Amazon Future Group
10/Nov/2020, 12:49 PM, Authored by Mr. Hiroo Advani, Ms. Kanika Arora
The Future-Reliance-Amazon dispute and its interplay with recognition of emergency arbitrators under Indian law
The factual background of the controversy
Earlier this year in August, Reliance Retail Ventures Limited (“Reliance”) broke the news that it had entered into a deal for the acquisition of assets of Future Retail Limited (“Future”), with the transaction valuing at approximately USD 3.38 billion. However, with regard to this deal, Amazon announced that the said transaction was contrary to a shareholders’ agreement that existed between the promoters of the Future Group and therefore, violated the same. Whilst Amazon proceeded to invoke arbitration proceedings before the Singapore International Arbitration Centre (“SIAC”), in view of this transaction between Reliance and Future, it also sought interim relief before an emergency arbitrator appointed under the SIAC Rules.
The SIAC Panel put on hold the USD 3.38 billion transactions, being an interim win for Amazon. In other words, Amazon received an ‘emergency order’ that halted the two companies from proceeding with the transaction until the arbitral tribunal was constituted. In essence, the 130-page order by the emergency arbitrator reveals how Amazon argued that Future stands in breach of agreements that barred it from selling retail assets to third-parties entities included in the “restricted persons” list, such as Reliance.
The question then arises is about the scope of enforcement of this ‘emergency order’ in India, taking into consideration that the currently existing Arbitration & Conciliation Act, 1996 (“the Act”) does not, in fact, specifically recognise the validity of interim orders passed by emergency arbitrators.
Emergency arbitration and its position under Indian jurisdiction
In simple words, an emergency arbitrator refers to an arbitrator that is appointed by a particular arbitral institution on an urgent basis to specifically deal with granting of interim relief, which cannot wait for the constitution of the arbitral tribunal. The majority of the prominent and internationally recognised arbitral institutions, such as the International Chamber of Commerce (“ICC”), the Hong Kong International Arbitration Centre (“HKIAC”) and the Stockholm Chamber of Commerce (“SCC”), have all established specific provisions in their respective arbitration rules for an emergency arbitrator procedure. It is also pertinent to note, that once the main arbitral tribunal that is appointed to resolve the substantive dispute in hand is appointed, it takes over from the emergency arbitrator and is, therefore, at discretion to continue, amend or dismiss any order that may have been passed by the emergency arbitrator.
Indian arbitration law has undergone big leap developments almost every year, the most latest being the 2015 and the 2019 amendments to the Act. While the 2015 amendment has aimed to boost the role of institutional arbitration in India, there still exists a lack of consistency between the offerings of various institutional arbitration rules and the Indian domestic arbitration Act, primarily with regard to recognition of emergency arbitrators and orders passed by them.
Whilst the 2015 amendment to the Act made Section 9 of the Act (for grant of interim measures by Indian courts) applicable to foreign-seated arbitrations and also inserted Section 17 of the Act (which allows parties to approach the arbitral tribunal for interim measures), it is still a job half done. In fact, in August 2014, the Law Commission of India in its 246th Report sought to propose statutory recognition to emergency arbitrators and awards passed by them in India, by broadening the definition of ‘arbitral tribunal’ under Section 2(1)(d) of the Act. However, the said proposed development was not reflected in any amendment to the Act carried out to date. This in turn has caused a little uncertainty in the ambit of Indian arbitration law, which seeks to promote institutional arbitration, but yet does not recognise an integral part of it, being emergency arbitrations.
Another inherent limitation to an interim order passed by an arbitral tribunal is also that it binds only the parties to that arbitration agreement, being the underlying essence of Section 9(3) of the Act. In the present case, Reliance is not a party to the arbitration agreement and therefore, is not bound by the award passed by the emergency arbitrator.
Criticality of adopting ‘emergency arbitrations’ under Indian law
Despite the non-recognition of emergency arbitrations under Indian law, one cannot ignore the persuasive value of such awards passed by emergency arbitrators. In judgments such as those passed in the cases of HSBC v Avital and Plus Holdings, Indian courts have largely adopted the findings of emergency arbitrators. In fact, in the case of Ashwani Minda, the Delhi High Court had plainly rejected a prayer for interim relief that had already been rejected by the emergency arbitrator appointed under the JCAA rules of arbitration. Every court in India is aware of the well-regarded reputation of internationally recognised arbitral institutions, and therefore, would seldom take a stand contrary to that taken by an order passed under any of these institutions.
Keeping in mind the increasing popularity of international commercial arbitration as the primary means of dispute-resolution between corporates, jurisdictions across the world are facing pressure to maintain consistency in their arbitration laws, precisely to stay committed to the principle of comity of nations. Enforcement of arbitral awards is one of the most critical aspects for any disputing party, and the disputing parties would, therefore, be placed at a detriment if jurisdictions have varying enforcement rules for all kinds of arbitral awards. Adopting standard procedures and principles of arbitration would be both cost-effective and efficient for disputing parties as well as national courts.
Recent developments in the Future-Reliance-Amazon dispute
The tussle has strained Amazon’s relationship with not just Future, but also with Reliance, which itself is an increasingly growing e-commerce business platform and a competitive threat to online retail giants such as Amazon. After being granted interim relief by the SIAC panel, Amazon has written to the Securities and Exchange Board of India (“SEBI”), urging them to take into consideration SIAC’s interim judgment that has put on hold the transaction between Future and Reliance, and has shared the interim judgment with other stock exchanges such as Bombay Stock Exchange (“BSE”) and National Stock Exchange (“NSE”). This move by Amazon has been initiated keeping in mind that the transaction between Future and Reliance requires mandatory approvals from various regulatory authorities such as SEBI and the Competition Commission of India (“CCI”).
Future has gone a step ahead and filed a lawsuit against Amazon in Delhi High Court, in a bid to refrain Amazon from “misusing” the SIAC interim judgement and “interfering” with the underlying transaction. In fact, Reliance has been made a party to this lawsuit. Future has also announced that the SIAC interim judgement is not enforceable under Indian law and is not binding on the company at all. Calling out the arbitral proceedings before the emergency arbitrator, Future also went out to state before the Indian exchanges that any attempt on part of Amazon to enforce the order would be resisted. However, it does seem odd why this lawsuit filed by Future has been filed in Delhi High Court, keeping in mind that Future and Reliance in India are headquartered in Mumbai and Amazon in Bangalore unless the specific arbitration agreement provides otherwise.
It is important to understand that with respect to upholding the sanctity of contractual obligations, it is prudent that SEBI and other regulatory authorities take into consideration the interim judgment of SIAC while they are reviewing the Future-Reliance transaction. With this dispute, Amazon is drawing battle lines with Reliance in the race for India’s estimated USD 1 trillion retail markets, especially where online retail shopping is gaining immense traction.
Future, which has more than 1,500 outlets, will be forced to pack up if the transaction with Reliance does not go through, hitting the livelihoods of thousands of workers at vendor firms and will, therefore, be forced to go into liquidation. In view of the same, Future has stated that it will take appropriate steps to ensure that the transaction with Reliance proceeds unobstructed, and Reliance has confirmed that it will most definitely complete the transaction. Furthermore, it is noted that Future does not intend to challenge SIAC’s ruling and would alternatively wait for Amazon to approach Indian courts to ratify the same. While Future has argued that it had “complied with all agreements and cannot be held back” by the arbitral proceedings, it also said that there was absolutely no question of any fraud or of misleading the public or shareholders.