EMERGENCY ARBITATION & GROUP COMPANY DOCTRINE

 EMERGENCY ARBITRATION & GROUP COMPANY DOCTRINE

SHUBHAM BUDHIRAJA[1]

1.       EMERGENCY ARBITRATION RECOGNIZED IN INDIAN LAW?	YES, by virtue of Party autonomy
2.       CAN NON-SIGNATORY BE DRAGGED IN ARBITRATION?	YES, by virtue of Group company doctrine

EMERGENCY ARBITRATION IS WELL RECOGNIZED BY VIRTUE OF PARTY AUTONOMY

 

Emergency Arbitrator is a sole arbitrator appointed by the Arbitration Institution to consider the Emergency Interim Relief Application in cases where the parties have agreed to arbitrate according to the Rules of that Arbitration Institution which contain provisions relating to Emergency Arbitration. The status of the Emergency

Arbitrator is based on party autonomy as the law gives complete freedom to the parties to choose an arbitrator or an Arbitral Institution. The powers of the Emergency Arbitrator are the same of those of a Arbitral Tribunal to decide the interim measures. The order/award of the Emergency Arbitrator is binding on all the parties. However, they do not bind the subsequently constituted Arbitral Tribunal and the Arbitral Tribunal is empowered to reconsider, modify, terminate or annul the order/award of the Emergency Arbitrator.

The important characteristics of an Emergency Arbitration are that the Emergency Arbitrator has power to deal only with Emergency Interim Relief Application; the Emergency Arbitrator has to decide the Emergency Interim Relief Application within a fixed time frame of about 15 days; the Emergency Arbitrator cannot continue after formation of the Arbitral Tribunal; the Emergency Arbitrator‟s order/award can be reviewed/altered by the Arbitral Tribunal; the Emergency Arbitrator order/award can be challenged where seat of arbitration is located; and ordinarily the Emergency Arbitrator will not be a part of the Arbitral Tribunal. Institutions like SIAC appoint an Emergency Arbitrator within 24 hours of the request by a party and the Emergency Interim Relief Application is decided within 15 days

The Emergency Arbitration was first adopted by International Centre for Dispute Resolution of American Arbitration Association (AAA) in 2006, followed by Singapore International Arbitration Centre (SIAC) in 2010; Stockholm Chambers of Commerce (SCC) in 2010; International Chamber of Commerce (ICC) in 2012; and Hong Kong International Arbitration Centre in 2013. Swiss Chambers‘ Arbitration Institution

In India, the provisions relating to Emergency Arbitration have been incorporated by Delhi International Arbitration Centre (DIAC); Mumbai Centre for International Arbitration (MCIA); Madras High Court Arbitration Centre (MHCAC); Nani Palkhivala Arbitration Centre; Indian Council of Arbitration; Indian Institute of Arbitration & Mediation; and Bangalore International Mediation, Arbitration and Conciliation Centre.

The advantage of the Emergency Arbitration mechanism is that a litigant is able to get the justice within 15 days, which is not possible in Courts. However, if the order of the Emergency Arbitrator is not enforced, it would make the entire mechanism of Emergency Arbitration redundant

Section 2(6) of Arbitration and Conciliation Act gives complete freedom to the parties to authorize any person including an institution to determine the disputes between the parties. Section 2(8) of the Arbitration and Conciliation Act provides that where the parties have authorized an institution, the agreement shall include the Arbitration Rules of that institution. Section 19(2) of the Arbitration and Conciliation Act gives complete freedom to the parties to agree on the procedure to be followed by the Arbitral Tribunal in conducting its proceedings

Section 2(1)(a) is an inclusive definition which includes ad hoc as well as institutional arbitration. Section 2(1)(c) defines “arbitral award” to include an interim award. Section 2(1)(d) defines “arbitral tribunal” to mean a sole arbitrator or a panel of arbitrators

By virtue of Section 2(8) of the Arbitration and Conciliation Act, the Rules of Singapore International Arbitration Centre are incorporated in the arbitration agreement between the parties. By incorporating the Rules of SIAC into the arbitration agreement, the parties have agreed to the provisions relating to Emergency Arbitration.

Hence, Emergency Arbitrator is an Arbitrator for all intents and purposes, which is clear from the conjoint reading of Sections 2(1)(d), 2(6), 2(8), 19(2) of the Arbitration and Conciliation Act and the Rules of SIAC which are part of the arbitration agreement by virtue of Section 2(8). Section 2(1)(d) is wide enough to include an Emergency Arbitrator.

Under Section 17(1) of the Arbitration and Conciliation Act, the Arbitral Tribunal has the same powers to make interim order, as the Court has, and Section 17(2) makes such interim order enforceable in the same manner as if it was an order of the Court. The Interim Order is appealable under Section 37 of the Arbitration and Conciliation Act

 

 

 

 

 

 

GROUP COMPANY DOCTRINE IN ARBITRATION AGREEMENTS

The Group of Companies doctrine binds the non-signatory entity where the multiple agreements reflect a clear intention of the parties to bind both the signatory and non-signatory entities within the same Group.

Case Name	Relevant Extracts
Chloro Controls India Private Limited v. Severn Trent Water Purification Inc., (2013) 1 SCC 641	It was held that Group of Companies doctrine shall bind a non-signatory party to arbitration where there is a clear intention of the parties to bind both the signatory as well as the non-signatory parties who are part of group of companies. The intention of the parties‘ is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties The tests to be applied for invoking the Group of Companies doctrine namely, (i)                  direct relationship to the party signatory to the arbitration agreement, (ii)                direct commonality of the subject-matter and (iii)               the agreement between the parties being a composite transaction (iv)              The transaction should be of a composite nature where performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute (v)                Besides all this, the Court has to examine whether a composite reference of such parties would serve the ends of justice. A non-signatory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases.
Cheran Properties Limited v. Kasturi and Sons Limited, (2018) 16 SCC 413	The Court recognized the Group of Companies doctrine in modern business transactions. The Supreme Court held that (i)                  The circumstances in which the agreements were entered into would reflect the intention to bind both signatory and non-signatory entities within the same group (ii)                Factors such as relationship of a non-signatory to a signatory to the agreement, commonality of the subject matter, and (iii)                The composite nature of the transaction is to be taken into consideration. (iv)              The effort is to find the true essence of the business arrangement, and to unravel from a layered structure of commercial arrangements, the intent to bind a party who is not formally a signatory, but has assumed the obligation to be bound by the actions of the signatory.
Mahanagar Telephone Nigam Limited v. Canara Bank, (2020) 12 SCC 767	Group of Companies doctrine can be invoked in cases where (i)                  There is a tight group structure with strong organizational and financial links, so as to constitute a single economic unit, or a single economic reality   (ii)                This doctrine applies in particular when the funds of one company are used to financially support or re-structure the other members of the group.
Malhotra‘s Commentary on the Law of Arbitration by Justice Indu Malhotra	Group of Companies doctrine can be invoked to bind a non-signatory entity where a Group of Companies exist and the parties have engaged in conduct, such as negotiation or performance of the relevant contract or made statements indicating the intention assessed objectively and in good faith, that the non-signatory be bound and benefited by the relevant  contracts. The Group of Companies doctrine will bind a non-signatory entity where an arbitration agreement is entered into by a company, being one within a group of companies, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. A non-signatory party can be subjected to arbitration where there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties who are part of Group of Companies. In other words, ―intention of the parties‖ is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties. Where the agreements are consequential and in the nature of a follow-up to the principal or mother agreement, the latter containing the arbitration agreement and such agreements being so intrinsically intermingled or interdependent that it is their composite performance which shall discharge the parties of their respective mutual obligations and performances, this would be a sufficient indicator of intent of the parties to refer signatory as well as non-signatory parties to arbitration. The principle of ―composite performance would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand and the explicit intention of the parties and the attendant circumstances on the other. While ascertaining the intention of the parties, attempt should be made to give meaning and effect to the incorporation clause and not to invalidate or frustrate it by giving it a literal, pedantic and technical reading.

 

Hence, following tests are to satisfy to bind a non-signatory of an arbitration agreement on the basis of Group of Companies doctrine:

1.       The conduct of the parties reflect a clear intention of the parties to bind both the signatory as well as the non-signatory parties

2.       The non-signatory company is a necessary party with reference to the common intention of the parties.

3.       The non-signatory entity of the group has been engaged in the negotiation or performance of the contract.

4.       The non-signatory entity of the group has made statements indicating its intention to be bound by the contract.

5.       A direct relationship between the signatory to the arbitration agreement and the non-signatory entity of the group; direct commonality of the subject-matter and composite nature of transaction between the parties.

6.       The performance of the agreement may not be feasible without the aid, execution and performance of the supplementary or ancillary agreement for achieving the common object.

7.       There is tight group structure with strong organizational and financial links so as to constitute a single economic unit or a single economic reality.

8.       The funds of one company are used to financially support or restructure other members of the group.

9.       The composite reference of disputes of fresh parties would serve the ends of justice.

 

 

 

 

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[1] Associate Company Secretary, BCOM(H) & Final year law student from Faculty of Law, University of Delhi