This article is written by Shivam Kumar pursuing Diploma in Corporate Litigation. This article discusses the various nuances of the Amazon Future dispute.
It has been published by Rachit Garg.
Table of Contents
Introduction
The dispute between Amazon and the Future Retail Group is a long-standing and media-highlighted case which has brought into light several nuances of how the Indian courts deal with emergency arbitration. Moreover, this epic saga has also brought into the limelight how the Competition Commission of India contributes to the evolution of anti-trust jurisprudence. This article will portray to the readers in a simple and analytical manner how this legal battle had played out and the various nuances of the same.
Facts of the case
It started in 2019 when Amazon got into various shareholder agreements with Future Retail Ltd., Future Coupons Pvt. Ltd. and their promoters Biyani Group. Amazon invested INR 1431 crores in Future Coupons Pvt. Ltd. as per this agreement. What Amazon got in return was that Future Retail Ltd. cannot transfer any of its retail and other assets without the consent of Future Coupons Pvt. Ltd. and Future Coupons Pvt. Ltd needed to take permission from Amazon to give such consent. There was also a list of prohibited entities in the agreement to which Future Retail Ltd. was prohibited from disposing, divesting, transferring, selling or otherwise encumbering any of its retail assets. Reliance Retail was one such prohibited entity. Inter alia, what these agreements meant were that Amazon could sell any assets of Future Retail Ltd. on its website too.
Now what happened after these agreements was that Future Retail Ltd., Future Coupons Pvt. Ltd. and their promoters Biyani Group entered into an agreement with the Mukesh Dhirubhai Ambani Group and this resulted in the amalgamation of the shares of the Future Retail Ltd. with the Mukesh Dhirubhai Ambani Group. As a direct consequence of this agreement, Future Retail Ltd. ceased to exist and became one with the Mukesh Dhirubhai Ambani Group.
Naturally, this subsequent agreement with the Mukesh Dhirubhai Ambani Group was hurting the business interests of Amazon and thereafter, Amazon brought this matter before the Singapore International Arbitration Centre, where an award was passed in favour of Amazon. In response to this, the Biyani Group called this award a nullity and continued with the transaction with Mukesh Dhirubhai Ambani Group.
The matter thereafter reached Delhi High Court when Future Retail Ltd. claimed that the execution of this emergency arbitration award of a foreign tribunal would result in tortious interference with its civil rights. Based on this main argument, Future Retail Ltd. filed a civil suit and requested interim relief from the Delhi High Court by disallowing Amazon from appealing to statutory authorities based on its arbitral award.
In response to this, Amazon took recourse of Section 17(2) of the Arbitration and Conciliation Act, 1996 before the Delhi High Court and the main issue before the High Court was to decide if the foreign emergency award granted in favour of Amazon was maintainable in India or not. The Delhi High Court ruled in favour of Amazon and held that such an award would be enforceable as an order.
Thereafter, Amazon, Future Group, and Reliance brought the fight all the way to the Supreme Court of India because they were caught in a massive disagreement that is in the news every day. The lawsuit consists of an objection to Future Group’s sale of retail assets to Reliance for USD 3.38 billion. The e-commerce behemoth Amazon has based its argument on the claim that the contested transaction is against the shareholder’s agreement (SHA) that was signed between Amazon and the Future Group founders. Future Group, however, has vehemently denied any wrongdoing and has actually accused Amazon of illegally interfering with the sale without any justification.
The $1 billion transaction was suspended by the emergency arbitrator chosen in accordance with the procedures for emergency arbitration included in the Singapore International Arbitration Centre (SIAC) Regulations, giving Amazon a temporary advantage. To put it another way, Amazon was issued an “emergency order” that prevented the two businesses from moving further with the acquisition until the Arbitral Tribunal was formally established (EA Order). The question that emerges in the Indian context concerns the enforcement of this “EA Order,” given that the existing structure of the Arbitration and Conciliation Act, 1996 (the Act) does not expressly recognise the legality of the interim orders issued by emergency arbitrators.
The dispute’s core issue
Amazon is required to purchase 49% of Future Coupons’ share capital under the terms of the Agreement between the two parties. The aforementioned agreement also includes a list of “restricted individuals,” which names certain organisations that Future Group was forbidden from entering into any agreements with. Notwithstanding these underlying clauses, Future Group decided to sell some of its assets to Reliance, a division of the Mukesh Dhirubhai Ambani Group, in order to avoid going bankrupt. It’s also significant to know that Reliance hopes to purchase Future Group’s liabilities, which total about Rs 12,801 crores, along with its retail assets. In addition, Reliance has committed to providing Rs 2800 crores to the combined company, which would be used, among other things, to settle Future Group’s outstanding debts. As a result, it is clear that this deal will stop Future Group from becoming insolvent, and if it fails, Future Group will surely enter liquidation.
Amazon claims that Future Group violated the terms of the deal by engaging in a selling transaction with Reliance since Reliance is one of the prohibited parties listed in the contract. According to Future Group, the Foreign Exchange Management Act (FEMA)–Foreign Direct Investment (FDI) Regulations are actually being broken by Amazon. Taking a look at the overlap of agreements between Amazon and Future Group, it can be argued that in addition to establishing protective rights, Amazon is also infringing by controlling Future Retail, which in reality calls for prior government clearance. Amazon would be in breach of the FEMA-FDI Regulations without such authorization.
Future Group’s and Reliance’s arguments
Future’s position is that they are not seeking an anti-suit or anti-arbitration injunction but rather a court order prohibiting Amazon from unlawfully interfering with the transaction between Future Group and Reliance. Future Group’s major complaint is with the conclusions in the EA Order and the interim directives issued in response. Future Group is not seeking a ruling that the EA Order is unlawful on the merits of the case but rather concerns the legal standing of the emergency arbitrator and the EA Order under India’s present arbitration regime.
Amazon’s whole legal defence is based on the EA Order’s legal bindingness, much like Future Group and Reliance have done. It has been argued that the SIAC Rules, upon which the EA Order was based, are merely procedural in nature and cannot grant substantive jurisdiction to a forum to grant interim reliefs aside from those that are required under Part I of the Act, specifically Sections 9 and 17, and are therefore ineligible to be used as the basis for the EA Order. In other words, the argument is predicated on the notion that the EA Order is illegally null and void, incapable of being enforced in accordance with Part I of the Act, and as a result, the proceedings before the emergency arbitrator are null and void because they were conducted in an improper forum.
Justifications offered by Amazon
In a resounding denial of the claims made by Future Group and Reliance, Amazon argued that the Delhi High Court lawsuit was unconstitutional and a misuse of the legal system. Amazon continued by highlighting Future and Reliance’s actions as they took part in the arbitration procedures before SIAC and appeared before the emergency arbitrator while making several arguments that were identical to those made by them in the current lawsuit. Amazon also argued that the Future Group was improperly attempting to persuade the Court that the EA Order was invalid and that it did not fall within the Act’s existing legal definition. Amazon claimed that they had utilised the party autonomy rights granted to them by Section 2(8) of the Act, and that as a result, their decision to request emergency relief before the SIAC was legal under Indian law.
Amazon also used Section 2(1)(d) of the Act, which states that an “arbitral tribunal” is defined as “a lone arbitrator or a panel of arbitrators,” to support its claim that the emergency arbitrator contemplated under the SIAC Rules qualifies as an arbitration tribunal for the purposes of the Act. A legitimate emergency arbitrator might therefore be included in an arbitration tribunal according to a combined reading of Sections 2(8) and 2(1)(d) of the Act. Last but not least, Amazon drew the court’s attention to the SIAC Regulations, according to which an emergency arbitrator served in such capacity up until the Arbitral Tribunal was completely formed. In light of the aforementioned assertion, the emergency arbitrator’s procedures are admissible under Indian law and the Under Section 17(1) of the Act and Section 17(2) of the Act, the EA Order is a court order and an interim measure.
Analysis of developments at the Delhi High Court and the Supreme Court of India
So what happened was that dissatisfied with the emergency arbitrator’s conclusions, Future moved quickly to explore an alternate strategy to prevent Amazon from interfering with their deal with Reliance. Future Group filed a lawsuit with the Delhi High Court, asking for, among other things, an order from the court prohibiting Amazon from improperly interfering with the transaction. The maintainability of the lawsuit in view of the ongoing arbitration procedures before the SIAC came up for decision by the knowledgeable Single Judge Bench. After recording a lengthy legal argument, the Court quickly provided its conclusion and found that the claim filed by Future was in fact maintainable before it in its ruling dated 21-12-2020. To Future’s dismay, the Court determined that they were not entitled to the injunctive relief they had requested through the lawsuit. The Court based its reasoning on the fact that Future had made comparable claims before the different legislative and regulatory agencies and that these bodies should keep acting in line with the law.
Although the proceedings before the Securities and Exchange Board of India (SEBI), Competition Commission of India (CCI), and National Company Law Tribunal (NCLT) were proceeding quickly, the Delhi High Court’s ruling was unquestionably a partial victory for Amazon. Amazon quickly pursued another delaying strategy to obstruct the acquisition out of resentment at these concurrent developments before the regulatory agencies, and as a result, it filed an application under Section 17(2) of the Act for the enforcement of the EA Order. The EA Order was recognised as a legitimate order under Section 17(1) of the Act and deemed to be enforceable under Section 17(2) of the Act by a single judge through a judgement dated 2-2-2021 that expressed support for the EA Order’s legality. The learned Single Judge ordered that the status quo be preserved with regard to the contested transaction while deferring making a reasoned ruling until a later time. It is clear that Amazon won big with this.
Future, who felt wronged by this decision, quite arrogantly appealed it to the Division Bench. The Division Bench issued its judgement on February 8, 2021, by which the Court ordered a delay in the execution of the learned Single Judge’s ruling maintaining the status quo. In its reasoning, the Division Bench said that it does not see why statutory organisations like NCLT, CCI, and SEBI should be prevented from carrying out their mandates and acting in line with the law. As the judgement of the learned Single Judge was appealed before the specific order could be issued, in our opinion, there appears to be a lack of respect for the Court’s procedure. It is also plausible to say that the Division Bench erred in recognising that the challenged ruling did not have finality and may not have been prepared for the Appellate Court’s review.
As was to be predicted, Amazon, who was extremely unhappy with the Division Bench’s ruling dated 8-2-2021, utilised its constitutional remedy by submitting a special leave petition (SLP) to the Supreme Court of India. The Supreme Court categorically declined to pronounce on the merits of the contested transaction on 22-2-2021, and as a result, gave the parties two weeks to submit rejoinders before the case would be considered. Although the Supreme Court ruled that it should hold off on making a final determination about the sanction of schemes, it did permit the NCLT to continue evaluating the merger in the interim.
It is important to highlight at this time that the learned Single Judge of the Delhi High Court rendered his decision on March 18, 2021. In a significant ruling rendered by Midha, J., the Court upheld the validity of the emergency arbitrator appointed under the Act. According to Section 17(1) of the Act, the Court recognised the EA Order as an order. The decision has fully described the Indian position on the group of enterprises’ idea and repeated the emergency arbitrator’s interpretation of Indian law, which appears to be generally in conformity with the EA Order of 25-10-2020.
Fine by Competition Commission of India and its effect
Amidst all these, on 17.12.2021, the Competition Commission of India revoked the original shareholder agreement made between Amazon and Future Coupons Pvt. Ltd and imposed a never-before hefty fine of INR 200 crores on Amazon for suppressing material information about the scope and purpose of the agreement. Another reason for the revocation and imposition of such a lumpsum penalty is that Amazon had described the rights granted by the shareholder agreement as protective but the CCI had discovered from uncovered notes of Amazon that it was a strategic decision of Amazon to control Future Retail Ltd. whose majority shareholder was Future Coupons Pvt. Ltd. Unfortunately for Amazon, when it appealed against the CCI penalty to NCLAT, the hefty fine of INR 200 crores was upheld.
Empowered by this, Future Group approached the SIAC to revoke its arbitration agreement citing the revoking of the original shareholder agreement between Amazon and Future Coupons Pvt. Ltd.
Meanwhile, the Apex Court felt that the Delhi High Court had not given sufficient time to Future Retail and Future Coupons Pvt. Ltd and sent the matter back to Delhi High Court to begin fresh adjudication. Later, based on a joint memo filed by the Future Group and Amazon, the Apex Court allowed the arbitration proceedings to continue before the SIAC where the SIAC was asked to evaluate the Future Group’s claims of revocation of the arbitration proceedings on the ground that CCI had revoked the original shareholder agreement.
Conclusion
It doesn’t appear that the Indian courts are especially driven to uphold their duty to observe lawful arbitral instruments. It goes without saying that this approach would make India less desirable as a site for international arbitration. It is also true that over the past ten years, India’s arbitration sector has suffered due to the controversy over whether Part I of the Act applies to arbitrations conducted abroad.
In the context of international arbitration, the Indian courts have frequently demonstrated an unwillingness to uphold international comity. The 1985 UNCITRAL Model Law on International Commercial Arbitration was incorrectly interpreted by the Indian courts, and they were unwilling to exclude India from its obligations under the 1958 New York Convention. International arbitration has unquestionably evolved into an institution that is governed by universally recognised legal standards and transcends judicial and legislative peculiarities. The Amazon-Future-Reliance case appears to be one in which the wealthy plaintiffs have blatantly disregarded the law and the system of justice. The Supreme Court will have to pass on a number of rulings when the special leave petition is analysed on the merits in order to advance institutional arbitration, promote confidence between individuals in the international business community, and emphasise the significance of the due process of law.
References
- https://www.mondaq.com/india/civil-law/1101076/amazon-v-future-retail—the-supreme-court-of-india-upholds-the-validity-of-emergency-arbitral-awards
- https://indiankanoon.org/doc/149951609/
- https://www.lexology.com/library/detail.aspx?g=57efefdc-c56e-4bdb-a594-43ca3aa18659
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