[This guest post is authored by Parina Muchhala. She is a 3rd year student at Maharashtra National Law University, Mumbai. Her key interests lie in domestic and international arbitration, competition law and international economic law.]
Ashwani Minda v. U-Shin: Delhi High Court Refuses Interference with Emergency Award in a Japan-Seated Arbitration
Emergency arbitration is an oft-preferred quick mechanism for parties to seek interim relief from arbitrators. Thus, institutional rules like SIAC, HKIAC and LCIA provide for such proceedings. Notably, Section 2(1) (c) of the Indian Arbitration and Conciliation Act, 1996 (“Act”) does not recognise emergency awards.
In this backdrop, an analysis of the Delhi High Court’s recent verdict in Mr. Ashwani Minda & Anr. v. U-Shin Ltd. & Anr. (“Ashwani Minda”) is important, as it is one of the very few Indian judgments on emergency arbitration. This post analyses the Delhi High Court’s reasoning to understand how it contributes to existing jurisprudence.
The dispute arose from a joint venture undertaken originally between the Applicant (an Indian partnership firm) and Respondent No. 1 (a corporation incorporated in Japan) in 1986. Within the original joint venture, Applicant No. 1 (a Managing Director in the joint venture) was also a “Controlling Shareholder” with 30.30% shares. Respondent No. 1 held 26% shares, and the remaining 43.70% was held by the public. A licensing and technical assistance agreement was also executed between the same parties in 2014 to enable smooth transfer of technical information.
In due course, Respondent No. 1 integrated into its Japanese affiliate (Respondent No. 2) and delisted from the Tokyo Stock Exchange. Respondent No. 2 then made an open offer to its existing shareholders in consonance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
This aggrieved the Applicants, who felt threatened by the possibility of being reduced to minority shareholders and losing control. They claimed that this violated Articles 4 and 7 of their original joint venture agreement and Article 26 of the licensing agreement.
Negotiations failed, and Applicant No. 1 invoked the arbitration clause in both the agreements. Prior to constitution of the tribunal, Applicant no. 1 invoked the emergency arbitration provisions under the Japan Commercial Arbitration Association (“JCAA”) Rules. The Claimant sought to restrain the Respondents from acquiring shares purchased in open offer until the conclusion of the dispute.
The emergency arbitrator rejected the application under a reasoned award. Aggrieved, the Applicants approached the Delhi High Court seeking a similar relief (prohibitory interim injunction) under Section 9 of the Act (Section 9 Petition). The Respondents contended that, among other things, the Section 9 Petition would be barred by the doctrine of election since the Applicants had already sought a similar remedy before the emergency arbitrator.
Delhi High Court’s decision
The Court examined the arbitration clause and concluded that the seat was Japan. Referring to Bhatia International v. Bulk Trading S.A. (Bhatia International) and Bharat Aluminium Co. (BALCO) v. Kaiser Aluminium Technical (BALCO), it was opined that Section 9 of the Act would applicable to international commercial arbitrations if not excluded by a contrary agreement.
It also stated that such agreement can be express or implied, in line with Raffles Design Int’l India Pvt. Ltd. v. Educomp Professional Education Ltd. & Ors. (Raffles).
To analyse maintainability of the Section 9 Petition, the Court looked for party intention to include/exclude Section 9. It examined both arbitration clauses, which specified that the institutional rules for an arbitration instituted by the Indian party would be the JCAA Rules. Article 77 of the JCAA Rules provides for emergency arbitration as the sole mechanism for relief before constitution of the arbitral tribunal. Furthermore, it did not have any provisions recognising the right to approach domestic courts. Thus, it was held that the parties impliedly intended to exclude applicability of Section 9.
The Court also examined other clauses of the JCAA Rules to hold that the correct recourse available to the Applicants was only through emergency arbitration, which they had already invoked. Considering that the relief sought through this Petition was almost the same as those sought from the emergency arbitrator, the Court ruled that it was not open to the Applicants to seek an appeal from the order. In effect, this amounted to approval of the doctrine of election in arbitration law.
An important feature of this judgment is also how it distinguishes the judgment in Raffles. It does so on two levels: first, it examines the arbitration agreement itself to state that it did not expressly or impliedly exclude the applicability of Section 9 to foreign seated arbitrations. And second, it further examines the choice of institutional rules (SIAC) which does not bar parties from approaching domestic courts for interim relief. Thus, the Court dismissed the Section 9 petition as not being maintainable.
The Indian position with respect to emergency arbitration has not been adjudicated by the Supreme Court. Nevertheless, there are three important judgments where Indian High Courts have dealt with the issue: (i) Raffles (Delhi High Court); (ii) HSBC PI Holdings (Mauritius) Limited v. Avitel Post Studioz Ltd., (“HSBC”); and (iii) Plus Holdings Limited v. Xeitgeist Entertainment Group Limited & Ors., (“Plus Holdings”) of which the latter two were passed by the Bombay High Court.
In HSBC, the parties had expressly carved out the applicability of Part I to an international commercial arbitration in their arbitration agreement. The application under Section 9 sought the same reliefs as the Emergency Award, but did not seek enforcement of the award itself. Recognising this, the Bombay High Court ‘upheld’ the emergency arbitrator’s award and granted the same reliefs.
In Raffles, a Section 9 petition was filed to stop the other party from contravening the emergency award issued under the SIAC Rules. Rule 30 read with Schedule 1 of the SIAC 2016 Rules allow parties to obtain emergency relief before constitution of the tribunal. The Court applied the aforementioned party intention test and concluded that the parties had not excluded the applicability of Section 9. Nevertheless, since emergency awards cannot be enforced directly in India, parties must file an application under Section 9 of the Act praying for similar reliefs, which may be granted by the Court. This position was also followed in Plus Holdings, thereby creating an indirect enforcement mechanism for emergency awards in foreign seated arbitrations.
In contradistinction with previous decisions, Ashwani Minda involved the claimant’s attempt to appeal against the original emergency award. The Delhi High Court has rightly clarified that courts will not pass an order contrary to the emergency arbitrator simply because a party has failed to obtain such reliefs from the arbitrator. Interestingly, this decision is also the first non-SIAC emergency award that formed the subject matter of a Section 9 Petition.
The Court’s decision in Ashwani is materially different from Raffles, where the Court held that although an emergency arbitration award is not enforceable in India, a petitioner can file a suit seeking similar reliefs under Section 9, and it is entirely up to Courts to grant or deny such relief. A major factor guiding such decision was the conclusion that the SIAC Rules are extremely similar to the UNCITRAL Rules, which permit parties to approach Courts for interim reliefs.
On the other hand, Article 77(5) of the JCAA Rules, as discussed in Ashwani Minda, makes it clear that emergency measures are deemed to be interim measures granted only by the Tribunal. Once the Applicants elected to approach the Emergency Arbitrator, interim relief could not have been be sought from domestic courts.
Judicial restraint and change in circumstances
While it may be argued that the Court in Ashwani Minda arrived at this conclusion through application of the implied exclusion test to the arbitration agreement itself, the Court’s acknowledgement of the “reasoned” order of the Emergency Arbitrator demonstrates its intent to steer clear of undue judicial interference in the arbitration process. However, the Court also noted that another ancillary consideration was that there was no “substantial change in circumstances” since the emergency award was passed. Thus, it may still be open for Courts to grant reliefs contrary to the emergency arbitrator if there is a material change in circumstances after the emergency award is passed.
The judgment adopts an interesting approach when evaluating party intention to bring it in consonance with Raffles. It first examines the arbitration clause for direct intention to exclude applicability of Section 9 to international commercial arbitrations. If not, an implied intention can be inferred through choice of institutional arbitral rules. In a way, this test reaffirms the importance of the choice of arbitral rules as an indicator of party intent.
Accordingly, it would be advisable for parties to be careful while selecting their rules of arbitration if either of them intends to approach Indian Courts in case of a dispute.
While the two-part test is laudable, fear of its misuse lingers, since its idea of direct/indirect indicators of party intention with respect to Section 9 runs extremely close to the Court’s idea of ‘express’ and ‘implied’ party intention to exclude Part I. Thus, Courts should be particularly careful to ensure that the two are not used interchangeably to bring back the regressive pre-BALCO position. As a precautionary measure, parties must therefore ensure that their arbitration clause clearly indicates intention to apply (or exclude) Part I to their proceedings.
In essence, the Delhi High Court has taken a pro-arbitration stance. While Section 9 applications seeking indirect enforcement of an emergency award may still be considered, Indian Courts will be wary of granting reliefs contrary to an emergency award – especially where these reliefs have been denied.
That said, while deciding the indirect enforceability of an emergency award, courts will still ensure that the three-prong test of prima facie case, balance of convenience and irreparable harm is satisfied.
The possibility of an indirect appeal from emergency awards cannot be ruled out at this stage. But it is encouraging that arbitral autonomy has been granted primacy over judicial interference.
Lastly, given the uncertainty on the nature and treatment of emergency awards in India, it would also be interesting to see how this issue is dealt with by the Supreme Court of India.