November 30th, 2024 | by Sanjay H. Sethiya and Akshatha Prasad
In the global era of international arbitration, emergency arbitration clauses have bloomed exponentially and have revolutionized the landscape of dispute resolution. These clauses serve as a beacon of hope for the parties embroiled in disputes requiring urgent decisions to safeguard their rights, thus allowing them to seek interim relief before an arbitrator. This article delves into the practical implications of the emergency arbitration clauses, their procedural dynamics and their significance within the Indian legal system.
The Concept of Emergency Arbitration: A Complicated Labyrinth
Emergency arbitration refers to a mechanism that enables the parties to request an urgent interim measure from an arbitrator prior to the formation of a full-fledged arbitral tribunal. This process is paramount in situations where an immediate action is necessary to prevent irreparable loss or to prevent the status quo. The emergence of the emergency arbitration clause has been monumental in addressing situations where traditional court interventions are inadequate, thus ensuring that parties to the dispute can secure timely relief in an efficient and confidential manner.
Inception of Emergency Arbitration Clause
In the current fast moving global era, where time is of the essence, arbitration is valued for its speed, but complex commercial cases often dampen this assumption. Certain delays can cause the parties to struggle to enforce awards, henceforth in such dreadful scenario, obtaining urgent interim relief becomes pivotal to protect one’s subject matter in a dispute. The Arbitration and Conciliation Act, 1996 does not explicitly provide for any emergency arbitration clause. Therefore, it can only be invoked if the parties agree to an institutional arbitration proceeding that provides this option.
In 2014, amendments to the Arbitration and Conciliation Act were proposed by the Law Commission of India in their 246th Report. The rise of emergency arbitration was taken into account and the commission suggested that an emergency arbitrator be included in the definition of arbitral tribunal in section 2(1)(d) of the Act, provided that the rules of an arbitral institution allowed for such an appointment. This was similar to the Singaporean approach where an emergency arbitrator was included in the definition of an arbitral tribunal. However, when the Indian government presented the proposed amendments to Parliament in 2015, the recommendation to include emergency arbitrators was not included, despite being in line with the Law Commission’s report. [i]
The concept of emergency arbitration had its landmark foundation in the case Amazon.com NV Investment Holdings LLC vs Future Retail Ltd. The legal framework of emergency arbitration was largely very murky before the Amazon- Future dispute. Judgments like Rafes Design v Educomp, saw the Delhi High Court rule that an emergency arbitrator’s order could not be enforced under Section 17 of the Act in a foreign-seated arbitration. This decision of the Delhi High Court diluted the essence of the EA order, leaving parties with no option but to seek recourse under Section 9 of the Act.
This was followed by conflicting observations by the Delhi High Court in Ashwani Minda v U-Shin Limited and the Bombay High Court in Plus Holdings v Xeitgeist Entertainment Group, where the courts held that intervention under Section 9(3) of the Act was unnecessary if an emergency arbitrator had already been appointed under the Institutional Rules. Such conflicting judgments created uncertainty shrouding the legal status of emergency arbitration orders in India. [ii]
The bleak and murky waters surrounding the enforceability of this concept was finally cleared by this significant judgment held in the Amazon vs Future.
Implications on Interim Relief
Interim relief refers to a temporary measure that is ordered by an arbitrator to protect the rights of the parties involved in a dispute while awaiting a final resolution. In an arbitration proceeding, this can take shape into many forms such as granting injunction, freezing assets or orders maintaining status quo.
One of the critical implications of interim relief is its enforceability. Generally, decisions made by emergency arbitrators are considered interim binding, meaning they can be varied or suspended by the full tribunal once it is formed. However, the enforceability of these decisions can vary significantly across jurisdictions.
In India, recent judicial developments have clarified the status of emergency arbitrators and their decisions. The Delhi High Court’s ruling in Amazon.com NV Investment Holdings LLC v. Future Retail Ltd [iii] established that emergency arbitrators are recognized as arbitral tribunals under Section 17 of the Arbitration and Conciliation Act, 1996. This recognition allows for the enforceability of interim measures granted by emergency arbitrators as if they were issued by a fully constituted tribunal. [iv]
The procedural framework for obtaining an interim relief through an emergency arbitration is designed to be expedited. Typically, an emergency arbitrator is appointed swiftly, often within a few days to address the urgent requests for relief. The process allows for limited hearings or submissions, enabling parties to present their cases without extensive delays.
One of the primary purposes of granting interim relief through emergency arbitration is to preserve the status quo between disputing parties. By obtaining urgent orders, parties can prevent actions that could exacerbate disputes or lead to irreversible changes in circumstances. For example, in commercial contracts involving significant financial stakes or time-sensitive projects, interim relief can protect assets and ensure that business operations continue without disruption. [v]
A Complicated Labyrinth
Despite its advantages, the concept of emergency arbitration suffers from certain defects:
Conclusion
The introduction and the proliferation of emergency arbitration clauses signify a pivotal shift in how disputes are managed, in both national and international context. Its ability to provide timely interim measures has made them quite indispensable for the parties seeking to navigate urgent situations efficaciously.
In this economy, where legal practitioners and businesses continue to embrace this mechanism, it is imperative that they remain cognizant of its implications be it both beneficial and challenging. In sum and substance, while emergency arbitration presents a robust framework for obtaining interim relief, its successful implementation hinges on careful navigation through the procedural intricacies and understanding its limitations.
References
i. Thakur, N. H. (n.d.). EMERGENCY ARBITRATION UNDER INDIAN LAW: NAVIGATING A COMPLICATED MAZE. Retrieved from iamch.com
ii. Ibid
iii. AIR 2021 SUPREME COURT 3723
iv. Srivastava, S. (n.d.). The Role of Emergency Arbitration in India: Navigating Urgent Relief in Arbitral Proceedings. Retrieved from thearbitrationworkshop.org.in and Thakur, N. H. (n.d.). EMERGENCY ARBITRATION UNDER INDIAN LAW: NAVIGATING A COMPLICATED MAZE. Retrieved from iamch.com
v. Emergency Arbitration. (n.d.). Retrieved from jusmundi.com
~ Sanjay Sethiya is the Managing Partner at Law Square, Advocates & Solicitors.
~ Akshatha Prasad M D is a Senior Associate at Law Square, Advocates & Solicitors