The Need For Emergency Arbitration In India In The COVID-19 Predicament

Abstract

Today, numerous commercial disputes are submitted to arbitration. Many times certain circumstances arise wherein a party needs a specific urgent relief so as to prevent a greater loss in the future. Emergency arbitration is a process in which a party can obtain an urgent relief before the constitution of the arbitral tribunal. In the `  current times of crisis, there are several contractual obligations which could not have been fulfilled and might lead to losses to a party. Thus, in order to overcome such losses to various contracting parties, the provisions for recognition of emergency arbitrations in India must be implemented and additionally, emergency arbitrations must be conducted in India. This article seeks to analyze the various regimes of the process of emergency arbitrations around the world, its status quo in India and its necessity in the times of COVID-19 pandemic.

Keywords: Emergency arbitration, COVID-19, Interim reliefs, Recognition, Enforceability.

Introduction

Innumerable transactions take place each day. Most of the commercial agreements these days contain an arbitration clause wherein both the parties agree to submit to arbitration in order to resolve disputes. In the course of dealing, it may sometimes happen that a party might want an urgent relief so as to prevent a much greater future loss. That’s where Emergency Arbitration comes into picture. Emergency arbitration is a procedure for providing a quick and efficient interim relief to a party to an Arbitration Agreement prior to constitution of the Arbitral Tribunal. The emergency relief so granted takes form of an order which might later on be re-visited post-constitution of the Tribunal. In furtherance to the amendment of UNCITRAL Model Law in the year 2006 which authorized the Tribunals to grant interim reliefs to the parties, several recognized arbitral institutions such as the International Chamber of Commerce (“ICC”), Singapore International Arbitration Centre (“SIAC”), Hong Kong International Arbitration Centre (“HKIAC”), Stockholm Chamber of Commerce (“SCC”) etc. amended their institutional rules so as to include the provisions of Emergency Arbitration. However in India, there exist no such specific rule which allows an emergency arbitration. Section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) allows grant of interim reliefs by the court, but this process is comparatively slower to an emergency arbitration. Through the course of this article, the current status of emergency arbitrations in India will be elucidated along with its features and the pressing need to incorporate it in the current regime will be discussed.

Features of Emergency Arbitration

Emergency Arbitration has certain peculiar features. They can be described through three “E’s” as are listed below:

  1. Expeditious: The very name of the procedure suggests that the arbitration has to take place in an expeditious manner. The entire process from appointment of the emergency arbitrator to rendering the decision takes place within 14 days for LCIA, 15 days for HKIAC, 14 days for SIAC and the quickest one is SCC, the rules of which under Article 8 of Appendix II lay down that the decision must be made within 5 days, which may be subject to extension on request of arbitrator to the Board. Thus, one peculiar feature of Emergency Arbitration is its expeditious nature.
  2. Expensive: Emergency Arbitrations are exorbitant. The fee charged by various institutions are very high and can burn a hole in the pockets of the parties. For example: SIAC charges an administrative fee of $5,000 for overseas parties and emergency arbitrator’s fee, and expenses have been fixed at $30,000 bringing the total to $35,000. ICC charges a staggering $40,000 as fees for an emergency arbitration out of which $10,000 is charged for administrative expenses and $30,000 for arbitrator’s fee and expenses.
  3. Enforceability: An emergency arbitration is undertaken to seek an interim relief. The decision so rendered by the emergency arbitrator is viewed as an interim order of a Tribunal. But it is pertinent to mention that the rules of Institutions lay down that such awards, on request of a party, be modified, suspended or terminated after constitution of the Arbitral Tribunal.  Thus, the decision rendered is enforceable, but is subject to review post constitution of the Arbitral Tribunal.

Recognition and Enforceability of Emergency Arbitrations in India

India is a signatory to the United Nations Convention on Recognition of Foreign Arbitral Awards (“New York Convention”) and recognizes the Foreign Awards made subject to the condition that award must be made in one of such territories in which the reciprocal provisions are made and the Central Government is satisfied and by notification in the Official Gazette declares them to be territories where such convention applies (Section 44(b) of the Arbitration Act). However when it comes to an emergency arbitration decision, it is not considered to be enforceable under the New York Convention due to lack of finality of the award under law. Under the Indian Law, Section 9 of the Arbitration Act lays down provisions for interim reliefs by the Court on application by the parties any time before the enforcement of the arbitral award. Part II of the Arbitration Act lays down that only those Foreign Awards are enforceable in India which have attained finality in eyes of law. The interim award made by an emergency arbitrator thus holds no legal recognition in India. There have been some judicial deliberations with regard to emergency arbitrations in India:

In HSBC PI Holdings (Mauritius) Limited v. Avitel Post Studioz Limited, an application was filed under Section 9 of the Arbitration Act for grant of interim reliefs.The Bombay High Court granted interim reliefs which wedre consistent with the award passed by the emergency arbitrator appointed by SIAC. In Raffles Design International India Private Limited & Ors. v. Educomp Professional Education Limited & Ors., the Delhi High Court dismissed the objections raised on the maintainability of the award and granted the admission of the application to be heard on merits. It was emphasized by the Court that a remedy under Section 9 of the Arbitration Act cannot be invoked for the purpose of enforcement of an award by an arbitral tribunal, but if the court considers it necessary, it can independently apply its discretion and grant interim reliefs to the party. It was also elucidated that the Arbitration Act does not contain provisions for the enforcement of an interim award passed in foreign seated arbitrations and the only way to enforce such an award was through filing of a Suit under Code of Civil Procedure, 1908.

Thus, it is pertinent to mention that on appraisal of the aforementioned cases, interim reliefs granted by emergency arbitrators in foreign seated arbitrations, though, are not directly enforceable in India, but they do carry certain persuasive value in the Court of Law. This is the Status Quo of emergency arbitration in India. The following heading will discuss the need to have provisions regarding emergency arbitrations in India in the COVID-19 era.       

Emergency arbitrations: Necessity in India during the COVID-19 times

The Law Commission of India in its 246th Report in August, 2014 under Chapter III proposed an Amendment to definition of “arbitral tribunal” under Section 2(1)(d) so as to include emergency arbitrator under its purview and to ensure that the institutional rules regarding emergency arbitration are given statutory recognition in India. There are certain advantages associated with emergency arbitrations, some of which include the party autonomy (For seat, venue, appointment of arbitrator), the expeditious process and getting interim relief at a really fast pace so as to avoid any future loss.

It is no surprise that COVID-19 pandemic has caused havoc to commercial activities and day-to-day business transactions, and has affected a sizable number of contracts on account of mandatory lockdown and orders by the Government for suspension of various activities. Many contracts include a Force Majeure clause which absolves a party of its contractual obligations. However in many cases, there seems to arise a dispute in the definition of Force Majeure and whether it falls within the scope of the contract between the parties. In such cases, emergency arbitrations could provide a swift interim relief to a party so as to prevent greater losses to a party. Another important reason for implementation of provisions relating to emergency arbitration is the current paradigm of virtual courts and virtual proceedings. Emergency arbitrations in India could certainly help in providing urgent interim reliefs and could act as a quicker alternative to the interim reliefs under Section 9 of the Arbitration Act, albeit the scope of powers granted to the emergency arbitrator being limited. Hence, emergency arbitrations conducted in India could definitely help in providing quick and temporary reliefs to a party, which otherwise could lead to heavy losses.

Conclusion

A High Level Committee to Review the institutionalization of Arbitration Mechanism in India ,chaired by Justice B.N. Srikrishna, also discussed under Part II (VI) (E) of the Report the provisions regarding enforcement of emergency awards in India and recommended some changes with regard to recognition and enforcement of emergency awards by way of amending the Arbitration Act, but no such amendments were made through the Arbitration and Conciliation (Amendment) Act, 2019. There are two aspects which need to be considered: The first one being the enforcement of foreign seated emergency awards and the second one being emergency arbitrations conducted in India. Rule 14 of the Rules of Mumbai Centre for International Arbitration does contain provisions for appointment of emergency arbitrator in case the parties have agreed to submit to the rules of MCIA. India is considered to be a “non-friendly” arbitration jurisdiction among the international community but this notion can change. No time could be better suited than this for the Legislature to consider and enact laws providing recognition and enforcement to emergency awards (whether made in India or by a foreign seated arbitrator) in India so as to safeguard the interests of parties who have put in their trust in the process of arbitration and considering a holistic view, to protect the commercial sector in the country from the evident devastation caused by the pandemic.

Author: Ayush Wadhi,

ALL INDIA LEGAL FORUM

Source: https://www.business-standard.com/article/opinion/putting-arbitration-on-fast-track-115110100753_1.html

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