Emergency arbitrator’s award is referable to S. 17(1) of Indian Arbitration Act; enforceable under S. 17(2): Scopious analysis of landmark SC ruling in favour of Amazon in dispute with Future Retail

 Supreme Court: Holding that an award passed by Emergency Arbitrator is enforceable under the Arbitration and Conciliation Act, 1996, a Division Bench of R.F. Nariman and B.R. Gavai, JJ. has ruled in favour of Amazon in the infamous Future-Amazon dispute. It has been held that the interim award in favour of Amazon, passed by the Emergency Arbitrator appointed under the Arbitration Rules of the Singapore International Arbitration Centre is enforceable under the Indian Arbitration Act.

The Court declared that full party autonomy is given by the Arbitration Act to have a dispute decided in accordance with institutional rules which can include Emergency Arbitrators delivering interim orders. Such orders are an important step in aid of decongesting the civil courts and affording expeditious interim relief to the parties. Such orders are referable to and are made under Section 17(1) of the Arbitration Act. The Court also held that no appeal lies under Section 37 of the Arbitration Act against an order of enforcement of an Emergency Arbitrator’s order made under Section 17(2) of the Act.

Earlier, a Single Judge of the Delhi High Court had also decided in favour of Amazon, holding that the impugned award was maintainable. However, a Division Bench in appeal stayed the order of the Single Judge.

Two important questions arose in the appeals:

(i) 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;

(ii) Whether an order passed under Section 17(2) of the Arbitration Act in enforcement of the award of an Emergency Arbitrator by a Single Judge of the Delhi High Court was appealable.

Facts and Appeal

In 2019, certain agreements were entered into between and amongst the parties involved in this controversy. The position which emerged as a consequence of such agreements was that Future Coupons Private Limited (“FCPL”) was accorded extensive rights over the retails assets of Future Retail Limited (“FRL”). Subsequently, Amazon.com NV Investment Holdings LLC (“Amazon”) agreed to invest Rs 1431 crore in FCPL with express stipulation that this investment would “flow down” to FRL. As a result, 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 FRL and FCPL could not deal. Mukesh Dhirubhai Ambani Group (“Reliance Group”) was one such restricted person.

The bone of contention between the parties was that within a few months of Amazon’s investment, Future Group entered into transactions with Reliance Group which envisaged amalgamation of FRL with Reliance Group. The consequence was cessation of FRL as an entity, and complete disposal of its retail assets in favour of Reliance Group.

In October 2020, Amazon initiated arbitration proceedings and filed an application seeking emergency interim relief under the SIAC Rules asking for injunctions against the aforesaid transaction. On 25 October 2020, the Emergency Arbitrator passed an interim award directing Future Group not to proceed with the disputed transaction. However, notwithstanding with such directions, Future Group went ahead with the disputed transaction.

Meanwhile, Amazon filed an application under Section 17(2) of the Arbitration Act seeking enforcement of the interim award passed by the Emergency Arbitrator. A Single Judge of the Delhi High Court passed an order of status quo restraining Future Group from going ahead with the disputed transaction. This order was followed by a detailed judgment where the Single Judge held that the interim award made by the Emergency Arbitrator was enforceable under the Arbitration Act. However, the operation of both these orders was stayed by a Division Bench of the High Court by two separate orders passed on FRL’s appeal. Aggrieved, Amazon approached the Supreme Court.

Analysis and Observations

Emergency Arbitrator’s award covered under Arbitration Act

Party autonomy and Emergency Arbitrator under SIAC Rules

The first question to be determined by the Supreme Court was whether an Emergency Arbitrator’s award can be said to be within the contemplation of the Arbitration Act, and whether it can further be said to be an order under Section 17(1) of the Act. It may be noted that Section 17(1) of the Arbitration Act makes provisions for interim measures ordered by arbitral tribunal during the arbitration proceedings.

The Court noted that the Arbitration Act gives freedom to the parties to authorise any person, including an institution, to arbitrate on issues arising between them. Party autonomy goes to the extent of an agreement which includes being governed by specified arbitration rules. Parties are also free to agree on the procedure to be followed by arbitral tribunal in conducting its proceedings. In the instant 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 instant case can be said to have commenced 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. This being the case, the Court concluded that the expression “during the arbitral proceedings” used in Section 17(1) is elastic enough to include emergency arbitration proceedings, which only commence after receipt of notice of arbitration by the Registrar under Rule 3.3 of the SIAC Rules. The Court held that:

“A conjoint reading of these provisions coupled with there being no interdict, either express or by necessary implication, against an Emergency Arbitrator would show that an Emergency Arbitrator’s orders, if provided for under institutional rules, would be covered by the Arbitration Act.”

Reiterating the importance of party autonomy, 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 contrary, when properly read, 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.”

Provisions of SIAC Rules reflected in Sections 9 and 17

Contrasting relevant provisions of SIAC Rules with Section 9 (Interim measures, etc. by Court) of Arbitration Act, 1996, the Court found that in essence, what is provided by the SIAC Rules and the other institutional rules, is reflected in Sections 9(2) and 9(3) so far as interim orders passed by courts are concerned. These sub-sections were introduced in Section 9 by the 2015 Amendment Act. The Court stated:

“The introduction of Sections 9(2) and 9(3) 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.”

Similarly, the 2015 Amendment Act substituted Section 17 (Interim measures ordered by Arbitral Tribunal) so that Section 17(1) would be a mirror image of Section 9(1), making it clear that an arbitral tribunal is fully clothed with the same power as a court to provide for interim relief. Also, Section 17(2) was added so as to provide for enforceability of such orders, again, as if they were orders passed by a court.

No going back after agreeing to institutional rules and participating in proceedings

Next, the Court opined 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, that thereafter it will not be bound by an Emergency Arbitrator’s ruling. It was observed:

“[H]aving agreed to paragraph 12 of Schedule 1 to the SIAC Rules, it cannot lie in the mouth of a party to ignore an Emergency Arbitrator’s award by stating that it is a nullity when such party expressly agrees to the binding nature of such award from the date it is made and further undertakes to carry out the said interim order immediately and without delay.”

The Court emphasised again at a later stage in the judgment that no party, after agreeing to be governed by institutional rules, can participate in a proceeding before an Emergency Arbitrator and after losing turn around and say that the award is a nullity or coram non judice when there is nothing in the Arbitration Act which interdicts an Emergency Arbitrator’s order from being made.

Arbitration and Conciliation Act, 1996 is not an ouster statute

Relying on Section 28 of the Contract Act, FRL argued that arbitration, conceptually, is an ouster of civil court’s jurisdiction and that, therefore, only what is expressly provided in the ouster provisions can be followed and there is no room for any implication in such a case.

To this, the Court answered that such argument may have found favour with the Court if it were dealing with the Arbitration Act, 1940. However, the Arbitration and Conciliation Act, 1996 is a complete break with the past and is no longer to be viewed as an ouster statute but as a statute which favours the remedy of arbitration so as to de-clog civil courts which are extremely burdened. Noting that Section 5 of the 1996 Act overrides all other laws for the time being in force and goes on to state that in matters governed by Part I of the Act no judicial authority shall intervene except where so provided in that Part, the Court observed:

“The Arbitration and Conciliation Act, 1996, therefore, turns the principle of ouster on its head when it comes to arbitration as a favoured means of resolving civil disputes.”

Conclusion

The Court, therefore, answered the first question by declaring that:

“[F]ull party autonomy is given by the Arbitration Act to have a dispute decided in accordance with institutional rules which can include Emergency Arbitrators delivering interim orders, described as “awards”. Such orders are an important step in aid of decongesting the civil courts and affording expeditious interim relief to the parties. Such orders are referable to and are made under Section 17(1) of the Arbitration Act.”

Maintainability of appeal against enforcement order made under Section 17(2)

Order made under Rule 2-A of Order 39 CPC by Single Judge is referable to Section 17(1)

FRL filed an appeal under Order 43 Rule 1(r) of CPC against the order passed by Single Judge of Delhi High Court under Section 17(2) of Arbitration Act whereby it was decided that the interim award passed by the Emergency Arbitrator in favour of Amazon is enforceable under the Indian Arbitration Act. The Single Judge also found that the Future Group deliberately flouted directions given by the Emergency Arbitrator, and issued a show cause notice under Order 39 Rule 2-A of CPC.  It is seemly note here that Order 43 Rule 1(r) under which appeal was filed by FRL provides that an appeal shall lie from an order made under Order 39 Rule 2-A. FRL’s contention was that the Single Judge exercised powers under Order 39 Rule 2-A of CPC and not under the Arbitration Act.

On this point, the Court referred to Section 17(1) of the Arbitration Act which makes provisions for interim measures ordered by arbitral tribunal during the arbitration proceedings. It was noted that under Section 17(1), an arbitral tribunal have the same power for making orders, as the court has for the purpose of, and “in relation to”, “any proceedings” before it. Relying on a catena of judicial precedents, the Court stated:

“It is well settled that the expression ‘in relation to’, which occurs in … Section 17(1), is an expression which is comprehensive in nature, having both a direct as well as an indirect significance. …

Coupled with this, the expression ‘any proceedings’, occurring in … Section 17(1), would also be an expression comprehensive enough to take in enforcement proceedings.”

The Court concluded that properly so read, the expressions “in relation to” and “any proceedings” would include the power to enforce orders that are made under Section 17(1). Thus, if an order under Section 17(1) is flouted by any party, proceedings for enforcement of the same are available to the arbitral tribunal making such orders under Section 17(1). These powers are, therefore, traceable directly to Section 17(1). The Court held:

“Thus, an order made under Order 39 Rule 2-A, in enforcement of an order made under Section 17, would also be referable to Section 17(1) of the Arbitration Act.”

It must be remembered here that answering the first question, the Court had already held that award of an Emergency Arbitrator was referable to Section 17(1) of the Arbitration Act. Thus, the order of the Single Judge of Delhi High Court in enforcement of Emergency Arbitrator’s award, including the issuing of show cause notice under Order 39 Rule 2-A, was also referable to Section 17(1).

Legal fiction under Section 17(2)

FRL stressed upon the language of Section 17(2) to indicate that an order passed under Section 17(1) is deemed to be an order of the court for all purposes and shall be enforceable under CPC in the same manner as if it were an order of the court, making it clear that enforcement is not under the Arbitration Act but only under CPC. As a corollary, the order of the Single Judge was appealable under Order 43 Rule 1(r) of CPC.

Rejecting the contention, the Court noted that there is no doubt that Section 17(2) creates a legal fiction, but this fiction is created only for the purpose of enforceability of interim orders made by the arbitral tribunal.  The Court held that:

“To extend it to appeals being filed under the Code of Civil Procedure would be a big leap not envisaged by the legislature at all in enacting the said fiction.”

The Court concluded the point by saying that a limited fiction for the purpose of enforcement cannot be elevated to the level of a genie which has been released from a statutory provision and which would encompass matters never in the contemplation of the legislature.

Appeal provision in the Arbitration Act

The Supreme Court finally noted that appeals from orders made under Arbitration Act are to be made within the four corners of Section 37 of the Arbitration and Conciliation Act, 1996. It was stated that there can be no doubt that Section 37 is a complete code so far as appeals from orders and awards made under the Arbitration Act are concerned. This has further been strengthened by the addition of the non-obstante clause by the Arbitration and Conciliation (Amendment) Act, 2019. Following the law laid down in BGS SGS SOMA JV v. NHPC, (2020) 4 SCC 234, the Court observed:

“This judgment is determinative of the issue before us as it specifically ruled out appeals under Order 43 Rule 1 of the Code of Civil Procedure when it comes to orders being made under the Arbitration Act.”

Next, the Court noted that Section 37 provides appeal only from an order granting or refusing to grant any interim measure under Section 17. There can be no doubt that granting or refusing to grant any interim measure under Section 17 would only refer to the grant or non-grant of interim measures under Section 17(1)(i) and 17(1) (ii). Whereas, it must be remembered that enforcement proceedings are under Section 17(2). Accordingly, the Court held:

“What is clear from this is that enforcement proceedings are not covered by the appeal provision.”

Case of affected third parties in enforcement proceedings

Senior Advocate Harish Salve, appearing for FRL, “painted a lurid picture of third parties” being affected in enforcement proceedings. The Court noted that no such third party was before the Court and left the question open to be argued on the facts of a future case.

Conclusion

The Court, therefore, answered the second question by declaring that:

“[N]o appeal lies under Section 37 of the Arbitration Act against an order of enforcement of an Emergency Arbitrator’s order made under Section 17(2) of the Act.”

Decision

In view of the law discussed above, the Supreme Court held that the impugned judgments of the Divisions Bench of  Delhi High Court must be set aside. Order was made accordingly. [Amazon.com NV Investment Holdings LLC v. Future Retail Ltd.,  2021 SCC OnLine SC 557, decided on 6-8-2021]


Tejaswi Pandit, Senior Editorial Assistant has reported this brief.

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