The Viewpoint: Enforceability of Emergency Award in India, Passed in Foreign Seated Arbitration

Arbitral proceedings, either domestic or international, are conducted by an arbitral tribunal as per the agreement between the parties and only such interim reliefs can be granted which are in aid of a final relief.
The Viewpoint: Enforceability of Emergency Award in India, Passed in Foreign Seated Arbitration
Vartices Partners

Introduction:

Emergency Arbitration (“EA”) is an arbitration pursuant to an agreement between the parties, which shall be conducted by an arbitrator appointed by an arbitral institution on an urgent basis due to paucity of time or an urgency pertaining to subject matter of the dispute, to specifically deal with an application for interim relief which cannot wait for the constitution of an arbitral tribunal to deal with the substantive dispute between the parties. Arbitral proceedings, either domestic or international, are conducted by an arbitral tribunal as per the agreement between the parties. It is a well-settled principle of law that only such interim reliefs can be granted by a court or an arbitral tribunal which are in aid of a final relief.

In order to obtain an interim relief, it is required for the party seeking such relief to prove to the arbitral tribunal that its claim against the counter party has reasonable merit and that failure to obtain an interim relief would result in grave and irreparable loss.

Through an EA a party can obtain an urgent interim relief for a stipulated period of time. Emergency arbitrator(s) exercise similar, if not the same functions, as that of an ad hoc tribunal which is also constituted for a limited purpose and is immediately dissolved, once the purpose is served or the said time frame in which such issues have to be decided, lapses

Emergence of Emergency Arbitrations:

Since the amendment to the UNICTRAL Model Law (“Model Law”) in 2006, several arbitral tribunals have been empowered to grant interim reliefs to parties. Following are some of the renowned arbitration institutions who have amended their respective rules to provide parties with the remedy of emergency arbitration”

  • Singapore International Arbitration Centre (SIAC)

  • Hong Kong International Arbitration Centre (HKIAC)

  • International Chamber of Commerce (ICC)

  • Stockholm Chamber of Commerce (SCC)

  • Netherlands Arbitration Institute (NAI)

  • Swiss Chambers' Arbitration Institute (SCAI)

  • International Centre for Dispute Resolution (ICDR)/American Arbitration Association (AAA)

It is imperative to note that time is the essence of an EA. If the award is not passed in a timely manner, the entire process is rendered infructuous. Even though the rules of every arbitration institution differ with respect to emergency arbitration procedures, granting timely relief is the fundamental nature of emergency arbitration across the sphere.

An emergency arbitrator has broad powers to award any interim relief which may be deemed necessary to safeguard the interests of the succeeding party and this may include injunctive reliefs, measures for conservation of the subject property and measures to secure the amount in dispute.

Contours of Emergency Arbitration in India:

To recognize EA, the Law Commission's 246th Report on amendments to the Arbitration and Conciliation Act, 1996 (“Act”) proposed an amendment to Section 2(d) of the Act. This amendment was to ensure that rules prescribed by arbitral institutions such as the SIAC Arbitration Rules, or ICC Rules or any other rule which provide for an appointment of an emergency arbitrator are given statutory recognition in India:

"Section 2(d) of the Act states that an Arbitral Tribunal means a sole arbitrator or a panel of arbitrators. In the case of an arbitration conducted under the rules of an institution providing for appointment of an Emergency Arbitrator, includes such Emergency Arbitrator."

It was expected that the Arbitration and Conciliation (Amendment) Act, 2015 (“Amended Act”) would embrace this global turn of the tide and create provisions for the appointment of emergency arbitrators. The Amendment of 2015, however, failed to incorporate the recommendation of the Law Commission and accordingly, does not provide an enabling provision for EA.

Section 9 of the Act provides that parties may apply for interim reliefs to the concerned court at any time before the enforcement of the arbitral award. It is relevant to state that under Part II of the Act, which deals with enforcement of foreign arbitral awards, only final awards can be enforced before the Courts in India and interim awards passed by in an EA proceeding are not recognized.

Furthermore, Section 17 of the Act provides that an arbitral tribunal can order interim measures as it deems fit, unless parties expressly agree otherwise. However, Section 17 of the Act is not applicable to foreign seated arbitrations, as this is contained in Part I of the Act, which applies to arbitration proceedings where the juridical seat is in India.

In the absence of a provision similar to Section 17 of the Act for foreign seated arbitrations under Part II of the Act, an emergency award cannot be enforced under the Act and the only method available for enforcing the same would be to file a suit, the disposal of which could take a considerable time thereby rendering the emergency award futile. The Act is silent on the enforcement of foreign seated EAs/orders of the arbitral tribunal. Despite giving recognition to EA by several Indian arbitral institutions in their respective rules, they are not jurisdictionally capable of providing essential relief of enforcement of such awards as, only Indian Courts are vested with such jurisdiction under Section 9 of the Act.

Judicial precedents on enforcement of emergency arbitral awards passed in foreign seated Arbitration:

The Bombay High Court vide its Order dated January 22, 2014 granted interim reliefs to the petitioner under Section 9 of the Act in line of the award passed by the emergency arbitrator appointed by SIAC.

The agreement in the subject case was executed before the pronouncement of the Supreme Court of India’s judgment in Bharat Aluminium Co. v. Kaiser Aluminium Technical Service Inc. (“BALCO”) dated September 06, 2012. The BALCO case is an important milestone for arbitration jurisprudence in India.

In BALCO, the Supreme Court held that Part I of the Act would not be applicable to international commercial arbitration and thereby, prospectively overruled its own judgments in the matter of Bhatia International v. Bulk Trading S.A. and Venture Global Engineering v. Satyam Computer Services Ltd.

Since the HSBC judgment dealt with a pre-BALCO agreement, the Bombay High Court gave effect to the award passed by the emergency arbitrator by granting similar reliefs to the Petitioner under Section 9 of the Act.

In the said matter, the Delhi High Court was dealing with an application under Section 9 of the Act, which sought interim reliefs on the lines of an award passed by the Emergency Arbitrator appointed by SIAC. The Delhi High Court vide its Order dated October 07, 2016 held that the emergency award passed by the emergency arbitrator cannot be enforced under the Arbitration Act. However, it further held that it is open to a party to approach the court under Section 9 of the Act to seek interim reliefs and that the court may grant interim reliefs to the party without considering the order passed by the emergency arbitrator.

In another case, Amazon had acquired 49% stake in Future Coupons along with a call option which empowered it to exercise the option of acquiring all or part of Future Coupons’ promoter shareholding and Future Retail Limited’s shareholding in Future Coupons.

On August 29, 2020, Reliance Retail Ventures Limited (“Reliance”) announced that it had entered into a deal for the acquisition of assets of Future Retail Limited (“Future”), with the transaction valuing at approximately Rs 24,713 crore. In view thereof, Amazon announced that the said transaction was contrary to a shareholders’ agreement that existed between the promoters of the Future Group and therefore, the same had been breached and violated. Whilst Amazon proceeded to invoke arbitration proceedings before the SIAC in respect of this transaction between Reliance and Future, it also sought for interim relief before an emergency arbitrator appointed under the SIAC Rules.

The SIAC Panel gave interim protection to Amazon by putting on hold the Rs 24,713 crore transaction. On October 25, 2020, it was announced that the emergency arbitrator had injuncted the Future Group from taking any steps in furtherance to the transaction with Reliance, including but not limited to filing or pursuing any application before anybody or agency in India (“Award”). The Award detailed how Amazon argued that Future stands in breach of agreements which barred it from selling retail assets to third-parties entities included in the ‘restricted persons’ list, such as Reliance.

Future has proceeded to file a lawsuit against Amazon in Delhi High Court, in order to refrain Amazon from misusing the SIAC interim judgment and interfering with the underlying transaction. Future has also challenged the enforceability of the SIAC Interim Award claiming that the SIAC interim judgment is not enforceable under Indian law and is not binding on the company at all.

Conclusion & Key Implications:

The 2019 Amendment to the Act was aimed at expanding the growth and scope of arbitration proceedings in India and making India as one of the foremost destinations for arbitration in the world. Having said that, the legislative recognition for enforcement of EA in a foreign-seated arbitration in India is still far from reality. However, parties can apply to the courts for interim relief under Section 9 of the Act. Parties must, however, ensure that the applicability of the said section is not excluded or exempted by virtue of an agreement between the parties.

In the event applicability of Section 9 is exempted as above, the party may file a civil suit under the relevant provisions of the Code of Civil Procedure, 1908, in order to seek reliefs that are the subject matter of the EA.

It is, however, consistently felt that if India has to eventually become the much expected arbitration powerhouse of the world, it must be exigent to consider giving recognition to emergency arbitration under the Act, and by extension, give full effect to the growth and aspirations of the arbitration potential of India.

EAs allow the mutually agreed parties to submit the dispute to a specific jurisdiction and gives recognition to the principle of party autonomy which is fundamental to arbitration mechanism.

Secondly, the issue of confidentiality and efficiency has a major role to back the importance of EA. Courts needs to follow set procedures for adjudicating upon the matters related to interim measures. EA on the other hand, can provide such relief in a more efficient and confidential manner saving cost as well as valuable time of the parties. Given the current stand of the Indian courts refusing to enforce emergency awards, parties should be very careful about relying on emergency arbitral awards acquired outside India to protect their rights in the need of the hour.

An emergency arbitral award passed in a foreign seat is not enforceable in India, but an emergency arbitrator award passed by an emergency arbitrator in an Indian seat is enforceable in India under Section 17 of the Act. Owing to this dichotomy, it is more practical for foreign parties should seek an interim order from Indian courts instead of resorting to enforcing that an emergency arbitral award against an Indian party.

The authors are Partner Amit Vyas; Principal Associate Rishika Rajadhyaksha and Associate Aditya Vyas from Vertices Partners.

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