Your client contacts you at 6:47PM on a Friday. The counter-party is moving funds. Closing is Monday. There are 72 hours until "the clock" stops the world. Your first inclination will be to go straight to emergency arbitration (EA) as the statutory backbone for it now exists through the Draft Arbitration Amendment Bill and judicially, it was recognised by the Supreme Court. However, speed without enforcement means nothing but theatre.
Ask the harder question: who are the real parties targeted by these actions? Where are the assets located? Is there a simple clean bilateral relationship between the parties involved or is this a complex web of promoters, holding companies, etc that utilise offshore entities?
The answers to those questions should help dictate which jurisdiction/forums you pursue. Frequently, practitioners view emergency arbitration as the default and find its systematic limits only after the order is in hand and the assets have moved.
Emergency arbitration is built on the premise that each party whose actions require restraint are parties to the arbitration agreement. This premise falls apart in complex corporate litigation.
For example, consider the usual structure of an M&A deal done with a promoter. The shareholders agreement (SHA) was executed by the target company. The arbitration provisions are very strong. However, the assets in question were owned by a personal holding a company controlled by a promoter in Mauritius which did not execute anything. All operational funds flow through an intermediary (subsidiary). The promoter’s spouse owns the offshore special purpose vehicle (SPV).
An emergency arbitrator is sans jurisdiction over any of these entities.
The tribunal's power is based on consent and contractual relationships, extending no farther than the terms of the arbitration agreement. Section 9A, as drafted, recognises the emergency arbitrator as a decision maker for interim relief but it says nothing about extending the arbitral perimeter to non-signatories. The group of companies doctrine's return from the 'constitutional precipice' post Cox & Kings v. SAP India, still requires a determination of common intention and active participation in the transaction forming the basis of the dispute. An emergency arbitrator cannot conduct that inquiry with sufficient rigour.
On the other hand, a High Court in a Section 9 petition faces no such constraint. Pursuant to Section 9(1)(ii)(d), the court may appoint a receiver over assets regardless of its location. It may issue an ad interim injunction against "any person" whose acts threaten to prejudice the subject matter of the arbitration. The court's jurisdiction is territorial, not consensual. Thus, a promoter sitting in Bengaluru, shell companies incorporated in New Delhi and banks having accounts throughout India, are all are within ambit of a Section 9 order.
This creates a practical difference between Section 9 and emergency arbitration that most practitioners ignore. When the dispute is truly bilateral and all assets are within the contractual perimeter, then emergency arbitration has clear merit. When your real risk is that non-signatories will remove assets, then confidentiality of institutional arbitration is something you can't afford. You need the court's in rem jurisdiction.
Where your dispute is simply bilateral and your emergency arbitrator has undisputed jurisdiction, the enforcement question remains open. An order is only as good as its ability to compel compliance.
The 2015 Amendment made Section 17(2) a very strong tool. An interim order from an arbitration tribunal "shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure." The Draft Bill, by recognising the emergency arbitrator as a species of arbitral tribunal, extends this fiction to EA orders.
The word "deemed", while important, is only half the battle.
To enforce an EA order as a court order under the Civil Procedure Code (CPC) requires additional procedures. You apply for execution. The respondent resists. The court dealing with the execution then reviews whether the EA order fits within the statutory framework. This process alone can take up to several weeks before the order has teeth. Meanwhile, business continues. Assets are moved. Deals get closed. Corporate structures are changed.
In contrast, an order issued pursuant to Section 9/9A is a direct High Court order. Any violation of the same constitutes contempt. The contempt proceedings are summary in nature. The court can, on the same day of breach, issue notice, hear the matter and pass a committal order. Each individual involved in making decisions regarding the corporate entity could face liability for contempt. The impact of contempt powers is not limited to legal implications, but psychological too. Sophisticated parties understand when an order is something which they will have to enforce using further process, versus an order that places them personally in the court's crosshairs.
It is because of this enforcement disparity between these two forms of orders that experienced litigation counsel typically rely upon Section 9 in cases involving emergency freezing of assets. While an EA order may be commercially impactful, it is legally cumbersome. The Section 9 order is immediately coercive. In a 72-hour crisis, the difference is but marginal.
The Draft Bill proposes to remedy this by elevating the status of EA orders in statute. However, the structural defect remains. Elevating the status of an EA order will not reduce the amount of time required for the subsequent enforcement. India has not followed the Singapore Model wherein the Singapore International Commercial Court (SICC) can hear disputes relating to enforcement on an expedited basis. The "deemed decree" fiction will run into the fact that Indian execution courts operate on their own schedules.
Emergency arbitration comes with a hefty fee. The Singapore International Arbitration Centre (SIAC)’s fee for EA runs approximately SGD 25,000 as a baseline sans additional administrative costs. International Chamber of Commerce (ICC) emergency arbitration process includes a registration fee of USD $10,000 and an emergency arbitrator's fee at the scheduled rate. Thus, even for a mid-tier dispute valued below ₹100 crore, the fee is not trivial vis-a-vis the relief sought.
Section 9 petitions filed in High Courts are significantly less expensive than emergency arbitration. The court fee costs are determined by the applicable State legislation. The counsel fee for representing a client is another expense. However, as previously mentioned, there is no institutional overhead associated with having the court hear your claim.
While there is truth to the confidentiality advantage of using an emergency arbitrator, it is often exaggerated. A hearing under Section 9 in a commercial court is generally open to the public. This creates a potential for reputational damage for publicly traded companies. If your company is one of those who could potentially experience reputational damage, then paying the premium for emergency arbitration may be worth it from a strategic perspective, as opposed to being solely driven by marketing efforts.
The honest calculus is this: pay the premium for emergency arbitration only if you can measure that the ability to remain confidential will provide you with some level of commercially viable benefit. Use EA if you believe that the issue falls squarely within the institutional perimeter. Otherwise, the price difference represents nothing more than a subsidy to longer enforcement of awards.
Section 9(3) of the Act prohibits the court from considering new Section 9 applications once a tribunal has been conceived, unless the remedy under Section 17 isn't “efficacious”. As such, the Draft Bill makes no changes to the framework created by Section 9(3). This opens a loophole: apply for EA; obtain an order; witness an ineffective enforcement; then quickly file an action in court based upon the “inefficacy” escape clause.
Courts should view this with a lens of skepticism.
Comprehend that the option of EA or Section 9 must be made at the outset, with full information. Perform the non-signatory review. Formulate the enforcement track. Evaluate the contempt power problem. Do not treat EA as a fast "first draft" of interim relief with Section 9 as a backup.
Every transactional lawyer reviewing this article will have at least one client with an agreed-upon standard SHA containing a bare ICC/SIAC arbitration clause with no option for emergency arbitration, no designation of seat and no established procedure for interim measures. That arbitration clause was developed during another time period.
Boilerplate is put into focus by the Draft Bill. However, the Draft Bill doesn't eliminate enforcement issues. The Draft Bill also doesn't expand EA jurisdiction over non-signatory parties. Instead, it signals that India's legal framework will increasingly turn towards institutional arbitration (as the national default). As such, ad hoc provisions in contracts will continue to see increased scrutiny regarding remedial gaps.
Actionable guidance from this Draft Bill is: audit all templates for each of your SHA agreements, JV agreements and subscription documents right now. If cross-border transactions are structured so that they have multiple entities holding interests in assets, include Section 9 jurisdiction language in those agreements. Institutional arbitration, including an effective interim relief provision, would appear to be a reasonable option for bilateral, private commercial disputes between direct signatory parties.
Your call on whether to use Section 9 or emergency arbitration is one on speed versus muscle. Be aware of what you are betting on when you make this decision. The client who contacts you at 6:47 PM on a Friday evening can't wait to determine how things work out in court.
Rishang Singh is an Advocate practicing before the High Court of Allahabad.