Between the Lines | Supreme Court: An emergency award passed under the SIAC rules can be enforced in India under Section 17 of the Arbitration Act. September 22, 2021
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The Hon’ble Supreme Court (“SC”) has in its judgment dated August 06, 2021 (“Judgement”), in the matter of Amazon.com NV Investment Holdings LLC v. Future Retail Limited & Others [Civil Appeal No.4492-4493/2021], held that, the emergency award passed under the arbitration rules of Singapore International Arbitration Centre (“SIAC Rules”) can be enforced in India under Section 17 (Interim measures ordered by arbitral tribunal) of the Arbitration and Conciliation Act, 1996 (“Act”).
Mr. V.K. Rajah, who was appointed as per the SIAC Rules (“Emergency Arbitrator”) passed an emergency award dated October 25, 2020 (“Emergency Award”) in an arbitration proceeding commenced by Amazon.com NV Investment Holdings LLC (“Amazon / Appellant”) against Future Retail Limited, respondent no. 1, India’s second-largest offline retailer (“FRL”), Future Coupons Private Limited, respondent no. 2, a company that holds 9.82% shareholding in FRL and is controlled and majority-owned by respondent nos. 3 to 11 (“FCPL”) and respondent nos. 1 to 13 (respondent nos. 1 to 13 are hereinafter collectively referred to as the “Biyani Group/Respondents”). The seat of the arbitral proceedings was New Delhi, and the applicable rules were SIAC Rules.
Earlier, a shareholders’ agreement dated August 12, 2019, was entered into amongst the Biyani Group, (“FRL SHA”), wherein, FCPL was accorded negative, protective, special, and material rights with regard to FRL including, in particular, FRL’s retail stores (“Retail Assets”). The rights granted to FCPL under FRL SHA were to be exercised for Amazon’s benefit and thus were mirrored in a shareholders’ agreement dated August, 22, 2019 entered into between Amazon, FCPL, and respondent nos. 3 to 13 (“FCPL SHA”). Consequently, on December 26, 2019, Amazon invested a sum of INR 1,431 crores in FCPL (“Investment”) based on the rights granted to FCPL under both the FRL SHA and the FCPL SHA. It was expressly stipulated that the Investment in FCPL would “flow down” to FRL. The Investment had been recorded in the share subscription agreement dated August 22, 2019 entered into between Amazon, FCPL, and respondent nos. 3 to 13.
The basic understanding between the parties was that Amazon’s Investment in the Retail Assets of FRL would continue to vest in FRL, as a result of which, FRL could not transfer its Retail Assets without FCPL’s consent, which, in turn, could not be granted unless Amazon had provided its consent. Also, FRL was prohibited from encumbering / transferring / selling / divesting / disposing of its Retail Assets to “restricted persons”, being prohibited entities, with whom the Biyani Group could not deal. The Mukesh Ambani group (“Reliance Industries Group”) was a “restricted person” under both the FRL SHA and the FCPL SHA. However, on August 29, 2020, Biyani Group entered into a transaction with the Reliance Industries Group which envisaged the amalgamation and consequential cessation of FRL as an entity, and the complete disposal of the Retail Assets in favour of the Reliance Industries Group (“Transaction”). Therefore, Amazon initiated arbitration proceedings and sought for an emergency interim relief (injunctions) under the SIAC Rules, against the Transaction which was granted by way of the Emergency Award.
Thereafter, Biyani Group still proceeded with the Transaction, and described the Emergency Award as a nullity and the Emergency Arbitrator as coram non judice in order to press forward for permissions before statutory authorities/regulatory bodies. However, FRL filed a civil suit before the Delhi High Court (“DHC”), wherein it sought to interdict the arbitration proceedings and sought for an interim relief to restrain Amazon from writing to statutory authorities by relying on the Emergency Award, calling it a “tortious interference” with its civil rights. The DHC by its order dated December 21, 2020, refused to grant any interim injunction because there may not be irreparable loss to FRL since, it will be for the statutory authorities/regulators to apply their mind to the facts and legal issues therein and come to the right conclusion. An appeal had been filed by Amazon (currently pending before the SC) against certain observations made in this order.
Meanwhile, Amazon filed an application under Section 17(2) of the Act to enforce the Emergency Award which was disposed of on February 02, 2021, by the learned single judge of DHC, who passed a status-quo order wherein he restrained the Biyani Group from proceeding with the Transaction (“Order”). An appeal against the Order was filed by FRL, in which a division bench, after reaching certain prima facie findings, by order dated February 08, 2021, stayed the operation, implementation, and execution of the Order. Again, division bench of the DHC by order dated March 22, 2021 (“Impugned Orders”) referred to its aforementioned order and extended the stay of the Order till April 30, 2021 (the next date of hearing). ‘Special Leave Petitions’ were filed before the SC against the Impugned Orders.
On March 18, 2021, the learned single judge passed a detailed judgment giving reasons for an order made under Section 17(2) read with Rule 2-A (Consequence of disobedience or breach of injunction) of Order XXXIX (Temporary Injunctions and Interlocutory Orders) of the Code of Civil Procedure, 1908 (“CPC”) in which it was held that an Emergency Award was enforceable as an order under Section 17(1) of the Act. Since breaches of the agreements aforementioned were admitted, it further held that the injunctions/directions granted by the Emergency Award were deliberately flouted by the Biyani Group. He further observed that any so-called violations of the Foreign Exchange Management Act, 1999, did not render the Emergency Award a nullity, and, therefore, issued a show-cause notice under Rule 2-A of Order XXXIX of the CPC, after imposing INR 20 lakh as costs. The matter was listed for further directions on April 28, 2021. Against the said judgment, an appeal was filed by FRL before the SC.
The SC stayed further proceedings before the learned single judge as well as the division bench of the DHC, and set the matter down for final disposal before the SC by its order dated April 19, 2021.
i. Whether the Emergency Arbitrator’s award is contemplated under the Act; and
ii. Whether the Emergency Award can be enforced in India under Section 17 of the Act.
Contentions raised by the Appellant:
The order dated February 08, 2021, referred to an agreement between FRL and Reliance Retail Limited, which is an error apparent on the face of the record. The Order and the Impugned Orders of the Division Bench of the DHC suffered from a complete non-application of mind. Further, the Act reflects the grundnorm of arbitration as being party autonomy. The Act is a complete code in itself and if an appeal does not fall within the four corners of Section 37(Appealable orders) of the Act, then the appeal is incompetent. A non-obstante clause was added to Section 37(1) of the Act, thereby making it abundantly clear that no appeal could possibly be filed if it was outside the four corners of Section 37 of the Act. The Emergency Award must be taken as it stands as no appeal was made therefrom by the Biyani Group and, therefore, it was not permissible to go behind the Emergency Award. The non-signatories to arbitration agreements would nevertheless be bound thereby and on facts, it was admitted that the “Ultimate Controlling Person” behind the entire transaction was Mr. Kishore Biyani, who was defined as such under the 3 agreements. After openly flouting the Emergency Award, they would have no case on merits to resist the directions issued by the learned single judge, DHC under Section 17(2) of the Act.
Contentions raised by the Respondents:
The 246th Law Commission Report was referred, in which the amendment of Section 2 of the Act was proposed, to include within Section 2(1)(d) of the Act, a provision for the appointment of an emergency arbitrator. However, the parliament did not adopt the same when it amended the Act by the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Amendment Act”). Thereby, given the scheme of the Act, an arbitral tribunal as defined by Section 2(1)(d) of the Act can only mean a tribunal that is constituted between the parties, which then decides the disputes between the parties finally and cannot include the Emergency Arbitrator who is not an “arbitral tribunal” but a person who only decides, an interim dispute between the parties which never culminates in a final award. The scheme, therefore, of the entirety of Part I of the Act, would show that the Emergency Arbitrator is a foreigner to the Act and cannot fit within its scheme unless an amendment is made by parliament.
The provisions of the SIAC Rules relating to an emergency arbitrator’s award, which were agreed to between the parties, were subject to the provisions of the Act. Since the Act did not provide for emergency arbitrators, this part of the SIAC Rules would not apply, making it clear that the Emergency Arbitrator’s award cannot fall within Section 17(1) of the Act. The scheme of Section 17(1) of the Act made it clear that a party may, during arbitral proceedings, apply to the arbitral tribunal. However, under the SIAC Rules, the Emergency Arbitrator was appointed before the arbitral tribunal is constituted. This being the case, the Emergency Arbitrator, not being appointed during arbitral proceedings, fell outside Section 17(1) of the Act.
Observations of the Supreme Court
The SC, on reading of the provisions of the Act, noted that, an arbitration proceeding can be administered by a permanent arbitral institution. Further, Section 2(6) (construction of references) of the Act clarified that parties were free to authorise any person including an institution to determine issues that arose between the parties. Also, under Section 2(8) of the Act, party autonomy went to the extent of an agreement which included being governed by SIAC Rules referred to in the FRL SHA and the FCPL SHA. Likewise, under Section 19(2) of the Act, parties were free to agree on the procedure to be followed by an arbitral tribunal in conducting its proceedings. The SC noted that, importance of party autonomy being virtually the backbone of arbitrations was delineated in the judgment of Centrotrade Minerals & Metal Inc. v. Hindustan Copper Limited [(2017) 2 SCC 228]. Further, the SC noted that, the instant case was akin to Centrotrade (supra), that, the parties to the contract, in the present case, by agreeing to the SIAC Rules and the award of the Emergency Arbitrator, had not bypassed any mandatory provision of the Act. There is nothing in the Act that prohibits contracting parties from agreeing to a provision providing for an award being made by an Emergency Arbitrator. The SC observed that, on the contrary, various provisions of the Act provide for party autonomy in choosing to be governed by institutional rules, hence it was clear that the SIAC Rules would apply to govern the rights between the parties, as specifically endorsed by the Act.
Scope of Arbitral Proceedings & Arbitral Tribunal:
The SC further noted that, Section 21 (Commencement of arbitral proceedings) of the Act, subject to agreement by the parties, provided that arbitral proceedings in respect of a particular dispute commenced on the date on which a request for that dispute to be referred to arbitration is received by the respondent. The SC noted that, under rule 3.3 of the SIAC Rules, the arbitral proceedings commenced from the date of receipt of a complete notice of arbitration by the ‘Registrar of the SIAC’. Therefore, the SC observed that, the arbitral proceedings under the SIAC Rules commence much before the constitution of an arbitral tribunal thereunder. The SC observed that, when Section 17(1) of the Act uses the expression “during the arbitral proceedings”, the said expression would be elastic enough, when read with the provisions of Section 21 of the Act, to include emergency arbitration proceedings, which commence after receipt of notice of arbitration by the ‘Registrar’ under Rule 3.3 of the SIAC Rules. The SC observed that, a conjoint reading of these provisions coupled with there being no interdict, either express or implied, against the Emergency Arbitrator would show that the Emergency Award, provided for under SIAC Rules, would be covered by the Act.
The SC also analysed the issue – whether the definition of “arbitral tribunal” under Section 2(1)(d) of the Act should so constrict Section 17(1) of the Act, making it apply only to an arbitral tribunal that can give final reliefs by way of an interim or final award. The SC noted that, the “arbitral tribunal” as defined in Section 2(1)(d) of the Act speaks only of an arbitral tribunal that is constituted between the parties and which can give interim and final relief, “given the scheme of the Act”. However, like every other definition section, the definition contained in Section 2(1)(d) of the Act only applies “unless the context otherwise requires”. The SC observed that given that the definition of “arbitration” in Section 2(1)(a) of the Act meant any arbitration, whether or not administered by a permanent arbitral institution, when read with Sections 2(6) and 2(8) of the Act, would clarify that, even interim order that is passed by Emergency Arbitrator under the SIAC Rules would, on a proper reading of Section 17(1) of the Act, be included within its ambit. The SC observed that, it is significant to note the words “arbitral proceedings” are not limited by any definition and thus encompass proceedings before the Emergency Arbitrator.
Section 17(1) of the Act provides for the application by a party for interim reliefs. There is nothing in Section 17(1) of the Act, when read with the other provisions of the Act, to interdict the application of rules of arbitral institutions that the parties may have agreed to. Therefore, insofar as Section 17(1) of the Act is concerned, the “arbitral tribunal” would, when institutional rules apply, include an emergency arbitrator, the context of Section 17 of the Act “otherwise requiring”, that is, the context being interim measures that are ordered by arbitrators. The same object and context would apply even to Section 9(3) of the Act which clarifies that the court shall not entertain an application for interim relief once an arbitral tribunal is constituted unless the court finds that circumstances exist which may not render the remedy provided under Section 17 of the Act efficacious. Since Sections 9(3) and 17 of the Act form part of one scheme, it is clear that the arbitral tribunal spoken of in Sections 9(3) and 17(1) of the Act would include the Emergency Arbitrator appointed under SIAC Rules. The SC observed that, therefore, even if Section 25.2 of the FCPL SHA (pari materia with Section 15.2 of the FRL SHA) made the SIAC Rules subject to the Act, the said Act, properly construed, would include Emergency Award, there being nothing inconsistent in the SIAC Rules when read with the Act.
The SC noted that, Rule 1.3 of the SIAC Rules indicated that an award of Emergency Arbitrator was included within the ambit of the SIAC Rules. The SC observed that “arbitration” mentioned in Section 25.2 of the FCPL SHA would include an arbitrator appointed in accordance with the SIAC Rules which, in turn, would include the Emergency Arbitrator. The SC noted that as per the SIAC Rules the Emergency Arbitrator had all the powers vested in an arbitral tribunal, including the authority to rule on his own jurisdiction. Further that, the Emergency Award issued by the Emergency Arbitrator which was exactly like an order of an arbitral tribunal, would continue to bind the parties unless the tribunal is not constituted within 90 days of such order or award or it is modified or vacated by the arbitral tribunal, once it is constituted, or until the tribunal makes a final award or until the claim is withdrawn.
Interpretation and objective of various provisions of the Act:
The SC noted that, the 246th Law Commission Report did provide for the insertion of an emergency arbitrator’s orders into Section 2(1)(d) of the Act with an objective to ensure that institutional rules such as the SIAC Rules are given statutory recognition in India. The SC noted that, in the case of Avitel Post Studioz Limited and Others v. HSBC PI Holdings (Mauritius) Limited [(2021) 4 SCC 713], it was held that, mere fact that a recommendation of a ‘Law Commission Report’ was not followed by Parliament, would not necessarily lead to the conclusion that what has been suggested by the Law Commission cannot form part of the statute as properly interpreted. The SC noted that, the 246th Law Commission Report also recommended the insertion of Section 9(2) with an objective to ensure the timely initiation of arbitration proceedings by a party who is granted an interim measure of protection and 9(3) with an objective to reduce the role of the courts in relation to grant of interim measures once the arbitral tribunal has been constituted in alignment with the spirit of the UNCITRAL Model Law as amended in 2006. The 2015 Amendment Act, therefore, introduced sub-sections (2) and (3) to Section 9, the SC observed that, in essence, what is provided by the SIAC Rules, is reflected in Sections 9(2) and 9(3) so far as interim orders passed by courts are concerned. Accordingly, Section 17 of the Act was substituted by the 2015 Amendment Act to provide the arbitral tribunal the same powers as a court would have under Section 9 to provide for interim relief. Also, Section 17(2) of the Act was added so as to provide for enforceability of such orders, again, as if they were orders passed by a court, thereby bringing Sections 17(Interim measures ordered by arbitral tribunal) on par with 9(Interim measures by court) of the Act.
The DHC judgment in Raffles Design International India Private Limited v. Educomp Professional Education Limited, [2016 SCC OnLine Del 5521] dealt with an award by an Emergency Arbitrator in an arbitration seated outside India (as was mentioned in Srikrishna Committee Report (“SCR”)). The SCR laid down that it is possible to interpret Section 17(2) of the Act to enforce emergency awards for arbitrations seated in India, and recommended that the Act be amended only so that it comes in line with international practice in favour of recognising and enforcing an emergency award and Section 9(3) of the Act would show that the objective was to avoid courts being flooded with Section 9 petitions when an arbitral tribunal is constituted for two good reasons – (i) that the clogged court system ought to be decongested, and (ii) that an arbitral tribunal, once constituted, would be able to grant interim relief in a timely and efficacious manner.
An Emergency Arbitrator’s “award”, would undoubtedly be an order which furthers the above mentioned objectives. Given the fact that party autonomy is respected by the Act and that there is otherwise no interdict against the Emergency Arbitrator being appointed, it was clarified that the Emergency Award would fall within the institutional rules to which the parties have agreed, and would consequently be covered by Section 17(1) of the Act, when read with the other provisions of the Act. The SC observed that a party cannot be heard to say, after it participates in an emergency award proceeding, having agreed to institutional rules made in that regard, after losing, turn around and say that the award is a nullity or coram non judice. The SC noted that, having agreed to be governed by the SIAC Rules, Biyani Group cannot ignore the Emergency Arbitrator’s award by stating that it is a nullity when such party expressly agreed to the binding nature of it.
Decision of the Supreme Court
The SC answered the issues in affirmative, by declaring that full party autonomy is given by the Act to have a dispute decided in accordance with institutional rules which can include emergency arbitrators delivering interim orders, described as “awards”. The SC observed that, Section 17 of the Act, as construed in the light of the other provisions of the Act, clearly leads to the position that Emergency Award is recognised under the provisions of Section 17(1) of the Act and can be enforced under the provisions of Section 17(2) of the Act.
The SC in this Judgement correctly observed that the Act is a statute which favours the remedy of arbitration so as to provide expeditious interim reliefs to the parties and declog civil courts which are, in today’s milieu, extremely burdened. The SC veraciously observed that, no order bears the stamp of invalidity on its forehead and has to be set aside in regular court proceedings as being illegal. Even if, subsequently, an order is set aside as having being passed without jurisdiction, for the period of its subsistence, it is an order that must be obeyed. Therefore, the Biyani Group was supposed to act in accordance with the Emergency Award.
Party autonomy is the fulcrum in arbitration agreements and Amazon had exercised its choice of forum for interim relief specified thereunder. Thereby, the SC opined that nothing in the Act prohibited contracting parties from obtaining relief from the Emergency Arbitrator. Hence, in such a case where parties had expressly chosen SIAC Rules as the curial law governing the conduct of arbitration, the court would look at the SIAC Rules to the extent that the same was not contrary to the public policy or the mandatory requirements of the law of the country in which arbitration was held. The provisions of emergency arbitration under the SIAC Rules are not contrary to any mandatory provisions of the Act. Hence, the Emergency Arbitrator prima facie was not a coram non judice and the Emergency Award was not invalid.
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