Journey of the provision of ‘EMERGENCY ARBITRATION’ In India

Dated: May 23, 2020

                                                                                                                                                           - By Megha Bhatia

With increasing transactions and reducing approachability in commerce and finance, conflicts may eventually occur. Today, irrespective of whether the conflict is domestic or international, the parties want an impartial venue to settle their disputes. Effectively, arbitration is the most appropriate method when it comes to the elimination of lengthy court proceedings. The ability of the parties to achieve speedy relief is essential to any arbitration proceeding.

In order to protect and to preserve the rights of the parties, major arbitration institutions shall establish processes and procedures to exclude the involvement of the judiciary in arbitration proceedings. When a party seeks interim relief, they either have recourse to domestic courts or wait for the constitution of the tribunal. The concept of emergency arbitrator has been developed in order to address the above-mentioned fallacy of international institutions and various countries.

Emergence of Emergency Arbitration in India

The idea of emergency arbitration was established with the aim of providing a “urgent pro-term or conservatory measure” to a party to a dispute that could not wait for the arbitral tribunal to be established. It is important for the parties to obtain immediate interim measures at the outset of the dispute, either to retain their position or to “prevent the other side from continuing the breach in question” until the final settlement of the dispute.

Emergency Arbitration is a new concept in the area of Arbitration. It was first introduced by the International Centre for Dispute Resolution in 2006 and the major arbitral institutions adopted it in their rules.

Understandably, the time taken by the emergency arbitrator to deliver the decision is an significant factor for any entity requesting an emergency arbitration. If the award is not granted in a timely manner, the entire process shall be rendered moot. Although the rules of each arbitration institution differ with respect to emergency arbitration procedures, the provision of timely relief is the essence of emergency arbitration in the entire field.

Appointment of Emergency Arbitrator

The party appoints the Emergency Arbitrator when it urgently requires a relief that, if not granted, would lead to a serious loss of assets or evidence. The proceedings of such arbitration shall be governed by the agreement and the consensus of the parties. In fact, the Emergency Arbitrator is not a judge of the judiciary, his work ends with the granting of relief and he is not to rule on the merits of the case. The forms of emergency relief required are roughly grouped into four broad headings -

  1. anti-suit injunctions;
  2. reliefs aimed at restoring status quo of the disputant;
  3. measures intended at safeguarding enforcement of a future award and;
  4. orders for interim payments.

A fair deal of time has elapsed since the idea of the Emergency Arbitrator has been around. The organisations are increasingly adding guidelines and regulations to enhance the workability of the definition of an emergency arbitrator. Several countries have also incorporated this definition in their domestic legislation. 

Although the modern idea of an emergency arbitrator is widely regarded internationally in the arbitration world, the implementation of the order issued by the arbitrator is still uncertain. It ultimately comes down to the subjectivity of the various national courts and the laws of the respective countries as to whether or not an order passed by an emergency arbitrator is enforceable. 

With the exception of Hong Kong and Singapore, all other national laws remain silent on the question of the enforceability of the decision of the emergency arbitrator.

The concept of an emergency arbitrator is not expressly recognized in Indian law. In an effort to confirm with the global trend and also to offer substantive recognition to awards rendered under institutional rules such as SIAC and ICC, the 246th Law Commission report proposed the introduction of the definition of an emergency arbitrator in compliance with Section 2(d) of the Act which stated “Arbitral tribunal” means a sole arbitrator or a panel of arbitrators and, in the case of an arbitration conducted under the rules of an institution providing for appointment of an emergency arbitrator, includes such emergency arbitrator.” Nevertheless, the same was rejected by the legislature when amending the Arbitration and Conciliation Act, 1996 and hence the definition does not form part of the Arbitration and Conciliation Act, 2015.

There is also no direct judicial approval of the decisions of the emergency arbitrator or of its enforcement. Although the Indian courts had, in that case, little chance to test the fairness of the same. Due to the lack of recognition of the concept of an emergency arbitrator in India, the trend has been such that after obtaining an emergency arbitrator award outside India, the parties in India have to apply for an interim order under Section 9 of the Arbitration and Conciliation Act.

Provisions under Indian Law

In India, Section 9 of the Arbitration and Conciliation Act , 1996 (Arbitration Act) specifies that parties may appeal to the court concerned for temporary relief at any time prior to the execution of the arbitral award. It is important to note that, according to Part II of the Arbitration Act, which deals with the compliance of international arbitral awards, only final awards can be rendered before Indian courts and preliminary awards will not be accepted in an emergency arbitration case.

The issue of emergency arbitration was considered by the High Court of Bombay and the High Court of Delhi in two different cases discussed below:

1. HSBC PI Holdings (Mauritius) Limited v. Avitel Post Studioz Limited and 

The Bombay High Court, vide its order of 22 January 2014, granted interim relief to the petitioner pursuant to Section 9 of the Arbitration Act after the decision passed by the Emergency Arbitrator appointed by the SIAC. It should be noted that the agreement in the case in question was executed before the judgment of the Supreme Court of India (Supreme Court) in Bharat Aluminium Co. v. Kaiser Aluminium Technical Service Inc. (BALCO) dated 6 September 2012. 

The BALCO case is an important milestone in the case law of arbitration in India. In BALCO, the Supreme Court held that Part I of the Arbitration Act would not apply to international commercial arbitration and thus, prospectively, overruled its own judgments in the case of Bhatia International v. Bulk Trading S.A. and Venture Global Engineering v. Satyam Computer Services Ltd.

Since the HSBC judgment dealt with the pre-BALCO agreement, the High Court of Bombay gave effect to the decision of the emergency arbitrator by granting similar relief to the petitioner under Section 9 of the Arbitration Act.

2. Raffles Design International India Private Limited & Ors. v. Educomp Professional Education Limited & Ors. (Raffles)

In this case , the High Court of Delhi dealt with an application under Section 9 of the Arbitration Act seeking interim relief in the form of an award by an emergency arbitrator appointed by the SIAC. 

The High Court of Delhi, irrespective of its order dated 7 October 2016, ruled that an emergency award passed by the emergency arbitrator could not be enforced under the Arbitration Act. 

It also held, however, that it was open to a party to bring a request for interim relief before the court pursuant to Section 9 of the Arbitration Act and that the court could grant interim relief 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.

Reasons for non-acceptability of Emergency Arbitration in India 

Firstly, emergency arbitration does not resolve the concerns of a third party, i.e. the emergency arbitrator cannot award sanctions against a third party. The power of an emergency arbitrator is limited to the signatories and cannot be expanded beyond that. On the contrary, Indian courts, like courts in other jurisdictions, can grant temporary relief against third parties under such situations (for example, when such orders are required to protect the subject matter of the arbitration).

Secondly, unlike domestic courts, emergency arbitrators cannot issue ex-parte orders as they will be contrary to the purpose of their constitution – none of the parties would be granted an equal opportunity. Indian courts, like other jurisdictions, can, under extraordinary circumstances, issue ex parte orders. In such exceptional cases, ex parte orders becomes necessary where, if the respondent is aware of the request, the properties or other related grounds can be dislocated.

Thirdly, an award passed by an emergency arbitrator must be duly reviewed by the actual tribunal and can even be reversed, although this is not the case with the interim orders passed by the domestic courts.

Lastly, the enforceability of an award passed by an emergency arbitrator is again a contentious issue. The scant judgments handed down by the Indian Judiciary concerned only the enforceability of the awards passed in Singapore or Hong Kong.

Conclusion

It is undeniably true that emergency arbitration ensures minimum court intervention that is the need of an hour to develop India as a pro-arbitration country. It would be a progressive step towards making India a global hub for arbitration, such as Hong Kong and Singapore.

Mostly, the emergency arbitration hearings are free of complications to guarantee effectiveness, and they try to ultimately establish a fixed standard of conduct for the parties. Experience also shows that the parties are more likely to comply and abide with the orders passed by the emergency arbitrators. An emergency award, if recognized in India, would certainly be of benefit to the parties if the parties against whom the claim is made have their assets in another jurisdiction where emergency awards are recognized.

The benefits of moving before an emergency arbitrator, as opposed to Indian courts are numerous. In a variety of cases, the parties would have preferred to refer their disagreements to a neutral tribunal so that both the parties would feel satisfied with the juridical seat of the tribunal. In fact, the timeframe for obtaining interim reliefs is uncertain, while an emergency arbitrator is required to deliver an award within a definite period. 

In the post-COVID-19 scenario, where courts are shut down across the country and arbitral tribunals operate through videoconferencing for urgent cases, the convenience of emergency arbitration can no longer be understated.

Thus, the time is now right for the Parliament to consider granting recognition to emergency arbitration under the Arbitration Act.


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