Recently, the announcement in relation to Reliance Group buying out Future Group made headlines, which gave birth to the feud between Amazon Group and Future Group. The transaction of Reliance Group buying out Future Group is under this high profile dispute.
Details of the same are as under:
Facts of the case:
Amazon.com NV Investment Holdings LLC (‘Amazon’) had invested INR 14.31bn in the retail business of Future Retail Limited (‘FRL’) through FRL’s promoter group company, viz. Future Coupons Private Ltd (‘FCPL’). Following agreements were executed between the respective parties:
- Agreement 1/ FRL SHA : Shareholders’ Agreement dated August 12, 2019 between FCPL, FRL and the Promoters;
- Agreement 2/ FCPL SHA : Shareholders’ Agreement dated August 22, 2019 between Amazon, FCPL and the Promoters; and
- Agreement 3/ FCPL SSA : Share Subscription Agreement dated August 22, 2019 between Amazon, FCPL and the Promoters.
The investment was made based on certain special, material protective/negative rights available to FCPL in FRL which inter-alia stated in Agreement 1, that the retail business of FRL would not be alienated without Amazon’s prior written consent, and also, never to a ‘Restricted Person’ as defined in the agreement between Amazon and FCPL (as below). Further, in Agreement 2, FCPL, FRL and their promoters (‘Promoters’) agreed that FRL would remain the sole vehicle for conduct of its retail business.
On August 29, 2020, management of FRL approved a transaction relating to the transfer of its retails business Reliance Group Companies (‘Divestment Transaction’). The transfer of retail business was proposed to take place by way of Amalgamation of FRL into other Future Group company, viz. Future Enterprise Ltd (‘FEL’) and FEL would ultimately transfer retail business to Reliance Group.
By virtue of the proposed Divestment Transaction, Future Group not only violated condition of obtaining prior written consent from Amazon but also violated condition of alienating retail business to Restricted Person viz. Mukesh Ambani, Chairperson of Reliance Group.
Legal action by Amazon:
Aggrieved by the violation from Future Group, on October 5, 2020,
- Amazon alleged that the Divestment Transaction was void and illegal for having violated dual conditions and thus initiated arbitration proceedings against FCPL, FRL and their promoters on the basis of Arbitration agreement contained in clause 25.2.1 as mentioned in FCPL SHA.
- Further, Amazon also filed an application seeking emergency interim relief under SIAC Rules for restraining FCPL and FRL from pursuing the Divestment Transaction, pursuant to which SIAC appointed Emergency Arbitrator (‘EA’).
Clause 25.2.1 provided that (i) the agreement would be governed by and construed in accordance with Indian Laws; (ii) Courts at New Delhi shall have exclusive jurisdiction; (iii) seat of arbitration shall be at New Delhi; and (iv) the dispute would be resolved in accordance with the SIAC Rules.
On October 6, 2020, FRL raised an objection to the jurisdiction of the EA, to the effect that (a) in the absence of arbitration agreement between Amazon and FRL, no arbitration proceedings can be initiated; (b) Part I of the A&C Act does not contemplate a remedy before an emergency arbitrator; (c) the appointment of the EA was invalid; (d) any order granted by the EA would not have any force of law under the A&C Act; and (e) ‘Arbitral Tribunal’ defined in section 2(1)(d) of the A&C Act does not include an emergency arbitrator.
On October 25, 2020, EA passed an interim order holding that the EA is an arbitral tribunal for all intents and purposes and that the EA are recognised under the Indian arbitration framework. The EA noted that a party to an arbitration agreement defined in section 2(1)(h) of the A&C Act need not be a signatory to the arbitration agreement. Relying on the three decisions of the Indian Supreme Court (Chloro Control India Private Ltd v Severn Trent Water Purification Inc (2013) 1 SCC 641; Cheran Properties Ltd v Kasturi and Sons Ltd, (2018) 16 SCC 413 and MTNL v Canara Bank, (2020) 12 SCC 767), the EA recorded a prima facie satisfaction that FRL was a proper party to the arbitration, on the ground that there was cogent commonality, intimate interconnectivity and undeniable indivisibility between the FRL SHA and the FCPL SHA.
On January 5, 2021, the SIAC constituted the arbitral tribunal. Later, on January 25, 2021, Amazon filed a petition under section 17 of the A&C Act read with Rule 2A and section 151 of Code of Civil Procedure, 1908 (CPC), for the enforcement of the Emergency Award.
Legal action by FRL:
Filling of Civil Suit by FRL:
Pursuant to the Emergency Award, FRL had filed a civil suit before a single judge of the Delhi High Court in November 2020, praying for permanent injunction against Amazon from unlawfully interfering with the performance of the Divestment Transaction (‘Civil Suit’). FRL also prayed for a permanent injunction against Amazon from taking any steps to prevent FRL from taking statutory and regulatory approvals for the Divestment Transaction.
In the order dated December 21, 2021, Observing that the provision of emergency arbitration under the SIAC rules are not, per se, contrary to any provision of the A&C Act, the single judge affirmed the validity of an emergency award within the Indian arbitration framework vide its order no. MANU/DE/2274/2020 (Delhi High Court, 2020). Reliance was placed on the decision of the Supreme Court in NTPC v Singer, AIR 1993 SC 998. It was observed that FRL had established a prima facie case for tortuous interference against Amazon. However, it was held that Amazon cannot be restrained from representing its case before statutory and/or regulatory authorities in respect of the Divestment Transaction.
The Delhi HC formulated the following issues and concluded as under:
Whether an emergency arbitrator is an arbitrator under the A&C Act, and whether the Emergency Award is an order under section 17(1) enforceable under section 17(2) of the A&C Act?
The Delhi HC held that the SIAC Rules would be binding on the parties to the arbitration agreement, by virtue of sections 2(6), 2(8) and 19(2) of the A&C Act. The Delhi HC observed that an emergency arbitrator is an arbitrator for all intents and purposes under section 2(1)(d) of the A&C Act. The Delhi HC observed that the current legal framework is sufficient to recognise emergency arbitration and noted that an emergency arbitration, arising strictly out of the principle of party autonomy, is a very effective and expeditious mechanism to deal with an emergency interim relief application. It was emphasised that if the order of an emergency arbitrator is not enforced, it would make the entire mechanism of emergency arbitration redundant.
Accordingly, it is clear from the decision of the Delhi HC the court held that an emergency award / order granted by an arbitral tribunal is enforceable as a court order under section 17(2) of the A&C Act.
Whether the EA misapplied the Group of Companies doctrine to bind FRL to the arbitration agreement between FCPL and Amazon?
On the issue of binding FRL to the arbitration agreement between FCPL and Amazon, the Delhi HC applied the Group of Companies Doctrine and held that the FRL was bound by the arbitration agreement between FCPL and Amazon as it fulfilled the following tests, expounded in several decisions of the Supreme Court:
- the conduct of the parties reflects a clear intention of the parties to bind both the signatory as well as the non-signatory parties. Further, they share common intention and continuously engaged in the negotiation or performance of the contract;
- 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;
- In the absence of the aid, execution and performance of the supplementary or ancillary agreement, performance of the main agreement may not be feasible for achieving the common object;
- The group structure designed with strong organizational and financial links so as to constitute a single economic unit or a single economic reality. The funds of one company are used to financially support or restructure other members of the group;
- the composite reference of disputes of fresh parties would serve the ends of justice.
The court considered the Emergency Arbitrator’s ruling alongside the following factual grounds, and held that FRL was a proper party in the SIAC Arbitration. The grounds considered by the court are as follows:
- FCPL and FRL belong to the Future Group of Companies and the conduct of the parties reflects clear intention to bind FRL;
- simultaneous discussions and negotiations of the Agreements and common negotiating and legal team represented FCPL and FRL;
- direct relationship of the FRL to FCPL, direct commonality of the subject matter and composite nature of transaction between the parties. It is apparent that neither the FCPL SHA nor the FRL SHA would have been entered into without the others;
- the Agreements are so intrinsically intermingled that their composite performance only shall discharge the parties of their respective mutual obligations;
- FCPL’s funds have been used to financially support FRL;
- similar disputes resolution clause in both, FCPL SHA and the FRL SHA reflects common intention of all the parties, both signatory and non-signatory, to arbitrate;
- the composite reference of disputes of all the parties including non-signatory would serve the ends of justice.
Whether the Emergency Award is ‘nullity’ as alleged by FRL?
The Future Group Companies and its promoters had contended that if the Agreements are combined/treated as a single integrated transaction, the same would result in Amazon acquiring control over FRL which would result in violation of the Foreign Exchange Management Act, 1999 and the Foreign Exchange Management (Non Debt Instruments) Rules, 2019 (FEMA FDI Rules).
The Delhi HC observed that the EA had rightly held the Agreements to be in accordance with law as the protective rights did not amount to control of Amazon over FRL and did not violate any law. The Delhi HC also noted that the Respondents had not advanced any further pleadings on the law on ‘nullity’, the essential ingredients of law on ‘nullity’ and how the essential ingredients of the law on ‘nullity’ were satisfied in the present case. Accordingly, the Delhi HC held that the Emergency Interim Order was legal, valid and enforceable as an order of the court.
Order of Delhi High Court:
The Delhi HC allowed Amazon’s petition to enforce the Emergency Award as a court order. Further, the Delhi HC also read section 17(2) of the A&C Act read with Rule 2A of the CPC and made an order for attachment of assets of FRL, FCPL and promoters for disobedience of a court order. The Delhi HC further directed the respondents to file an affidavit of their assets as on the date of order.
FCPL preferred an appeal against the order of the single judge before a division bench of the Delhi HC. On 22 March 2021, the Division Bench stayed the order of single judge till the next date of hearing in the appeal. On the contrary, Amazon also filed an appeal before the Supreme Court of India against the order of the Division Bench dated 22 March 2021 for putting stay on the order of Delhi HC.
It would be interesting to read Supreme Court verdict on the appeal filed by Amazon.
