Enforceability Of Emergency Arbitrator Decisions in India - The Decision in Amazon v. Future Retail

The judgment provides much-needed clarity on the issue, at least in relation to Emergency Arbitrator decisions made in arbitrations seated in India.
Supreme Court, Amazon and Future
Supreme Court, Amazon and Future

In a significant judgment handed down on August 6, 2021, the Indian Supreme Court held that an “award” delivered by an emergency arbitrator (“EA”) under the SIAC Arbitration Rules constitutes an order under section 17(1) of the Arbitration and Conciliation Act 1996 (the “Act”) and would be enforceable as such.

The judgment provides much-needed clarity on the issue, at least in relation to EA decisions made in arbitrations seated in India. EA decisions made in arbitrations seated outside India will not, however, benefit from this judgment and cannot presently be directly enforced by the Indian courts. Another important consequence of the judgment is that EA decisions (in India-seated arbitrations) can now be challenged before the Indian courts.

Background

The dispute arose in relation to control of Future Retail Limited (“FRL”), India’s second largest offline retailer, which is controlled by the Biyani Group.

· On August 12, 2019, a Shareholders Agreement (“FRL SHA”) was entered into amongst companies of the Future Group and other members of the Biyani Group. Under the SHA, Future Coupons Pvt Ltd (“FCPL”), a company that held 9.82% shareholding in FRL, was granted special rights in relation to FRL and its retail assets in particular. These rights were to be exercised for the benefit of Amazon.com NV Investment Holdings (“Amazon”) and such rights were set out in a separate Shareholders Agreement (“FCPL SHA”) entered into on August 22, 2019 between Amazon, FCPL and members of the Biyani Group.

· Amazon invested a sum of Rs 1,431 crores in FCPL based on the rights granted to FCPL under the FRL SHA and the FCPL SHA. This investment was recorded in a Share Subscription Agreement dated August 22, 2019 entered into between Amazon, FCPL and other members of the Biyani Group.

· This investment flowed down to FRL and it was agreed between the parties that FRL could not transfer its retail assets without FCPL’s and Amazon’s consent. FRL was also prohibited from transferring its retail assets to certain ‘restricted persons’ which included the Reliance Group.

· On August 29, 2020, FRL, FCPL and other members of the Biyani Group entered into a transaction with the Reliance Group which would have enabled transfer of FRL’s retail assets to the Reliance Group.

· Amazon commenced emergency arbitration proceedings under the SIAC Rules seeking emergency interim relief. The EA, in an interim award made on October 25, 2020 (the “EA Award”) ordered interim relief injuncting FRL, FCPL and other members of the Biyani Group from taking any steps to complete the transaction with the Reliance Group and transferring FRL’s retail assets to the said group.

· The Biyani Group nevertheless sought to proceed with the implementation of its transaction with the Reliance Group. It did not challenge the EA Award under section 37 of the Act, but instead sought to interdict the arbitration proceedings. It also sought an interim order from the Delhi high Court to restrain Amazon from writing to statutory authorities on the basis of the EA Award on the basis that it constituted a tortious interference with its civil rights. A Single Judge of the Delhi High Court refused to grant such an interim injunction.

· Separately, Amazon sought enforcement of the EA Award by filing an application under section 17(2) of the Act. A Single Judge of the Delhi High Court restrained the Biyani Group from implementing the impugned transaction. He held that the EA Award was enforceable under section 17(1) of the Act.

· A Division Bench of the Delhi High Court stayed the order of the Single Judge on 22 March 2021. Special Leave Petitions were filed before the Supreme Court challenging this order of the Division Bench of the Delhi High Court.

Judgment of the Supreme Court

The first issue considered by the court was whether an EA decision constituted an order of an ‘arbitral tribunal’ for the purposes of section 17(1) of the Act. The Supreme Court held that emergency arbitration was within the contemplation of the Act and the definition of an arbitration tribunal included within its scope an EA.

· In reaching this conclusion, the court emphasised the importance of party autonomy and the freedom of parties to authorise any person (including an EA) to decide a dispute that had arisen between them.

· It also referred to the SIAC Rules under which an EA has all the powers vested in an arbitral tribunal.

· The court noted that Parliament had not implemented the recommendation of the 246th Law Commission to enable implementation of EA decisions in India. However, it considered that non-implementation of the Law Commission Report on this aspect would not necessarily lead to the conclusion that EA decisions are not enforceable in India on a proper interpretation of the Act. The court referred to the Srikrishna Committee Report which considered that it was possible to interpret section 17(2) of the Act to enforce EA decisions in India.

· The judgment of the court is also based on reasons of public policy. The court described EA orders as an important step in decongesting the civil courts and affording expeditious interim relief to the parties.

· Justice Nariman’s judgment is also based on the principle of estoppel. He held that a party would be estopped, after having agreed to institutional rules providing for emergency arbitration and participating in an EA proceeding, from subsequently contending that it could not be bound by an EA’s ruling. In particular, the court referred to and enforced paragraph 12 of Schedule 1 of the SIAC Rules which provides that “[t]he parties agree that an order or Award by an Emergency Arbitrator pursuant to this Schedule 1 shall be binding on the parties from the date it is made, and undertake to carry out the interim order or Award immediately and without delay.”

The Supreme Court also held, after analysing the scheme of the Act, that an order of a court enforcing an EA order or an interim order of an arbitral tribunal would not be appealable under section 37 of the Act.

Analysis of the judgment and its possible implications

Emergency arbitration is a relatively recent innovation introduced by various institutional rules of arbitration. When the Act was enacted by Parliament in 1996, the concept of emergency arbitrator was unknown. There were no institutional rules providing for EA decisions at the time. In 1996, therefore, Parliament could not have envisaged or intended that the definition of “arbitral tribunal” would include an emergency arbitrator. It is possibly for such a reason that jurisdictions such as Singapore (2012) and New Zealand (in 2016), through legislative amendments, widened the definition of arbitral tribunal to expressly include within its scope an EA. Had the definition of “arbitral tribunal” already included within its scope an EA, such amendments would have been unnecessary.

It is relevant to mention that the arbitration legislations of both New Zealand and Singapore are largely based on the UNCITRAL Model Law which is the legislative template on which the Indian Act is based. However, the Indian Supreme Court has now accorded an evolving (and contextual) interpretation to the definition of an arbitral tribunal to also include (for the purposes of section 17) an EA. It is also a purposive interpretation which gives effect to the parties’ agreement to be bound by EA decisions.

It should be noted that the judgment does not hold that all EA decisions would be enforceable in India under section 17. Section 17 is contained in Part I of the Act which (apart from certain exceptions) applies only to arbitrations seated in India. Therefore, only those EA decisions rendered in proceedings seated in India would be directly enforceable by the Indian courts. EA decisions rendered in arbitrations seated outside India would not be directly enforceable under section 17. There are, however, a few High Court judgments which have indirectly enforced EA decisions made in arbitrations seated outside India by making orders under section 9 (which enables courts to order interim measures of protection) largely mirroring orders made by an EA (see, for instance, the judgment of the Bombay High Court in HSBC PI Holdings (Mauritius) Ltd v Avitel Post Studioz Ltd (2014)).

A decision by an arbitral tribunal to grant or decline interim measures of protection is an order that is appealable under section 17(2) of the Act. A likely consequence of the Supreme Court’s judgment in the Amazon case, treating an EA on par with an arbitral tribunal, is that an EA decision will also now be appealable under section 37 of the Act. In relation to EA decisions, the SIAC Rules provide that “[t]he parties also irrevocably waive their rights to any form of appeal, review or recourse to any State court or other judicial authority with respect to such Award insofar as such waiver may be validly made.

However, under Indian law, parties cannot by agreement override or exclude “non-derogable” provisions of the Act and the right to appeal would likely fall within the category of non-derogable provisions. If appeals are routinely filed before the Indian courts to challenge the decision of an EA, the public policy premise of the judgment, i.e., that EA decisions would serve to “decongest the civil courts” may be quite significantly undermined. Specifically, in the Amazon case, the Biyani Group may have a second bite at the cherry to challenge the decision of the EA before the Indian courts.

Under section 9, an Indian court would not normally entertain an application for interim measures once an arbitral tribunal has been constituted. Pursuant to the Supreme Court’s ruling in Amazon, once an EA has been appointed (even if the arbitral tribunal is not constituted) in an India-seated arbitration, the Indian courts would likely decline an application for interim relief. However and as referred to above, in respect of arbitrations seated outside India, it is possible that Indian courts may entertain a section 9 application for interim relief in order to indirectly enforce an EA decision.

The Supreme Court’s judgment has firmly enhanced the effectiveness of EA decisions in the Indian context and provides further reaffirmation of the pro-arbitration trajectory in which India’s arbitration jurisprudence is evolving.

(Promod Nair is an advocate and arbitrator at Arista Chambers)

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