Reassessing Legality of Emergency Arbitrators: Criticizing the Amazon-Future Judgment
Author: Pradhyuman Singh
5th year law student at Gujarat National Law University, Gandhinagar
The Supreme Court in Amazon NV Investment Holdings vs Future Retail Ltd. has finally brought much-sought clarity with respect to the legality of an Emergency Arbitrator under the Arbitration and Conciliation Act, 1996 (“Act”). From the standpoint of policy and promoting a pro-arbitration approach, the decision of the Court has been appreciated and welcomed.
The implication of recognizing the legality of an Emergency Arbitrator is that it is considered to be an arbitral tribunal for the purposes of the Act. Consequently, it is capable of providing interim relief to the parties under Section 17 of the Act as well. Whilst the ultimate decision of the Court is correct, this post will argue that the justification given by the Court is illogical. This will be done by analyzing the law on the point by studying the legislative text of relevant provisions and enquiring into case law. This will be followed by an analysis and critique of the Supreme Court ruling itself.
II. What is Emergency Arbitration?
An Emergency Arbitrator is a mechanism provided under Rules of various Arbitration Institutions that allows a party to seek urgent interim relief before the composition of the arbitral tribunal designated to decide the substance of the dispute. Practically, there may be instances where a party requires interim relief immediately and cannot afford to go through the process of even appointing an arbitrator. To cater to such situations, an Emergency Arbitrator is appointed immediately by an institution who hears and decides a claim in a very limited time frame.
In very simple terms, to decide if an Emergency Arbitrator is an “arbitral tribunal” it must be ascertained if it is designated as such by the parties. This can only be possible if the Emergency Arbitrator is appointed through an arbitration agreement. To determine this, let us look at Section 7 of the Act, which defines an arbitration agreement.
III. Textual Analysis
Section 7 defines an arbitration agreement to be “an agreement by the parties to submit to arbitration all or certain disputes.”
It is important to note that the definition uses the expression “certain disputes” in distinction from “all disputes”. In using this expression, Parliament has given freedom to decide a specific type or sub-category of dispute which the parties can refer to arbitration. Thus, through the ability to decide which specific type of dispute is arbitrable, leeway is granted to introduce a contingency in the arbitration agreement. It is only upon the occurrence of this contingency (existence of a specific dispute) that the matter would be submitted to arbitration.
Though this expression has not been the subject of interpretation, Courts have read the language of Section 7 of the Act liberally to further the object of the law.
For instance, the Supreme Court in Booz Allen vs SBI Home Finance Ltd. discussed the concept of arbitrability. The Court held that arbitrability may be determined by enquiring if the dispute is covered by the arbitration agreement. In the event the arbitration clause describes certain matters that have to be submitted to arbitration, the parties cannot go beyond the same and demand arbitration over other disputes. For example, the arbitration clause may stipulate that only allegations of fraud may be submitted to arbitration. If a dispute were to arise where an allegation other than that of fraud was made, the matter would fall outside the arbitration agreement and would not be arbitrable.
To provide another illustration, the Kerala High Court in the case of Nirman Scindia vs Indal Electromelts discussed an issue where the arbitration agreement required any dispute to first be referred to an expert. Only if the expert was unable to resolve the dispute, would it be open arbitrate the matter. One of the parties sought to breach this pre-condition, against which an application was moved. Accordingly, the High Court recognised that imposing such a pre-condition was valid and essential. This was a part of the arbitration agreement and was required to be followed. The mandatory nature of such pre-arbitration procedures was also recognised by the Supreme Court in the context of the Arbitration Act, 1940.
Therefore, the language of Section 7 has been read broadly to allow freedom to the parties to decide the type or nature of dispute that may be submitted to arbitration. In deciding which disputes may be arbitrated, contingencies and pre-conditions may also be introduced. Such a dynamic interpretation serves the object of the Act and gives due respect to party autonomy.
In this pretext, when Section 7 is applied to the concept of an Emergency Arbitrator it can be asserted that such an Arbitrator is covered within the four corners of the Act. When Institutional Rules are adopted by parties, the terms of such Rules are incorporated by reference in the arbitration clause itself. The parties accordingly, agree to submit those disputes to an Emergency Arbitrator which requires urgent interim relief. The existence of such urgent circumstances is the contingency, or the “certain dispute” that is determined by the parties. If this scenario arises, a party may approach the Institution and appoint the Emergency Arbitrator as the “arbitral tribunal.” Being a fully-fledged arbitral tribunal, it consequently has the ability to grant interim relief under Section 17 of the Act. Such relief would be directly enforceable in India in accordance with Section 17(2) of the Act.
An important feature of Emergency Arbitration is that once a decision is made by the Arbitrator, his mandate terminates. The “primary” arbitral tribunal is then required to take over and hear the substance of the dispute on merits. This feature was used in the Amazon-Future matter as a basis to argue against the legality of an Emergency Arbitrator. It was suggested that an Emergency Arbitrator only has the capacity to provide interim relief and not any final relief. However, this understanding is misguided because, parties have been given the freedom to terminate the mandate of an arbitrator by mutual consent under the Act. Section 15(1) of the Act provides:
“(1)… the mandate of an arbitrator shall terminate—…
(b) by or pursuant to agreement of the parties.”
Thus, an agreement may be made for the termination of the mandate of an arbitrator. Such termination may happen by OR pursuant to an agreement. The significance of differentiating “by” with “pursuant” here indicates that it is not only valid for an agreement to terminate the mandate with immediate effect. It would also be open to the parties to make such an agreement in advance, where upon the happening of a certain contingency, the mandate of the arbitral tribunal terminates. Courts have held that it is a rule to give meaning to every expression in a statute and not render any expression is mere surplusage. Accordingly, the different expressions in Section 15(1)(b) must be read in a meaningful manner.
With this logic, the mechanism of Emergency Arbitration squarely fits into the purview of Section 15(1). The jurisdiction of such an Arbitrator extinguishes upon the claim being decided. These events are identified as the contingencies on the basis of which the mandate is terminated. Therefore, the combined effect of Section 7 and Section 15(1) allows us to classify an Emergency Arbitrator as an “arbitral tribunal” whose mandate terminates upon a decision being made as per the terms of the Institutional Rules. In this manner, the mechanism of an Emergency Arbitrator can be covered under Part I of the Act.
IV. Analysis of the Supreme Court Judgment
The judgment begins its enquiry by examining provisions such as Section 2 and Section 19(2) of the Act. These provisions provide that the parties are free to decide on the procedure to be followed in the arbitral proceedings (Section 19) and that such procedural rules shall form part of the Arbitration agreement (Section 2(8)). As an Emergency Arbitration is incorporated as a mandatory procedure through Institutional Rules, the learned judge was of the opinion that nothing in the Arbitration and Conciliation Act, 1996 created a bar on the same.
Subsequently, the learned judge seeks to justify how exactly an Emergency Arbitrators decision comes within the purview of Section 17.
The argument of the learned Judge flows in this manner:
(a) Section 17 is meant to apply to “arbitration.” An Emergency Arbitration is a proceeding of a permanent arbitral institution, it is expressly recognised as an “arbitration.” This would result in Section 17 squarely applying even to an Emergency Arbitrator.
(b) An objection may be raised that an “arbitral tribunal” as per Section 2(1)(d) should be capable of granting both interim and final relief. Admittedly, an Emergency Arbitrator would then not qualify as an “arbitral tribunal.”
(c) However, as Section 17 clearly applies to an Emergency Arbitrator as per point (a), it creates a context in the law to not use the definition of an “arbitral tribunal” in Section 17 at all. This is because definitions in a statute are only employed unless the context otherwise requires.
The logic of the Court is assailed on the following basis:
1. Once it is asserted that an Emergency Arbitrator engages in “arbitration,” it must necessarily follow that an Emergency Arbitrator qualifies as an “arbitral tribunal.” It is not logical to suggest that an “arbitration” is governed by any entity other than an “arbitral tribunal.” If the Emergency Arbitrator is not an “arbitral tribunal” within the meaning of Section 2(1)(d), then as a corollary, any proceeding conducted by him/her would not qualify as an “arbitration” or an “arbitral proceeding.” Thus, it would be illogical to suggest that an Emergency Arbitrator engages in “arbitration” but is not an “arbitral tribunal.”
2. Secondly, even if it is assumed that Section 17 does not employ the definitional meaning of “arbitral tribunal,” the consequence would be that the plain and ordinary meaning of the expression must be used. As per the plain meaning as well, an arbitral tribunal must necessarily be an entity that is expressly authorized by parties to govern any dispute. Even in this situation, the jurisdiction of an “arbitral tribunal” must be sourced from the arbitration agreement under Section 7. The learned Judge on one hand argues that an Emergency Arbitrator is not an “arbitral tribunal” as defined in Section 2(1)(d), but he/she is an “arbitral tribunal” outside the definition. There being no difference in both these meanings, this argument leads to no consequence.
3. The learned Judge argues that to come within the definition of an “arbitral tribunal,” the arbitrator must be capable of giving both interim and final relief. In making this assertion, there is an oversight to Section 15(1) of the Act which has been discussed above.
For these reasons, it appears that the Supreme Court adopts circular reasoning to try and recognize an Emergency Arbitrator. Whilst the object of the Act should be furthered by reading its provisions in a manner which encourages arbitration, reasoning that does not follow well settled rules of interpretation would do more harm than good. If these rules are diluted, the Courts may make an interpretation not foreseeable by anyone. This would be counter-productive to promoting business and commerce in India due to uncertainty in dispute adjudication. One can hope that the Courts do not lose sight of these basic rules in the name of promoting arbitration in the future.