Amazon – Future Group: Delhi High Court’s Intrusiveness in Staying Arbitral Proceedings

The arbitral proceedings initiated by Amazon against the Future Group before a Singapore arbitral tribunal has already received considerable judicial attention in the courts in India. In a recent turn of events, a division bench of the Delhi High Court on 5 January 2022 stayed the arbitral proceedings upon the request of the Future Group, and overturned the ruling of a single judge of the same court who refused to interfere in the arbitral proceedings. The division bench ruling has effectively derailed the arbitral proceedings, which have come to a standstill.

In this post, I argue that the order of the division bench is unsustainable on several fronts. First, it sidesteps the question of jurisdiction of the High Court under article 227 of the Constitution to intervene in arbitral proceedings and, in doing so, disregards well settled precedents that clearly delineate the contours of the extent of interference by High Courts. Second, the division bench pays short shrift to the autonomy of the arbitral tribunal, which forms the bulwark of the alternative dispute resolution mechanism that has gained significant traction in resolving commercial disputes. Third, even on facts, the interference seems unjustified on what is a procedural matter that ought to have been within the sole domain of the arbitral tribunal, devoid of incursion by the courts.

Background to the Ruling

In 2020, Amazon initiated arbitral proceedings before a Singapore tribunal alleging a breach of contract by the Future Group. During the course of the arbitral proceedings, several judicial interventions were sought, and matters went up to the Delhi High Court as well as the Supreme Court. Nevertheless, of immediate relevance is a set of hearings that the arbitral tribunal had scheduled between 5 January 2022 and 8 January 2022, principally for hearing the expert witnesses in the matter. This was admittedly decided well in advance. In the meanwhile, the Competition Commission of India (CCI) passed an order on 17 December 2021 holding in abeyance an earlier approval it had granted to the transaction between Amazon and the Future Group. The CCI order raised significant questions about the validity of the arrangement between the two parties and, consequently, the ability of the arbitral proceedings to continue. The Future Group sought that the arbitral tribunal suspend all other proceedings relating to the matter and take up their request to terminate the arbitration based on the findings of the CCI. In response, the arbitral tribunal agreed to hear the parties on the issue of termination on 8 January 2022, after hearing the expert witnesses on the merits of the dispute.

Ultimately the question boils down to whether the termination application ought to be heard first, as the Future Group has sought, before the rest of the proceedings continue. This is the ground on which the Future Group filed a writ petition under article 227 of the Constitution seeking intervention of the Delhi High Court. By an order dated 4 January 2022, a single judge of the High Court refused to intervene. The judge elucidated the jurisdictional aspects of the High Court’s interference, and found that the present dispute did not warrant any intervention. This is also based on the facts of the case, given the procedural nature of the order that was being sought. The judge also found at the arbitral tribunal was reasonable in its stance in response to the requests of the Future Group. However, the very next day, and in an appeal preferred by the Future Group, the division bench differed from the single judge and stayed the arbitral proceedings. The latter ruling necessitates a critical analysis.

The Jurisdictional Conundrum

It is worth noting that while the single judge extensively dealt with the jurisdictional question, the division bench remained silent on the issue in its six-page order. It did not delve into the wealth of jurisprudence laid down by the Supreme Court as well as the Delhi High Court on the question of exercise of writ jurisdiction in staying arbitral proceedings. In SBP & Co. v. Patel Engineering Ltd. (2005), a seven-judge bench of the Supreme Court expressed its dismay over the practice of High Courts in allowing parties to challenge under articles 226 or 227 of the constitution any orders passed in arbitration. The Court cautioned against such an approach, for which it saw “no warrant”. It also suggested that the purpose of arbitration would be defeated by repeated judicial intervention, and that parties could assuage their concerns judicially only after the arbitration process was completed.

More recently, in Deep Industries Limited v. Oil and Natural Gas Corporation Limited (2019), a three-judge bench of the Supreme Court explored the structure of the Arbitration and Conciliation Act, 1996, especially section 5 thereof, and found that while the exercise of writ jurisdiction by the High Court was permissible in matters of arbitration, it was fairly circumscribed. The Court also mentioned that based on the statutory policy, “interference is restricted to orders that are passed which are patently lacking in inherent jurisdiction”. It also reiterated the objective of speedy disposition of arbitration cases, and that the Arbitration and Conciliation Act is a self-contained code.

There is also a catena of decisions of the Delhi High Court that accepts the above position as conventional judicial wisdom. Noteworthy among them is a single judge decision in Surender Kumar Singhal v. Arun Kumar Bhalotia (2021), wherein the Court enumerated various principles (in paragraph 24) that mandate judicial intervention in arbitration matters. The gist is that article 227 petitions would be maintainable only when the arbitral order is “so perverse that it is patently lacking in inherent jurisdiction”, and that interference would have to be only in “exceptional circumstances”. The tenor of this decision is to disincentivize parties from resorting to the courts when an arbitral proceeding is ongoing, except when absolutely necessary on the lines indicated.

Understandably, the single judge placed considerable deference to that jurisprudence, which he expounded in great detail, before declining any interference. However, the division bench altogether disregarded the jurisdictional question before displaying its eagerness to exercise its interventional powers. Arguably, the division bench decision warrants a relook on this ground alone, as it goes against the grain of established judicial precedents on the issue.

Deference to Arbitral Autonomy

The scheme of the Arbitration and Conciliation Act provides considerable autonomy to the arbitral tribunal, especially on matters of procedure. This is made clear in section 19 of the Act, sub-section (3) of which clarifies that “the arbitral tribunal may … conduct the proceedings in the manner it considers appropriate”. As the single judge appropriately noted, the arbitral tribunal is “the sole master of the procedures”. Hence, any judicial interference would likely derail the arbitral proceedings thereby defeating the provisions of the legislation. It goes without saying, therefore, that judicial interference must be kept to a minimum. If arbitral proceedings are subject to constant judicial oversight, they can only be carried out in fits and starts, which could never have been the intention of parliament.

Here it is worth quoting from the ruling of the single judge (in paragraph 24):

… There is only a very small window for interference with orders passed by the Arbitral Tribunal … The said window becomes even narrower where the orders passed by the Arbitral Tribunal are procedural in nature. Therefore, this window cannot be used for impugning case management orders passed by the Arbitral Tribunal, which are in the nature of procedural orders. Such orders are completely in the domain and discretion of the Arbitral Tribunal, and include orders relating to the scheduling of the arbitral proceedings …

Such an approach is entirely consistent with the well-established jurisprudence that the Arbitration and Conciliation Act is a complete code in itself. Hence, excessive interference by the High Court in exercise of writ jurisdiction would upend such a carefully crafted balance between the powers of the arbitral tribunal and those of the judiciary in resolving disputes through arbitration. The division bench, though, pays scant regard to the legislative design, as recognized by the judiciary.

Factual Analysis

The outcome of the division bench is premised solely on the order of the CCI dated 17 December 2021, as if the same effectively ought to be fatal to the arbitral proceeding. That appears to be a rather extreme position. On the other hand, the single judge adopted a more measured stance in finding that the arbitral tribunal’s approach towards handling the procedural matters was only reasonable in the circumstances. It was not as if the tribunal altogether ignored the existence of the CCI order and, on the contrary, it was willing to hear the termination application of the Future Group based on that. Ultimately, the difference of opinion was limited solely to the sequencing of the proceedings, i.e., whether the termination application must be taken up prior to hearing the expert witnesses. Here too, as the single judge notes, there is no reason to suggest any bad faith on the part of the arbitral tribunal. However, by readily exercising its jurisdiction, the division bench has effectively made an unwarranted incursion into the domain of the arbitral tribunal in dealing with such procedural matters, which only the tribunal is best placed to determine.

Concluding Remarks

Over the years, the Indian judiciary has developed significant jurisprudence regarding the extent to which courts can either intervene in arbitral proceedings or disturb arbitral awards. In doing so, it has considered the importance of arbitration as a means of resolution of commercial disputes, especially those of the cross-border variety. Any intervention is limited only to very specific and exceptional circumstances. This is not only a legal consideration, but also a pragmatic one, given the disruption that constant judicial intervention may bring about to progress in arbitral proceedings. This is also consistent with the policy of the Government of India to promote international commercial arbitration. The decision of the division bench, however, sets at naught the years of effort by the judiciary, legislators, and policymakers, and sends a confusing signal that would undermine the use of international commercial arbitration by Indian companies and their contractual counterparts.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

Add comment

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Top Posts & Pages

Topics

Recent Comments

Archives

web analytics

Social Media