Enforceability of Emergency Awards Passed in Foreign-Seated Arbitration

28th August, 2021 - 11:55 am Categories: Legal Issues 0 Comments

Introduction

Recently the Supreme Court of India in Amazon.com NV Investment Holdings LLC vs. Future Retail Limited settled the dispute revolving around the Emergency Arbitration with Justice Nariman and Justice Gavai holding it to be included within section 17(2) of the Arbitration and Conciliation Act, 1996. This is a significant step towards India becoming a pro-arbitration jurisdiction. But this did not come easy and giving recognition to emergency arbitration in an Indian legal system is certainly a big step towards creating a conducive environment for enforcement of awards passed in foreign seated arbitrations.

Applicability of foreign seated arbitration

It is a booming phase for industries and ever since its inception and development; the commercial disputes have rapidly increased. An effective dispute resolution mechanism plays a crucial role in resolving a conflict. Emergency arbitration plays a vital role when the claimant is under a threat from the defendant, and cannot wait until the actual arbitral tribunal is constituted.

A significant change could be traced when the Constitutional Bench of Supreme Court in the BALCO case overturned the pronouncement of three judge bench in Bhatia International case. With this, a clear line of demarcation was drawn between Part I and Part II of the act. The former was applicable and limited to domestic arbitral proceedings, whereas the latter was reserved for foreign arbitral proceedings in domestic tribunal under section 49, given that it fulfills the requirements laid under section 44, 46 and 48 of the Act.

However, after much clamor, the Arbitration and Conciliation Act, 1996 stood amended in 2015. The route to the amended Act was arduous. Justice B.N. Krishna committee was constituted to identify the issues plaguing the arbitration landscape in India and important changes were made subsequently. Post amendment certain remarkable changes were observed. For instance, the amendment to section 2(2) created room for certain sections of Part I of the Act such as, section 9, 27, 37(1)(a),  and 37(3) to be applicable to foreign seated arbitrations, unless expressly excluded by the parties. This gave a wider scope to Part I of the Act. Subsequently, section 9, provides for an interim relief at any stage of the arbitration, meaning thereby that the parties to a foreign seated arbitration can approach the domestic court to seek interim relief, primarily when the assets of the counterparty are in India.

Applicability of emergency arbitrators and enforcement of their orders

The party has two methods to resolve the issues, firstly, they can appoint an arbitrator, or secondly, they can approach the Arbitration Institution. Institutions like SIAC and MCIA recognized concept of “Emergency Arbitration”. This was done in lieu of creating a protection prior to the actual arbitration proceedings.  The nature EA’s order was akin to an award of an actual tribunal.

However, if we talk about the legality of the Emergency arbitral award, it was subjected to certain limitations. It is provided by the arbitration institution and is only limited to interim reliefs. The order once passed can only be amended or vacated by arbitral tribunal.

It is imperative to observe that New York Convention does not define “arbitral award”, thus silent on the subject of EA’s award. However, Singapore introduced certain amendment which gave due recognition to EA’ award and was later reaffirmed by the Hong Kong arbitration rules. India, on the other hand is yet not clear with its stance as section 2(1)(d) which stipulates the definition of “arbitral tribunal” remains silent on emergency arbitrator.

However, this does not preclude courts in India from providing necessary relief to the party. For instance, in HSBC PI Holdings (Mauritius) Ltd. v. Avitel Post Studioz Ltd the court expanded the scope of section 9 by allowing the filing of petition. Bombay HC gave due recognition to EA’s order but was independent of the EA’s ruling. This was the first pro-arbitration step taken by Indian judiciary.

Similarly, Hon’ble Delhi High Court in Raffle Design limited the scope of section 17 but didn’t let it affect the scope of section 9 of the Act. Additionally, in Ashwani Minda case, the division bench of the Delhi High court gave due regard to the EA. They provided much wider scope by potentially disentitling the party from approaching the national court for a similar award they failed to obtain from EA.

Though no such statutory recognition to the EA’s order is provided under the Act, the bitter legal battle between Amazon and Future Group acknowledged the importance of the EA’order in Indian courts.

Background of the Case

Facts

A share subscription agreement was entered into among Amazon, Future Coupons Private Limited, FRL, etc. The agreement has a “basic understanding” that FRL can neither divest / dispose its retails assets without Amazon’s prior consent nor can it deal with “restricted persons” like Mukesh Dhirubhai Ambani (MDA) Group. Despite this agreement, FRL entered into “transaction” with the MDA Group on 29^th August, 2020, for the purpose of amalgamation/complete disposal of its retails assets in latter’s favour. Owing to this, Amazon dragged the Future Group before the SIAC, wherein the EA’ order ruled in favour of Amazon and restrained the transaction. Thereafter, Amazon approached the Delhi HC, urging the EA’ order be enforced. Future Group challenged the validity of EA’ order before national court.

Observation of the Court

The case encapsulates an arduous journey. It was more like a tussle between the Single Bench and the Division Bench of the Delhi HC. The Single Judge Bench twice upheld the validity of the EA’s order, restraining the FRL-Reliance deal on February 2 and March 18 respectively. However, it was continually stayed by the Division Bench of the HC successively on February 18 and March 22. Finally, Supreme Court stayed the proceeding of the Division Bench on April 19 and decided to take up the case itself.

After much deliberation, the Division Bench of Justices R. F. Nariman and B. R. Gavai quashed the order passed the Delhi High Court on February 6 which allowed the Future Group to go ahead with the deal. With this the Hon’ble SC upheld the decision of Singapore panel’s ruling against Reliance-Future retail deal. Certain crucial observations were made by the court. For instance,

1. EA’s award can never be characterized as a nullity. It must be duly obeyed.
2. The Nature of the EA’s order is akin to section 17(1) of the Act.
3. It further observed that no appeal lies for the order passed by the Delhi HC before the court under section 37 of the act against the EA’ order.

This is a laudable progress as it gave India the much awaited recognition in the arbitration world.

Conclusion

The judgment would change the discourse of the arbitration in India. Not only does this set a new precedent for many more cases to come, but it will also impact the global perception of India’s arbitration enforcement landscape. With this significant judgment, the Supreme Court has introduced the elephant in the room by making a significant step towards the recognition of EA in India which will further enhance the ease of doing business.

 Author: Harshita Sonkar- a student of  RMLNLU, currently an intern at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at vidushi@khuranaandkhurana.com.