Introduction
Emergency Arbitration (“EA”), a mechanism introduced first by the International Court of Commerce (“ICC”) in 1990 in a rudimentary form, has become an important tool in the field of commercial dispute resolution, offering parties a pre-arbitral and quicker method to obtain urgent interim relief, before the formation of an arbitral tribunal. Many leading arbitration rules worldwide, including the ones followed by the International Chamber of Commerce ("ICC"), Singapore International Arbitration Centre ("SIAC"), and The London Court of International Arbitration ("LCIA") have incorporated Emergency Arbitration provisions into their rules, along with SIAC and the Hong Kong International Arbitration Centre, going a step further in providing statutory recognition to the same.
Despite this growth, India has yet to uniformly and statutorily recognize EA in the Arbitration and Conciliation Act, of 1996 (“the Act”). While the rules postulated by Indian arbitration centres such as the Delhi International Arbitration Centre ("DIAC") or Mumbai Centre for International Arbitration ("MCIA") provide for EA as a recognized mechanism, there isn’t any clarity on its recognition under the Act, especially in the case of foreign-seated Emergency Awards. In Pasl Wind Solutions Private Limited v. Ge Power Conversion India Private, the Supreme Court of India has defined a foreign seated EA under Section 44 of the Arbitration Act as an arbitral award on differences between persons arising out of legal relationships considered as commercial under the law in force in India, in pursuance of an agreement in writing for arbitration to which the New York Convention applies, and in one of such territories as the Central Government, by notification, declares to be territories to which the said Convention applies.” This hesitancy stands in the way of India's efforts to position itself as a potential hub for arbitration. The absence of explicit recognition of the employment of EA provisions in Indian law raises questions about the government's perspective on this mechanism and its non-judicial enforcement in the country.
This blog explores potential reasons behind this hesitancy to introduce EA provisions into the Act, even after recommendations by various committees. To understand this hesitancy in adopting EA provisions, it is imperative to examine the various factors ranging from practical and legal considerations to broader economic and policy concerns. By analyzing these, we can pinpoint the challenges facing the implementation of EA and the reason behind the same.
Requirement of an Arbitration Agreement
One significant challenge in adopting EA as a recognized mechanism for resolving commercial disputes in India is the requirement under Section 7 of the Arbitration and Conciliation Act for parties to have explicitly included an arbitration clause in their agreement. This effectively compels parties to choose an arbitration institution, and in cases where they fail to do so, they are precluded from availing themselves of EA. Consequently, in situations where parties reach an impasse and seek to resolve their dispute through EA, this requirement may impede the process.
To resolve this issue, we can first look into the reasoning of the courts in situations where parties had not initially bound themselves to an arbitration agreement but later wished to do the same. In Cox and Kings Limited v. SAP India Private Limited, the court held that while signatories to an arbitration agreement are typically bound by it, in exceptional cases, non-signatories may also be bound by such agreements. In this case, the non-signatory took full responsibility for the project and gave their implied consent to be bound by the agreement. Furthermore, in Kerala SEB v. Kurien E Kalathil., it was observed that parties to a suit can agree to arbitration when alternative dispute resolution processes are offered by the court under Section 89 of the Code of Civil Procedure, 1908. These pronouncements suggest that even if not initially agreed, parties can still go for arbitration at a later stage. The same can be included for EA as well to provide swift interim relief. This will allow the parties to address urgent issues before a tribunal can be instituted
One could argue that parties should be permitted to pursue EA even in the absence of a pre-existing arbitration agreement. However, this legal obstacle arises from the Act's silence on EA leading to uncertainty about its enforceability, which makes parties reluctant to introduce not just ad hoc arbitration, but specialized EA in agreements that initially do not specify any arbitration institution.
Arbitration as a part of the Concurrent list
The subject of arbitration is listed in Entry 13 of List III (Concurrent List) of the Seventh Schedule to the Constitution of India, allowing legislation to be enacted by either the Parliament of India or the State Legislatures. The introduction of EA provisions at the national level could potentially create conflicts with state-level arbitration rules or procedures, such as Delhi’s DIAC or Mumbai’s MCIA, as these states might have divergent views on how emergency measures should be handled in arbitration proceedings. This could resultantly lead to inconsistent application of EA procedures across different states, potentially undermining the uniformity and predictability of the arbitration process.
Moreover, the process of achieving consensus and obtaining assent from both central and state legislatures can be a formidable task, further complicating the integration of EA into the Indian arbitration framework. Despite these challenges, a harmonized approach through central legislation could offer a better scenario in India’s arbitration scheme.
A way out of this issue could possibly rely on having a set of model rules developed by the Centre for the States to follow if they deem fit. This would ensure a certain level of uniformity as well as provide the States with an option. Furthermore, another methodology could be including EA under Section 9 of the Act, to ensure its uniform applicability. This would lead to optional amendment by the States, in certain situations, but would overall lead to a uniform change.
Balancing domestic and foreign interests
Another reason can be that the interplay of protecting domestic industries and attracting foreign businesses presents itself as a complex challenge. There are apprehensions that such mechanisms of EA can be exploited by foreign entities because of the rapid nature of such proceedings. There are chances that the small enterprises might not be able to gather adequate defense and consequently, swift rulings are passed in favour of foreign companies, causing a disadvantage to domestic entities who lack immediate legal relief. On the other hand, India recognizes the benefits of attracting foreign investments for its economic growth. A significant case that highlighted this was the Amazon-Future Group case where the Hon’ble Supreme Court held that EA’s decisions could be enforced under Section 17(2) of the Act. This culminated in a pro-arbitration ruling, which could portray India as more attractive to foreign investors. This can be another reason for India’s hesitance in culling out a provision for EA as this can be a manifestation of such fear and the belief to create a level playing field for businesses at home as well as foreign.
Judicial stance and recommendations by Law Commission
As discussed earlier, the Act doesn't explicitly recognize EA as a mechanism, emergency arbitrators, or their awards. This legislative gap has led to a series of court decisions that highlight the enforceability issues, especially for awards issued by foreign-seated tribunals. In Raffles Design International v. Educomp Professional Education Ltd., the Delhi High Court ruled that it couldn’t directly enforce an emergency arbitrator's award from a Singapore-seated arbitration. The reasoning for the same was focused on the fact that the Act's definition under Section 2(2) of "arbitral tribunal" doesn't include emergency arbitrators. The Delhi High Court held that the “…emergency award passed by the Arbitral Tribunal cannot be enforced under the Act and the only method for enforcing the same would be for the petitioner to file a suit….Recourse to Section 9 of the Act is not available for the purpose of enforcing the orders of the Arbitral Tribunal; but that does not mean that the Court cannot independently apply its mind and grant interim relief in cases where it is warranted.”
To counter this very problem, the 246th Report of the Law Commission recommended a change to the definition to add EA under the purview of the Act under Section 2(2). This was also recommended by the Justice BN Srikrishna Committee developing a white paper on the Act. However, neither of these recommendations were taken up in either the 2015 Amendment Act or the 2019 one.
Due to the absence of any amendments relating to EA, the current judicial stance is forced to be aligned with the government's position on the matter. The government prefers parties use Section 9 to seek interim relief. It allows parties to apply to Indian courts for interim measures before or during arbitral proceedings, or after an arbitral award but before its enforcement. This approach ensures that interim relief is granted through familiar and established legal mechanisms within the Indian judicial system.
There are several reasons why the government favors this approach. Firstly, it ensures court oversight, consistent legal application, and safeguards against potential abuse of EA procedures. Secondly, Indian courts have well-established procedures for enforcing their own orders, including contempt powers. In contrast, enforcing EA awards lacks a clear statutory framework, making it challenging to compel compliance.
Moreover, Section 9 fits the current regime, whereas incorporating EA would require significant amendments to the Act. This provision grants the party to grant two arbitrators, with each party appointing one. The government must also balance the benefits of EA against broader public policy considerations and the need to protect the interests of Indian parties in international disputes. By relying on Section 9, the government sidesteps potential jurisdictional conflicts that could arise between emergency arbitrators and Indian courts, particularly in cases involving foreign-seated arbitrations.
While the government's preference for Section 9 might be logical from a legislative standpoint, however, it might create certain problems from a legal standpoint. For one, this approach may lead to increased court involvement in arbitration matters, potentially undermining the principle of minimal judicial intervention that is central to arbitration. Furthermore, Court proceedings under Section 9 can be more time-consuming than EA, potentially resulting in delays that could be crucial in urgent situations. Additionally, involving the court in such situations may compromise confidentiality, which is a major reason for opting for arbitration. Furthermore, reliance on Section 9 may put Indian parties at a disadvantage in international arbitrations where EA is widely recognized and utilized, potentially affecting India's status as an arbitration-friendly jurisdiction.
Some legal experts have proposed alternative enforcement mechanisms, such as using Section 27(5) of the Act, which provides power to the courts to hold parties in contempt for non-compliance with arbitral orders, including foreign orders. However, the applicability of Section 27 (5) of the said Act to EA awards specifically has currently not been discussed by any courts. However, as highlighted above, there has been a discussion with respect to the applicability of the same.
Impact on Party Autonomy
The possible addition of EA as a recognized mechanism, in the Act would possibly impact party autonomy, something which is considered a fundamental pillar of arbitration. While EA is an extremely valuable pre-arbitral mechanism, its statutory inclusion may alter the arbitration landscape in India, specifically the of party autonomy.
Party autonomy under Section 2(6) of the said Act allows contracting parties to customize their dispute resolution process. An EA provision could help in sidestepping certain choices between parties that opt for simple arbitration clauses in their contract by possibly imposing a mechanism parties may have intentionally avoided. Furthermore, due to the fact that in an emergency arbitration, the arbitrator is not decided by the parties, the same also impacts the party autonomy. As emphasized in Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd., the freedom of parties to determine the form of their dispute resolution process is paramount in an arbitration. Adding to the issue, the complexity of this mechanism could burden smaller businesses with limited resources and create opportunities for tactical exploitation.
Statutorily providing for EA might provide companies the access to unilaterally invoke the procedure by an application. This would go against the norms of party autonomy. It could also eliminate the contractual nature of arbitration, potentially discouraging parties from choosing this dispute resolution method.
Possible Policy Recommendations
Focusing on possible policy changes, a fundamental transformation could emerge through the expansion of Section 2(2) of the Act to explicitly encompass emergency arbitrators within its definitional ambit, this would directly address the jurisdictional challenges as seen in Raffles Design International v. Educomp Professional Education Ltd., where the Delhi High Court stated its inability to enforce foreign-seated EA awards due to this definitional limitation. Such an amendment would also align with the recommendations of both the 246th Law Commission Report and the Justice BN Srikrishna Committee.
Furthermore, the presence of the subject of arbitration in the concurrent list presents unique challenges that could be addressed through model guidelines for state adoption. This approach would ensure uniformity while respecting federal autonomy. Furthermore, the introduction of a hybrid enforcement mechanism that incorporates EA with Section 9 remedies could preserve the government's preference for judicial oversight.
Lastly, the impact on party autonomy could be managed through an opt-out framework, allowing parties to explicitly exclude EA provisions if desired. This approach would preserve the fundamental principle of party autonomy while modernizing India's arbitration framework. Additionally, establishing reciprocal recognition mechanisms with major arbitration jurisdictions, particularly Asian arbitration centers in Singapore and Hong Kong, could enhance India's position as an arbitration hub while ensuring adequate protection for domestic entities.
These modifications would position India at the forefront of arbitration innovation while maintaining a balanced approach that protects all stakeholders' interests. Through such carefully considered changes, India could establish itself as a viable arbitration destination while setting new standards for EA jurisdictions globally.
Conclusion
The debate on EA in India highlights a complex interplay of legal, economic, and practical factors. While we understand that the current approach has its own merits, it may hinder India's vision of being a major international arbitration hub. Therefore, the aforementioned policy recommendations might be feasible in solving the various issues attached to EA. These recommendations vary from the creation of model rules to amending the Act, with respect to the definition of an arbitral tribunal.
The ultimate intention is to create a flexible, efficient, and internationally recognized EA framework that refines India's image as a viable arbitration destination while simultaneously protecting each parties' interests. Thus, a balanced approach could position India at the forefront of arbitration innovation, setting a new standard for EA jurisdictions globally.
This article has been co-authored by Oshin Beniwal and Vinayak Takkar, fourth-year students at the National Law University, Jodhpur, and Symbiosis Law School, Noida respectively. This blog is part of the RSRR's Rolling Blog Series.
Comments