India - Emergency Arbitration And Its Enforceability In Indian Context.
Legal News & Analysis - Asia Pacific - India - Dispute Resolution
17 April, 2020
Quite often, the chances of determining the success of enforcing a favorable decree depend on interim reliefs obtained by a party during the nascent stages of the proceedings. This is especially true for commercial litigation since obtaining the interim relief will ensure that the successful party is able to enforce the decree without expending any further time or costs.
The relevance of emergency arbitration arises in matters where a party is constrained to seek interim reliefs before the constitution of the arbitral tribunal. It is a well-settled principle of law that only such interim reliefs can be granted by a court or a tribunal which are in aid of final relief. In order to obtain interim relief, it is incumbent upon the party to prove to the tribunal that its claim against the counterparty has reasonable merit and that failure to obtain the interim reliefs would result in grave and irreparable loss.
Emergency arbitrations enable a party to approach the arbitration institution before the arbitration tribunal is constituted and seek interim reliefs. The present article looks at the concept of emergency arbitration and its recognition and enforceability in India and other jurisdictions.
Since the amendment to the UNICTRAL Model Law (Model Law) in 2006 empowering arbitral tribunals to grant interim reliefs to parties, a number of arbitration institutions such as the International Centre for Dispute Resolution (ICDR), Stockholm Chamber of Commerce (SCC), International Chamber of Commerce (ICC), Singapore International Arbitration Centre (SIAC) and Hong Kong International Arbitration Centre (HKIAC) have amended their rules to provide parties with the remedy of emergency arbitration.
Understandably, an important consideration for any party seeking emergency arbitration is the time taken by the emergency arbitrator for passing the award. If the award is not passed in a timely manner, the entire process is rendered moot. Although the rules of every arbitration institution differ with respect to emergency arbitration procedures, granting timely relief is the essence of emergency arbitration across the sphere. For instance, Rule 30 read with Schedule I of the SIAC Rules provide that if a party wishes to seek emergency relief before the constitution of the arbitral tribunal, such a party is required to file an application for emergency interim relief with the Registrar. Such an application should provide the nature of the relief sought, the reasons why the party is entitled to such relief and a statement certifying that a copy of the application has been served upon the counter-parties to the dispute. Within one day from receipt of the application along with payment of the stipulated administration fees and deposits, the President of the Court of Arbitration of SIAC (President) shall appoint an emergency arbitrator if it is determined that SIAC should accept the application. The emergency arbitrator is required to establish a schedule for consideration of the application within two days of his / her appointment. After giving a reasonable opportunity to the parties to be heard, the emergency arbitrator is required to consider the application and pass a reasoned award within fourteen days from the date of his / her appointment. The award made by the emergency arbitrator has to be approved by the Registrar with respect to its form.
An emergency arbitrator has broad powers to award any interim relief which may be deemed necessary to safeguard the interests of the succeeding party and this may include injunctive reliefs, measures for conservation of the subject property and measures to secure the amount in dispute.
RECOGNITION OF EMERGENCY ARBITRATION IN FOREIGN JURISDICTIONS
The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) is the leading soft law on enforcement of foreign arbitral awards.
However, the New York Convention does not recognize an award passed by an emergency arbitrator on account of the fact that such an order has not attained finality under law.
However, a number of arbitration-friendly jurisdictions have recognized the importance of emergency arbitrations and allowed enforcement of the emergency arbitral award under its municipal laws. Singapore and Hong Kong have amended the applicable municipal statutes in order to enable parties to enforce interim awards/orders passed by an emergency arbitrator.
In the United States of America, a number of judicial rulings have recognized emergency arbitral awards and allowed enforcement of such awards. The United States Court of Appeals, Sixth Circuit, vide its order dated 15 March 1984 in the matter of Island Creek Coal Sales Company v. City of Gainsville, Florida, recognized the authority of an arbitral tribunal to grant interim reliefs under the American Arbitration Association (AAA) Commercial Arbitration Rules.
In England, the England & Wales High Court has held in the matter of Gerald Metals SA v. Timis that the court does not have the power to grant urgent relief in cases where the parties have sufficient means to obtain interim relief from the emergency arbitrator under the London Court of International Arbitration (LCIA) Rules. Thus, the High Court gave precedence to the powers of the emergency arbitrator under the LCIA Rules over the judicial court’s power to grant interim reliefs under the English Arbitration Act, 1996.
ENFORCEABILITY OF EMERGENCY ARBITRATIONS IN INDIA
In India, Section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) provides that parties may apply for interim reliefs to the concerned court at any time before the enforcement of the arbitral award. It is relevant to state that under Part II of the Arbitration Act, which deals with enforcement of foreign arbitral awards, only final awards can be enforced before the courts in India and interim awards passed by in an emergency arbitration proceeding is not recognized.
In 2014, the Law Commission of India recognized this lacuna in its 246th report and recommended that the definition of “arbitral tribunal” under Section 2(1)(d) of the Arbitration Act should be broadened to include emergency arbitrator so as to ensure that arbitration institution rules which provide for an emergency arbitrator are statutorily recognized in India. Unfortunately, the recommendation was not given effect in the subsequent amendments to the Arbitration Act.
The issue of emergency arbitration has been considered by the Bombay High Court and Delhi High Court in two different cases which are discussed hereinbelow.
HSBC PI Holdings (Mauritius) Limited v. Avitel Post Studioz Limited and Ors. (HSBC)
The Bombay High Court, vide its Order dated 22 January 2014 granted interim reliefs to the petitioner under Section 9 of the Arbitration Act in line of the award passed by the emergency arbitrator appointed by SIAC. It is noteworthy that the agreement in the subject case was executed before the passage of the Supreme Court of India’s (Supreme Court) judgment in Bharat Aluminum Co. v. Kaiser Aluminum Technical Service Inc. (BALCO) dated 6 September 2012. The BALCO case is an important milestone for arbitration jurisprudence in India. In BALCO, the Supreme Court held that Part I of the Arbitration Act would not be applicable to international commercial arbitration and thereby, prospectively overruled its own judgments in the matter of Bhatia International v. Bulk Trading S.A. and Venture Global Engineering v. Satyam Computer Services Ltd. Since the HSBC judgment dealt with a pre-BALCO agreement, the Bombay High Court gave effect to the award passed by the emergency arbitrator by granting similar reliefs to the Petitioner under Section 9 of the Arbitration Act.
Raffles Design International India Private Limited & Ors. v. Educomp Professional Education Limited & Ors. (Raffles)
In the said matter, the Delhi High Court was dealing with an application under Section 9 of the Arbitration Act seeking interim reliefs on the lines of an award passed by the emergency arbitrator appointed by SIAC. The Delhi High Court, vide its Order dated 7 October 2016 held that the emergency award passed by the emergency arbitrator cannot be enforced under the Arbitration Act. However, it further held that it is open to a party to approach the court under Section 9 of the Arbitration Act to seek interim reliefs and that the court may grant interim reliefs to the party without considering the order passed by the emergency arbitrator.
As can be seen from the two precedents discussed hereinabove, it is clear that enforcing an award passed by an emergency arbitrator lacks legal backing under Indian jurisprudence.
The advantage of moving before an emergency arbitrator, as opposed to the Indian courts are numerous. In a number of cases, the parties would have mutually agreed to submit their disputes to a neutral jurisdiction so that both parties are comfortable with the juridical seat of the tribunal. Further, the timeframe for obtaining interim reliefs is uncertain whereas an emergency arbitrator is required to pass an award within a stipulated timeframe. In a post-COVID-19 scenario, where courts across the country are shut down and arbitral tribunals are functioning through video-conferencing for urgent matters, the convenience of emergency arbitration can no longer be understated.
The observations contained in the 246th report of the Law Commission of India was reiterated by the High Level Committee to Review the Institutionalization of Arbitration Mechanism in India (HLC) under the chairmanship of Justice B.N. Srikrishna (Retd.) in its Report dated 30 July 2017. The HLC observed that considering the international practice of allowing enforcement of emergency awards, India should take steps to allow enforcement of emergency awards under the Arbitration Act.
Thus, the time is now ripe for the parliament to consider giving recognition to emergency arbitration under the Arbitration Act.
For further information, please contact:
Souvik Ganguly, Partner, Acuity Law