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IS IT ALLOWED TO HAVE A SECOND BITE AT THE CHERRY?

Updated: Jul 31



About the Author:


Ms. Bhumi Agarwal

Final Year Student, B.B.A. LL.B,

New Law College, BVP, Pune



Introduction


In the above-mentioned case, the judgment was pronounced in the Delhi High Court by Hon'ble Ms Justice Jyoti Singh. The case defines the scope of judicial intervention by way of grant of interim reliefs by the court prescribed under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter, Arbitration Act). The case also discussed the concept of emergency arbitration, which has not gained much footing in the Indian legislation but is recommended in the 246th Report of the Law Commission of India and the Srikrishna Committee Report. The concept of emergency arbitration gained prominence in various parts of the world because it seeks to provide urgent interim measures to prevent any party from facing any irreparable damages.


In this article, the author focuses on the need for legislative clarity required in Section 9 of the Arbitration Act and the recognition of emergency arbitration.



Factual Background of The Case


The Applicant was the controlling shareholder in the Joint Venture with a Japanese company with 30.3% of the shareholding. The Respondent, U-Shin, held 26% of shares and 43.7% were publicly held. The Respondent declared incorporation into the business plan with some of its affiliates in Japan which triggered the takeover code for India's securities and exchange Board. The Respondent consequently was obligated to make an open bid to buy shares owned by the joint venture which were publicly held. The Applicant thought that this would take away the status of the Applicant as the controlling shareholder in the joint venture and The Applicant claimed that such transactions constituted an infringement pre-emption, transfer and assignment provisions of the Joint Venture Agreement (JVA) and the agreement on licensing and technical assistance between both the parties.


The Respondent after realizing that such the disagreement cannot be settled amicably, the Applicant invoked provisions relating to emergency arbitrators under the Japan Commercial Arbitration Association's Commercial Arbitration Rules (JCAA Rules). The emergency arbitrator refused to provide any interim relief to the Applicant along with the justification of the same. The interim relief sought by the Applicant was that to restrain the Respondent from taking any action under the takeover code or exercising its rights in respect of any shares acquired through the open offer, or instead, a compulsory injunction specifying that such acquired shares be transferred to the Applicant.


After that, the Applicant approached the Delhi High Court to seek interim relief under Section 9. The Respondent raised an objection stating that the Applicant must not be allowed to have recourse to other remedies when the first one is already exhausted, applying the doctrine of election. It was further stated by the Respondent that such a petition is not maintainable as there are no circumstantial changes that occurred after the Applicant invoked the emergency arbitration provisions which bars the court from granting interim relief under Section 9.



Judgment


The court held that the current petition is not maintainable under Section 9 of the arbitration act due to the following reasons:


As per the Joint Venture Agreement between the parties, it is mentioned that the JCAA rules will apply.

· As per Article 77 of the JCAA rules, the power to grant interim relief lies solely with the emergency arbitrator, and therefore the exclusion of Section 9 from the agreement can be established.

· In Raffles's case, the parties were able to seek interim relief because the parties agreed that the SIAC rules would apply and SIAC rules provide for seeking interim relief by national courts which the JCAA rules fail to provide.

· Applying the doctrine of election to this case, the parties have to choose amongst two options and cannot take benefit of both. In this case, the party has utilized its first option through emergency arbitration and therefore, cannot seek a remedy in the court.

· The court cannot sit as a court of appeal under Section 9 as the petition of the appellant mainly emphasizes the flaws made by the emergency arbitrator in not granting relief.



Analysis


· Absence of legislation pertaining to Emergency Arbitration


The notion of emergency arbitration is elected by the parties to seek interim measures easily without the intervention of the court. To seek the remedy under emergency arbitration, two things must be proved, i.e., the rational possibility of the requesting party to succeed on merits and the loss that the requesting party will have to bear in case of no relief is granted. The English and the French courts have started giving importance to the substance rather than the form of the award, which means that even though the legislation does not provide for seeking relief against the emergency arbitration, the courts will look into the substance of the matter and then will decide that the award is an award or mere order, rather than the form in which it is rendered by the arbitral tribunal. More than often, the relief received in the emergency arbitration is recognized merely as interim orders that can be modified by the Arbitral Tribunal due to which the relief lacks finality as it cannot be considered equivalent to the award for enforcement, which defeats the whole purpose of seeking relief at the first place.


The Indian legislation does not provide for emergency arbitration due to which the parties have no remedy of seeking relief against it. Section 17 of the arbitration act only recognizes the interim measures granted by the arbitral tribunal and not by emergency arbitration. In the case of Raffles Design International India Private Limited & Ors. v Educomp Professional Education Limited & Ors[1]. and in Hsbc Pi Holdings (Mauritius) Ltd vs Avitel Post Studioz Ltd[2]., the Delhi High court and the Bombay high court respectively held that the court under Section 9 must decide a case on its own without considering the emergency arbitrators orders. In this case, the party has obtained an interim relief under emergency arbitration and applied for the same in the Indian court.


Therefore, it is pertinent to provide for laws that recognize emergency arbitration of Indian seated as well as foreign seated arbitration and the awards rendered through it, so that they can be enforced by the parties to attain finality.


· Deficiency in Section 9 of the Arbitration Act.


For any party to seek interim measures under Section 9, three parameters are laid down according to which the measures will be granted, if a prima facie case is made out, the balance of convenience is required and the requesting party can face irreparable loss if the interim relief is not granted. Through the Arbitration and Conciliation Amendment Act, 2015, Section 9 of the Arbitration Act was made applicable to foreign seated arbitrations as well. But as mentioned by the court in raffles case, the court must apply their minds independently while granting interim relief, but what are the criteria considered by the court? There may arise a point when this reason is used by the judiciary as per their benefit and the confidence of the party in courts as the option of providing interim relief will be shaken. Therefore, more legislative clarity is required to set out grounds on which such relief will be provided. The court clearly stated that the institution and the arbitration agreement excluded the scope of court intervention due to which the court cannot grant interim relief. The court's power to interfere in such proceedings so as to protect the interest of the parties must be augmented.


Also, the parties must be careful while entering into an arbitration agreement whether there is an absolute exclusion of Section 9 of the arbitration act, which will take away the remedy of the party to seek relief in the Indian court and the institutional rules must not be incompatible with seeking interim relief from the national courts like in this case.


Conclusion


In Minda's case, the party has already exhausted its remedy for seeking interim relief through invoking the proceedings of emergency arbitration, and no relief was awarded to the party. Therefore, other remedies will not be available just because the first one was unsuccessful. The above case further clarified that the parties will have to fight a battle in order to seek interim relief from the Indian court if the same is denied in the emergency arbitration and there have been no circumstantial changes that have occurred after such emergency arbitration. In raffles case, the party was already granted interim relief by the emergency arbitration but in Minda's case, the party was not granted relief, and to seek such relief the party approached the court. Therefore, the court held that the party will not be allowed a second bite at the cherry.


Disclaimer: Kindly note that the views and opinions expressed are of the author, and not Law Colloquy.


References:

[1] O.M.P. (I) (COMM.) 23/2015 & CCP (O) 59/2016, IA Nos. 25949/2015 & 2179/2016 [2] Arbitration Petition No.1062 Of 2012 #lawcolloquy #arbitration #interimrelief #emergencyarbitration #internationalarbitration

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