Stuck in the grid lock of a giant dispute making headlines everyday, Amazon, Future Group and Reliance drag their fight all the way to the Supreme Court of India. The dispute comprises a challenge to the retail asset sale worth USD 3.38 billion to Reliance by Future Group. The e-commerce giant Amazon has based its contention on the ground that the disputed transaction is in contravention to the shareholders agreement (SHA) entered into between Amazon and the promoters of the Future Group. However, Future Group has blatantly denied any wrongdoing and has, in fact, accused Amazon of unlawfully interfering with the transaction without any valid grounds.
The emergency arbitrator appointed under the emergency arbitration provisions envisaged by the Rules of the Singapore International Arbitration Centre (SIAC) put on hold the billion dollar transaction, being an interim win for Amazon. In other words, Amazon received an “emergency order” that halted the two companies from proceeding with the transaction until the Arbitral Tribunal was finally constituted (EA Order). The issue that arises in the Indian domain is about the enforceability of this “EA Order” taking into consideration that the current framework of the Arbitration and Conciliation Act, 1996 (the Act) does not specifically recognise the legitimacy of the interim orders passed by emergency arbitrators.
- The substance of the dispute
As per the provision of the SHA between Amazon and Future Coupons, Amazon is to acquire 49% of its share capital. The said agreement also contains a list of “restricted persons”, enumerating certain entities with whom Future Group was not permitted to enter into any agreement with. In spite of these underlying provisions, Future Group entered into a transaction selling certain assets to Reliance, which is a part of Mukesh Dhirubhai Ambani Group, in order to save itself from becoming insolvent. It is also important to note through this acquisition, Reliance aims to acquire not only Future Group’s Retail assets but also its liabilities amounting to approximately Rs 12,801 crores. In addition to this, Reliance has also agreed to invest a sum of Rs 2800 crores into the merged entity which, besides others, will be used to pay Future Group’s residual liabilities. Therefore it is evident that this transaction will avert Future Group’s insolvency and in the event the transaction fails, Future Group will undoubtedly go into liquidation.
It is Amazon’s contention that Future Group is in violation of the provisions of the SHA by entering into a sale transaction with Reliance, as Reliance falls under the category of restricted persons enumerated in the agreement. Future Group’s contention is that in fact it is Amazon that stands in violation of Foreign Exchange Management Act (FEMA)-Foreign Direct Investment (FDI) Rules. Reading the conflation of agreements between Amazon and Future Group, Future Group contended that besides, Amazon, creating protective rights it is transgressing into controlling Future Retail, which in fact requires prior approvals of the Government. Without such approvals Amazon would be in violation of FEMA-FDI Rules.
- Arguments put forth by Future Group and Reliance
Future’s case is that they are not seeking an anti-suit or an anti-arbitration injunction, but are only seeking a direction from the courts injuncting Amazon from unlawfully interfering with the transaction that is being processed between Future Group and Reliance. The primary grievance of Future Group is with the findings in EA Order and the interim directions passed therein. Future Group is not seeking a declaration as to the invalidity of the EA Order on the merits of the dispute but only questions the legal status of the emergency arbitrator and the EA Order under the current arbitration framework in India.
As per Future Group and Reliance, Amazon’s entire defence in the proceedings is premised on the binding nature of the EA Order. It has been put forth that under the SIAC Rules, based upon which the EA Order has been passed, are merely procedural in nature and cannot provide for substantive jurisdiction to a forum to grant interim reliefs other than what is mandated under Part I of the Act, specifically under Sections 9 and 17. In other words, the argument is based on the premise that the EA Order is null and void in law and incapable of enforcement under Part I of the Act and therefore, the proceedings before the emergency arbitrator are void as it is coram non judice.
- Arguments put forth by Amazon
Amazon in a strong rebuttal to the averments made by Future Group and Reliance contended that the suit filed before the Delhi High Court was against the due process of law and was an abuse of court process. Amazon further went on to highlight the conduct of Future and Reliance as they participated in the arbitration proceedings before SIAC and also appeared before the emergency arbitrator whilst making many similar submissions as the ones averred by them in present suit. It was also Amazon’s contention that the Future Group was wrongly trying to convince the Court that the EA Order was null and void and the said order was not within the current framework of the Act. Amazon to further fortify their arguments stated that they have exercised their right to party autonomy embodied in Section 2(8) of the Act and that therefore their choice to seek emergency relief before the SIAC was valid under Indian law.
Amazon also relied on Section 2(1)(d) of the Act which defines Arbitral Tribunal to mean “a sole arbitrator or a panel of arbitrators” to support its contention that the emergency arbitrator envisaged by the SIAC Rules is a Arbitral Tribunal for the purposes of the Act. Therefore from a conjoint reading of Sections 2(8) and 2(1)(d) of the Act an Arbitral Tribunal could validly comprise an emergency arbitrator. Lastly, Amazon brought to attention of the court to the SIAC Rules as under these rules an emergency arbitrator occupied the position of and has the functions of an arbitrator till the Arbitral Tribunal has been fully constituted. In accordance with the aforesaid proposition, the proceedings before the emergency arbitrator are valid under Indian law and the EA Order constitutes as interim measure under Section 17(1) of the Act and an order of the court under Section 17(2) of the Act.
- Developments at the Delhi High Court and the Supreme Court of India
Future being dissatisfied with the findings of the emergency arbitrator was quick to pursue an alternative tactic to restrain Amazon from interfering with their transaction with Reliance. Future Group filed a suit before the Delhi High Court praying for inter alia a direction from the Court to Amazon injuncting them from unlawfully interfering with the transaction. The learned Single Judge Bench was to decide on the maintainability of the suit in the light of the pending arbitration proceedings before the SIAC. The Court in its order dated 21-12-2020 after recording an extensive legal proposition was quick to deliver its opinion and held that the suit filed by Future was in fact maintainable before it. However, to the dismay of Future the Court held that they were not entitled any injunctive relief as sought for by way of the suit. The Court reasoned by observing that Future had put similar contentions before the various statutory and regulatory bodies and that these bodies should continue to proceed in accordance with law.
The decision of the Delhi High Court was undoubtedly a partial win for Amazon although the developments before the Securities and Exchange Board of India (SEBI), Competition Commission of India (CCI) and National Company Law Tribunal (NCLT) were moving swiftly. Aggrieved by these parallel developments taking place before the regulatory bodies, Amazon was quick to pursue another dilatory tactic to hamper the transaction and thereby filed an application under Section 17(2) of the Act for the enforcement of the EA Order. The learned Single Judge through its order dated 2-2-2021 delivered an opinion upholding the legitimacy of the EA Order and thereby recognised the EA Order as a valid order under Section 17(1) of the Act and held that the same was enforceable under Section 17(2) of the Act. The learned Single Judge reserved its reasoned order for a later date and meanwhile directed that status quo is to be maintained with respect to the disputed transaction. It is evident that this was a huge win for Amazon.
Future being aggrieved by this order, rather high-handedly filed an appeal against it before the Division Bench. The Division Bench passed its order dated 8-2-2021 through which the Court directed a stay on the implementation of the status quo order passed by the learned Single Judge. The Division Bench in its reasoning stated that they do not see why the statutory bodies like NCLT, CCI and SEBI should be restrained from doing their statutory duty and proceeding in accordance with law. It is in our opinion that there appears to be lack of regard for the process of the Court, as the decision of the learned Single Judge was appealed even before the detailed order could be passed. It is also safe to conclude that the Division Bench has erred in taking cognizance of the fact that the impugned order did not exist in finality and hence may not have been ready for examination by the Appellate Bench.
As expected, Amazon being tremendously dissatisfied with the order dated 8-2-2021 of the Division Bench invoked its constitutional remedy by filing a special leave petition (SLP) before the Supreme Court of India. On 22-2-2021, the Supreme Court vehemently refused to comment on the merits of the disputed transaction and thereby directed the parties to file rejoinders in two weeks after which the matter would be heard. However in the interim, the Supreme Court allowed the NCLT to continue assessing the merger but stated that it should not come to a final decision on the sanction of schemes.
It is interesting to note at this juncture that the decision of the learned Single Judge of the Delhi High Court was passed on 18-3-2021. In a seminal judgment delivered by Midha, J., the Court has upheld the legitimacy of the emergency arbitrator under the Act. The Court also recognised the EA Order as an order under Section 17(1) of the Act. The judgment has extensively elucidated the Indian position on the group of companies doctrine and has reiterated the emergency arbitrator’s application of Indian law whilst appearing to be in overall consonance with the EA Order dated 25-10-2020.
There appears to be little enthusiasm on the part of the Indian courts in doing their duty towards upholding legitimate arbitral instruments. It is needless to say this approach might slow down India’s prospect towards becoming a popular seat for international arbitration. It is also true that the controversy regarding the applicability of Part I of the Act to arbitrations seated abroad has damaged the landscape for arbitration in India for the last decade.
Time and time again, the Indian courts have been reluctant to follow international comity in the field of international arbitration. The Indian courts have also seemed apprehensive to discharge India’s obligations under the 1958 New York Convention and have also erred in applying the essence of the 1985 UNCITRAL Model Law on International Commercial Arbitration. It is without doubt that international arbitration has become an institution that transcends legislative and judicial idiosyncrasies and is governed by internationally recognised principles of law.
The Amazon-Future-Reliance dispute appears to be one where the due process of law and the process of courts have been blatantly disregarded by those litigants that have deep pockets. A lot will have to be settled by the Supreme Court when the special leave petition is heard on its merits to foster the practice of institutional arbitration, instil confidence in the minds of the international business community and reiterate the importance of due process of law.
† Hiroo Advani, Senior Managing Partner at Advani & Co.
†† Kanika Arora, Senior Associate at Advani & Co.
††† Manav Nagpal and Surbhi Ahuja, Associates at Advani & Co.
Expert Talks session on the Amazon Future Dispute: