The case deals with the validity of the emergency arbitration award in India, and the legality of the transaction between Future Retail Limited and Reliance.
Date of Judgement:
21st December 2020
Justice Mukta Gupta
Petitioner: Future Retail Limited (FRL)
Respondent: Amazon.com NV Investment Holdings LLC & Ors. (Amazon)
Future Retail and Amazon got into a fall out following the former’s resolution to have dealings with Reliance Retail. The two adversaries had an agreement in 2019 which prohibits the Future Group from selling its retail assets to anyone stated on a “restricted persons” list which included Reliance. The Future Group, however, had a setback in business and the COVID-19 lockdown seemed to have worsened the same. Ostensibly, FRL had discussed and informed about its position to Amazon and the negotiable talks between them did not end up successfully. After due considerations, the Future Group decided to engage in dealings with the Ambani led Reliance Retail. The Amazon Group took the matter to Singapore International Arbitration Centre (SIAC) and the same had passed an interim order against the FRL. The American e-commerce giant also wrote to the Securities and Exchange Board of India (SEBI), the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) to restrain the dealing between FRL and Reliance Retail. Following this, the FRL filed a case in the Delhi High Court seeking its direction to restrict the interference of Amazon.
Facts of the Case
- Future Retails Ltd. is a listed company with around three lakhs shareholders, operating in more than 400 cities with 25,000 employees.
- However, over the last few years, FRL has been witnessing serious economic bane, and the COVID-19 pandemic further deteriorated its condition.
- After several unsuccessful negotiations, FRL decided to join hands with Reliance and the business giant agreed to acquire the retail and wholesale business alongwith the logistic and warehousing business from the Future Group for a consideration of Rs. 24, 713 crores.
- Through this transaction, it was submitted that Reliance will also acquire FRL’s liabilities of about Rs. 12, 801 crores, and that it also agreed to invest Rs. 2800 crores into the merged entity.
- This transaction, FRL speculated, would help in preventing the company from becoming insolvent.
- However, Amazon, which has a share if around 3.5% in FRL, approached various authorities seeking an injunction order to prevent the transaction from proceeding further. It also instituted arbitral proceedings against FRL.
- As a consequence, on 26th October 2020, the Emergence Arbitration order injuncted FRL from taking steps with respect to the disputed transaction further.
- Aggrieved by the EA Award, FRL approached the Delhi High Court and sought to restrict Amazon from interfering in its transaction with Reliance.
FRL's Submissions: Key Points
- The act of Amazon is illegal because by virtue of this, Amazon intends to create control over FRL, thereby violating the Foreign Exchange Management Act Rules, 2019 (FEMA Rules) as well as the provisions of the Companies Act, 2013.
- The act of Amazon, intending to prevent competition through its Schedule containing the list of “restricted persons”, would cause irreparable prejudice to FRL.
- The claim of FRL SHA, FCPL SHA and FCPL SSA being a Single Integrated Transaction and listing of Restricted Persons is fallacious and misleading.
- Since FRL is a public listed company, any private contract signed by the promoters will not be binding, and therefore, the approach of Amazon is void.
- The EA order is itself invalid because emergency arbitrator is not legally recognized in India, and therefore, it is not binding on parties.
- Amazon’s interference, therefore, is tortuous in nature.
Amazon’s Submissions: Key points
- FRL’s petition seeking injunction order is not proper because the statutory authorities have already been notified about the issues, who have taken cognizance of the case.
- Further, FRL also cannot oppose the EA Order as it had participated in the arbitration proceedings that commenced on 5th October 2020.
- The Award passed by EA is not invalid because under the Indian law, parties can agree to refer their matter to an emergency arbitrator by mutual agreement. Since, EA constitutes an Arbitral Tribunal; the Courts shall refrain from acting in accordance with Section 9(3) of the Arbitration and Conciliation Act.
- It was also submitted that the case is not maintainable on two grounds: i) the case was already heard by the emergency arbitrator; and ii) the EA Award cannot be challenged.
The Delhi High Court, after due consideration, concluded that the case gives rise to six issues:
- Whether the present suit is prima facie maintainable?
- Whether the Emergency Arbitrator lacks legal status under Part I of the A&C Act and thus coram non judice?
- Whether the resolution dated 29th August, 2020 of FRL is void or contrary to any statutory provision?
- Whether by conflation of the FRL SHA, FCPL SHA and FCPL SSA, Amazon seeks to exercise 'control' on FRL which is forbidden under the FEMA FDI Rules?
- Whether prima facie a case for tortious interference is made out by FRL?
- Whether FRL is entitled to an interim injunction?
- Arbitration and Conciliation Act (A&C Act), 1996: The Act is the principle law that governs the Alternate Dispute Resolution system in India. This Act, particularly, aims to cover domestic and international commercial arbitration and conciliation, and for its fair, effective and efficient arbitral procedure.
- Section 9 of A&C Act: This Section empowers the court to make orders for interim measures to provide interim relief to the parties. An application under Section 9 can be made at any time before, during or after the arbitral proceedings and even after the passing of the award but before its enforcement.
- Emergency Award: Emergency Award is an immediate relief for a considerable time to parties when there is no established Arbitrator Tribunal. This award can be treated as equivalent to an ‘interim order’ passed by any court. The main objective is to protect a party’s assets or evidence which the parties apprehend to get altered if they had to wait until the establishment of a tribunal.
The Order of the Delhi High Court Bench comprising Justice Mukta Gupta can be divided into six parts based on the issues raised.
- Maintainability of the suit: The Court held that the suit made by FRL is maintainable because the jurisdiction of the Court is not barred either expressly or impliedly to try the suit as per Section 9 of the Civil Procedure Code. The case being already covered by the EA would not make bar a court from entertaining the suit. Maintainability of the suit is based on cause of action. In this case, the proceedings before the EA and Delhi High Court are for different causes of action.
- Validity of the EA Award: The EA Award cannot be rendered as altogether invalid because the Arbitration law in India allows parties to choose a procedural law different from the proper law, and therefore, there is nothing in the Arbitration and Conciliation Act that prohibits parties from obtaining emergency relief from an emergency arbitrator. The Court made three conclusions with respect to this issue: I) the parties in an international commercial arbitration seated in India can depart from the provisions of Section 9 of the A&C Act by mutual agreement; II) While dealing with such a case, the court is inclined to look at that law to the extent that it doesn’t contradict the mandatory requirements of the Indian law of Arbitration, and also see to it that the same is not against public policy; and III) When interpreting the SIAC rules of emergency arbitration, it cannot be said that the same is against the Indian Arbitration Law, and therefore, the EA Award passed in this case, is not invalid.
- Validity of the resolution: The main contention of Amazon, in this regard, is that FCPL had not consented to the resolution. However, FRL submitted the letter dated 29th signed on behalf of both FRL and FCPL wherein FCPL had granted its approval for the dealing between FRL and Reliance. In terms of Articles of Association, FRL is bound only by its AOA and not by that of FCPL. Therefore, the Court held that the Board Resolution is not contrary to any statutory provision nor it is against FRL's Articles of Association. Therefore, the resolution cannot be ruled as void.
- Whether conflation of the FRL SHA, FCPL SHA and FCPL SSA amounts to ‘control’ of Amazon on FRL: The Court held that the conflation of FRL SHA, FCPL SHA and FCPL SSA does amount to 'control' over FRL. It opined that the rights conferred upon Amazon by such conflation is disproportionate to the actual shareholding of Amazon, and such rights cannot be claimed as mere protective rights so as to fall beyond the test of “control”.
- Tortuous Interference: The Bench opined that Amazon's interference on the basis would amount to a civil wrong committed against FRL and Reliance, because Amazon’s acts would hinder the freedom of both FRL and Reliance. This, in turn, will result in a loss to both the companies, which is actionable.
- Interim Injunction: There are three principles involved for granting an order of interim Injunction: prima facie case, balance of convenience, and irreparable loss. The first principle is present in this case, that is, when going through the order of this Court in the previous issues, it is clear that FRL has made a prima facie case. However, according to the Court, the balance of convenience lies in favour of both the parties, and not just FRL. Similarly, with the interference of Amazon, there will not be any irreparable loss to FRL. The matter is placed before the statutory authorities and Amazon has no role in deciding the conclusion for this case. Similarly, it is these authorities which have the cognizance to move forward with the issue since both the parties have already made their representations. Therefore, the Court is not in a position to grant interim injunction in favour of FRL.
- There is no due acknowledgement of the concept of emergency arbitration award in Indian law.
- The Arbitration and Conciliation Act of 1996, which is the principle Act that governs the laws regarding arbitration, does not recognise the term within its provisions.
- In spite of the recommendations by the Law Commission in its 246th Report, our country did not include ‘emergency award’ within the ambit of the word ‘award’ defined under Section 2(c) of the Act.
- It also did not recognise ‘emergency arbitrator’ under Section 2 (d) that defines an ‘arbitration tribunal’.
- At present, the only Section that deals with the concept of emergency awards is Section 9 of the said Act.
- In several suits including HSBC PI Holdings (Mauritius) Limited v. Avitel Post Studioz Ltd, Ashwani Minda v. U-Shin Ltd. and Raffles Design International India Pvt. Ltd. V. Educomp Professional Education, courts have held that an emergency award granted by a foreign tribunal is not enforceable by itself and a suit for its enforcement is necessary.
- However, the Delhi High Court’s order in the present case that emergency awards could not be termed as altogether invalid manifests the legal fraternity’s recognition of the concept.
- While other observations reveal the depth of the Single Judge’s analysis of the case, the judgement provides partial relief to both the parties.
- The Court’s opinions, with respect to issues 1, 3, 4, and 5 are in support of FRL, whereas for issues 2 and 6, the Court gave Amazon a relief.
- It cannot be interpreted as to which of the parties have gained more or lost more.
- Both the parties have reasons to appeal the decision.
- Similarly, they have also got some sort of relief measures.
The Court passed its verdict in each issue in detail. To summarise, it held the FRL’s petition as maintainable and the emergency arbitral award as valid. It further observed that the acts of Amazon would amount to tortuous interference, and the same would mean control over FRL, which is contrary to the FEMA. It also held that the board resolution concerning the transaction between FRL and Reliance to be valid, but did not favourFRL’s plea of granting interim injunction against Amazon. It stated that the same is to be decided by the statutory authorities before whom the matter has been already placed.
The intensity of the case makes us realise one thing, that the Arbitration and Conciliation Act is not drafted strictly, to the point. There are some ambiguous provisions within it which is leading to disputes between the parties. The parties’ right to choose their own dispute resolution forum is encouraging because this can lead them to approach a neutral place of arbitration. This will certainly help parties to escape from unnecessary bias and prejudice. For example, FRL and Reliance, both being Indian firms, can presumably have more influence in India which can infringe the rights of Amazon. Therefore, SIAC seems to be good platform for addressing the issue. However, the real issue is with the enforcement of award passed by SIAC’s emergency arbitrator. The Delhi High Court’s order validating the EA Award comes as a relief as it indicates that such an award is enforceable by the Indian courts.
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