Future Retail Ltd Vs Amazon: A Long Legal Battle Explained

KEY TAKEAWAYS

• The Arbitration and Conciliation Act of 1996 is the chief law governing the principles of arbitration and conciliation in India.
• Some of the provisions within the act have ambiguous meanings due to which Courts are passing different opinions.
• The battle between FRL and Amazon is one landmark case which is pending for almost 3-4 years due to the complications therein.
• The Article looks into the details of the case and the different views of the Judiciary in this regard.

INTRODUCTION

Law, in general, encourages disputed parties to resolve their issues without approaching the Court. This can be done either by mutual agreement or by negotiation or mediation. When such a settlement is done with the formalities of a judicial adjudication, it can be termed as “Arbitration”. Arbitration means the acceptance of the parties to submit their dispute to the judgement of a third person, where such third person is known as “Arbitrator”. The Arbitration and Conciliation Act of 1996 is the law that governs Arbitration and Conciliation proceedings in India. It intends to cover both domestic and international commercial arbitration and conciliation. Arbitral Award has been defined in Section 2(1)(c) of the Act as an Arbitral Award that would also include an interim award. Section 31 of the Act gives a detailed description of the Arbitral Award passed by an Arbitrator.

Place of Arbitration

Section 2(2) of the Act says that Part I of the act applies where the place of arbitration is in India. The Section was amended in 2015 whereby a proviso was added that stated that the provisions of Section 9, 27, and 37(1)(a) and (3) would apply to international commercial arbitration even if the place of arbitration is outside India.There are three sets of rules that are applicable to an Arbitration, namely, proper law of contract, proper law of arbitration agreement (lexarbitri), and proper law of conduct of arbitration (lexfori/curial law). In Yograj Infrastructure Ltd vs. Ssang Yong Engg and Construction Co Ltd (2011), the Supreme Court held that when parties, by mutual consent, agree to conduct arbitration proceedings according to the Singapore International Arbitration Centre Rules (SIAC Rules), then the SIAC Rules would be lexfori or curial law of arbitration proceedings.

CONCEPT OF INTERIM INJUNCTION UNDER SECTION 9

Courts are empowered to issue interim orders before, during, or after the arbitration proceedings under Section 9 of the Act. However, the power cannot be exercised which would, in turn, amount to grant of the relief sought in the arbitration itself. In Priyadarshi Cements Ltd vs. A. P. Gas Power Corpn Ltd 2003), a plea of injunction to stay disconnection of electricity was not allowed because the disconnection was due to non-payment and no justification was provided by the petitioner.

When understanding about interim injunction in proceedings outside India, we can refer to two important decisions, one, the Delhi High Court’s view in Olex Foeas Pty Ltd vs. Skoda export Co. Ltd (2000), and two, the Supreme Court’s observation in Bhatia International vs. Bulk Trading S. A. (2002). In both the cases, it was held that the courts have jurisdiction and powers to grant interim relief in appropriate cases even if the proceedings are held out if India. This is valid unless such application is expressly or impliedly excluded. This power, the Courts viewed, is necessary to strengthen the effectiveness and efficacy of the arbitration proceedings.

THE LEGAL BATTLE BETWEEN FUTURE RETAIL LIMITED AND AMAZON

The tussle between the Future Retail Limited ( FRL), Reliance and Amazon has triggered the Courts to exhaustively interpret the provisions under the Arbitration and Conciliation Act, 1996. This case is a much anticipated one because it would have an intense impact on the Arbitration Law in India. The meaning of Arbitral Award, explanation of Section 9, role of International Arbitration Centres, and the validity of Emergency Arbitration Awards are some of the crucial aspects of the case. The case also considers the role of a company on another under various laws and regulations. Let us brief understand the facts of the case (FRL vs. Amazon).

• The dealings between FRL and Amazon

In November 2019, the Competition Commission of India had approved the US e-commerce company Amazon’s proposal to acquire 49% of the Future Coupons’(FCL) stake. FCL is under Future Retail Limited which is an Indian Company. The proposal contained three dealings. One, to allow Amazon to take over 49% of FCL’s shares. Two, to transfer some shares of Future Retail (FRL) held by Future Corporate Resources Private Limited (FCRPL) to Future Coupons; two, FCL had acquired equity warrants of FRL; and three, Amazon would have 3.58% stake in Future Retail. Consequently, this gave rise to three agreements, that is, between Amazon and FCL’s shareholders (FCPL SHA), Amazon and FCPL’s shareholders (FCPL SHA) and Amazon and FCPL (subscription agreement) (FCPL SSA). In addition to the above dealings, there were two more. One, wherein Amazon got a “call option” with which it can acquire any or all of the shares of FRL, and two, it had created a list, simply called as “restricted persons” list, that consisted of 30 firms with whom FRL is barred from making any transactions. It is to be noted that Reliance Retail, with which FRL later entered into dealings, was also included in the “restricted persons” list.

• What precipitated the FRL-Reliance transaction?

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, the growth of FRL was declining steadily, and the Covid-19 pandemic deteriorated its condition further. FRL stated that it had discussed about its situation with Amazon but in vain. After several unsuccessful negotiations, it then decided to join hands with Reliance. The Ambani-led business giant, consequently, agreed to acquire the retail and wholesale business along with the logistic and warehousing business from the Future Group for a consideration of Rs. 24, 713 crores. This transaction will also enable Reliance to acquire FRL’s liabilities of about Rs. 12, 801 crores, and it was also agreed that Reliance will invest Rs. 2800 crores into the merged entity. As per prediction, this transaction would certainly prevent FRL from becoming insolvent by helping it pay its debts.

• Amazon’s Response

The American giant responded to the transaction by sending a legal notice to FRL but there was no reply from the latter. Aggrieved, Amazon decided to approach the Singapore International Arbitration Centre (SIAC) which is consistent with the law. Our Indian Law of Arbitration gives the parties the freedom to approach Arbitration Centres like the SIAC for resolving their disputes. SIAC is a non-profitable organisation that provides for an alternative dispute resolution process arising from cross-border dealings. FRL pleaded that it should not be made a party to the proceeding because the chief dispute was between Amazon and FCL. However, the plea was rejected.

• SIAC’s Order

The arbitration proceedings that began on 5th October 2020 went on till 25th October when the SIAC passed an interim injunction order. The order was in favour of Amazon for it restricted FRL from proceeding further with the impugned transaction with Reliance. According to the SIAC Rules, an interim order passed by an Emergency Arbitrator us valid for 90 days within which a Tribunal has to be constituted, and if otherwise, the binding of the award will cease. Since, in this case, everything was done accordingly, the validity of the Award extended. Therefore, for its enforcement, Amazon approached the relevant statutory authorities like SEBI, CCI, etc.

• FRL retaliated

Aggrieved by the EA Award, FRL approached the Delhi High Court, in November 2020, claiming that the acts of Amazon is illegal and tortious because it intends to create control over FRL. This control of Amazon is in violation of the Foreign Exchange Management Act Rules, 2019 (FEMA Rules) as well as the provisions under the Companies Act, 2013. It submitted that Amazon’s reliance on the EA order is invalid because Emergency Arbitration is not legally recognized in India, and therefore, it is not binding on parties.

• The Legal Battle: Key points

Amazon’s Reply: When FRL moved the Delhi High Court, Amazon filed its response stating that the plea is not maintainable because the dispute between them has already been heard by the Emergency Arbitrator, and now, the matter is before the statutory authorities that have already taken cognizance of the case.

20th December 2020: The Delhi High Court comprising Justice Mukta Gupta pronounced it’s judgement holding FRL’s petition maintainable and the Emergency Arbitral Award as valid. It also observed that the Amazon’s conduct would amount to tortious interference, and that it is clearly exercising control over FRL which is contrary to the FEMA Rules. However, the Bench did not accepted FRL’s plea of granting interim Injunction against Amazon. It stated that the same is to be decided by the statutory authorities that have taken the cognizance of the case.

5th January 2021:The SIAC constituted a committee to review on the matter.

13th January 2021: When Amazon approached the Delhi High Court seeking its direction for the enforcement of the EA Award, the Delhi High Court had issued notice to FRL and Reliable and sought their response.

2ndFebruary 2021: The Delhi High Court of Justice Midha directed FRL and other parties to maintain status quo on the transaction.

8th February 2021: The Court later stayed the as an interim order, and reserved the final order. Amazon approached the Supreme Court against the Delhi High Court’s Order.

18th February 2021: Amazon approached the National Company Law Tribunal and requested not to conduct proceedings on the FRL- Reliance deal.

22nd February 2021: The Supreme Court issued a notice to FRL seeking its response to Amazon’s plea. However, it gave a nod to the proceedings to be carried out by the National Company Law Tribunal, however, restrained the tribunal from passing its order on the transaction.

18th March 2021: The Delhi High Court of Justice J.R. Midha ordered FRL to restrain its transaction with Reliance since it violates the EA Order. It also directed attachment of the assets of FRL, FCPL, Kishore Biyani, and other promoters.

22nd March 2021: On appeal by FRL, a Division Bench of Delhi High Court comprising Chief Justice DN Patel and Justice Jasmeet Singh stayed the order dated 18th March 2021.

April 2021: Amazon appealed to the Supreme Court against the order of the Delhi High Court dated 22 March 2021. It argued that the Single Judge, on 20th December 2020, had passed a detailed judgement on the case, and that all these interim orders are being passed “mechanically”.

May 2021: Supreme Court adjourned the hearing of the case for two months owing to its relatively insignificant nature when compared with the on going pandemic situation.

June/July 2021: The Apex Court had analysed the case in length and heard the arguments of both the parties. The Court comprising Justices Rohinton Nariman and B. R. Gavai has reserved its judgement in the case.

ANALYSIS

The case is one of the most important cases that looks into the nuances of the Arbitration Law in India. The unending battle between FRL and Amazon clearly reveals the loop holes in the law governing arbitration in India. There are some disputable provisions in the Act that has led to this legal fight.This tussle which is approaching its end will surely serve as a precedent as to whether an Emergency Arbitration Award is enforceable in India or not. Emergency Award is nothing but an interim relief granted by an Emergency Arbitrator before the constitution of a Tribunal. This is to protect the parties from any adverse effects that might arise within the establishment of the Tribunal. There are various Arbitration Tribunals across the country and one among such tribunals is the Singapore International Arbitration Centre (SIAC). In India too, there are arbitration centres like the Delhi International Arbitration Center (DIAC), Madras High Court Arbitration Center (MHCAC), Mumbai Center for International Arbitration (MCIA), Nani Palkhivala Arbitration Center (NPAC), Indian Council of Arbitration (ICA), etc. Under the Mumbai Center for International Arbitration (MCIA) rules, “award” is defined as: ““Award” includes a partial or final award and an award of an Emergency Arbitrator.”

However, the problem lies in the fact that such a recognition is not provided in the A&C Act which is the principle law of Arbitration in India. However, if we go through all the previous judgements related to this matter, we might get confused ourselves. This is the real reason why this instant case has been stretched so far. It is clear that if the A&C Act is interpreted strictly, we might conclude that EA Awards are not enforceable in India. But mostly, such laws are construed liberally.

The real importance of the case lies in the validity of the SIAC Emergency Arbitration Award. Validating such awards is important because it is common for parties to resort to a neutral place for settling their issues. Moreover, since our country is a signatory to the New York and Geneva Conventions, it is highly presumable that it should have the ability to enforce such awards.

CONCLUSION

The highly anticipated FRL vs. Amazon case is counting its last few days with the Supreme Court’s final hearing and reservation of judgement. This verdict is expected to create a strong effect on the future cases relating to enforcement of Emergency Arbitration Awards in India. Further, in individual basis too, it will have its own effect as the three giants, Amazon, FRL, and Reliance are the ones to experience the real effect of the order. Nonetheless, the case has been an intense battle that would create a lasting impact on the Indian e-commerce industries.