This Judgment may aid in encouraging foreign parties and MNCs to prefer India as a seat of Arbitration for the disputes emerging from their business in India write Mayur Shetty, Associate Partner, Rajani Associates and; Dikshat Mehra, Principal Associate, Rajani Associates
The Apex Court's recent judgment in a dispute between Amazon and Future Group provides a much-needed clarity and respite in relation to enforceability of the awards delivered by Emergency Arbitrators in a domestic Arbitration.
The Apex Court has held in an Appeal filed by Amazon.com NV Investment Holdings("Amazon") against Future Retail Limited("FRL") & Ors. ("Judgement") that an award delivered by an Emergency Arbitrator ("EA") under the SIAC Arbitration Rules constitutes an enforceable order under the Arbitration and Conciliation Act 1996 ("Act").
This Judgment would mean that emergency arbitration awards governed under various institutional rules made in arbitrations seated in India would now be enforceable like court orders; and thus an Emergency Arbitrator would be equated with an Arbitral Tribunal.
This Judgment may aid in encouraging foreign parties and MNCs to prefer India as a seat of Arbitration for the disputes emerging from their business in India.
Setting the context and understanding the background
The dispute between Amazon and Future Group arose in relation to control of Future Retail Limited ("FRL").
A Shareholders Agreement ("FRL SHA") was entered in respect of FRL, amongst companies of the Future Group and other members of the Biyani family. Under the SHA, Future Coupons Pvt Ltd ("FCPL") which is a shareholder in FRL, was granted special rights in relation to FRL and its retail assets in particular.
The rights granted to FCPL were to be exercised for the benefits of Amazon, in light of the investments made by them. Amazon's rights were set out in a separate Shareholders Agreement in respect of FCPL ("FCPL SHA") entered by and between Amazon, FCPL and members of the Biyani Group.
Amazon invested a sum of Rs 1,431 crores in FCPL, based on the rights granted to FCPL under the FRL SHA and the rights granted to Amazon under the FCPL SHA. This investment was recorded in a Share Subscription Agreement entered by and between Amazon, FCPL, and other members of the Biyani Group.
The investment made by Amazon in FCPL flowed down to FRL. It was agreed between the parties that FRL could not transfer its retail assets without FCPL's consent (and thus Amazon's consent). FRL was also prohibited from transferring its retail assets to certain specifically restricted persons, which included the Reliance Group.
However, subsequently FRL, FCPL and other members of the Biyani Group entered into a transaction with the Reliance Group, which would have enabled transfer of FRL's retail assets to the Reliance Group.
Amazon commenced emergency arbitration proceedings under the SIAC Rules seeking emergency interim relief, qua the above transaction. The EA, in its interim award made on October 25, 2020 ("EA Award") ordered interim relief restraining FRL, FCPL and other members of the Biyani Group from taking any steps to complete the transaction with the Reliance Group, including transferring FRL's retail assets.
The Biyani Group nevertheless sought to proceed with the implementation of its transaction with the Reliance Group. Biyani Group also sought an interim order from the Delhi High Court to restrain Amazon from writing to statutory authorities on the basis of the EA Award. The Hon'ble Delhi High Court refused to grant such an interim injunction.
Amazon then sought enforcement of the EA Award. The Delhi High Court restrained the Biyani Group from implementing the said transaction and held that the EA Award was enforceable under the Act.
Biyani Group challenged the aforesaid order before the Division Bench of the Delhi High Court and got a stay on the order. Amazon preferred the Civil Appeal before the Apex Court challenging order of the Division Bench of the Delhi High Court.
Understanding the Apex Court's Ruling
The primary issue considered by the Apex Court was whether, an EA decision constituted an order of an arbitral tribunal under the Act and the second issue being that, whether an order passed under Section 17(2) (interim reliefs before an Arbitrator) of the Act for enforcement of the award passed by an emergency arbitrator was appealable, or not under the Act.
The Apex Court held that emergency arbitration was within the contemplation of the Act and the definition of an arbitration tribunal, included within its scope an EA.
The Apex Court emphasised the importance of party autonomy, including an EA to decide a dispute that had arisen between them. It also referred to the SIAC Rules under which an EA has all the powers vested in an arbitral tribunal. The Apex Court noted that Parliament had not implemented the recommendation of the 246th Law Commission Report to enable implementation of EA decisions in India. However, it considered that non-implementation of the Law Commission Report on this aspect would not necessarily lead to the conclusion that EA decisions are not enforceable in India on a proper interpretation of the Act.
The Apex Court referred to the Srikrishna Committee Report which considered that it was possible to interpret provisions of the Act so as to enforce EA decisions in India.
The Apex Court also held that a party would be estopped, after having agreed to institutional rules (in this case being the SIAC Rules) providing for emergency arbitration and participating in an EA proceeding, from subsequently contending that it could not be bound by an EA's ruling.
The Apex Court held enforcement of interim orders was created under Section 17(2) of the Act only for the limited purpose of enforcement as a decree of the court The Apex Court further held, after analysing the scheme of the Act, that an order of a court enforcing an EA order, or an interim order of an arbitral tribunal would not be appealable under the Act.
Analysis of the Judgment & effectiveness of EA decisions going forward in the Indian context
This Judgment of the Apex Court possibly will be seen as an important step in providing expeditious interim relief to the parties without much of Court interference.
Emergency Arbitration is a relatively new concept in India, which was primarily introduced by renowned International Institutes of Arbitration through their rules. Certain foreign jurisdictions have from time to time, through legislative amendments, widened the definition of arbitral tribunal to expressly include within its scope an EA.
The Judgment has not only provided clarity, but also firmly enhances the effectiveness of EA decisions in the Indian context.
However, it is pertinent to note that theJudgment does not apply to the EA decisions delivered by Foreign Seated Arbitrations. Nevertheless, certain High Courts in India have been indirectly enforcing EA decisions made in arbitrations seated outside India vide orders under section 9 of the Act (this section enables courts to grant interim measures of protection).
Before the Judgement, enforcing an award passed by an emergency arbitrator clearly lacked legal backing under Indian jurisprudence.
The timeframe for obtaining interim reliefs is uncertain before courts, whereas an emergency arbitrator is required to pass an award within a stipulated timeframe under various institutional rules and hence now post the Judgement, advantage of moving before an emergency arbitrator, as opposed to the Indian courts would be encouraged.
After the Judgement it is now possibly time for the lawmakers to also consider giving recognition to emergency arbitration under the Act too, thereby considering the observations made in the Srikrishna Committee Report and following the international practice of allowing enforcement of emergency awards under the Act.
The Apex Court in its Judgement referred to a number of judgments highlighting the importance of party autonomy as being one of the pillars of arbitration under the Act, thereby keeping party autonomy at the highest pedestrian for Arbitration. Lastly, in our view, the Judgement will be seen as a boon for adoption of emergency and institutional arbitration rules and will also set an apt precedent to showcase India's pro-Arbitration approach amongst the global corporate world and hopefully this may further aid India's rise in ranking on the global index of ease of doing business.
Furthermore, Future Retail Limited recently on August 12, 2021, post the Judgement has now seemed to have moved a Special Leave Petition before the Apex Court challenging the Delhi High Courts' Single Bench order. Special Leave Petition is pending adjudication and it will be interesting to see how the battle between these corporate giants pan out.
Originally published by BW Legal World (13 August, 2021)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.