Future Group Agreed To Emergency Arbitration, Amazon Argues; Supreme Court Reserves Judgment

Amazon on Thursday told the Supreme Court that the Division Bench of the Delhi High Court erred in staying the order of the Single Judge for enforcement of the Emergency Arbitrator's interim injunction against the transaction relating to the transfer of Future Retail's retails assets to Mukesh Dhirubhai Ambani Group.

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 had stated, "Section 37 provides for an appeal against an Order under Section 17(2) of the 1996 Act. This is an incompetent appeal". It was FRL's response that once the arbitral proceedings come to an end and an arbitral award is passed, there is no going back to the Arbitration Act and the parties come under the CPC; 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. It was submitted that enforcement is a power under CPC Order 21, that section 37 of the 1996 Arbitration Act has no role to play, and that FRL's appeal before the division bench is to be maintainable under Order 43 of the CPC.

Making his rejoinder, Mr. Subramaniam on Thursday told the bench, "Without filing an appeal under 37, an execution order is vacated? It is like vacating an order under 17(1) and 17(2). How does the division bench do it? The appeals are incompetent! And what is the consequence? It is an attempt to achieve collateral what was not attempted to be done directly by filing a proper appeal!"

He relied on case-laws to submit that execution proceedings and proceedings akin thereto cannot give rise to corresponding rights, vested and substantive rights, in favour of the party who wants to resist an order or award to add an additional inventive clog, which, he said, is the endeavour of the respondents in the instant case.

"If it was true that these execution orders are orders passed under the CPC, then look at the consequence- then appeals would lie not only under 17 but even under section 36 (which provides for enforcement of awards in accordance with the provisions of the CPC, in the same manner as if it were a decree of the court, unless the operation of the award is stayed on an application under section 34 for setting aside the award). That was not the intention of the legislature. The short question is, do the courts, as defined under the Arbitration Act, make a handover to the CPC? No, they don't. They only employ what is available under the CPC to discharge the functions under the Arbitration Act", continued Mr. Subramaniam.

He cited authorities to submit that the Arbitration Act requiring an award to be enforced in accordance with the provisions of the CPC in the same manner as if it were a decree of the Court does not imply that the award is a decree of a particular court and it is only a limited fiction for the purpose of enforcement. It is, thus, the enforcement mechanism, which is akin to the enforcement of a decree but the award itself is not a decree of the civil court as no decree whatsoever is passed by the civil court. It is the arbitral tribunal, which renders an award and the tribunal does not have the power of execution of a decree. For the purposes of execution of a decree the award is to be enforced in the same manner as if it was a decree under the CPC. "The award itself is not a decree or order of the court, but only to be enforced as such as the tribunal cannot enforce it", he submitted.

He advanced that section 36 is in the spirit of Article 36 of the UNCITRAL, on Grounds for refusing recognition or enforcement, which has been enacted to avoid multiple bites in the cherry by a party- "The purpose of the 1996 statute is to give finality to the process, to make it linear. The argument of the other side will make it cylindrical or circular"

He said section 18 of Act is also relevant as the arbitrator is imbued with the duty to accord fair treatment to both parties, as in the case of courts.

Mr. Subramaniam submitted that one more indication that the proceedings under the 1996 Act, even for implementation of the award, cannot be considered to be proceedings under the CPC is the absence in it of a provision akin to section 41 of the 1940 Arbitration Act, which provided that the provisions of CPC shall apply to all proceedings before the Court, and to all appeals, under the 1940 Act, and the Court shall have, for the purpose of arbitration proceedings, the same power of making orders as it has for the proceedings before the Court. He also indicated the non-obstante clause which section 31 of the 1940 Act contained in connection with the jurisdiction of courts under the Act.

With reference to maintainability of the appeal, he submitted that in terms of Article 6 of the Model Law (Court or other authority for certain functions of arbitration assistance and supervision), the powers of enforcement of the court are in the nature of assisting the arbitral process after the award is pronounced. He indicated section 9 of the Arbitration Act, which speaks of interim and other orders by the court before the constitution of the arbitral tribunal, to advance that this is a Court under the Arbitration Act and it is only rendering assistance and is not performing a jurisdictional function under the CPC. He pointed out the function of the court under section 17 towards the enforcement of the interim orders of the tribunal are also in the nature of assistance. "The power to enforce orders is sought to assist the arbitration tribunal and nobody can question the order of the tribunal. There is no requirement for leave of the court for enforcement of the orders of the arbitral tribunal or to do away with an unenforceability", he remarked. He submitted that the role of the courts under section 11 in relation to appointment of arbitrators is also in the nature of facilitation. It was his case that the power of the court to set aside an arbitral award under section 34 or to refer the parties before it to arbitration under section 45 are in the realm of supervision.

On whether an emergency arbitrator is an arbitral tribunal for the purpose of the Indian law for its award to be enforceable under section 17(2), Mr. Subramaniam advanced that an emergency arbitrator is also in the continuum of an arbitration proceedings and merely because the word "emergency" fails to find a place in the Act does not mean he cease to be an arbitrator under the Act.

He indicated section 2(8) of the Act which states that a reference to an agreement of the parties shall include any arbitration rules referred to in that agreement- "The persona of the emergency arbitrator must find its place somewhere. Here, it is there in the institutional rules, the SIAC Rules in this case which the parties have agreed upon to govern their arbitral proceedings. Section 2(8) provides for it. Party autonomy in this case required an emergency arbitrator as the parties have agreed to it in terms of the SIAC Rules and there is no variance or repugnancy with any provisions of the Arbitration Act"

"An EA also has the same immunity from legal proceedings, needs to possess the same qualifications and has the same requirement of consent of the parties as an arbitral tribunal. The EA could end up being the arbitral tribunal under the Rules", he added.

"The objection by FRL before the Singapore EA that I am not a party to the agreement and that EA is not an arbitrator under our law were in the nature of objections to the jurisdiction under section 16" he continued.

"Your Lordships have settled that other than in limited cases of exception, the arbitration agreement is incapable of any administration on the fair effect of party autonomy and the court will give effect to it. There was no impediment for the Single Judge (Justice J. R. Midha) to enforce the order. That was to give a plain effect to the fundamental principles which already apply and this is not a case of any addition of words", he concluded.

Finally, Senior Advocate Harish Salve, for FRL, indicated section 11(6) which contemplates that where the appointment of the arbitrator could not be made under an appointment procedure agreed upon by the parties, the appointment shall be made by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration.

He also indicated sub-section (2) of section 11 which provides that subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.

"Sub-section (6) is non-derogable. (6) is the power of the court to appoint and it is the power only to appoint the arbitral tribunal! Courts do not appoint emergency arbitrators! This is the peculiarity of our situation. If an emergency arbitrator is to be fitted in our Act, that cannot be by construction and changes need to be made in the law", he advanced.

As regards Amazon's claim that the FRL had invited the EA to decide upon his jurisdiction under section 16, Mr. Salve indicate that the EA's order notes that they had first written a letter to the registrar saying there cannot be an emergency arbitrator. "We told him that there is no such thing. If the EA was hearing the matter, I start by telling him there is no jurisdiction and that my law does not allow it. But if the EA decides in favour of his jurisdiction and proceeds to hear the matter, it would be adventurous for us to say that 'I now walk out'. So there is no waiver- We did not do anything to say that we acceded to the jurisdiction of the emergency arbitrator!", he argued.

Mr. Salve indicated the legal fiction created by section 16(1), in as much as it gives an independent status to an arbitration clause as if it is a standalone agreement, even when it is only a clause and an integral part of the underlying or container contract, and formulates a legal rule that a decision by the arbitral tribunal holding that the main contract is null and void shall not ipso jure entail invalidity of the arbitration clause. "Section 16 says that an arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause", he showed. He further showed that sub-section (5) of section 16 says if the tribunal rejects the plea, then you continue with the arbitral proceedings and make an arbitral award.

"I say that this will apply only to the arbitral tribunal. None of this would apply to an emergency arbitrator. The 'kompetenz-kompetenz' itself would not apply to the emergency arbitrator", he concluded.

A bench headed by Justice RF Nariman reserved verdict in the case.

Reports of previous hearings

Is Emergency Arbitration Award Enforceable Under Indian Law? Amazon, Future Retail Argue In Supreme Court

If Amazon Wins, It Will Get Rs 1400 Crores, But 26,000 Employees Of Future Retail Might Lose Jobs : Salve In Supreme Court

Biyanis Induced Amazon Into Deal With Future Retail; They Are Bound By Arbitration : Amazon In Supreme Court

Future Retail's Appeal Against Emergency Award Not Maintainable, Amazon Argues In Supreme Court