The Future v. Amazon story so far

Aarna Law ADR Update/I/03

The Future v. Amazon story so far –

06/03/2021

Seeking Answers on the Validity and Enforcement of Emergency Arbitrations in Indian-Seated arbitrations

The Jeff Bezos led US e-commerce giant, Amazon.com Inc (“Amazon”), is currently involved in a legal tussle with two renowned Indian entities, Future Retail Limited (“FRL”) and Reliance Retail Limited, before the Indian courts. The court proceedings succeed a Singapore International Arbitration Centre (SIAC) administered Emergency Arbitration invoked by Amazon which has resulted into an Emergency Arbitration Order (“EA Order”). The EA Order directs FRL, Future Coupons Private Limited (“FCPL”) and three other promoters of the Future Group to temporarily refrain from proceeding with a transaction FRL had entered with Reliance Retail Limited (a subsidiary of Reliance Industries Limited). The transaction relates to the sale of FRL’s assets worth US$ 3.4 Billion to Reliance Retail. Amazon is now seeking to impede the transaction by claiming that the EA Order is enforceable against FRL. On the other hand, FRL claims that the EA Order is not binding on it and has accordingly approached the Delhi High Court to restrain Amazon from interfering with the transaction. Presently, there are proceedings that are ongoing before the Delhi High Court and the Supreme Court of India in respect to the dispute. All proceedings relate to the issue of validity and enforcement of the EA Order and this alert provides an overview of the developments that have transpired so far.

The Emergency Arbitration:

Owing to the COVID-19 pandemic and corresponding lockdowns imposed in India, FRL’s financial condition rapidly deteriorated resulting in it being indebted to multiple creditors. To avoid the prospect of liquidation, FRL entered into a transaction with Reliance Retail Limited in August 2020 that would facilitate the sale of FRL’s assets (including the supermarket chain Big Bazaar and clothes store Brand Factory) to Reliance Retail Limited.

Amazon had entered into a Shareholding Agreement with FCPL and three other promoters of the Future Group in August 2019 (“FCPL SHA”). The FCPL SHA effected the acquisition of a 49% stake in FCPL by Amazon along with the right to buy into the retail assets of FRL after a few years. It is the contention of Amazon that the transaction between FRL and Reliance Retail violates Amazon’s contractual rights under the FCPL SHA. Amazon claims that if FRL proceeds with the transaction, the latter will be violating a non-compete clause in the FCPL SHA. It is said that the non-compete clause explicitly names fifteen global and Indian firms, including Reliance Industries Limited, that are

strictly restricted from buying shares or stake in FCPL (known as “Restricted Persons”).

On 5 October 2020, Amazon commenced arbitration proceedings pursuant to the arbitration clause inserted in the FCPL SHA. Amazon also filed an application for emergency interim relief under Article

30.2 of the SIAC Rules and in accordance with the procedure set forth in Schedule 1 of the Rules to temporarily restrain FRL from proceeding with the transaction. On the same day, SIAC appointed Mr.

V.K Rajah as the emergency arbitrator to decide on the emergency interim relief sought by Amazon.

On 25 October 2020, the Emergency Arbitrator passed the EA Order directing FRL, FCPL and the other promoters of Future Group to:

  1. refrain from taking any steps in furtherance of the Board Resolution made by the Board of Directors of FRL on 29 August 2020 in relation to the transaction entered with Reliance Industries, including filing any application before regulatory bodies or agencies in India, or requesting for approval at company meetings;
  2. refrain from taking any steps to conclude the transaction with entities that are part of the Mukesh Dhirubhai Ambani Group;
  3. refrain from directly or indirectly taking any steps to transfer FRL’s retail assets or the

shares held in FRL by the promoters in any manner without the consent of Amazon; and

  1. refrain from issuing securities of FRL or securing any financing, directly or indirectly, from any Restricted Person.

Injunction Suit filed by FRL:

Having received the EA Order in its favor, Amazon approached the Bombay Stock Exchange, the National stock Exchange, the Stock Exchange Board of India (SEBI), etc., to obstruct approvals being granted to FRL and Reliance Retail to proceed with their transaction. Consequently, on 19 November 2020, FRL filed a suit1 before the Delhi High Court seeking an injunction against Amazon from interfering with the transaction on the pretext that the EA Order is not binding on FRL.

FRL also filed an interim application1 along with the suit to seek immediate action from the court to restrain Amazon from interfering with the transaction. FRL contended that:

  1. the EA Order is without jurisdiction and invalid as the Emergency Arbitrator lacked legal status under the Arbitration and Conciliation Act
  2. Section 17 of the Act provides that during arbitral proceedings a party may only apply to an Arbitral Tribunal for interim reliefs and prior to the constitution of the tribunal the only remedy available to a party is seeking interim relief from the court under Section 9 of the Act;
  3. the SIAC Rules are merely procedural in nature and cannot provide a substantive jurisdiction to a forum to grant interim relief other than what is mandated under Part-I of the Act since the seat of arbitration is in India (New Delhi); and
  4. The arbitration has been invoked by Amazon in terms of the arbitration agreement in the FCPL SHA to which FRL is not a signatory.

In response, Amazon contended that:

  1. FRL has not seriously questioned the Emergency Arbitrator’s finding about the applicability of the ‘Group of Companies Doctrine’, and the theory of implied consent, in the proceedings;
  2. the principle of ‘party autonomy’ entitles Amazon to seek emergency relief under the SIAC Rules and such choice is enforceable under the Act as SIAC Rules have been incorporated in the arbitration agreement;
  3. under the SIAC Rules, the Emergency Arbitrator occupies the position of and functions as an arbitrator till the Arbitral Tribunal is fully constituted;
  4. There is nothing in the Act which prohibits, disempowers or nullifies proceedings before an Emergency Arbitrator; and
  5. the emergency arbitrator derives his jurisdiction from the arbitration agreement in the FCPL SHA which incorporates the SIAC Rules and under Rule 30.2 of the SIAC Rules parties are entitled to seek emergency interim relief.

On 21 December 2020, after considering the parties’ contentions, the Delhi High Court passed a 132- page Order on the interim application. The Single Judge Bench of the Delhi High Court, presided by Mukta Gupta, J., arrived at the view that the Emergency Arbitrator does not lack jurisdiction and that the EA Order is valid and binding on FRL. The Court arrived at such a conclusion by finding that:

  1. Parties in an international commercial arbitration seated in India can by agreement derogate from the provisions of Section 9 of the Act;
  2. Where parties have chosen a procedural law which is different from the law governing the arbitration, the court would look at the procedural law for conduct of the arbitration to the extent that it does not contradict the public policy or mandatory requirements of the law of the country where the arbitration is seated (in this case, India);
  3. Since the provisions of Section 9 of the Act can be derogated by parties’ agreement in an international arbitration seated in India, it cannot be said that conducting an Emergency Arbitration under the SIAC Rules is contrary to mandatory provisions of the Act.

The Order is currently under appeal1 before a Division Bench of the Delhi High Court, presided by Hon’ble Justice DN Patel and Hon’ble Justice Jyoti Singh. The appeal is scheduled to be heard next on 18 March 2021.

Enforcement Petition filed by Amazon:

On 27 January 2021, Amazon filed a petition1 under Section 17(2) of the Act before a Single Judge Bench of the Delhi High Court, presided by Hon’ble Justice J.R. Midha, seeking enforcement of the EA Order.

On 2 February 2021, the Single Judge Bench, while reserving the final order in the Petition, arrived at the following preliminary conclusions:

  1. The Emergency Arbitrator is an arbitrator under the Act and has rightly proceeded against FRL;
  2. The EA Order is not a nullity;
  3. The EA Order is an order under Section 17(1) of the Act and hence is appealable under Section 37 of the Act; and
  4. The EA Order is enforceable as an order of the court under Section 17(2) of the Act.

Consequently, the Judge directed FRL and Reliance Retail to maintain status quo until the pronouncement of the reserved Order and not to proceed with the deal.

Appeal by FRL:

Aggrieved by the status quo order dated 2 February 2021, FRL preferred an Appeal before a Division Bench of the Delhi High Court against the order. On 8 February 2021, the Division Bench issued an interim order staying the operation, implementation and execution of the status quo order. The following are the reasons included in the Division Bench order:

  1. FRL is not a party to the FCPL SHA;
  2. Amazon is not party to the agreement between FRL and Reliance Retail;
  3. all the agreements are different and therefore, ‘Group of Companies Doctrine’ cannot be

invoked by Amazon;

  1. the prima facie reading of the FCPL SHA suggests that Amazon had no intent to exercise control over FRL and thus there was no reason to seek a status quo order before the Single Judge; and
  2. statutory authorities, like SEBI, NCLT etc., should not be restrained from proceeding in accordance with law.

Unhappy with the findings of the Division Bench of the Delhi High Court, Amazon has now filed a Special Leave Petition before the Supreme Court of India challenging the interim order dated 8 February 2021 passed by the Division Bench of the Delhi High Court. The SLP was first heard on 22 February 2021 and is now expected to be further heard in the third week of March 2021.

Team Aarna Law’s Comments:

While being similar to a regular arbitral proceeding, in an Emergency Arbitration, the relief granted to a party is “urgent” and the same is sought by the party to cater the needs of the moment. The relief granted may not be final. An Emergency Arbitrator is appointed by an arbitral institution if its arbitration rules provide so and when the requesting party can successfully urge that it cannot wait until the constitution of the arbitral tribunal in the main arbitration for the relief to be granted.

The ongoing court proceedings between FRL and Amazon raise important questions on the validity and enforcement of an emergency arbitration in an India-seated arbitration. In none of the previous Indian cases that dealt with a similar question were the arbitrations seated in India. For instance, in Avitel Post Studioz Ltd & Ors v. HSBC Pi Holdings (Mauritius) Ltd, 2014 SCC OnLine Bom 929, the Bombay High Court had to consider the enforceability of an interim award issued by an emergency arbitrator, appointed by SIAC, for an arbitration seated in Singapore. Acknowledging the existence of the emergency award, the Bombay High Court passed an interim order along similar lines.

Similarly, in Raffles Design International India Pvt. Ltd.& Anr. v. Educomp Professional Education Ltd.& Ors, 4 (2016) 234 DLT 34, the Delhi High Court dealt with the question of enforceability of an emergency award passed by an Emergency Arbitrator in an arbitration that was seated in Singapore. The Delhi High Court in that case held that an emergency award cannot be enforced under the Act and that the only way of enforcing it would be by filing a suit.

Last year, in the case of Ashwani Minda and Anr. v. U-Shin Ltd. & Anr., 2020 SCC Online Del 1648, the Delhi Court dismissed an application for ‘interim relief’ sought as per under Section 9 of the Arbitration and Conciliation Act, 1996 by a party to a Japan-seated arbitration, following the party’s failure to obtain similar relief from an emergency arbitrator. The Court was of the view that since the party had already attempted to seek remedy from the emergency arbitrator, it cannot be permitted to “have a second bite at the cherry” by filing a Section 9 application before the Court.

Considering the existing jurisprudence on the matter, it would be interesting to see how the Delhi High Court and the Supreme Court would deal with it in the ongoing proceedings. Our alerts will keep you posted on future developments.

Decided on 26 July 2021| Supreme Court of India Whether an interest free term loan

India has been synonymous with its arts in various forms. From the time of our