The Battle Between The Giants Continues: The Conundrum Of ‘Emergency Arbitration’ In India
10/Mar/2021, 11:09 AM, Authored by Hiroo Advani, Kanika Arora, Manav Nagpal & Surbhi Ahuja
- From then to now:
Caught up in the grid lock of a massive dispute making headlines every day, Amazon, Future Group and Reliance continue their battle all the way to the Supreme Court of India. Currently in challenge is a retail asset sale worth USD 3.38 billion to Reliance by Future Group, opposed by Amazon on the grounds that the said transaction stands contrary to a Shareholders Agreement (“SHA”) that exists between the promoters of Future Group. However, Future Group has straight off denied any wrongdoing and has, in fact, accused Amazon of “interfering” with the transaction without any valid grounds.
The Singapore International Arbitration Centre (“SIAC”) put on hold the USD 3.38 billion transaction, 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 (“EA Order“). 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.
- The substantive dispute at hand
The SHA, between Amazon and Future Coupons, allows Amazon to acquire 49% of its Share Capital. The SHA contains a list of ‘Restricted Persons’, highlighting entities with whom Future Group was not permitted to enter into an agreement with. In spite of these underlying provisions forming part of the SHA, Future Group entered into a transaction selling certain assets to Reliance, which is a part of Mukesh Dhirubhai Ambani Group, in order to save itself from going into liquidation. At this juncture, it is also important to note that vide this transaction, Reliance aims to acquire not only Future Group’s Retail assets but also its liabilities amounting to approximately Rs. 12,801 crores. Furthermore, Reliance has also agreed to invest a sum of Rs. 2,800 crores into the merged entity which, besides others, will be used to pay Future Group’s residual liabilities. As a result, this transaction will avert Future Group’s insolvency. In case the transaction fails, Future Group will undoubtedly go into liquidation.
Amazon has contended that Future Group has in fact violated provisions of the SHA by entering into a sale transaction with Reliance, as Reliance falls under the category of Restricted Persons under the SHA. It is also the contention of Future Group that in fact it is Amazon that stands in violation of FEMA- FDI Rules. Reading the conflation of agreements between Amazon and Future Group, Future Group contended that besides, Amazon, creating protective rights it is transgressing into controlling Future Retail, which in fact requires prior approvals of the government. Without such approvals Amazon would be in violation of FEMA-FDI Rules.
- Arguments put forth by Future Group and Reliance:
In a nutshell, Future Group is not seeking an anti-arbitration injunction or an anti-suit injunction, but only a restraint on Amazon to not interfere with the transaction being carried out between Future Group and Reliance. In other words, the primary grievance of Future Group is to the use of the EA Order and the interim directions passed therein, and accordingly Future Group does not actually seek a declaration as to the invalidity of the EA Order on merits, and only questions the legal status of the Emergency Arbitrator and the EA Order itself within the Indian jurisdiction.
As per Future Group and Reliance, Amazon’s entire attack in these proceedings is based on the binding nature of the EA Order. It is contended that the SIAC Rules, based upon which the EA Order has been passed, are merely procedural in nature and cannot provide for substantive jurisdiction to a forum to grant interim reliefs other than what is mandated under Part I of the Act, specifically under Sections 9 and 17. In other words, the argument is based on the premise that the EA Order is null and void in law and incapable of enforcement under Part I of the Act and therefore, the proceedings before the Emergency Arbitrator are void as it is coram non judice.
- Arguments put forth by Amazon
Fighting the averments made by Future Group and Reliance, Amazon has taken a stand that the suit filed before the Delhi High Court is purely an abuse of process of the Court, especially taking into consideration that Future Group has participated in the arbitration proceedings commenced on October 5, 2020 and after appearing before the Emergency Arbitrator filed various submissions including those raised in the present suit. As a result, whilst disrespecting due process of arbitral proceedings, Future Group has wrongfully sought to claim the EA Order to be null and void, that being impermissible as a collateral challenge that cannot be maintained under Indian law. Amazon, going a step further, has also backed its arguments on the principle of ‘party autonomy’ suggesting that the said principle entitled Amazon to seek emergency relief under SIAC Rules and such choice is enforceable under Section 2(8) of the Act.
Amazon has contended that an Emergency Arbitrator constitutes an ‘arbitral tribunal’ for the purpose of passing the EA Order for certain well-established reasons. Firstly, Section 2(1)(d) of the Act defined arbitral tribunal to mean ‘a sole arbitrator or a panel of arbitrators’. Therefore, an Emergency Arbitrator can be considered as a valid arbitrator under the SIAC Rules and accordingly under the Act. Secondly, an arbitral tribunal will comprise of an Emergency Arbitrator in terms of Section 2(8), Section 2(1)(d) of the Act and the SIAC Rules in accordance with the principle of ‘party autonomy’. Lastly, under the SIAC Rules, the Emergency Arbitrator occupied the position of and functions as an arbitrator till the arbitral tribunal has been fully constituted. In accordance to the aforesaid, the proceedings before the Emergency Arbitrator are valid under Indian law and the EA Order constitutes an interim measure under Section 17(1) of the Act as an order of the Court under Section 17(2) of the Act.
- Developments at the Delhi High Court & the Supreme Court of India.
Aggrieved by the decision of the Emergency Arbitrator passed on 25 October 2020, Future Group was quick to pursue an alternative remedy to restrain Amazon from hampering with the billion dollar deal they had struck with Reliance. Future Group moved the Delhi High Court praying for inter alia an order for permanent injunction directing Amazon from unlawfully interfering with the disputed transaction. The Single Judge bench was to decide inter alia whether the suit filed by Future Group was maintainable before it, in light of the pending arbitration proceedings before SIAC. The Court, through its order dated 21 December, 2020 was quick to opine on the maintainability of the suit and held that the suit was in fact maintainable. With regard to the injunctive relief that was sought by Future Group, the Court in noting that similar contentions were already put before the various statutory and regulatory bodies, held that they should continue to take their decision in accordance with the law and thereby declined granting the injunctive relief as prayed for by Future Group.
Being a partial win for Amazon in the Delhi High Court, parallel developments in the proceedings before the Competition Commission of India, Securities Exchange Board of India and the National Company Law Tribunal were moving swiftly. Aggrieved by the thought of the consolidation of the transaction between Future and Reliance, Amazon pursued another dilatory tactic and filed an application before the Delhi High Court under Section 17(2) of the Act for enforcement of the EA Order. The Learned Single Judge through its order dated February 2, 2021 was quick to opine on the legitimacy of the order passed by the Emergency Arbitrator and thereby recognized the EA Order as a valid order under Section 17(1) of the Act and held that the same was enforceable under Section 17(2) of the Act. The Court further reserved its reasoned order for a later date and meanwhile directed that status-quo should be maintained with the respect to the transaction culminating in a big win for Amazon.
As a rebuttal to this Order of the Delhi High Court, Future rather high-handedly filed an appeal against it before the Division Bench. The Division Bench through its order dated February 8, 2021 was quick to stay the implementation of the status quo order passed by the Learned Single Judge. The Division Bench reasoned by stating that they do not see why the statutory bodies like CCI & SEBI should be restrained from proceedings in accordance with law. It is our opinion there appears to be lack of regard for the time of the Courts as the order of the Learned Single Judge has been appealed even before a detailed order was passed. It also appears that the Division Bench has erred in taking cognizance of the fact that the impugned order did not exist in finality and hence may not have been ready for examination by the Appellate Bench.
Not surprisingly, Amazon being aggrieved by the Order dated February 8, 2021 of the Division Bench invoked its constitutional remedy and filed a Special Leave Petition (SLP) before the Supreme Court of India in order to challenge it. On February 22 2021, the Supreme Court of India vehemently refused to comment on the merits and directed the parties to file rejoinders in two weeks after which the matter would be heard. The Apex Court further allowed the NCLT to continue assessing the merger but noted that it should not come a final order of sanction of schemes.
It is pertinent to take note of the lackadaisical attitude of the Indian Judiciary in upholding the legitimacy of valid arbitral instruments, and how this might once again slow down India’s prospect in becoming a popular seat for International Commercial Arbitration. It is also true that the lack of direction of the applicability of Part I of the Act to internationally seated arbitrations has damaged the landscape for arbitration in India for the last decade.
Time and time again, the Indian Judiciary has appeared to be reluctant to follow international comity in the field of International Commercial Arbitration. The Indian Courts have also seemed apprehensive to discharge India’s obligations under the 1958 New York Convention and have also swayed to give effect to the essence of the 1985 UNCITRAL Model Law. It is also true that International Arbitration has become an institution that transcends legislative and judicial idiosyncrasies and is governed by internationally recognised principles of law.
The Amazon-Future-Reliance dispute appears to be one where due process of law and the time of the Courts has been blatantly disregarded by those litigants with deep pockets. A lot will have to be rectified by the Supreme Court of India when the Special Leave Petition is finally on merits in order to foster the practice of institutional arbitration, instil confidence in the minds of the international business community and reiterate the importance of due process of law.