Authors: M. Hossain, Founder at LLC AND Reshmi Hossain, IP & Commercial Law Specialist, LLC
The Supreme Court passed an important judgment in August 2021 in the dispute involving Amazon and the Future Group. The Court’s decision in NV Investment Holdings LLC v. Future Retail Limited & Ors. to uphold the enforcement of an international arbitral interim order can be viewed as throwing a spanner in the works of the proposed $3.4 billion deal between Future Group and Reliance.
The recent judgment dated 06.08.2021 was passed by the Supreme Court while hearing the appeals filed by Amazon against the impugned judgment of the Division Bench of the Delhi High Court. The Supreme Court’s ruling on this matter shall most likely sculpt the trajectory for Indian court’s role in the enforcement of international arbitral awards.
Amazon has been ramping up operations in India for some time now while competing with other e-commerce platforms, however the e-commerce battle gained momentum with Reliance entering the fray. Amazon has been seen to aggressively fight a battle to block a deal between its estranged partner Future Group with Reliance Retail, the two largest retail chains in India.
In August 2020, the Future Group announced the sale of its retail, wholesale and logistic businesses to Reliance Retail Ventures, the retail arm of Reliance Industries. The Future Group is an Indian conglomerate company that owns popular brands including supermarket chains like Big Bazaar, Food Bazaar and lifestyle stores including Brand Factory and Central among others. It also has Indian franchise rights for brands like WH Smith (popular British retail giant), a 50:50 joint venture with UK based footwear firm Clarks, joint venture with French menswear retailer Celio, exclusive license for popular American footwear brand Converse, retailing agreement with Lee Cooper, an English-American clothing and footwear manufacturing company among others.
The conflict revolves around the $3.4 billion deal that the Mukesh Ambani led Reliance Industries Limited set up in 2020 to buy the assets of debt ridden Indian retailer Future Group. However, previously in August 2019, Amazon had taken a stake of 49 per cent in one of Future's unlisted firms, Future Coupons. The covenants between them included Amazon’s right to buy shares first into Future Retail and a non-compete clause against sale to rivals. The deal also gave a right to Amazon to acquire the entire or part of the shares of promoters of Future Retail after three years of the deal but before ten years in “certain circumstances” and subject to the law. Nonetheless, it was agreed between Amazon and Future that in case any dispute was to arise regarding any breach of the said agreement, the matter would be taken up before the Singapore International Arbitration Centre (SIAC). It is pertinent to note that Future Coupons owns a 7.3% stake in Future Retail.
Once the deal between Reliance and Future Group was made public, Amazon decided to pursue arbitration in Singapore, the neutral venue agreed for settling any dispute as per the 2019 agreement between Amazon and Future. The Arbitration panel comprised of a sole arbitrator, which passed an interim injunction in favour of Amazon thereby putting the deal of Rs. 25,000 crores approx. between Reliance and Future on hold. Amazon had even made written communications to the Indian market regulator SEBI and stock exchanges requesting them not to approve the Reliance - Future deal in light of the Singapore arbitrator’s interim order. The SIAC’s interim award had barred Future Retail from disposing or encumbering any of its assets or securing any funding through a restricted party. The arbitrator had specifically stated that, “economic hardship alone is not a legal ground for disregarding legal obligations”.
Future Group had instituted proceedings before the Delhi High Court in response to the injunction passed by SIAC. Future Group had filed the suit in November 2020 to obtain necessary reliefs against Amazon who, according to Future, were trying to misuse the Interim Order (25th October 2020) passed by the Emergency Arbitrator, appointed by the SIAC. The Future Group had questioned the validity of the interim order on the basis that the order had been passed in an arbitration proceeding arising out of a clause in a contract to which Future Retail was not a party. The Future Group had also disputed the validity of the interim order on the basis that the Emergency Arbitrator Order was not enforceable under the provisions of The Arbitration and Conciliation Act, 1996 and therefore was not binding on Future Retail.
Countering Future Group’s submissions in the High Court before the Single Judge, Amazon had argued that the interim order from the Emergency Arbitrator against Future Retail was valid and that accordingly Amazon did have the right to notify statutory bodies about the existence of such an order. Amazon had further contended that Future Retail should have approached an Indian court upon being notified of the arbitration itself and not only upon being unsuccessful after the hearing for the interim order. Amazon’s senior counsel had also contended that Future Retail had fully contested Amazon before the SIAC Emergency Arbitrator and therefore it was not correct for Future Retail to claim that the award is not binding or invalid.
Future Retail (FR) had made arguments through their Senior Counsel Mr. Harish Salve before the Delhi High Court that they were not challenging the interim award passed by the Emergency Arbitrator, but in fact were praying before the Court to only prevent Amazon from interfering in its contract with Reliance as Amazon had invested only in a company called Future Coupons Pvt. Ltd. (FCPL) and that there was no relation between them (i.e. Future Retail Limited & Amazon) because as per the Foreign Direct Investment Laws in India, a foreign company is prohibited from investing in multi-brand retailing.
In March 2021, the Single Bench of the Delhi High Court upheld the Emergency Award passed against the $3.4 billion Future-Reliance deal, which was subsequently stayed by a Division Bench of the same Court. The Single Judge order had imposed costs on some Future Group companies and others after holding them guilty of wilful violation of the emergency arbitrator’s order in favour of Amazon. The Single Bench had earlier ordered a status-quo, effectively putting the sale of retail assets by Future Retail Ltd. to Reliance Retail Ltd. on hold. The Division Bench of the Delhi High Court stayed that interim order, prompting Amazon to approach the Supreme Court of India.
In this context, the matter was heard before the Supreme Court and, in a big relief to the e-commerce giant Amazon, the Apex Court upheld the order of the Singapore Emergency Arbitrator restraining the Future group from going ahead with its proposed Rs 24,713-crore deal with Reliance.
The verdict is reflective of the trend that has been prevalent since the 2015 amendment to the Indian arbitration law, where courts in India have tried to pursue a consistent approach of minimal intervention in cases involving foreign awards and their necessary enforcement. Therefore, any block on enforcement of foreign awards have been restricted to only limited grounds. In Xstrata Coal Marketing AG v Dalmia Bharat (Cement) Ltd, the Court referred to Supreme Court’s observation in Renusagar Power Co Ltd v. General Electric Co., that: “Article V (2)(b) of the New York Convention of 1958 and Section 7(1)(b)(ii) of the Foreign Awards Act do not postulate refusal of recognition and enforcement of a foreign award on the ground that it is contrary to the law of the country of enforcement and the ground of challenge is confined to the recognition and enforcement being to the public policy of the country in which the award is set to be enforced. This would mean that "public policy" in Section 7(1)(b)(ii) has been used in a narrower sense and in order to attract to bar of public policy the enforcement of the award must invoke something more than the violation of the law of India.”
The Supreme Court bench comprising Justices R. F. Nariman and B.R. Gavai held that the order of an emergency arbitrator is enforceable in India as an emergency arbitrator’s award holds good under Section 17(1) of the Arbitration and Conciliation Act, 1996 and the single judge’s order for such award cannot be appealed under Section 37(2), thereby upholding the Singapore’s EA interim order and in turn stalling Future Retail’s $3.4 billion deal. The next phase of arbitration in Singapore is expected soon, however it is likely that Future could explore further legal action in India meanwhile.
This Supreme Court decision sends a very positive signal to international businesses, reaffirming that their rights would be protected in India under Indian law and as such would have a long-term impact on future investment deals, joint ventures and investments.
The Supreme Court is carving out a clear trajectory to bring India’s arbitration regime aligned with the international regime in arbitration-friendly countries. The judgment lay to rest the ambiguity with respect to Emergency Awards while also declaring that full party autonomy is given by the Arbitration Act to have a dispute decided in accordance with institutional rules which can include emergency arbitrators delivering interim orders, described as "awards". Such orders are an important step in relieving civil courts and allowing interim relief to be granted to parties under Section 17(1) of the Arbitration Act. Big corporations involved in matters of high stakes could view this as a momentous ruling for more such matters.
Supreme Court’s decision hints at a growing global perspective on the role of emergency arbitrators whilst opening the gateway for parties to conduct emergency arbitrations in India and across the world by endorsing the sanctity of mutually agreed contracts and boosting confidence in commitments being honoured. Future Retail has remarked that the judgment addressed two limited points related to the enforceability of the Emergency Arbitrator’s order and not the merits of the disputes and that FRL will further exercise the remedies of law available to them.
Following the FRL setback in the Supreme Court that ruled in favour of its dissonant partner Amazon, the Future Group has approached the Supreme Court separately against the seizure of assets belonging to the company and its founder Kishore Biyani, challenging a Single Judge ruling of the Delhi High Court. FRL have prayed before the Supreme Court to set aside the orders passed by the Delhi High Court in execution proceedings for enforcing the order passed by the Emergency Arbitrator (EA) on October 25, 2020 and the proceedings are likely to be listed and heard accordingly.
With Amazon and FRL continuing to stay firm in their respective stances, it will be interesting to see how the developments unfold as the instant matter is of great consequence, especially in relation to the emergent Indian e-commerce arena.