Stay of arbitration between Amazon and Future Group: A step in the wrong direction

Instead of supporting the arbitration process, the Division Bench of the Delhi High Court has instead contributed to removing the feature of expeditiousness that is one of the hallmarks of arbitration.
Amazon, Future Group
Amazon, Future Group

The recent order of a Division Bench of the Delhi High Court dated January 5, which injuncted a Delhi-seated Singapore International Arbitration Centre (SIAC) arbitration between Amazon and Future, has come as a stark reminder as to why "ease of doing business" and "investor confidence" remain illusionary concepts in India.

It also belies the confident punditry that proclaims to the world that arbitration in India is a reliable mechanism of dispute resolution. The Division Bench's order is especially embarrassing for the Indian judiciary since the Chief Justice of India had sought, while inaugurating the International Arbitration and Mediation Centre in Hyderabad in December 2021, to highlight the valiant attempts of the Indian courts in promoting arbitration.

In India, much work has been done to strengthen the process of arbitration. This transformation has been achieved through amendments to the Arbitration and Conciliation Act, 1996 and key judicial decisions to reduce judicial intervention in arbitration matters to give deference to the arbitral process. As parties actively oust the jurisdiction of civil courts for the resolution of their disputes by way of an arbitration agreement, it is now the norm that courts should exercise minimum interference over the arbitration process, except in select circumstances.

However, the regressive order might take India and Indian business houses to an unfair era where every non-resident party would insist on foreign-seated arbitrations to escape trigger-happy Indian courts. It is, indeed, disappointing that the Division Bench seems to have undone the good work of the many judges and their judgments who have sought to promote alternate dispute resolution in general and arbitration in particular.

In light of the order of the Competition Commission of India (CCI) dated December 17, 2021, which held that the agreement between Amazon and Future Coupons Private Limited (FCPL) was unenforceable, an application for termination of the arbitral proceedings under Section 32(2)(c) was filed by Future before the Arbitral Tribunal. While the Tribunal agreed to hear the termination application filed by Future, it was scheduled to take place only after the hearing of expert witnesses, the dates for which were already agreed by the parties. According to the Tribunal, the decision as to when to hear the termination application was a procedural issue of "case management." Hence, the Tribunal retained discretion to decide when to hear the termination application. The Tribunal, through its procedural order, further observed that no prejudice would be caused to Future if the hearing of the termination application is conducted after the hearing the parties' expert witnesses on damages.

Aggrieved by the procedural order(s), Future approached the Delhi High Court through a petition under Article 227 of the Constitution of India. Relief was sought to declare the continuation of the arbitration proceedings as contrary to law and to direct the Tribunal to decide the termination application before arbitration proceedings could be continued further. However, the learned Single Judge refused to interfere in the ongoing arbitral proceedings by primarily stating that there exists a "very small window of interference" with orders passed by an arbitral tribunal while exercising jurisdiction under Article 227. As per the learned Single Judge, this already small window becomes much narrower if the tribunal's order is procedural. Here, the learned Single Judge gave apposite deference to the arbitral proceedings and its competence to decide all procedural matters concerning the dispute between the parties, and rightly refused to intervene.

However, upon appeal, the Division Bench of the Delhi High Court not only stayed the decision of the Single Judge, but went a step further and stayed the entire arbitral proceedings. While taking such an unprecedented step, the Division Bench merely states that Future would suffer irreparable harm if the arbitral proceedings are continued without giving reasons as to how such irreparable harm is being caused. The Division Bench also states that the termination application should be heard on priority before hearing of expert witnesses, but it does not elaborate on why such an approach is to be taken. The order of the Division Bench appears to be contrary to the settled position of law concerning Article 227 and its interplay with decisions of arbitral tribunals.

It is a big step by the Court in the wrong direction as it seeks to interfere with the procedural decisions of the Tribunal and has derailed the arbitral process. What makes the Division Bench's order an egregious outlier also lies in the fact that even while taking the unprecedented step of injuncting a SIAC Delhi-seated tribunal, the Division Bench did not deign to consider the serious jurisdictional objections that a letters patent appeal (LPA) simply could not be preferred against an order passed under Article 227.

Although the arbitration between Amazon and Future is an international commercial arbitration, as it is seated in New Delhi, the Arbitration Act governs the arbitration proceedings as the lex arbitri. Therefore, any reference for the resolution of procedural questions should have been made under the provisions of the Act itself.

In the present case, the petition filed by Future was under Article 227 of the Constitution of India. Article 227 provides the power of superintendence of High Courts over all courts and tribunals. A party can use the constitutional remedy under Article 227 if any order made by a tribunal is so perverse that it is patently lacking in inherent jurisdiction. Given the inherent power vested in High Courts under Article 227, the question remains whether the intervention of courts is permissible despite there being a bar under the Arbitration Act. After much confusion, the Supreme Court has now settled the position of law in Deep Industries v. ONGC, where it was observed that interference of courts should be restricted to orders passed by arbitral tribunals which are "patently lacking in inherent jurisdiction."

The termination application filed by Future before the Tribunal concerns the validity of the existence of the arbitration agreement between the parties. The principle of Kompetenz-Kompetenz under Section 16 of the Arbitration Act provides that the duly constituted arbitral tribunal has the power to decide on its jurisdiction, including any objection with respect to the existence or validity of the arbitration agreement. The principle of Kompetenz -Kompetenz thus requires the Tribunal to decide the implication of the CCI order on the continuation of the ongoing arbitration. Taking cognizance of the same, the Tribunal had decided to schedule a hearing on the termination application, albeit after hearing expert witnesses.

The decision by the Tribunal as to when to hear the termination applications is an issue of case management that is purely procedural in nature. Therefore, the Tribunal has complete discretion to decide when to hear the said applications. The Arbitration Act sheds light on the power of an arbitral tribunal to determine its procedures and has given it autonomy to decide the way the proceedings are to be conducted, including the order in which the parties file the applications are to be considered.

The Arbitral Tribunal is the sole master of its procedural aspects and there is no room for the intervention of courts in procedural matters that the Tribunal is competent to decide on its own. The Arbitral Tribunal has given clear reasons why the hearing on the termination application could not be scheduled before the hearing of expert witnesses, and yet, has been accommodative to the request of Future and found a suitable time to hear the termination application. As the learned Single Judge rightly observed,

"Mere fixation of tight timelines or denial of requests for adjournment by the Arbitral Tribunal or deciding the order in which the Arbitral Tribunal considers the applications filed by the parties cannot be reason enough to contend that the orders of the Arbitral Tribunal are perverse or lacking in inherent jurisdiction."

Therefore, the procedural order made by the Arbitral Tribunal did not suffer from the vice of perverse illegality and did not warrant the intervention of the Division Bench.

As things stand, the order of the Tribunal has complete discretion to decide on when it wants to schedule a hearing on specific issues raised by the parties. Thus, the intervention of the Division Bench to stay the arbitration proceedings was not warranted, nor did help the cause of the arbitration legislation. The Court failed to realize that it only has a very narrow window of intervention on procedural decisions of the Tribunal and cannot dictate how arbitral tribunals undertake their procedural activities.

Further, the Division Bench merely cites "irreparable loss" to Future as a ground while granting interim relief and staying the arbitration. However, the Court does not give reasons as to how irreparable loss would be caused to Future. The Supreme Court in M/s Neeharika Infrastructure Pvt. Ltd v. State of Maharashtra has held that High Courts, while granting interim relief under Article 226/227, should give clear reasons as to why the interim relief was granted. Here, the Division Bench provided no such reason while granting interim relief. Future's only contention for interim relief is that of non-scheduling of the hearing on the termination application prior to the hearing of expert witnesses. In our opinion, this is not sufficient to cause irreparable harm to the petitioner. An irreparable loss would be caused if the Tribunal had outrightly refused to hear the application on termination or if the Tribunal had passed orders on such an application which could have an impact on either party. However, it should be noted that the Tribunal had instead accommodated the request of Future and has found a way to accommodate the hearing of the termination application during the timeline in which the expert witnesses were supposed to be heard. The Tribunal has clearly acceded to the request made by Future in a manner that would not in any way cause prejudice to them.

The decision to stay the arbitration proceedings also has larger implications on the parties. By acceding to the relief sought by Future, the Court has instead derailed the arbitration proceedings and has caused inconvenience to the parties. Had the Court not stayed the proceedings, a decision on the maintainability of the termination proceedings vis-à-vis the jurisdiction of the Tribunal would have been reached after the hearing on January 8. However, given that the proceedings have been stayed, it has added an element of uncertainty to the ongoing arbitration as it is cumbersome to schedule fresh dates for the arbitration proceedings, taking into account the availability of all arbitrators as well as the experts. Instead of supporting the arbitration process, the jurisprudence laid down by the Division Bench has instead contributed to removing the feature of expeditiousness that is one of the hallmarks of arbitration.

Hopefully, the Division Bench's order shall not be construed as being overarching and far-reaching. It is important that Indian courts are not seen as regressive vis-à-vis the arbitral process. By intervening in the smooth conduct of arbitration even when it lacked the powers to do so, the Division Bench's order is a clear instance of judicial overreach that is contrary to the minimum intervention approach required in an arbitral process.

Manisha Singh, is an Advocate at the Supreme Court of India and Nirupan Karki is a student at the NALSAR University of Law.

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