By Piyush Prasad, LL.M. Candidate, The University of Chicago Law School (Class of 2017)
A. The Problems in Cross-Border Arbitration Involving Indian Companies
Any cross-border investment involves financial and enforcement risks. Because of its speed, efficiency, and flexibility, arbitration is usually chosen as the dispute resolution method for cross-border transactions. However, the choice of arbitration does not eliminate reliance on courts. For example, a foreign company may require interim relief from local courts in an exigency. Moreover, for enforcement of awards or decisions, reliance on courts is necessary. These inequalities sometimes nullify the advantages of arbitration, especially in cross-border disputes when timely relief is critical.
This post briefly discusses the solutions to practical problems of cross-border arbitrations in the Indian context.
In cross-border disputes with Indian companies, where the agreement provides that the arbitration will take place outside India, foreign companies have typically faced two principle hurdles in the past:
(i) in an exigency, they were precluded from approaching Indian courts for interim relief, and
(ii) there was no mechanism for enforcing emergency awards in India.
To illustrate, a foreign company desiring to injunct an Indian company from enchasing a bank guarantee in India could either:
(i) obtain an interim order from a foreign court or arbitral tribunal and then file a civil suit in an Indian court to enforce the right created by the order; or
(ii) initiate contempt proceedings in the foreign court and enforce that judgment in an Indian court, if the Indian company failed to follow the interim order.
Considering the pace of adjudication in Indian courts, injuncting the encashment would be virtually impossible through the above methods. So, in a situation where an Indian company is likely to dissipate the subject matter of dispute in the near future, the foreign company lacked an efficacious remedy.
B. India’s Response to Cross-Border Arbitration Problems
Recognizing the problems faced by international investors, the Indian Prime Minister, Mr. Narendra Modi recently declared the government’s commitment to the creation of “quality arbitration mechanisms” to promote “ease of doing business…”
The government amended the Indian Arbitration Act (“Amended Arbitration Act”) to enable foreign companies to approach Indian courts seeking protective interim relief, when the arbitration is seated outside India. Moreover, a new legislation created special commercial courts to exclusively hear disputes relating to cross-border arbitrations in a timely fashion. Now, a foreign company can approach Indian courts to restrain bank guarantee encashments.
Time is of the essence, not just in performing the terms of a contract but also in dispute resolution. To finally decide a dispute, an arbitral tribunal may take months. But, when bank guarantee encashment is imminent, a party cannot wait and requires emergency relief.
In addition to approaching Indian courts, arbitral tribunals can also provide emergency relief. The advantage is that an arbitral tribunal can conduct hearings through audio-video conferencing (even on holidays) and orders can be communicated through emails. However, enforcing the resulting emergency award in India remains a challenge.
The well-intentioned amendments enabled recourse to Indian courts in exigencies. However, they overlooked to provide for enforcement of emergency arbitration awards made in arbitration proceedings outside India. Remediless, a foreign company was forced to approach Indian courts as described in section A above. Not anymore. The Delhi High Court in Raffles Design International v. Educomp Professional Education Limited recognized a foreign company’s right to approach an Indian court to seek interim relief to aid in the enforcement of an emergency award.
C. Judgment in Raffles
In Raffles, the dispute concerned a share purchase agreement between Singaporean and Indian companies. The Singaporean company obtained an emergency award against the Indian company from a Singaporean tribunal. It approached the Singapore High Court for enforcement of the emergency award in Singapore. Because the Indian company was not following the terms of the emergency award, the Singaporean company applied for interim relief in India under the Amended Arbitration Act. The Indian company challenged the application contending, among others, that: (a) the emergency award could not be enforced in India under interim relief proceedings, and (b) the Singaporean company was precluded from seeking relief already granted by the arbitral tribunal. Rejecting the challenge, the Delhi High Court held that:
…a party seeking interim measures cannot be precluded from doing so only for the reason that it had obtained a similar order from an arbitral tribunal…Recourse to Section 9 [interim reliefs] of the [Arbitration] Act is not available for the purpose of enforcing the orders of the arbitral tribunal; but that does not mean the Court cannot independently apply its mind and grant interim relief in cases where it is warranted.
The Court referred to Article 17 I (2) of the UNCITRAL Model Law to draw its power to grant interim reliefs to aid in the enforcement of emergency awards.
This decision brings Indian arbitration law in line with global arbitration standards. The interim protection provisions and emergency arbitration proceedings are designed to meet the goals of the global business environment. The Amended Arbitration Act is a step in the right direction. However, it was not enough because it did not provide for enforcement of emergency awards in India. The decision in Raffles fills this void. Raffles, together with the Amended Arbitration Act has removed the past two hurdles of cross-border arbitrations in India.
If this issue comes up for consideration before the Indian Supreme Court or other high courts, it is hoped that Raffles will be followed. This will assuage the concerns of the international business community interested in investing in India.