SUPREME COURT ON ENFORCEABILITY OF EMERGENCY AWARDS UNDER ARBITRATION AND CONCILIATION ACT, 1996
The Hon’ble Supreme court, double bench, in the landmark judgment of Amazon.com NV Investment Holdings LLC V/s Future Retail Limited and Others, Civil Appeal Nos. 4492-4493 of 2021, ruled that the Emergency arbitral awards are orders which were made in accordance with Article 17 (1) of the Arbitration and Conciliation Act, 1996.
The Supreme Court also held that the order to enforce an emergency arbitration award passed under Article 17(2) of the Arbitration Law cannot be appealed.
SECTION-17. Interim measures ordered by the arbitral tribunal
“Interim measures ordered by the arbitral tribunal.—
(1) Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measure of protection as the arbitral tribunal may consider essential in respect of the subject matter of the dispute.
(2) The arbitral tribunal may require a party to deliver appropriate security in connection with a measure ordered under sub-section (1).”
BRIEF FACTS OF THE CASE ARE:-
- An appeal was initiated by the Appellant Amazon.com NV Investment Holding LLC (Amazon) in the Delhi High Court under Article 17(2) of the Arbitration Law to enforce the Emergency Arbitration Award dated 25 October 2020 under Rules of the Singapore International Arbitration Centre Rules (SIAC).
- A shareholders agreement was signed dated August 12, 2019 [“FRL Shareholders Agreement”] between Biyani Group (Respondents No. 1 to 13).
- Pursuant to this shareholders’ agreement, FCPL was granted negative, protective, special, and material rights related to FRL, especially including FRL’s retail stores [“Retail Assets”]. The rights granted to FCPL under this shareholder agreement are exercised for the benefit of Amazon and are reflective in the shareholder agreement signed on August 22, 2019, between Amazon, FCPL, and Respondents # 3-13 [“FCPL Shareholders Agreement”].
- Amazon agreed to invest. According to the rights granted to the FCPL by the FRL Shareholders Agreement and the FCPL Shareholders Agreement, the FCPL is $ 1.43 billion. The basic consensus between the two parties appears to be that Amazon’s investment in FRL retail assets will continue to be attributed to FRL. Therefore, FRL cannot transfer its retail assets without the consent of FCPL. In turn, it cannot be awarded unless Amazon agrees. Additionally, FRL is prohibited from mortgaging/transferring / selling/selling / disposing of its retail assets to “restricted persons”, which are prohibited entities that FRL, FCPL, and Biyani’s cannot trade with. Annex III of the FCPL Shareholders Agreement and the FRL Shareholders Agreement included a list of such restricted persons in a video letter dated December 19, 2019. There is no doubt that Mukesh Dhirubhai Ambani Group (Reliance Industries Group) is a “restricted person” under these two shareholder agreements.
- On December 26, 2019, Amazon invested the number of rupees Rs.1,431 crore from the FCPL flowed into the FRL on the same day.
- The focus of the dispute between the two parties is that Biyani Group and Reliance Group entered into a transaction (controversial transaction), which stipulated that FRL merged with Reliance Group and subsequently terminated FRL as an entity, completely selling assets to support Reliance Group.
- Amazon filed an arbitration proceeding on October 5, 2020, and submitted a request in accordance with SIAC rules to seek emergency interim measures and request an injunction against the aforementioned transactions.
- After hearing the opinions of both parties, the emergency arbitrator insisted that his ruling exempted Biyani Group and Reliance Group from continuing the disputed transaction.
- Since then, the Biyani Group continued to carry out the contested transaction, describing the award as invalid and the emergency arbitrator as coram non-judice.
Issues before the court
- Whether an “award” delivered by an Emergency Arbitrator under the Arbitration Rules of the Singapore International Arbitration Centre [“SIAC Rules”] can be said to be an order under Section 17(1) of the Arbitration and Conciliation Act, 1996?
- Whether an order passed under Section 17(2) of the Arbitration Act in the enforcement of the award of an Emergency Arbitrator by a learned Single Judge of the High Court is appealable?
- The learned Single Judge on 18th March 2020 passed a detailed judgment in which it was held that an Emergency Arbitrator’s award will be termed as an order under Section 17(1) of the Arbitration Act.
The Court stated that the Arbitration Act provides freedom to the parties to authorize any person, including an institution, to arbitrate on issues arising between them. In the present case, the parties agreed to be governed by the SIAC Rules.
Referring to Rule 3.3. of the SIAC Rules, the Court observed that arbitral proceedings in the present case be said to have begun from the date of receipt of a complete notice of arbitration by the Registrar of SIAC, which would indicate that arbitral proceedings under the SIAC Rules commence much before the constitution of an arbitral tribunal under the said Rules. The Court decided that the expression “during the arbitral proceedings” used in Section 17(1) is flexible enough to include emergency arbitration proceedings, which only initiate after receiving notice of Arbitration by the Registrar under Rule 3.3 of the SIAC Rules.
THE COURT HELD THAT:
The Court stated that by agreeing to the SIAC Rules and the award of the Emergency Arbitrator, the parties did not bypass any mandatory provision of the Arbitration Act.
The Court observed:
“There is nothing in the Arbitration Act that prohibits contracting parties from agreeing to a provision providing for an award being made by an Emergency Arbitrator. On the other hand, various Sections of the Act which speak of party autonomy in choosing to be governed by institutional rules would make it clear that the said rules would apply to govern the rights between the parties, a position which, far from being prohibited by the Arbitration Act, is specifically endorsed by it.”