Inclusion of Emergency Arbitrations: A Step in the Right Direction?

The Arbitration and Conciliation Act, 1996 (“the Act”) provides for interim reliefs from both Courts and Arbitral tribunals. However, the latter has the authority to grant these reliefs only  after its formation. Accordingly, both these procedures, under normal circumstances, have proved to be quite lengthy in nature. Thus, in order to provide urgent relief to the parties, the arbitral institutions have postulated the concept of “emergency arbitrations”. Under these arbitrations, the parties, as the name suggests, can apply for urgent interim relief. These reliefs, contrary to the aforementioned ones, can be granted even before the arbitral tribunals are constituted. This is particularly beneficial for those who seek to protect their assets and evidence before it can be altered or lost. 

In spite of the emergence of this concept, the Courts in India have been perplexed with the inclusion of such arbitrations within the definition of arbitral tribunal, as encapsulated in the Section 2(d) of the Act. Recently, a similar matter came up before the Delhi High Court, in the case of Future Retail Ltd v. Amazon.com Investment Holdings, wherein the Court settled this conundrum’s position by affirming its inclusion. In this blog post, the author analyses whether the stance taken by the Court is a step in the right direction.

Factual Background

Future Retail Limited (“FRL”) is a listed company having retail chains in more than 400 cities across India. In spite of having such a flourishing business, the Covid-19 pandemic has had a severe impact on it. This had resulted in a rapid deterioration of FRL’s assets. Subsequently, pertaining to this circumstance, FRL had entered into an agreement with Reliance Industries. Under this agreement, the latter had contracted to acquire the retail, wholesale, logistic and warehousing business of FRL. In addition, Reliance had agreed to discharge the liabilities, as well as invest in the concerned company. This transaction, as foreseen by the FRL, would avert the company from going into liquidation. Moreover, the transaction would also benefit Amazon that has shares in Future Coupons Pvt. Ltd (“FCPL”). In spite of these advantages, Amazon had raised an objection before the SEBI. In the objection letter, Amazon enunciated that the aforementioned transaction was in violation with its contractual rights, that is, its shareholder agreement (“SHA”), that had been entered into with the FCPL. Subsequently, in order to put a hold to the transaction, Amazon instituted emergency arbitration proceedings, as provided in the SHA, under the SIAC Rules. This had resulted in an interim award being rendered, which purported to injunct FRL from proceeding with the transaction entered into with the Reliance Industries.

Issue before the Court

Amongst other issues, the Court had to decide if emergency arbitrations are valid in India. In furtherance to this, the Court had to adjudge if the emergency arbitrator could grant interim relief to the aggrieved party.

Judgement

The Single judge bench, after listening to both the parties contentions, asserted that emergency arbitrations are valid under Part-I of the Act. It relied on several reasons while arriving at this decision. These include; First, as per the cases of NTPC V. Singer and Sumitomo Heavy Industries v. ONGC, in instances wherein both the curial law and the law of the arbitration agreement have been ascertained, the former shall be applicable, provided the same is not in derogation with the latter. In the instant case, the Court opined that the SIAC rules were not in derogation with the law of India. This is because, the rules itself laid down the option of interim relief from the Courts. The option for emergency arbitrations was an addition that was solely included for exceptional circumstances. Further, relying on the case of Centrotrade Minerals v. Hindustan Copper, the Court encapsulated that words that have not been laid down in the Arbitration Act cannot be interpreted. Similarly, the inclusion or exclusion of emergency arbitrations cannot be reasoned out, since the same has not been defined in the Act itself. Second, Section 2(2) of the Act lays down that parties, even in international commercial arbitrations, are permitted to exclude the application of Section 9 of the Act. Hence, the same is not a mandatory provision under law. Therefore, the parties by seeking an emergency arbitrator, under the SIAC Rules, do not delineate from the mandatory provisions of the Indian Arbitration Act. Third, the Courts cannot base their decision on the Parliament’s actions. Thus, even if the Parliament, based on the law commission’s report, had previously decided on not including the term “emergency arbitrator” in the definition of arbitral tribunal, the same cannot be considered as a basis to thwart the Court’s decision. In conclusion, the Court opined that by relying on these points, the emergency arbitrator cannot be said to be coram non-judice, as initially contended by FRL. 

Comment

According to the author, the Court by arriving at this judgement, has moved a step ahead in making India an arbitral institution all over the world. This is because emergency arbitrations have several perks that the parties, under exceptional circumstances, should be given the option to exercise. The author bases this analysis on several points; 

First, one of the shortcomings of the arbitral mechanism is that the tribunal may take a long period to get constituted. This process, in certain situations, can be delayed by a party who obstructs the appointment of an arbitrator. The opposite party, on the other hand, might be in dire need of an interim relief which should be granted on an urgent basis. Hence, the emergency arbitrations proves to be an ideal mechanism for such instances. It might be contended that these interim reliefs can be provided by the Courts under Section 9 of the Act. However, the litigation procedure under usual circumstances can be prolonged because of several reasons. In addition, it is pertinent to note that all the Courts might not have specialist judges that shall be available to adjudge on these interim measures. Thus, there is a high probability of the matter being submitted to a non-specialist judge, which can undermine the relevance of that interim award. Moreover, in an international commercial arbitration, one of the legal teams usually belongs to a different jurisdiction. This particular team might not be well-versed with the procedural laws of the Court, making it difficult for them to seek the required relief. Second, the arbitral institutions usually have fees that needs to be paid for the constitution of an emergency arbitral tribunal. While this may seem to be onerous, it shall still be relatively cheaper and time saving for the parties that desire to enforce an interim measure in several jurisdictions. Third, in several cases, it has been noticed that these emergency arbitrations act as a method for analysing the merits of the dispute. Hence, the parties by instituting this form of arbitration may reach for a settlement rather than applying for a further substantive arbitration. Lastly, by including emergency arbitrations within the ambit of the Act, the Court has made the law in consonance with the rules of the arbitral institutions, in and outside India. By simplifying its application, the parties as well as their advocates, shall be certain of resorting to this mechanism, in case the relevant agreement ascertains the application of both the law of India and the rules of an arbitral institution. 

ConclusionWhile the Courts, with respect to its inclusion, are headed in the right direction, there are still certain pertinent questions that have to be answered. These include, inter alia, the determination of the threshold under which the parties can resort to such a mechanism, the power of the emergency tribunals to grant an ex-parte relief and lastly, if the interim awards rendered by them can be considered to be final under exceptional circumstances. These issues have emerged in several jurisdictions and have thereby resulted in long-lasting litigations, undermining the relevance of these form of arbitrations. Hence, in conclusion, the author is of the opinion that determination of these questions beforehand shall save the future time and effort of the Courts. Furthermore, and most importantly, such conundrums shall not arise between the parties, which further shall not compromise on the intention of including this mechanism in the first place.

By Shagun Singhal, National Law Institute University, Bhopal, India

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