Supreme Court upholds Award passed by Emergency Arbitrator, renders the same enforceable.

The Supreme Court of India, vide its judgment dated August 6, 20211 answered two important questions that arose for consideration. Firstly, it held that an award passed by an Emergency Arbitrator appointed as per the Arbitration Rules of the Singapore International Arbitration Centre ("SIAC Rules") is an order passed under Section 17(1) of the Arbitration and Conciliation Act, 1996 ("Act") and, therefore, can be enforced in accordance with Section 17(2) of the Act as if it were a decree passed by a civil court. Secondly, it held that an order passed under Section 17(2) for enforcement of an Emergency Award is not appealable under Section 37 of the Act.

On December 26, 2019, Amazon NV Investments Holdings LLC ("Amazon") decided to invest Rs. 1431 crore in Future Coupons Private Limited ("FCPL"); a subsidiary of Future Retail Ltd.("FRL") (India's second largest offline retailer) promoted by Kishore Biyani and his family. It was expressly stipulated that the investment made in FCPL would flow down to FRL and it was agreed that FRL cannot transfer its retail assets without the consent of FCPL, which in turn could not be granted until Amazon gave its consent. It was also agreed that FRL cannot create any charge/encumbrance on its assets in favour of "restricted persons", a list of persons/entities which included the Reliance Industries Group ("RIL").

That within a few months from Amazon's investment, on August 29, 2020, FRL passed a board resolution seeking to amalgamate with RIL which meant the consequent cessation of FRL as an entity and complete disposal of its assets in favour of RIL.

Aggrieved by the aforesaid, Amazon invoked arbitration proceedings on October 5, 2020 and sought for the appointment of an Emergency Arbitrator to hear Amazon's plea seeking a stay on the proposed transaction between FRL and RIL. The Emergency Arbitrator passed an award on October 25, 2020 restraining the Future Group from entering into any transaction/amalgamation with RIL pending the disposal of the arbitration proceedings.

Despite the emergency award, the Future Group, describing it as a nullity, went ahead with pursuing the transaction. Subsequently, they filed an anti-arbitration injunction suit against Amazon before the Delhi High Court ("DHC"). However, the Ld. Single Judge refused to grant any interim relief to FRL. Meanwhile, Amazon filed an Application under Section 17(2) of the Act, seeking enforcement of the emergency award before the DHC. That on February 2, 2021 the DHC restrained FRL from entering into the transaction with RIL. However, this order was subsequently stayed on February 8, 2021 by the Division Bench of the DHC in an appeal preferred by the Future Group against the order. Thereafter, the Ld. Single Judge, in furtherance to its stay order of February 2, 2021 passed a reasoned order on March 18, 2021 wherein it was, inter-alia, held that an emergency award is an order that can be enforced under Section 17(2) of the Act. This order was also stayed by the Division Bench on the same lines as its earlier order dated February 8, 2021.

This resulted in Special Leave Petitions being filed and the Supreme Court ("SC"), vide its order dated April 19, 2021 stayed all proceedings before the DHC and listed the matter for final disposal.

After hearing the counsel for the parties, the SC held that Section 17 of the Act only contemplates interim measures "during the arbitration proceedings". Furthermore, the Apex Court held that a conjoint reading of Section 21 of the Act with Rule 3.3 of the SIAC Rules, coupled with the fact that notice of arbitration was served on the Registrar before the emergency award was passed meant that the award was passed "during the arbitration proceedings", making the same amenable under Section 17 of the Act. Secondly, it held that that the definition of an "arbitral tribunal" in Section 2(1)(d) of the Act does not constrict itself to one which is appointed by the parties as the definition of arbitration under Section 2(1)(a) of the Act includes "any" arbitration whether or not administered by a permanent institution. Giving a wide purport to the concept of party autonomy, the Court held that where parties have agreed to an institution (SIAC in this case), then an emergency arbitrator's award is as good as any order/award passed by an "arbitral tribunal" for the purpose of according it recognition as an order under Section 17 of the Act.

The contention raised by Future Group that in the absence of specific provisions incorporating emergency arbitration as in the laws of Hong Kong, United Kingdom etc., an award passed in an emergency award ought not to be recognized, was rejected by the SC. It held that even 246th Law Commission Report didn't rule out the possibility of an emergency award being enforced on the strength of the 2015 or 2019 amendment, despite the fact that neither of the amendments made a specific provision for enforcement of awards passed by an emergency arbitrator.

As regards the second question relating to maintainability of an appeal under Section 37 of the Act against an order passed under Section 17(2) of the Act, the Apex Court held that wordings of Section 37(2)(b) of the Act clearly envisage appeals only under Section 17(1) of the Act. The law drafters consciously did not amend Section 37(2)(b) of the Act, while adding Section 17(2) of the Act in the 2015 Amendment which reflected a clear intention of not making an order passed for enforcement of interim orders appealable under the Act.

The judgment marked a red-letter day for the arbitration regime in India as it recognized the concept of an emergency arbitration by making an emergency award enforceable under the Act. This judgment reaffirms that party autonomy is the brooding and guiding spirit of an arbitration proceeding and must be respected. Since the 1996 Act, this judgment can be said to be one of the most significant strides taken in India's journey of becoming an arbitration-savvy jurisdiction.

  1. NV Investment Holdings LLC v. Future Retail Limited & Ors. [Civil Appeal Nos. 4492-4493 of 2021]

By - Arush Khanna