The issue of enforceability of an emergency arbitrator's ruling dealt with by the Supreme Court in the case of Amazon.com NV Investment Holdings LLC v. Future Retail Limited holding that the same to be enforceable in India.
In brief, the facts of the case in brief and the proceedings leading to the Supreme Court judgement are such that Amazon invested a sum of Rs. 1,431 crore via a Share Subscription Agreement in Future Coupons Private Limited (hereinafter referred to as “FPCL”) and Future Retail Limited (hereinafter referred as “FRL”), (collectively referred as “Future Retail”), based upon material protective rights which were specifically available to the Future Retail in the transaction. These covenants inter alia included that the retail assets of FRL would not be alienated without the prior written consent of Amazon and would never be transferred to a Restricted Person mentioned under Schedule III of the Shareholders Agreement (hereinafter referred to as “SHA”).
The Agreement stated that Amazon's investment in FCPL would be passed down to FRL in accordance with the commercial agreement. Within two months of investment, the Amazon observed that the Promoters and Directors of Future Retail and their subsidiaries have breached the contractual obligation by approving the transaction of transfer of Future Retail’ assets to Reliance industries, which came under the ambit of restricted person specified in the SHA.
Under the agreement, the dispute settlement clause provided for arbitration before Singapore International Arbitration Centre (hereinafter referred to as “SIAC”). Amazon filed for interim relief which set the arbitration proceedings in motion on 05.10.2020. Emergency Arbitrator (hereinafter referred to as “EA”) was appointed and an injunctive relief was granted to the Amazon through an interim order on 25.10.2020. Thereafter, the Amazon approached Delhi High Court under Section 17 (2) of the Arbitration and Conciliation Act,1996(hereinafter referred to as the “Act”) to enforce this award, and the Hon’ble High Court passed an order under Section 17(2)read with Order 39 Rule 2-A of the Code of Civil Procedure, 1908 (hereinafter referred to as “CPC”) on 18.03.2021, wherein it was held that an EA’s award is an order under S. 17(1) of the Act and not a nullity. Future Retail being aggrieved by this, filed an appeal against the said judgement under Order 43 Rule1(3) of the CPC before the division bench of the Hon’ble High Court, which led to a stay on the judgement.
Thereafter, special leave petitions were filed against this Delhi High Court order before the Hon’ble Supreme Court which set the matter down for final disposal, by determining the following issues for adjudication:
Whether the EA award can be said to be an order under Section 17(1) of the Act?
Whether an order passed under Section 17(2) of the Act in enforcement of the EA award by a learned Single Judge of the High Court is appealable?
With regard to first issue, the Amazon submitted that Sections 2(1)(a), 2(1)(c), 2(1)(d), 2(6), 2(8), and 19(2) of the Act embody the fundamental principle of arbitration, which is supported by these clauses and has been outlined in various decisions. The Amazon argued that a combined reading of the aforementioned clauses, together with the absence of any express or implied interdiction against an EA, would establish that an EA's orders/award, if provided for under institutional rules, would be covered by the Act. Furthermore, pursuant to Rule 3.3 of the SIAC, the arbitral proceedings in this case can be said to have begun on the date that the Registrar of the SIAC received a complete notice of arbitration, indicating that arbitral proceedings under the SIAC Rules begin well before the formation of an arbitral tribunal under the said Rules.
Whereas Future Retail argued that the term "arbitral tribunal" is exhaustively defined in Sections 10 to 13, 16, 17, 21, 23, 27, 29A, and 30 of the Act, and is referred to in Section 2(1)(d) of the Act, and means a single arbitrator or a panel of arbitrators, which, when read with these provisions, would only include an arbitral tribunal that can not only pass interim orders, but is also constituted as a court. Future Retail also contrasted Section 9(1) with Section 17(1), claiming that Section 17(1) would only apply if a party seeks interim relief from an arbitral tribunal (as defined) during arbitral proceedings, which could not possibly apply to an EA who is admittedly appointed only before an arbitral tribunal is properly constituted.
The Hon'ble Court after hearing both submissions ruled that "given the scheme of the Act" the term "arbitral tribunal" as defined in Section 2(1)(d) refers exclusively to an arbitral tribunal formed between the parties and capable of providing interim and ultimate remedies. The definition in Section 2(1)(d), like every other definition section, only applies “unless the context otherwise requires.”
The Hon’ble Court also pointed out that the terms "arbitral procedures" are not defined and consequently include proceedings before an EA, as shown by Section 21 of the Act and the SIAC Rules. The concept of "arbitral tribunal" in Section 2(1)(d) should not be construed in such a way as to limit Section 17(1) to arbitral tribunals that can grant final remedy through an interim or final award, since this would be contrary to the Act's goals. In terms of Section 17(1), the “arbitral tribunal” would include an EA when institutional rules apply, and this is not in conflict with the Act's framework. As section 9(3) and 17 are part of the same scheme, it is clear that the arbitral tribunal defined in Section 2(1)(d) would not apply, and the arbitral tribunal mentioned in Section 9(3) would be the same as the one mentioned in Section 17(1), which would undoubtedly include EA appointed under institutional rules. FRL cannot claim that an EA's award is void by claiming that it is a nullity when it specifically accepts (under SIAC Rules) to the award's binding nature and further commits to carrying out the interim order immediately and without delay.
In regards to the second issue – concerning whether the High Court order was appealable, Amazon argued that Section 37(2)(b) appeal is limited to granting or refusing an interim measure under Section 17 The Act is a comprehensive law, and if an appeal does not fall within the four corners of Section 37, it will be dismissed. When coupled with Section 37 of the Act, Amazon asserted that enforcement orders were imposed under the Act and not the CPC, and so the appeal filed under Order 43, Rule 1(r) would not be maintainable. Further the group-of-companies theory can't be used since the agreements are prima facie between different parties. A non-obstante clause was added to Section 37(1) by the 2015 Amendment to the Act, making it abundantly clear that unless an appeal falls within the four corners of Section 37, no other appeal could be filed if it was outside the four corners of Section 37 at the time an order was issued under the Act.
However, Future Retail submitted that when Sections 9 and 37 of the Act are read together, it is indicated that orders may be imposed under Section 9 until an award is enforced under Section 36 as it is clear that the scope of Section 37 does not extend beyond the Act's orders and judgments. Since orders made in enforcement proceedings are made under the CPC rather than the Act, appeals from such orders can be filed under the CPC in enforcement procedures — both under Section 17(2) and 36(1).Future Retail emphasized that an award is deemed to be a decree for the purposes of enforcement, which would include all purposes, including appeals.
The Hon'ble Court held that the expressions "in relation to" and "any proceedings" include the power to enforce any kind of order made or to be made under Section (1), and are thus not limited to incidental powers to make interim orders, which would then be read in conjunction with CPC, and thus an order made under the respective section would be referable under 9(1) of the Act. The appeal under Order 43 Rule 1 of CPC is ruled out especially when it comes to orders for the enforcement under the Act. Also, no appeal lies under the section 37 of the act against any order of enforcement of an EA award made under s 17(2) of the Act.
The decision puts an end to the ambiguities on the status of the execution of emergency arbitration award in India. It is the beginning of an evolution of emergency arbitration, a remedy that is already popular in commercial arbitrations across the world. If parties do not want to be subjected to EA enforcement, specific reservations must be included in the agreement regarding exclusion of EA provisions while adopting institutional norms that enable such emergency interim remedies.
By necessary implication, likely fallout of the judgment may be that a grant or refusal to grant an interim relief by the EA (which is now considered to be an ‘arbitral tribunal’) may be appealed as per Section 17(2) under Section 37 of the Act. It remains to be seen whether the deemed ‘legal fiction’ created in favour of enforcement becomes stranger in practical reality or enables a more efficient enforcement ecosystem in India.
This article was originally published by AXFAIT: