CASE: AMAZON.COM NV INVESTMENT HOLDINGS LLC VS. FUTURE RETAIL LIMITED; CA 4492-4493 OF 6TH AUGUST 2021
Coram: Justices RF Nariman and BR Gavai
Counsel: Sr. Adv Gopal Subramanium, Sr. Adv Ranjit Kumar, Sr.Adv.Aspi Chinoy for Appellant, Sr. Adv Harish Salve, Sr. Adv. K.V. Viswanathan, Sr. Adv Vikram Nankani for respondent
Citation: LL 2021 SC 357
In the High Court of Judicature at Delhi
Petitioner: Amazon.com NV Investment Holdings LLC
Respondent: Future Coupons Pvt. Ltd & Ors.
Date of Judgement: 18th March 2021
Bench: Hon'ble Mr. Justice J.R. Midha.
INTRODUCTION- The abstraction of emergency arbitrators is getting huge admiration among the users of international arbitration. An Emergency Arbitrator is considered as a tool for obtaining urgent interim relief before the arbitral tribunal is constituted. One of the objectives of the concerned parties for appointing EA is to obtain a speedier remedy than that can be obtained by the national courts under section 9 of the Arbitration and Conciliation act. Thus, safeguarding the rights of the parties through this expeditious mechanism. Earlier, the parties entering into arbitration agreements were reluctant to appoint emergency arbitrators. As there had been doubts regarding the legal status of emergency arbitrator i.e. whether the Emergency arbitrator falls under the definition of arbitrator mentioned in section 2(1)(d) of the Act and whether the interim order passed under by the EA falls under the domain of an order mentioned in section 17(1) and is enforceable under section 17(2) of the Act or not? However, with the judgement of Amazon.com NV Investment Holdings LLC v. Future Coupons Pvt. Ltd. The stance of emergency arbitrators in the arbitration and conciliation act is transparent now.
BACKGROUND OF THE CASE- On March 18, a single bench of Justice JR Midha of the Delhi High Court had allowed the petition filed by Amazon under Section 17(2) of the Arbitration and Conciliation Act, 1996 read with Order XXXIX Rule 2A and Section 151 of Code of Civil Procedure for enforcement of the interim order dated 25th October 2020 passed by the Emergency Arbitrator. The single bench held that the 'Emergency Award' is enforceable under Indian law as an order for the interim measure passed under Section 17(1) of the Arbitration Act. The single bench also applied the 'group of companies are respondents second-largest to hold that FRL and the Biyanis are bound by the Singapore award. The single bench also took exception to FRL raising the argument of "nullity" against the emergency award and held it to be a vague ground. So, a cost of Rs 20 lakhs was imposed on Future Retail, which was to be deposited with the PM CARES Funds, and its directors, including Kishore Biyani, were cautioned of coercive action if the costs were not deposited within the stipulated time. On March 22, a division bench comprising Chief Justice DN Patel and Justice Jasmeet Singh stayed the single bench order in an appeal filed by FRL. The case has witnessed many back-and-forth actions across the Delhi High Court and the Supreme Court.
On February 2, a single bench of Justice JR Midha had passed an interim order of status quo on the FRL-Reliance merger, while making a prima facie observation in favor of Amazon's case. This status quo order came to be stayed by the division bench on February 8. Amazon moved the Supreme Court against this stay order. On February 22, a bench headed by Justice RF Nariman of the Supreme Court had barred the NCLT from sanctioning the scheme of merger of Reliance-Future companies, while allowing the continuation of the proceedings before the Tribunal. Later, on March 18, the single bench of the High Court passed the final order in Amazon's plea, setting off the present proceedings. Significantly, as per the latest judgment, the Supreme Court has set aside both the interim orders passed by the Division Bench of the Delhi High Court on February 8 and March 22.
FACTS OF THE CASE- Amazon.com NV Investment holdings are the petitioner, while Future Coupons Pvt. Ltd. is respondent No. 1 and Future Retail Limited (FRL) is respondent No.2. The promoters of respondents No. 1 and 2 are respondents No. 3 to 13.
In 2019, Future Group, which is India’s second-largest organized offline retailer, wanted to collaborate with foreign investors to grow their business. The promoters (“Biyanis”) restructured an existing group entity, Future Coupons Private Limited (“FCPL”) to acquire shares of Future Retail Limited (“FRL”). Seeing it as a brilliant opportunity, in August 2019, Amazon.com NV Investment Holdings LLC (“Amazon”) invested Rs.1,431 Crores into FCPL to acquire 49% of its shares and entered into a Share Subscription Agreement (“FCPL-SSA”) along with Biyanis. Through the FCPL-SSA, it was mutually decided that Biyanis and Amazon would jointly exercise the rights of FCPL in FRL, and specifically never without Amazon’s consent. After 1 year, in August 2020, Amazon to its utter surprise learnt that FRL without their approval or consent had approved a disputed transaction with a restricted person, i.e. with Mukesh Dhirubhai Ambani Group (“MDA”). These disputed transactions and restricted persons were prohibited categorically under the FCPL-SSA. Being aggrieved, Amazon invoked the arbitration under the FCPL-SSA, which was governed by Singapore International Arbitration Centre (“SIAC”) and had New Delhi as the seat. Due to the urgency involved, in October 2020, Amazon applied for the appointment of an emergency arbitrator as provided under the SIAC Rules and thus, an Emergency Arbitrator (“EA”) was appointed. In response, FRL (co-Respondent), raised a preliminary objection to the jurisdiction and appointment of the EA. Amongst others, it was also contended that there was no valid arbitration agreement between the FRL and Amazon. Amazon.com invested Rs 1431 Crore in Future Coupons Private Limited (FCPL) based on certain special, material protective/negative rights available to FCPL in Future Retail Limited (FRL), namely, that the Retail Assets of FRL would not be alienated without the prior written consent of Amazon.com (Petitioner), and never to a Restricted Person. Further, an agreement was attained wherein it was stated FRL would be the sole vehicle for the conduct of FCPL and FRL’s conduct of business, resulting in a benefit of the entire investment to FRL. Within months of investment, it was noted that the Biyanis which controls FRL breached the agreements by violating the contractual obligations, approved transaction relating to the transfer of its retail assets to Mukesh Dhirubhai Ambani Group (MDA) which is a Restricted Person as per Shareholders’ Agreement between petitioner and respondents (FCPL-SHA) (Disputed Transaction).
AWARD OF THE EMERGENCY ARBITRAL TRIBUNAL- The EA rejected the ground raised by the Respondent that the EA does not have requisite jurisdiction to act on the prayer made by Amazon. The EA held that all the parties have assented to SIAC arbitral proceedings on identical terms and their mutual obligations are inextricably linked. It was noted that: “Section 2(8) of the Indian Arbitration Act 1996 expressly provides that where Part I of the Indian Arbitration Act 1996 refers to an agreement of the parties, such agreement shall include the arbitration rules referred to in the parties agreement. In this way, the Indian Arbitration Act 1996 provides that any arbitration rules agreed to by the parties are incorporated into the arbitration agreement. Unless expressly excluded, it is trite that the parties cannot resile from the terms of their arbitration agreement, including their agreement to allow either party to request the appointment of an emergency arbitrator”. The EA was of the impression that, under Section 2(1)(h) of the Arbitration and Conciliation Act, 1996 (‘Act’), a ‘party is defined as a ‘party to the arbitration agreement’ and, crucially, not as a ‘signatory’ to the arbitration agreement. Therefore, FRL was held to be a party to the arbitration proceedings. The Delhi High Court considered three crucial questions:
♦ What is the legal status of an Emergency Arbitrator?
♦ Whether the Emergency Arbitrator misapplied the Group of Companies doctrine which applies only to proceedings under Section 8 of the Arbitration and Conciliation Act?
♦ Whether the interim order of Emergency Arbitrator is Nullity?
ISSUES TO THE CASE
What is the legal status of an EA i.e. whether the EA is an arbitrator in terms of the Act and whether the interim order of an EA is an order under Section 17(1) and is enforceable under Section 17(2) of the Act?
Whether the EA misapplied the Group of Companies doctrine which arguably applies only to proceedings under Section 8 of the Act?
Whether the interim order of EA is null and void as being passed without jurisdiction?
Objections raised by the respondents to the Jurisdiction of Emergency Arbitrator
No remedy can be obtained from the emergency arbitrator under Part 1 of the Arbitration and Conciliation Act.
No recognition of Emergency arbitrator under Indian Arbitration Framework.
The arbitral tribunal defined under section 2(1)(d) of the Arbitration and Conciliation Act, doesn’t include within its domain an Emergency Arbitrator. The reference of the 246th Law Commission Report was made, which recommended that there is a need to amend the definition of the The currentan The merethe the an a arbitral tribunal so that the emergency arbitrator can be included. Thus, the order granted by the Emergency Arbitrator will not have any force of law under Arbitration and Conciliation Act.
VI. POINT-WISE ANALYSIS OF THE CRUCIAL ISSUES RAISED IN THE PRESENT MATTER
Legal Status- The judgment authored by Justice Nariman noted that the Arbitration Act has no express or implied bar against Emergency Arbitration. Sections 2(8) and 19(2) give "party autonomy" to agree on the procedure to be followed by an arbitral tribunal in conducting its proceedings. Hence the status of an Emergency Arbitrator is solely based on the “party autonomy” and the powers of such an arbitrator are similar to the Arbitral Tribunal to decide an interim measure. Though the Arbitral Tribunal is empowered to reconsider, modify, terminate or annul the order/award of the Emergency Arbitrator. “when Section 17(1) uses the expression "during the arbitral proceedings", the said expression would be elastic enough, while read with the provisions of Section 21 of the Act, to include emergency arbitration proceedings, which only commence after receipt of notice of arbitration by the Registrar under Rule 3.3 of the SIAC Rules as aforesaid", the Court said. Emergency Arbitration is a very effective and expeditious mechanism to deal with the Emergency Interim Relief Application and has added a new dimension to the protection of the rights of the parties. With this mechanism, a litigant gets justice within 15 days, though if the order of Emergency Arbitrator isn't enforced, it would make the entire mechanism redundant.
In the instant matter, by agreeing to incorporate the Rules of SIAC into the arbitration agreement, parties agreed to the provisions relating to Emergency Arbitration. The current legal framework is sufficient to recognize the Emergency Arbitration and no amendment in this regard was required. Section 2(1)(d) defines “arbitral tribunal” to mean a sole arbitrator or a panel of arbitrators; it is wide enough to include Emergency Arbitrator. Under Section 17(1) of the Arbitration and Conciliation Act, the Arbitral Tribunal has the same powers to make an interim order, as the Court has, and Section 17(2) makes such interim order enforceable in the same manner as if it was an order of the Court. The Interim Order is appealable under Section 37 of the Arbitration and Conciliation Act. The mere fact that Law Commission's recommendation is yet to be accepted by the Parliament will not preclude Courts from interpreting that such recommendation forms part of the proper interpretation of the law. The parties pointed out that the Law Commission of India, in its 246th report, suggested an amendment to give recognition to Emergency Arbitration. However, such a recommendation is yet to be accepted. That will not stop the Court from interpreting that such recommendation forms part of the statute, the Supreme Court said, referring to the precedent in Avital Post Studioz Ltd. & Ors. v. HSBC PI Holdings (Mauritius) Ltd. in paragraph 35 of the judgment, the Court affirmed its view regarding Emergency Arbitration Award: "An Emergency Arbitrator's "award", i.e., order, would undoubtedly be an order which furthers these very objectives, i.e., to decongest the court system and to give the parties urgent interim relief in cases which deserve such relief. A party cannot be heard to say, after it participates in an Emergency Award proceeding, having agreed to institutional rules made in that regard, that thereafter it will not be bound by an Emergency Arbitrator's ruling.”
Party autonomy one of the pillars of arbitration- The Court underscored that party autonomy is one of the pillars of arbitration and they are free to agree upon the procedure which should govern them in arbitration proceedings. "Party autonomy is one of the pillars of arbitration in the Arbitration Act" "Full party autonomy is given by the Arbitration Act to have a dispute decided by institutional rules which can include Emergency Arbitrators delivering interim orders, described as "awards". Such orders are referable to and are made under Section 17(1) of the Arbitration Act." Even interim orders that are passed by Emergency Arbitrators under the rules of a permanent arbitral institution would be included within the ambit of Section 17(1)- The words "arbitral proceedings" are not limited by any definition and thus encompass proceedings before an Emergency Arbitration.
Enforcement proceedings are not covered by appeal provisions- Answering the second issue, the Court held that "No appeal lies under Section 37 of the Arbitration Act against an order of enforcement of an Emergency Arbitrator's order made under Section 17(2) of the Act". The judgment stated as follows: "Enforcement proceedings are not covered by the appeal provision- The phrase "granting or refusing to grant any interim measure under Section 17" would only refer to the grant or non-grant of interim measures under Section 17(1)(i) and 17(1) (ii)".
Whether Doctrine of Group of Companies applies only to proceedings under Section 8 of the Arbitration and Conciliation Act? Law relating to the Group of Companies doctrine is well settled by the Supreme Court in Chloro Controls India Private Limited v. Sever N Trent Water Purification Inc.,, Cheran Properties Limited v. Kasturi and Sons Limited, and MTNL v. Canara Bank,Group of Companies doctrine binds the non-signatory entity where the multiple agreements reflect a clear intention of the parties to bind both the signatory and non-signatory entities within the same Group.The Supreme Court has laid down various tests for invoking the said doctrine.
Following are the Tests:
Direct relationship to the party signatory to the arbitration agreement,
The direct commonality of the subject-matter and
the agreement between the parties being a composite transaction.
The transaction should be composite where performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute.
Besides all this, the Court has to examine whether a composite reference of such parties would serve the ends of justice. The bench also observed that this doctrine has been very succinctly.
This is a Summary for a glance at the principles laid down by the Supreme Court on Group of Companies doctrine:
As the law has evolved, it has been recognized that modern business transactions are often effectuated through multiple layers and agreements. There may be transactions within a Group of Companies. The circumstances in which they have entered into them may reflect an intention to bind both signatory and non-signatory entities within the same group.
The Group of Companies doctrine is essentially intended to facilitate the fulfillment of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both signatories and non-signatories. The effort is to find the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who isn't formally a signatory but has assumed the obligation to be bound by the actions of a signatory.
Doctrine will bind a non-signatory entity where an arbitration agreement is entered into by a company, being one within a group of companies, if the circumstances demonstrate that the mutual intention of all the parties was to bind the signatories and non-signatory affiliates.
A non-signatory party can be subjected to arbitration where there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties who are part of a Group of Companies.
Direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject matter, and the agreement between the parties being a composite transaction. The transaction should be composite where the performance of the mother agreement may not be feasible without aid, execution, and performance of the supplementary or ancillary agreements, for achieving the common object. Besides all this, the Court has to examine whether a composite reference of such parties would serve the ends of justice.
While ascertaining the intention of the parties, an attempt should be made to give meaning and effect to the incorporation clause and not to invalidate or frustrate it by giving it a literal, pedantic and technical reading.
Tests laid down are: The conduct of the parties reflects a clear intention of the parties to bind both the signatory as well as the non-signatory parties. The non-signatory company is a necessary party concerning the common intention of the parties. The non-signatory entity of the group has been engaged in the negotiation or performance of the contract. The non-signatory entity of the group has made statements indicating its intention to be bound by 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 the transaction between the parties. There is a tight group structure with strong organizational and financial links 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 Bench decided that the Group of Companies Doctrine applies to the present case and respondent 2 is a proper party to the proceedings
Signatory and non-signatory companies (FRL) belong to the same Biyanis
Parties Conduct reflected clear intention to bind the signatory as well as non-signatory company (FRL) of Biyanis
Common negotiating and legal team represented the signatory and non-signatory company (FRL).
Statutory disclosure made by the non-signatory company to the public.
The direct relationship of the non-signatory company to the signatory company of the Group, direct commonality of the subject matter, and composite nature of transactions.
Funds of Signatory Company used to financially support the non-signatory company of the Group.
Agreements are so intrinsically intermingled that their composite performance only shall discharge the parties of their respective mutual obligations.
The common intention of all the parties, to arbitrate.
Supreme Court’s observation in the decision of Cheran Properties Limited v. Kasturi and Sons Limited, would squarely apply to the present matter.
VII. INTERIM ORDER IS NULLITY OR NOT: In the Court’s opinion, a respondent plea of Nullity is to mislead this Court. The bench agreed with the Emergency Arbitrator that the protective rights do not amount to control of the petitioner over FRL and do not violate the law. In the present matter, since the respondents were continuing to violate the agreement even after the Emergency Arbitrator’s decision, the petitioner approached this Court for enforcement of the interim order of the Emergency Arbitrator. Respondents did not dispute the breach of the agreements either before the Emergency Arbitrator or before this Court.The High Court noted that the whole thrust of the respondents before the Court is that the petitioner is a trillion-dollar company and Rs 1430 crore invested by them in the present case is peanuts for them and they should forget about this money as it is worth zero today. The bench also quoted the senior counsel for respondent 2 for the observations:
Before parting with this decision, High Court stated that Emergency Arbitrator, V.K. Rajah SC is a well-known jurist.
The court also defined the domain of Emergency Arbitrator and stated that their power is limited to dealing with only emergency relief applications, which has to be decided within the period of 15 days.
Moreover, the court defined the period of emergency arbitrators and stated that they can continue till the formation of an arbitral tribunal isn't constituted and thereby, manifesting that they will not be a part of the arbitral tribunal.
In the judgment, the court has also showcased the emergence of Emergency arbitrators in India by relying upon various International Arbitration Centers, which have incorporated Emergency Arbitrators in their rules. For eg- Mumbai Centre for International Arbitration, Madras High Court Arbitration Centre, etc.
VIII. CONTENTIONS OF THE PARTIES TO THE CASE- All the objections raised by the respondents were rejected with a cost of Rs 20,00,000 to be deposited by the respondents with the Prime Minister Relief Fund for being used for providing COVID vaccination to the Below Poverty Line (BPL) category – senior citizens of Delhi. Since the respondents deliberately and willfully violated the interim order, hence they are liable for the consequences enumerated in Order XXXIX Rule 2A of the Code of Civil Procedure.
CONTENTIONS OF THE PETITIONER: In the Court Proceeding, Amazon supporting the EA’s order, and submitted that EA’ is well within the scope of the definition of ‘Arbitral Tribunal’ under Section 2(1)(d) of the Act. Having been passed in accordance with the SIAC Rules, the EA’s order continues to be valid and binding to parties. The concept of party autonomy and its consequences have been relied upon by the Court to conclude that EA falls within the definition of ‘Arbitral Tribunal’ as the parties’ selection of SIAC Rules to govern the arbitral proceeding, which has provisions of Emergency Arbitration, itself indicate parties’ consent to be bound by the EA’s order. Amazon further relied on the Rules of the Delhi International Arbitration Centre, Mumbai Centre of International Arbitration, and Madras High Court Arbitration Centre, which provide for Emergency Arbitration procedures to contend that Emergency Arbitration is recognized under Indian law. Amazon submitted that they were ready to financially assist the Future Group in the best way they can, but it was to its shock that its shareholding has been diluted due to the disputed transactions being entered into by Future Group with a restricted person i.e. MDA in violation of the terms of the FCPL-SSA. Amazon also argued that, as rightly upheld by the EA, the Group of Companies doctrine apply squarely to the dispute given the precedents set forth by the Supreme Court Chloro Controls India Private Limited v. Sever N Trent Water Purification Inc., Cheran Properties Limited v. Kasturi and Sons Limited, MTNL vs. Canara Bank etc.
CONTENTIONS OF THE RESPONDENTS: Respondents submitted that ‘Arbitral Tribunal’ as defined in Section 2(1)(d) of the Act does not include an EA. Respondents maintained that the appointment of an EA under SIAC Rules was invalid, so, any order granted by the EA would also be invalid. The reasoning adopted by the Respondents was that the EA’s order could never be an order of the ‘Arbitral Tribunal’ either under the provisions of the Act or even under the SIAC Rules. Respondents also argued that the language of Section 17(2) of the Act, can neither be stretched nor can the definition of ‘Arbitral Tribunal’ be expanded by the process of construction to create a situation where an order/award of by an EA is put at par with the order passed by an Arbitral Tribunal. Respondents maintained that the Indian courts have taken note of orders made by EAs only in the context of foreign seated arbitrations, where proceedings were filed under Section 9 of the Act to seek enforcement of the foreign EA’s order and not which treats an EA’s order as one passed under Section 17 of the Act.[4] Respondents argued that the group of companies doctrine applies only in proceedings under Section 8 of the Act and not in Court Proceedings such as the present.
IX. CONCLUSION
A two-judge bench of the Supreme Court of India ruled in favor of Amazon.com NV Investment Holdings in its case against Future Retail. The dispute concerns Future Retail’s attempt in August 2020 to amalgamate its assets and sell a minority stake of Future Retail (FRL) to Reliance Retail Ventures after the onset of the pandemic.
However, FRL was prohibited from disposing of its retail assets to ‘restricted persons’, which included Mukesh Ambani. This was stated in the shareholder agreement while Amazon.com NV Investment Holdings infused Rs 1,431 crore in Future Coupons (FCPL) in 2019.
On October 5, 2020, Amazon initiated arbitration proceedings for emergency interim relief under the Singapore International Arbitration Centre (SIAC) Rules to block the deal between Future Retail and Reliance Retail Ventures.
The Emergency Arbitrator passed an ‘interim order’ dated October 25, 2020, which stalled the deal.
On Friday, India’s apex court said the order that SIAC passed is valid in India under Section 17 (1) of the Arbitration and Conciliation Act, 1996.
“We welcome the verdict of the Hon’ble Supreme Court of India upholding the Emergency Arbitrator’s award,” an Amazon spokesperson told EnterpriseStory. “We hope this will hasten a resolution of this dispute with Future Group.”
“FRL intends to pursue all available avenues to conclude the deal to protect the interests of its stakeholders and workforce,” Future Retail stated in a stock exchange filing after the Supreme Court judgment.
“The judgment addresses two limited points related to the enforceability of the Emergency Arbitrator’s order and not the merits of the disputes,” Future Retail added in the BSE filing.
On February 2, a single judge of the Delhi High Court had restrained Future Retail’s deal with Reliance Retail Ventures. The judge, in a February 8 order, held that the SIAC award was enforceable as an order under the Arbitration Act and that Future Retail had flouted it. But a division bench of the Delhi High Court stayed this judgment in March. Following this, special leave petitions were filed, and the dispute came up henceforth before the Supreme Court of India.
X. CRITICAL ANALYSIS/ COMMENTS- As, there has been inordinate delay in the disposal of cases in Indian courts, and therefore, clarity in the stance of the emergency arbitrator has provided not only huge relief to the parties, who have a seat of arbitration in India but also induce other parties to adopt arbitration as a dispute resolution mechanism. Furthermore, to ensure that the role of an Emergency arbitrator is limited to the adjudication of emergency interim applications only, the rules of different arbitral institutions ensure that the emergency arbitrator has to satisfy himself or herself, that the party, which requested for emergency arbitrator has demonstrated the urgency or risk of irreparable harm. Consequently, the clarity on the stance that an emergency arbitrator being on the same pedestal as an arbitral tribunal manifested that an award passed by the Emergency arbitrator can be enforced as an award made by the courts. Thus, ensuring that the wholesome mechanism of emergency arbitrators doesn’t turn out to be redundant. However, caution needs to be exercised regarding the nature of the awards passed by the Emergency Arbitrator. As, awards, which could not be modified or annulled in future date should not be passed, because in that scenario, the subsequent arbitral tribunal would be powerless even after having the authority to reconsider, modify, terminate or annul the order/award of the emergency arbitrator.
The judgment provides needed clarity on the status of enforcement of EA orders made in arbitrations that are seated in India. The Supreme Court through the judgment emphasizes that party autonomy is supreme in arbitrations and reiterates the evolving pro-arbitration approach being adopted by Indian courts.
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