Supreme Court on enforceability and validity of Emergency Awards - Amazon v. Future

Contributed by: Samvad Partners







Introduction:

The issue of enforceability of decisions of an emergency arbitrator has gained significance in the Indian context, over the last few years. Indian courts have given limited recognition to emergency arbitrators’ decisions, while deciding independent applications for interim relief under Section 9 of the Arbitration and Conciliation, Act 1996 (“Arbitration Act”). (Section 9 of the Arbitration Act empowers a court to grant interim relief before or during the arbitration proceedings or even after making of the award). However, the cases which Indian courts have previously considered on the issue, had arisen in the context of arbitrations seated outside India.


Recently, in Amazon.com NV Investment Holdings LLC v. Future Retail Limited & Ors. the Supreme Court had occasion to consider the enforceability of an emergency award, in the context of an India-seated arbitration. The Supreme Court, in a detailed judgment delivered on 6 August 2021, held that such an emergency arbitrator’s award / order was enforceable as an interim order under Section 17 of the Arbitration Act, which applies to India-seated arbitrations. (Section 17(1) of the Arbitration Act empowers the arbitral tribunal to pass interim orders and Section 17(2) provides that such orders are enforceable in the same manner as orders of a court). The Supreme Court also held that such an order enforcing the emergency award is not appealable. In this article, we briefly discuss the key highlights of the Amazon-Future judgment.


Facts:

In the year 2019, Amazon.com NV Investment Holdings LLC (“Amazon”) agreed to invest a sum of INR 1,431 crore in Future Coupons Pvt. Ltd. (“FCPL”), a Future Group / Biyani Group entity. In consideration, certain negative, protective rights were granted to FCPL with respect to Future Retail Limited (“FRL”) and its retail stores, which would be exercised for the benefit of Amazon. As per the arbitration clause agreed upon between the parties, New Delhi was the seat of arbitration and the rules of the Singapore International Arbitration Centre (“SIAC Rules”) would apply to the arbitration proceedings.


Under the agreements between the parties, FRL was prevented from transferring its retail assets without the consent of FCPL, which consent in turn, could not be granted unless Amazon provided its approval. Further, FRL was prohibited from transferring its assets to restricted persons listed under the agreements. The Mukesh Ambani Group (“Reliance Group”) was one such restricted person.


On 26 December 2019, Amazon invested the investment sum of INR 1,431 crore in FCPL. However, within a few months from this investment, on 29 August 2020, the Future Group entered into a transaction with the Reliance Group (“Disputed Transaction”). The Disputed Transaction envisaged an amalgamation of FRL with the Reliance Group, cessation of FRL as an entity and complete disposal of assets in favour of the said group.


Aggrieved by the fact that the Future Group had entered into the Disputed Transaction, Amazon initiated arbitration proceedings under the SIAC Rules and filed an application seeking emergency reliefs before an emergency arbitrator. (The SIAC Rules provide for emergency arbitration before an emergency arbitrator appointed by SIAC, for urgent reliefs prior to the constitution of the arbitral tribunal). On 25 October 2020, the Emergency Arbitrator passed an interim emergency award (“EA Award”) inter alia restraining the Future Group including FCPL and FRL, from taking any steps to complete the Disputed Transaction. Despite the EA Award, the Future Group went ahead with the Disputed Transaction on the basis that the EA Award was a nullity, and the Emergency Arbitrator was coram non judice.


Armed with the EA Award, Amazon filed an application for enforcement of the EA Award under Section 17(2) of the Arbitration Act, before a Single Judge of the Delhi High Court. On 2 February 2021, the Single Judge passed a status quo order restraining the Future Group from going ahead with the Disputed Transaction, stating that a detailed order would follow. On 8 February 2021, in an appeal preferred by FRL before the Division Bench of the Delhi High Court, the operation, implementation and execution of the Single Judge’s order was stayed. Thereafter, on 18 March 2021, the Single Judge passed a detailed judgment inter alia holding that an emergency arbitrator’s award was enforceable as an interim order of an ‘arbitral tribunal’ under Section 17(2) of the Arbitration Act. Aggrieved by this detailed judgment, FRL preferred another appeal before the Division Bench of the Delhi High Court. The Division Bench once again stayed the Single Judge’s detailed judgment. Against this order, special leave petitions were filed before the Supreme Court.


Arguments Advanced:

Before the Supreme Court, Amazon argued that the EA Award was binding on the parties, and that the Future Group had openly flouted the EA Award. It was argued that the appeals which had been filed by FRL before the Division Bench of the Delhi High Court under the provisions of the Code of Civil Procedure, 1908 (“CPC”) were not maintainable since an appeal could only be filed against an order granting or refusing to grant interim relief, i.e. an order passed under Section 17(1) of the Arbitration Act. No appeal could therefore lie against an order under Section 17(2) which only provides for enforcement of an interim order passed under Section 17(1).


On behalf of the Future Group, it was argued that an ‘arbitral tribunal’ as recognized under the Arbitration Act would mean only a tribunal which is duly constituted between the parties, and would not include an emergency arbitrator. It was also urged on behalf of FRL that despite the Law Commission’s suggestion in the 246th Law Commission Report, to amend the definition of arbitral tribunal to include an emergency arbitrator, the Parliament did not adopt the same when it amended the Arbitration Act in 2015. This, it was argued, would militate against the proposition that an emergency award can be considered an interim order under Section 17 of the Arbitration Act. In short, the Future Group’s position was that the EA Award was a nullity as the emergency arbitrator lacked inherent jurisdiction and therefore, they were justified in ignoring the EA Award.


Findings:

The Supreme Court decided two important questions of law. First, whether an emergency arbitrator’s award can be said to be an interim order of an ‘arbitral tribunal’ under Section 17 (1) of the Arbitration Act. Second, as to whether an order passed under Section 17(2) of the Arbitration Act enforcing an emergency award, is appealable.


On the first question, the Supreme Court held that an emergency arbitrator’s award / order, if provided for under the institutional rules chosen by the parties, would fall within the ambit of Section 17(1) of the Arbitration Act. It held that there is nothing in the Arbitration Act which prohibits contracting parties from agreeing to a provision providing for an award made by an emergency arbitrator. To arrive at this conclusion, the Supreme Court stressed on party autonomy, as one of the pillars of arbitrations in the Arbitration Act, to hold that by agreeing to the SIAC Rules (which provide for emergency arbitration) the EA Award passed, would be covered by the Arbitration Act.


The Supreme Court also observed that the language used in Section 17(1) was that parties can apply to the arbitral tribunal for interim reliefs “during the arbitration proceedings”. The Court held that these words used in Section 17(1) were elastic enough to include emergency arbitration proceedings. The Court noted that the definition of ‘arbitration’ under the Arbitration Act specifically recognizes and includes institutional arbitrations. Pertinently, the Supreme Court observed that while the defined term ‘arbitral tribunal’ speaks only of an arbitral tribunal constituted between the parties, the opening part of the definition clause clarifies that the definitions contained therein would apply “unless the context otherwise requires”. This being the position, insofar as Section 17(1) is concerned, ‘arbitral tribunal’ would, when institutional rules apply, include an emergency arbitrator – the context of Section 17 ‘otherwise requiring’.


The Supreme Court rejected the argument advanced on behalf of FRL that since the Parliament did not incorporate the Law Commission’s recommendation to include emergency arbitrator within the definition of an arbitral tribunal, it would imply that an emergency award is not recognized by the Arbitration Act. In this regard the Supreme Court relied on its decision in Avitel Post Studioz Ltd. and Ors. v. HSBC PI Holdings (Mauritius) Ltd.where the court had laid down that the mere fact that a recommendation of the Law Commission Report is not followed by the Parliament, would not necessarily lead to a conclusion that what was suggested cannot form a part of the statute as properly interpreted. To further buttress this, the Apex Court relied on the Srikrishna Committee Report dated 30 July 2017, which had laid down that it was possible to rely on Section 17(2) of the Arbitration Act to enforce emergency awards for arbitrations seated in India.


Lastly, the Supreme Court also examined the context in which Section 17 was amended by the 2015 Amendment Act, by which the arbitral tribunal was clothed with the same powers as a court under Section 9, to grant interim relief. By this amendment, Section 17(2) was also added to provide enforceability of such orders. The main objective was thus, to decongest the court system, and an emergency arbitrator’s award (when institutional rules provide for the same) would further this very objective. The Supreme Court therefore opined that the parties having agreed to the SIAC Rules which provided for emergency arbitrations, it would not lie in the mouth of a party to ignore the EA Award by stating that it is a nullity.


As regards the second question on maintainability of the appeal, which was filed by FRL, the Supreme Court observed that while Section 17(2) creates a legal fiction providing that an order passed under Section 17(1) would be deemed to be an order of the court, such a fiction is crated only for the limited purpose of enforceability. It held that to extend this to mean that appeals from such decisions under Section 17(2) would lie under the CPC, would be a big leap, not envisaged by the legislature. The Apex Court accepted Amazon’s argument that Section 37 was a complete code in relation to appeals from orders made by arbitral tribunals and courts under the Arbitration Act. The Supreme Court, therefore, clarified that insofar as decisions under Section 17 are concerned, Section 37 only provides for an appeal against an order “granting or refusing to grant an interim measure under Section 17”. Therefore, evidently this was relatable only to the actual interim orders passed by the arbitral tribunal, and not to orders for enforcement of such orders under Section 17(2). Accordingly, the Supreme Court answered the second question in the negative, holding that no appeal lies under Section 37 of the Arbitration Act, against an order passed by the court under Section 17(2) enforcing an emergency award.


Further Update:

On 9 September 2021, the Supreme Court passed an interim order staying the enforcement of the EA Award. The Supreme Court granted the stay in view of the fact that proceedings for vacating the EA Award were pending before the Singapore International Arbitration Centre, and this order was likely to be pronounced very shortly. Pertinently, the order was passed by consent of all the parties.


Conclusion and Impact of the Decision:

The Supreme Court has now unambiguously laid down that emergency awards / emergency orders are valid under the Arbitration Act, when the institutional rules chosen by the parties provide for the same. This decision brings much-awaited clarity for Indian contracting parties who have selected such institutional rules, to seek urgent interim measures before an emergency arbitrator, knowing that the resulting emergency award can be enforced against the respondent. The fact that the Supreme Court has held that no appeal can be preferred from an order enforcing the emergency award, also lends further credibility and efficacy to the process.


Despite the interim stay on the enforcement of the EA Award the Supreme Court has nonetheless settled the law regarding validity and enforceability of emergency awards. The Supreme Court has therefore once again given primacy to party autonomy, and has adopted a pro-arbitration approach, holding parties to be bound by the emergency arbitrator’s decisions.


While negotiating and drafting arbitration agreements, parties will now need to pay close attention to the choice of institutional rules, to ascertain whether such rules provide for emergency arbitration. Most leading arbitral institutions such as Singapore International Arbitration Centre, International Chamber of Commerce, Mumbai Centre for International Arbitration, London Court of International Arbitration, Hong Kong International Arbitration Centre etc., have already made provisions for emergency arbitration procedures in their rules. Therefore, if parties choose such rules, they will automatically obtain an additional mode of protecting their rights, by seeking urgent reliefs before an emergency arbitrator, prior to the constitution of the arbitral tribunal.


It is significant to emphasize that, the decision in Amazon-Future was delivered in the context of an India-seated arbitration. Insofar as foreign seated arbitrations are concerned, until there is any further judicial or legislative intervention, parties will have to adopt an indirect mechanism, as was done in Raffles, by filing an independent action for interim relief under Section 9 of the Arbitration Act, based on the emergency award. However, it is hoped that the categorical finding of the Supreme Court on the validity of an emergency award in the Amazon-Future decision, will assist a party armed with an emergency award of a foreign emergency arbitrator, to obtain protective reliefs from Indian courts.


Globally, various countries have already amended their arbitration laws to recognize and give validity to emergency awards. It remains to be seen whether the Indian legislature will also follow suit and expressly provide statutory recognition to emergency awards, both, for India-seated and for foreign seated arbitrations.


Contributed by Samvad Partners


The above article has been authored by Ms. Poornima Hatti(Partner) and Ms. Savani Gupte(Partner)