Is Emergency Arbitration Award Enforceable Under Indian Law? Amazon, Future Retail Argue In Supreme Court
"How do you get over the specific words 'and from no others' in section 37, Arbitration Act?", the Supreme Court on Wednesday asked Future Retail on its plea that its appeal before the Division Bench of the Delhi High Court was maintainable.The bench of Justices Rohinton Nariman and B. R. Gavai was hearing Amazon's challenge to an order dated March 22 passed by a Division Bench of the Delhi...
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"How do you get over the specific words 'and from no others' in section 37, Arbitration Act?", the Supreme Court on Wednesday asked Future Retail on its plea that its appeal before the Division Bench of the Delhi High Court was maintainable.
The bench of Justices Rohinton Nariman and B. R. Gavai was hearing Amazon's challenge to an order dated March 22 passed by a Division Bench of the Delhi High Court staying a Single-Judge order which had upheld the Emergency Award passed by a Singapore Tribunal halting the Reliance-Future deal worth Rs. 24,713 crores. On July 21, Amazon had raised the issue of the maintainability of the appeal filed by FRL before the Division Bench of the High Court. Senior Advocate Gopal Subramaniam, appearing for Amazon, had stated, "Section 37 provides for an appeal against an Order under Section 17(2) of the 1996 Act. This is an incompetent appeal."
Section 37(1) states that an An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:- (a) refusing to refer the parties to arbitration under section 8; (b) granting or refusing to grant any measure under section 9; (c) setting aside or refusing to set aside an arbitral award under section 34.
It has been FRL's case, as presented by Senior Advocate Harish Salve, that once you cross into the realm of enforcement and go into section 17(2) (any interim order issued by the arbitral tribunal under section 17(1) shall be deemed to be an order of the Court for all purposes and shall be enforceable under the CPC, in the same manner as if it were an order of the Court), the proceedings are then governed by the CPC.
He had contended that under section 17(2), in any event, the court is stepping in for the first time; it is not an original power of the court but an enforcement power, and if the legislature has said that it is a part of the CPC, then it will be in accordance with the CPC. "Enforcement is a power under CPC and 37 has no role to play, absent the express bar under 37. If there is something express, only then the special statute would prevail. The most fundamental principle that no court has ever understood is that sections 36 (Where the time for making an application to set aside the arbitral award has expired, then such award shall be enforced in accordance with the CPC, in the same manner as if it were a decree of the court) and 17 bodily incorporate the CPC into the Arbitration Act. Once the arbitral proceedings come to an end and an arbitral award is passed, you cannot go back to the Arbitration Act, you come under the CPC", he had advanced.
Mr. Salve had asserted that the Division Bench of the High Court had rightly appreciated that execution proceedings are not a continuation of the arbitral proceedings and that once you cross that rubicon and come into enforcement, Order 21 of the CPC (execution of decrees and orders) will apply. He had indicated that Amazon had moved the application for enforcement of the award under Order 39 Rule 2A of the CPC (consequences for breach or disobedience of injunction). "The Single Judge was clear that he was exercising powers under the CPC, the petitioners had applied under Order 39, but once the appeal was filed, it was said 'Oh, please ignore Order 39'...The plain language of the statute is such that it compels the construction that the enforcement is under the CPC and an appeal would lie. If an Order 43 appeal would lie, then these appeals are pending before the division bench.", Mr. Salve argued.
On Wednesday, Senior Advocate K. V. Vishwanathan, for FRL, reiterated that their appeal under Order 43 of the CPC is to be maintainable and that to say that they are barred under section 37 is incorrect.
"37 has to be understood as orders under the Act. And that is how the phrase 'from no others' has to be read. It means that there has to be fulfilment of the ingredients of any of these conditions even for orders made under the Act. It is to be within the parameters laid down in these sub-clauses", Mr. Vishwanathan had advanced in response to the aforesaid query by the bench.
"Otherwise, it will result in an ouster of the court; it will be opposed to public policy, unless you save it within the framework of the Act. An Emergency Arbitrator is not recognised in the Act. Its orders cannot be put on a pedestal higher than that of a Court under section 9", he submitted.
In his rejoinder, Mr. Subramaniam had submitted that the respondents' arguments on the maintainability of the appeal, in sum and someone substance, run foul of everything that has been said by the top court on the Arbitration Act. "What is the meaning of a self-contained code? Why is this Act called that? The answer is in the statute itself. This is a consolidating statute on arbitration. We have the common law model and the civil law model. The concept of codification itself is a civil law concept. So a code in itself has to be self-contained and exhaustive. The 1996 Act, as the preamble itself says, was enacted as a consequence of the UN exhorting all countries to look at the Model Law and to bring an arbitration clause in conformity with it. There are three features of the Model Law reflected in the 1996 Act – one, party autonomy is the foundation of the Model Law and it is recognised consistently throughout the 1996 Act; two, restricted judicial review by courts on validity or correctness of the award; three, there is nothing in this Act which was at variance with the model law, and there is provision for assistance and supervision of the courts under the Act", he advanced.
Mr. Subramaniam relied on the theory of limited fiction as regards the applicability of the CPC to the orders under the Act- "If at all the orders of arbitral tribunals are to be efficacious, then only for the limited purpose of enforcement or enforceability will these have the status either as the decree of the court or as the order of the court"
He contended that "from no others" is the most critical provision in section 37, that there was a similar provision in the 1940 Arbitration Act and that this provision "from no others" was actually relied upon by the Supreme Court to say that it is a self-contained code. 'So this theory of handing over to the CPC or migration to the CPC is wrong. If one looks at the statute, all the submissions which have been urged, really are only intended to create new venues of appeal which would defeat the very efficacy of the arbitration process. Awards and orders will not become implementable, they cannot be enforced by courts, and if they are sought to be enforced by courts, then the CPC will apply with all its rigours and with all its venues of appeal!", he advanced.
Mr. Subramaniam submitted that the reference to various CPC provisions was made only to present the relevant mechanism for the perusal of the court and that Order 39 Rule 2A did not create a new species of contempt but was indicated only to recognise the capacity of the court to enforce its own orders. "Let us look at it the other way, under section 9, the court has capacity to impose its own orders. So why under section 17(2) can the court not impose the orders of the arbitral tribunal? That is why it is treated as an order of the court! 17(2) says 'as if it were an order of the Court' because of the fact that under sub-section (1) an arbitral tribunal is analogous to a court", he argued.
He continued to state that the purpose of Order 21 and Order 39 Rule 2A is only in the realm of enforcement, no further- "The purpose of the fiction is only enforcement. The enforcement is under which statute? The Arbitration Act. CPC is only a provision for the mechanism for the court to enforce an order or enforce an award, no further. The jurisdiction for enforcement is in the Act itself. We clearly styled the enforcement petition to read as 17(2) read with Order 39 Rule 2A and section 151 of the CPC. But the attraction of the CPC provision is only for the purpose of limited fiction of enforcement. It does not metamorphosis an action under the Arbitration Act by way of a suit or an action under Order 21! If for a limited fiction, an award or order of the arbitrator is a decree or order of the court, then the appeal is not maintainable!"
Whether EA's awards fall under section 17(1), and whether the EA's award can be enforced under section 17(2)
Mr. Salve indicated a 2004 Supreme Court decision in Ashok Traders case where the Court had noted that under the 1996 Act, the arbitral tribunal is empowered by Section 17 of the Act to make orders amounting to interim measures, and that the need for Section 9, in spite of Section 17 having been enacted, is that Section 17 would operate only during the existence of the arbitral tribunal and its being functional. "During that period, the power conferred on the arbitral tribunal under Section 17 and the power conferred by the Court under Section 9 may overlap to some extent…"
"This overlap was addressed by the Parliament by inserting section 9(3). 9(3) provides that once the arbitral tribunal has been constituted, the Court 'shall not' entertain an application for interim measures etc. And this arbitral tribunal must mean the arbitral tribunal which takes the arbitration to its terminus. 9(3) and 17 must be read in harmony and so emergency arbitrator has no role to play. The other side is trying to be bring back the overlap- a party can go to the emergency arbitrator or go to the court", he advanced.
Mr. Salve argued that in as much as the Single Judge of the Delhi High Court, Justice J. R. Midha, said that "arbitral tribunal" is to be read as including "emergency arbitrator", it is wrong as contextually, it cannot be done because the effect of section 17(2) is virtually to clothe an arbitral tribunal with the powers of the court at this stage when the tribunal is making interim orders. He submitted that this can only be done in respect of an EA by law and not by the process of construction where a body created purely by the consent of parties is read into the Arbitration Act.
He repeated that while the Law Commission had recommended amending the definition of arbitral tribunal to include emergency arbitrators, it was disregarded by the Parliament in the 2015 amendment.
Mr. Vishwanathan also submitted that while it may be a desirable action, creative interpretation also has a "Lakshman Rekha". He submitted that the word "arbitral tribunal", whether under section 17(2) or section 37, has the same meaning throughout the Act.
He advanced that the order of the EA carries the "brand of invalidity on its forehead" and that it is akin to "the post master passing the sentence of death".
Mr. Vishwanathan argued that this area is not a vacuum and that there is a remedy provided under section 9 of the Act (interim and other orders by the courts before the constitution of the arbitral tribunal). "But they, for some reason, did not choose to go on under 9. At the stage of entering itself (in the 'Future Coupons- Shareholder's Agreement', the arbitration clause of which was invoked by Amazon), the autonomy which the parties exercised was to be strictly circumscribed by the legal regime which is prevalent in India! The SIAC Rules were to concede to the Act and not vice versa. This section nine remedy was elected by them when they gave paramountcy to the statute in the clause! There was conscious use of the phrase 'as modified by our law' with the SIAC Rules", he said.
He advanced that this was an attempt by the petitioners to superimpose an authority which would partake of the exercise of judicial power- "This judicial power in an arbitration is that it has been taken and vested in an arbitral tribunal. Now if you want to superimpose another authority, it need to granted expressly. In the 1996 Act, there are certain rights and certain remedies. The ouster of the court is to be extent to which the Act contemplates, nothing less and nothing more"
"They are turning party autonomy on its head! They have agreed to party autonomy as circumscribed by the Act and not the other way round. 9 was the remedy which they have failed to resort to! The fulcrum of party autonomy, which is the bedrock of this case. to convince Your Lordships to give this emergency arbitrator the status of an arbitrator itself totally falls short in law. It is not party autonomy, it is bordering on one-party autocracy!", pressed Mr. Vishwanathan.
In his rejoinder, Mr. Subramaniam addressed the question whether an EA is an arbitral tribunal for the purposes of the Act. He urged the Court to bear in mind that not a single mandatory provision, proscription or prohibition in the Act has been pointed out in this behalf. He argued that is not a case of judicial legislation or usurpation of Parliament function. He referred to section 2(8) of the 1996 Act to submit that where an agreement is under institutional rules, it is assumed that parties have consented as a part of the arbitration agreement that these institutional rules will govern the conduct of the proceedings.
He advanced that the Parliament does not need to amend the law in this case and that these are all matters of interpretation- "Sometimes, for better clarity, you feel it is correct to amend the law. But the question here is, is it foul of the law when the Act encourages mutual consent and honour?"
So Mr. Subramaniam submitted that the the concept of EA is assimilable in the pure words of the statute, in terms of the definition of arbitration and party autonomy, and there is nothing to counter-indicate that the concept of emergency arbitrator is extraneous to the statute.
"Mr. Salve said there are no arbitration proceedings. That is liable to be rejected because section 21 of the Act clearly says that arbitral proceedings commence the moment the notice of arbitration is given. SIAC Rules also say the same thing that arbitral proceedings commence when notice of arbitration has been issued", he contended.
"An emergency arbitrator is also required to have the same qualifications of impartiality and objectivity as it is required of the arbitrator. Under the SIAC Rules, an award includes an award by the emergency arbitrator. Emergency arbitrator is defined as an arbitrator under its Schedule 1. Such an arbitrator must be given the putative idea of the consent of parties.The foundation of everything is consent. The arbitration clause is actually an emanation of the consent of parties and therefore, scrutiny is very limited whether under section 34 or even in the course of an appeal. Emergency arbitrator perform the same kind of functions, though it is only to deal with a request of emergency relief. But he also hears parties, gives notice. The SIAC Rules say that if a proper tribunal is constituted within 90 days, then the order of the EA continues to be binding until an application is moved before the fully-constituted arbitral tribunal and the tribunal vacates it. So it is virtually an order of the arbitral tribunal. Would the emergency arbitrator have had jurisdiction if he had said 'Okay, I accept your argument and dismiss their application'?", continued Mr. Subramaniam.
It was his case that instead of troubling the court under section 9, why could Amazon not have taken recourse to institutional rules which provide for an emergency arbitrator; he advanced that if section 17(1) can take into account urgent and necessary interim relief, which are just and convenient in a matter, then the relief by emergency arbitrator also falls under section 17(1).
Breach of natural justice
Mr. Salve had contended that the directions of the Single Judge are far reaching, going way beyond the enforcement. He advanced that they were not allowed to file a reply and the petition was disposed of- "I was not allowed to file objections. I don't know which are those objections which the Single Judge says are rejected"
It was also urged by Mr. Vishwanathan that despite attempts by the counsel for a chance to argue their case and file certain pleadings/documents, the same was not done by the Single Judge of the High Court- "The execution was filed for three months afterwards! These are original proceedings. Heavens would not fall to issue notice! And then the court faults us for not having substantiated the case…"
Mr. Subramaniam, in his turn, asserted that the matter was heard for 8 hours 35 minutes, spread over 8 days, and that while Mr. Vishwanathan said that they had only an opportunity to file a short note, 293 pages were filed before the Single Judge. "Nobody can complain of breach of natural justice!", he stated.
The hearing will continue tomorrow.