acquired a 49 percent stake in FRL’s promoter firm in an elaborate transaction, a part of which required FRG to inform Amazon before transacting with third parties. To stall the Reliance- FRL deal, Amazon managed to obtain an emergency arbitral order in its favour in pursuance of its agreement with the Future Group. It began writing to regulatory authorities to stay the Reliance-FRL deal on the basis of this order.
In its petition, FRL contended that Amazon’s correspondence with regulators to impede the Reliance-FRL transaction amounted to tortious interference. The Court was required to examine, among other things, whether a case for grant of interim injunction was made out by FRG. The Court held that Amazon’s transactions with the Future Group amounted to ‘control’ that required authorisation under the Foreign Exchange Management Act (‘FEMA’) rules and that FRL had established a prima facie case. However, it denied an interim injunction to FRL as it could not satisfy the other prongs of the interim injunction test – balance of convenience and irreparable loss. Without delving into the other issues examined in the decision, the analysis in this post shall focus on the question regarding the validity of an emergency arbitrator’s order under Indian law.
Judgement and Analysis
During the proceedings, FRL, its associates, and Reliance argued that the concept of an emergency arbitrator was antithetical to the scheme of the Act. The counsel for FRL attempted to show through sections on appointment, challenge, and termination of jurisdiction of an arbitrator that the scheme of the Act envisages a degree of permanence that could not be reconciled with emergency arbitrations. Further, it was highlighted that the legislature had rejected the Srikrishna Committee’s recommendations that provided for the inclusion of the term ‘emergency arbitrator’ in the Act. Thus, it was contended that the absence of the term under the purview of the definition of arbitral tribunal was a conscious choice showcasing legislative intent. Furthermore, it was asserted that the only remedy for obtaining interim reliefs before the constitution of a tribunal was to approach courts under section 9 of the Act. Hence, the crux of FRL’s arguments was that the SIAC rules which provided for an emergency arbitration were in derogation of compulsory provisions of the Act, i.e., section 9, and to that extent, void.
Amazon premised its arguments on party autonomy. Asserting that the parties were free to choose the SIAC rules for themselves, it argued that an order passed by an emergency arbitrator was an interim measure, enforceable under section 17 of the Act. Further, the principle of compétence de la competence was highlighted, which empowered the emergency arbitrator, by virtue of the agreement, to determine his own competence.
The decision of the Court sided with Amazon on this issue and held that the absence of the term ‘emergency arbitrator’ under section 2(1)(d) of the Act is not a testament to its impermissibility. While relying on HSBC PI Holdings (Mauritius) Limited v. Avitel Post Studioz Limited & Others, the Court observed that it did not view the legislature’s exclusion of the term ’emergency arbitrator’ as a manifestation of its intent. Elaborating on the scope of section 9, it recognised that most arbitral institutions (both Indian and international) provide for an emergency arbitrator in their rules. The purpose behind the same is to adjudicate upon any interim reliefs which need to be granted urgently before the constitution of a tribunal.
The Court underlined three crucial points in its discussion. First, it observed that the proviso to section 2(2) and other provisions of the Act clarified that section 9 could be excluded by agreement to the contrary. This implied that section 9 is not a mandatory provision and could be derogated from. Second, the Court opined, in line with precedent, that the crucial law chosen by the parties to an arbitration agreement would be followed to the extent that the same is not “contrary to public policy or against the mandatory requirements of the law of the country in which the arbitration is held.” Third, the Court held that the SIAC rules, which were the law chosen by the parties in the present case, were not incompatible with the in providing for emergency arbitrations. This was a result of the Court’s adoption of the two-pronged test of public policy and mandatory requirements. Notably, the SIAC Rules also leave it open to the parties to approach domestic courts.
The Court’s recognition of the compatibility of emergency arbitrations with the Indian law, though a welcome step, is not enough to resolve issues around the topic. The enforcement of any interim reliefs passed by such emergency arbitrators, particularly in the case of a foreign seated arbitration, still remains uncertain. There are no provisions under the Act that provide for the enforcement of an interim order passed by an emergency arbitrator (under a foreign seated arbitration) within India.
It is pertinent to examine the precedents that deal with section 9 of the Act, which has been used to enforce emergency arbitration orders. The provisounder section 2(2) of the Act allows for the various features of section 9 to be applicable in foreign seated arbitrations. Accordingly, the Delhi High Court in Raffles Design International India P. Limited v. Educomp Professional Education Limited and the Bombay High Court in HSBC PI Holdings (Mauritius) Limited v. Avitel Post Studioz Limited provided interim reliefs to the parties after they had already approached emergency arbitrators. This was because the parties sought the same nature of relief before the court that they did before the emergency arbitrator, and that the provisions of their dispute resolution agreement (along with the arbitration institution’s rules) allowed the parties to avail such concurrent routes. However, in Ashwani Minda v. U-Shin Limited, the Delhi High Court did not provide relief under section 9, as the parties applied to the Court after the emergency arbitrator had rendered an unfavourable order. While distinguishing Raffles, the Court pointed out that it was a case concerning an arbitration governed by the SIAC Rules, which expressly allowed the parties to avail the same remedies before domestic courts as they did before the emergency arbitrator. The Court highlighted that the agreement between the parties and the curial law chosen did not warrant the applicability of section 9 and judicial interface in the course of the arbitration.
Hence, going by the rationale established in Raffles, the only way to get a domestic court to enforce an emergency arbitration order would be to resort to a section 9 petition, to file a civil suit under the Code of Civil Procedure, 1908, seeking similar relief. However, according to Ashwani Minda, that too would depend on the exact provisions of the arbitration agreement and the law chosen by the parties.
Although Indian courts have been receptive to the concept of emergency arbitrations and have sought to recognise the same, it is necessary to re-examine the practicality behind the enforceability of the order passed by emergency arbitrators as per the provisions of the Act. On an overarching note, the concept of emergency arbitration in India stands to have various practical demerits. Section 17 of the Act does not provide for direct enforcement of any foreign-seated arbitral tribunal’s interim order, regardless of its nature (ordinary or emergency). Therefore, if the courts cannot ensure the enforceability of any such interim orders in the first place, there would be no relief in case there is a default in following the same at the hands of either of the parties as well. The parties would have to approach courts for the same relief anyway, frustrating the very purpose behind the urgency of an ‘emergency arbitration.’ Therefore, in such a scenario, resorting to an ‘emergency’ arbitration would be counter-productive, resulting in the loss of additional time, resources, and efforts. There is an imminent need for Indian jurisprudence to settle its stance on the enforceability of orders passed under foreign seated arbitrations.
– Aakanksha Jadhav & Mustafa Rajkotwala