The Emergency Arbitrator in India – Status and Enforceability

In summary

This article discusses Indian law on the legal status of an emergency arbitrator and the efficacy of orders passed by the emergency arbitrator. The article highlights recent developments in the much-publicised Amazon-Future Group dispute, where the legal status of an emergency arbitrator is directly at issue. The article explains that there are sound legal and policy reasons for recognising emergency arbitration in India.

Discussion points

•   Definition of an arbitral tribunal under the Indian Arbitration and Conciliation Act, 1996
•   246th Report of the Law Commission of India
•  Arbitration and Conciliation Act on emergency arbitration
•  Enforcement of interim measures passed by an arbitral tribunal under section 17(2) of the Indian Arbitration and Conciliation Act, 1996

Referenced in this article

•  Amazon.com NV Investment Holdings LLC v Future Coupons Private Limited (2021) SCC Online Del 1279
• Future Retail Limited v Amazon.com NV Investment Holdings LLC (2020) SCC Online Del 1636
• Ashwani Minda v U-Shin Limited (2020) SCC Online Del 721
• Alka Chandewar v Shamshul Ishrar Khan (2017) 16 SCC 119
• Law Commission of India, Report No. 246, Amendment to the Arbitration and Conciliation Act, 1996

Introduction

Speed is the essence of arbitration. Parties opt for arbitration believing that it is a quicker dispute resolution mechanism. Unfortunately, however, this is often not the case. Complex, commercial arbitrations take significant time to complete and successful  parties would then have to contend with challenges to the validity as well as enforcement of the arbitral award. Urgent interim relief becomes crucial in such disputes. In fact, such relief may be necessary to preserve the very subject matter of the arbitration. However, with increasing dockets of courts, obtaining urgent interim relief is easier said than done. Perhaps more importantly, parties who have consciously chosen a neutral private dispute resolution mechanism are wary of initiating litigation before national courts, even if it is for the limited purpose of interim relief. The concept of emergency arbitration is specifically designed to address these issues. Emergency arbitration allows the arbitral institution to appoint an emergency arbitrator to adjudicate a dispute for granting urgent interim relief until the full arbitral tribunal is constituted. While this concept of emergency arbitration is fast gaining prominence, the legal status of the emergency arbitrator and the enforceability of orders passed by the emergency arbitrator has been in doubt. Although some countries, such as Singapore, have granted statutory recognition to an emergency arbitrator, most national legislation is silent on the issue.

In India, the legal position relating to emergency arbitration is unclear, as the Indian Arbitration and Conciliation Act 1996 (the A&C Act) does not expressly provide for emergency arbitration. This article highlights crucial developments that have taken place in India in the past few months concerning the enforceability of orders passed by emergency arbitrators. These developments have occurred in the much-publicised dispute between Amazon.com NV Investment Holdings LLC (Amazon) and the Future Group, an Indian conglomerate specialising in the retail sector (the Amazon–Future dispute),[1] where Amazon was able to obtain an order from an emergency arbitrator in an India-seated arbitration proceeding. The article considers critical questions relating to the status and enforceability of orders passed by an emergency arbitrator.

Status of an emergency arbitrator under the A&C Act

Section 2(1)(d) of the A&C Act defines an arbitral tribunal to mean a sole arbitrator or a panel of arbitrators. Section 2(1)(d), which is based on the UNCITRAL Model Law on International Commercial Arbitration 1985, has not been amended since the A&C Act was passed by the Parliament of India in 1996, when the concept of emergency arbitration was practically unheard of.

In 2014, the Law Commission of India issued the 246th Report proposing amendments to the A&C Act.[2] Taking note  of the rise of emergency arbitration, the Law Commission recommended that section 2(1)(d) of the A&C Act be amended to expressly include an emergency arbitrator where the rules of an arbitral institution provided for the appointment of an emergency arbitrator. The Law Commission’s recommendation followed the Singaporean example where the definition of an arbitral tribunal was amended to include an emergency arbitrator.[3] However, when the government of India introduced the proposed amendments to the A&C Act before Parliament in 2015, in line with the 246th Report, this recommendation was not incorporated.

Objections to recognizing an emergency arbitrator under the A&C Act The legal status of an emergency arbitrator requires further consideration as the A&C Act expressly does not provide answers. At the outset, while party autonomy may be a good basis to confer legal status on an emergency arbitrator, it is equally important to consider the objections to conferring such legal status on an emergency arbitrator. These objections may be summarised as follows:

• Section 2(1)(d) of the A&C Act, which defines an arbitral tribunal, does not expressly include emergency arbitrator.
• Although the Law Commission proposed an amendment to section 2(1)(d) to specifically include an emergency arbitrator, the government of India did not include this proposed amendment in the text of the bill to amend the A&C Act in 2015 [4].
• An emergency arbitrator is transient and his or her authority ceases to exist after the constitution of the arbitral tribunal. This will result in parties appointing different arbitrators at different points in time. This is impermissible as the A&C Act does not allow for the appointment of temporary arbitrators.

Arguments in favour of recognising emergency arbitration in India

As mentioned above, the sanctity of the position of an emergency arbitrator comes from the basic norm of arbitration law, namely party autonomy. In addition to this and based on a reading of the A&C Act as a whole, there are several reasons for recognising an emergency arbitrator.

First, section 2(1)(d) of the A&C Act defines an arbitral tribunal to mean a sole arbitrator or a panel of arbitrators. Thus, the true test of section 2(1)(d) is whether a person or authority is an arbitrator. The test for an arbitrator under Indian law is the ability to perform judicial functions.[5] Applying this test, an emergency arbitrator is undoubtedly an arbitrator. He or she performs adjudicatory functions to grant interim relief and determines issues, on a prima facie basis, that arise out of or relate to the grant of interim relief. In fact, arbitral institutional rules unequivocally regard the emergency arbitrator as having all the powers of the fully constituted arbitral tribunal. For example, the Arbitration Rules of the Singapore International Arbitration Centre 2016 (the SIAC Rules) expressly vest the emergency arbitrator with the powers of the fully constituted arbitral tribunal, including the power to rule on his or her own jurisdiction and the power to give interim relief [6]. The proceedings before an emergency arbitrator have a juridical seat, much like the proceedings before the fully constituted arbitral tribunal.[7] An emergency arbitrator has to file the same declaration of lack of conflict as an arbitrator. The appointment of the emergency arbitrator can also be challenged on the ground of lack of independence and impartiality in the same manner as any other arbitrator.[8]

Second, the argument that Parliament did not incorporate the Law Commission of India’s recommendation to amend the definition of the arbitral tribunal to include an emergency arbitrator is irrelevant. The legislative history of the 2015 Amendments suggests that the proposed amendment to section 2(1)(d) of the A&C Act to incorporate an emergency arbitrator was not placed before Parliament at all. Hence, there was no question of an amendment as the government may have possibly believed that an amendment to section 2(1)(d) was not required at all. Further, in the context of certain other recommendations of the Law Commission in the 246th Report that were not reflected in the 2015 Amendments, the Supreme Court held that reliance could not be placed on such aspects and the development of law by courts could not be thwarted merely because Parliament did not incorporate a certain recommendation of the Law Commission.[9]

Third, the argument that the concept of an emergency arbitrator is contrary to the mandatory provisions of the A&C Act ,  may also be incorrect. No provision in the A&C Act prohibits emergency arbitration. On the contrary, section 2(6) read with section 2(8) provides that parties are free to choose arbitral institutional rules as part of their arbitration agreement and such rules, as incorporated in the arbitration agreement, are enforceable. The Supreme Court has held this exercise of ‘party autonomy’ to be the Ground norm and the backbone of arbitration.[10] Consequently, the choice of emergency arbitration should, as a matter of principle, be considered enforceable.

Fourth, the idea of two separate arbitral tribunal adjudicating different stages of a dispute has been recognised as valid by the Supreme Court.[11] Section 15 of the A&C Act also makes it evident that the Act already contemplates that the mandate of an arbitrator may terminate at any stage of the arbitration proceedings by the ‘agreement of the parties’. Hence, the A&C Act is permissive of the concept of an emergency arbitrator.

Judicial decisions on ‘emergency arbitration’ in India prior to the Amazon–Future dispute In the past, there have been limited occasions for Indian courts to consider orders passed by emergency arbitrators. All these decisions have come in the context of Part II of the A&C Act, which deals with foreign-seated arbitrations and foreign arbitral awards.

In Rafes Design v Educomp,[12] the Delhi High Court had to consider directions passed by an emergency arbitrator in a Singapore-seated arbitration. The directions were sought to be enforced through an application filed under section 9 of the A&C Act. The Court did not, at any stage, question the legal status of the emergency arbitrator. However, the Court was conscious of the legal position that, under Part II of the A&C Act, interim orders could not be enforced.[13] Importantly, the Court stated that parties had to take recourse to section 9 of the A&C Act as the order passed by the emergency arbitrator could not be enforced under section 17 of the A&C Act, [14] as section 17 was not available in a foreign-seated arbitration. This was on account of the scheme of the A&C Act that creates different regimes for India-seated and foreign-seated arbitrations – and not because the order was an order of an emergency arbitrator.[15] Thus, by implication, the Court equated the order of a foreign-seated emergency arbitrator with interim measures of a foreign-seated arbitral tribunal.

Thereafter, in Ashwani Minda v U-Shin,[16] the Delhi High Court observed that the order passed by an emergency arbitrator had the same character as an interim order passed by an arbitral tribunal, and in terms of section 9(3) of the A&C Act, a court ought not to intervene if an emergency arbitrator has already been appointed.[17]This finding was not interfered with by the Division  Bench of the Delhi High Court in the same case.[18] Importantly, the Division Bench also held that having failed to obtain relief from the emergency arbitrator, a party could not maintain an application under section 9 of the A&C Act seeking the same relief before a court. Thus, the Division Bench impliedly recognised that the forum of an emergency arbitrator would serve as an alternate forum to proceedings before national courts under section 9.

In the context of foreign-seated arbitrations, the Bombay High Court has also not interfered with or questioned the status of an emergency arbitrator. In Plus Holdings v Xeitgeist Entertainment Group,[19] the Bombay High Court granted reliefs in an application fled under section 9 where similar reliefs had been granted by the foreign-seated emergency arbitrator. [20]

The Amazon-Future dispute – Delhi High Court order of 21 December, 2020

The legal status of an emergency arbitrator and the validity of orders passed by an emergency arbitrator are directly at issue in the Amazon–Future dispute. In this case, owing to certain alleged breaches of the agreements between the parties, Amazon had initiated emergency arbitration proceedings against the Future Group under the SIAC Rules, as per the dispute resolution clause in the
arbitration agreement. After hearing parties, the emergency arbitrator passed certain directions against the Future Group.

Thereafter, Future Retail Limited (FRL), which is the main constituent of the Future Group, fled a suit before the Delhi High Court challenging the directions passed by the emergency arbitrator. FRL sought interim directions from the Court to the effect that Amazon could not rely on the directions passed by the emergency arbitrator. While several issues arose in the case, including the maintainability of such a suit, the Court had to consider the validity of the order passed by the emergency arbitrator. FRL specifically argued that the concept of an emergency arbitrator was not recognised in India and, therefore, proceedings before an emergency arbitrator were a nullity. FRL contended that the emergency arbitrator had no legal sanction and was coram non judice.

On 21 December 2020, the Delhi High Court passed an interim order on FRL’s plea, rejecting the arguments. The Court observed that parties were free to choose rules of an arbitral institution, including rules that provided for emergency arbitration. Importantly, the Court observed that there was no provision in the A&C Act that prohibited emergency arbitration. Accordingly, the Court took a prima facie view that: (i) an emergency arbitrator was not coram non judice; (ii) there was no prohibition under the A&C Act on the concept of an emergency arbitrator; and (iii) the consequential order passed by the emergency arbitrator was not invalid.[21]

The logical follow-up enquiry to this finding was whether the emergency arbitrator was an arbitral tribunal under the A&C Act, and whether orders passed by an emergency arbitrator were enforceable in India. In its order dated 21 December 2020, the High Court observed that the emergency arbitrator was ‘not outside the scope of the definition of arbitral tribunal under Section 2(1)(d) of the A&C Act’. However, a more detailed analysis was conducted by the Court in round two of this dispute, which is explained below.

Mechanisms to enforce orders of the emergency arbitrator in India

The question of whether orders or directions of an emergency arbitrator can be enforced was directly at issue in round two of the Amazon–Future dispute. Before delving into the circumstances in which round two began, a preliminary question should be addressed: do directions of an emergency arbitrator constitute an award or interim measures under the A&C Act?

Directions passed by an emergency arbitrator do not constitute an award under the A&C Act

Section 2(1)(c) of the A&C Act defines an arbitral award as including an interim award. While there is no clear guidance in the A&C Act on the requirements to be fulfilled before an order can be categorised as an interim award, the Supreme Court has held that the essence of an award is that of finality and its binding nature on the subject matter it adjudicates.[22]

The directions passed by an emergency arbitrator are binding. Almost all institutional rules specifically declare this to be the position. Even on principle, this position is sound. The very essence of arbitration is based on party autonomy and contractual obligations, and when the parties have voluntarily agreed to a dispute resolution mechanism that involves emergency arbitration, the outcome of the same and reliefs granted by the emergency arbitrator should be mandatorily binding upon the parties and complied with.

However, it is difficult to characterise an emergency arbitrator’s orders as final. Most institutional rules provide that the fully constituted arbitral tribunal has the authority to adjudicate the issues afresh in its entirety on merits and is not bound by the reasons given by the emergency arbitrator.

In the circumstances, the defining characteristic of all arbitral awards, including an interim award, is that it is final on the issues that it decides. This is reinforced by the Supreme Court’s observations that an interim award finally determines some of the issues between parties in an arbitration proceeding, such that the issues ‘could not be re-adjudicated all over again’.[23] This conclusion also naturally flows from sections 31(6) and section 35 of the A&C Act, which provides that an arbitral award, including an interim award, must be final.

Orders passed by an emergency arbitrator may be classified as an interim measure under the A&C Act

Section 17 of the A&C Act empowers an arbitral tribunal to grant interim measures during arbitration proceedings. Indian courts have held that orders passed under section 17 have a ‘nexus with protection’. [24]

Thus, three tests have to be satisfied before an order is classified as an interim measure. It must:

•  protect the subject matter of the dispute;
•  be passed during arbitration proceedings; and
•  be granted by an arbitral tribunal.

First, the basis of an emergency arbitrator’s directions is the protection of the subject matter of the arbitration. Consequently, the first test is easily met.

Second, an emergency arbitrator passes directions during the course of arbitration proceedings. Most arbitral institutions only appoint emergency arbitrators after formal commencement of the arbitration proceedings.

The third and the most important point is whether the emergency arbitrator is an ‘arbitral tribunal’. While the Delhi High Court made certain prima facie observations in the first round of the Amazon–Future dispute, stating that the emergency arbitrator was not ‘outside the scope of’ the definition of an arbitral tribunal, this issue was dealt with in more detail in the Delhi High Court’s judgment dated 18 March 2021 in the second round of the Amazon–Future dispute.

Background to round two

Subsequent to the directions passed by the emergency arbitrator on Amazon’s request, Amazon alleged that the Future Group was wilfully violating these directions and pursuing a transaction, which was specifically injuncted by the emergency arbitrator. Amazon fled a petition in the Delhi High Court to enforce the emergency arbitrator’s directions. This petition was fled under section 17(2) of the A&C Act. This provision states that an interim measure granted by an arbitral tribunal in an India-seated arbitration is deemed to be an order of an Indian court and can be enforced as such. Section 17(2) was incorporated in the A&C Act through the 2015 Amendments to give teeth to orders passed by an arbitral tribunal, such that parties are not constrained to approach courts for interim relief.[25] In addition, in these proceedings, the Future Group raised a preliminary objection that the emergency arbitrator is not an arbitral tribunal, and consequently, the emergency arbitrator’s directions could not constitute interim measures under section 17 of the A&C Act.

On 18 March 2021, the Delhi High Court passed an order enforcing the emergency arbitrator’s directions (the enforcement order).[26] Rejecting the Future Group’s objections, the Court observed that the principle of party autonomy allowed parties to opt for the emergency arbitration mechanism and this choice had to be respected. The following observations in the enforcement order are particularly instructive.

• The Court held that emergency arbitration was an effective and expeditious mechanism. The Court noted that a party could get relief from an emergency arbitrator within days, which was not possible before Indian courts. Thus, if the directions of an emergency arbitrator were not enforced, it would make the mechanism of emergency arbitration redundant.
• It was observed that section 2(6) and section 2(8) of the A&C Act allowed parties to incorporate institutional rules into their arbitration agreement, and such incorporation was enforceable. The Court emphasized Rule 1.3 of the SIAC Rules, which describes the emergency arbitrator as an ‘arbitrator’.
• The Court considered provisions of the SIAC Rules as well as the A&C Act to hold that the emergency arbitrator was ‘for all intents and purposes’ an arbitral tribunal. The Court specifically held that the scope of section 2(1)(d) of the A&C Act was wide enough to include an emergency arbitrator.
• Importantly, the Court held that the current legal framework was sufficient to recognise emergency arbitration and there was no need for an amendment in this regard. Consequently, the argument that the recommendations of the Law Commission’s 246th Report were not followed was irrelevant.

In light of this, the Court held that the directions of an emergency arbitrator, being that of an arbitral tribunal, constituted interim measures under section 17 of the A&C Act. The issues raised on the legal status of the emergency arbitrator and the enforceability of his of her orders is presently before the Supreme Court of India and the final word on this issue is awaited.

Conclusion

The healthy and aggressive debate on the status and acceptance of emergency arbitration demonstrates that issues of global importance in arbitration law are currently being contested in India. Indeed, recognition of emergency arbitration in India without an express statutory framework will be groundbreaking. In addition to upholding the bargain of the parties, recognition of emergency arbitration will serve a three-fold objective.

• It will support the growth of institutional arbitration in India. Many domestic arbitration institutions such as the Mumbai International Arbitration Centre, Delhi International Arbitration Centre and the Madras High Court Arbitration Centre, in addition to international arbitral institutions, provide for emergency arbitration and a final ruling in favour of emergency arbitration will be a much-needed shot in the arm for institutional arbitration in India.

• Concomitant with the rise of institutional arbitration, the recognition and enforceability of orders passed by an emergency arbitrator will reduce the dockets of Indian courts, which are already overburdened with a significant backlog of cases. Indeed, the covid-19 pandemic and the resultant limited functioning of courts has demonstrated the need for seeking out alternative, efficacious mechanisms for dispute resolution. Recognition of such mechanisms will also be consistent with the principle of minimal judicial intervention in respect of arbitration proceedings, a principle enshrined in article 5 of  the UNCITRAL Model Law, which is incorporated in section 5 of the A&C Act.

• There will be a rise in India-seated arbitration proceedings. If the orders passed by an emergency arbitrator are held to be enforceable under section 17(2) of the A&C Act, which is only available in an India-seated arbitration, international parties may seriously consider choosing India as the seat of arbitration.

Finally, and importantly, recognition of emergency arbitration will also be consistent with those two familiar pillars of arbitration: party autonomy and efficiency.

Notes:
1 The authors act as counsel for Amazon in the dispute. The views expressed in this article are personal.
2 Report No. 246, Amendment to the Arbitration and Conciliation Act 1996, August 2014, Chapter III.
3 Section 2(1), International Arbitration Act, 2012 (Singapore) [for international commercial arbitrations]; Section 2(1), Arbitration Act, 2002 (Singapore) [for domestic arbitrations].
4 Arbitration and Conciliation (Amendment) Bill, 2015 (as introduced in the Lok Sabha).
5 K K Modi v K N Modi (1998) 3 SCC 573.
6 Schedule I, Rule 7, SIAC Rules.
7 Schedule I, Rule 4, SIAC Rules.
8 Schedule I, Rule 5, SIAC Rules.
9 Avitel Post Studioz Limited v HSBC PI Holdings (Mauritius) Limited and Ors (2020) SCC Online 656.
10 Centrotrade Minerals v Hindustan Copper Limited, (2017) 2 SCC 228.
11 id.
12 Raffles Design v Educomp, (2016) SCC Online Del 5521.
13 Part II of the A&C Act has not incorporated article 17H of the UNCITRAL Model Law, which enables enforcement of interim measures granted by a foreign seated arbitral tribunal.
14 Section 17(1) of the A&C Act, which is only available in India-seated arbitrations, is set out below.
17. Interim measures ordered by arbitral tribunal – (1) A party may, during the arbitral proceedings, apply to the arbitral tribunal –
(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of the following matters, namely:-

(a) the preservation, interim custody or sale of any goods which is the subject-matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorizing for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken, or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the arbitral tribunal to be just and convenient, and the arbitral tribunal shall have the same power for making orders, as the court has for the purpose of, and in relation to, any proceedings before it.
15 Raffles Design v Educomp (2016) SCC Online Del 5521.
16 Ashwani Minda v U-Shin Limited, Order dated 12 May 2020 in OMP(Comm.) 920/2020 (Delhi High Court).
17 Section 9(3) of the A&C Act expressly refers to section 17 of the A&C Act.
18 See Ashwani Minda v U-Shin Limited (2020) SCC Online Del 721.
19 Plus Holdings v Xeitgeist Entertainment Group (2019) SCC Online Bom 13069.
20 Future Retail Limited v Amazon.com NV Investment Holdings LLC (2020) SCC Online Del 1636.
21 id.
22 Morgan Securities & Credit (P) Ltd v Modi Rubber Ltd (2006) 12 SCC 642.
23 IFFCO v Bhadra Products (2018) 2 SCC 534.
24 Asian Electronics v MP State Electricity Board (2007) 3 MPLJ 203.
25 Prior to the 2015 Amendments, an order of an arbitral tribunal could only be enforced through an application fled in court under section 27(5) of the A&C Act for breach of such an order. However, such an application would have had to be prefaced by the arbitral tribunal granting a party’s request to approach the court under section 27(5). The change of position by way of the 2015 Amendment was acknowledged by the Supreme Court in Alka Chandewar v Shamshul Ishrar Khan (2017) 16 SCC 119.
26 Amazon.com NV Investment Holdings LLC v Future Coupons Private Limited (2021) SCC Online Del 1279.

Authors:
Vijayendra Pratap Singh, Senior Partner
Abhijnan Jha , Senior Associate
Arnab Ray, Associate

 

 

Published In:The Asia-Pacific Arbitration Review, 2022
Date: September 9, 2021