Amazon-Future Group-Reliance Retail: The Many Twists And Turns That Lie Ahead
It’s Amazon.com Inc. 1 and Future Group 0.
The legal battle between the two retail giants saw the first round go in favour of Amazon. An emergency arbitral tribunal — constituted under the Singapore International Arbitration Centre Rules — has directed Kishore Biyani’s Future Group to put on hold its deal with Mukesh Ambani’s Reliance Retail Ltd.
The interim direction comes after Amazon initiated arbitration proceedings before the SIAC, alleging violation of contractual obligations by Future Group. The order raises three key questions:
- Is the interim relief granted by an emergency arbitrator under SIAC Rules enforceable in India?
- Is the interim direction binding on Future Retail, and does Future Coupons’ Articles of Association have a role to play?
- And, the potential impact of the interim award on the recent investments in Reliance Retail.
Enforceability Of Interim Relief
The emergency arbitrator provisions in SIAC Rules are meant to address situations where a party is in need of emergency interim relief before an arbitral tribunal is constituted. Two persons with the knowledge of the matter told BloombergQuint that as per the agreement between Amazon and Future Group, Singapore is the seat of arbitration.
This assumes importance because the seat determines whether the Indian Arbitration Act applies or not, and how a foreign award is to be enforced in India. The Indian arbitration law does not recognise an Emergency Arbitrator, Vikram Nankani, senior advocate at Bombay High Court, said.
So, the question is how should Amazon enforce this award?
Corporate lawyer Murali Neelakantan pointed to a precedent on emergency arbitration where parties were asked to file an application for interim relief by the Delhi High Court. In the Educomp case, the court had asked the parties to file a Section 9 application under the arbitration law, he explained. Under this section, parties can approach high courts for interim relief.
The high court had held that the “emergency award passed by the arbitral tribunal cannot be enforced under the Arbitration Act and the only method for enforcing the same would be for the petitioner to file a suit.” And that the “recourse to section 9 is not available for the purpose of enforcing the orders of the arbitral tribunal; but that does not mean that the court cannot independently apply its mind and grant interim relief in cases where it is warranted,” the Delhi High Court had said.
In the past, high courts have dealt with such matters as if it’s hearing it afresh. It’s not that the judge will just accept the arbitral tribunal’s interim directions, merely sign on it and allow it to be enforced.Murali Neelakantan, Corporate Lawyer
Nankani agreed, and added that the emergency arbitrator’s order will have a persuasive value.
It’ll be a large influential factor but the high court is not bound by it. It has an independent jurisdiction.Vikram Nankani, Senior Advocate, Bombay High Court
Directions Binding On Future Retail?
This case arises from Amazon.com NV Investment Holdings’ 49% acquisition in Future Coupons—a promoter group entity of Future Retail — in 2019. At that time, Future Coupons and Future Retail had also entered into a shareholders’ agreement, which gave the former certain rights over the latter. The shareholders’ agreement stated that Future Retail will require prior approval from Future Coupons on certain matters.
In response to the emergency arbitrator’s order, Future Retail has said it’s not a party to the agreement under which Amazon has invoked arbitration proceedings.
Nankani said while this may be true, as per the Supreme Court’s decision in Chloro Controls, non-signatories to an arbitration agreement can be made party to the proceedings.
In this case, the apex court had held that “in the cases of group companies or where various agreements constitute a composite transaction… the court may have to make reference to arbitration even of the disputes existing between signatory or even non-signatory parties”.
It’s a mixed question of fact and law. Much will depend on the obligations cast on the parties to the contract. If Amazon can show that the performance of the contract also depends on the actions of a non-signatory, then relying on Chloro Controls, it can probably rope in Future Retail.Vikram Nankani, Senior Advocate, Bombay High Court
But equally, there have been cases where courts have refused to make non-signatories a party, Neelakantan said. In Reckitt Benckiser’s case, according to him, the apex court had refused to invoke the group companies’ doctrine to bind non-signatories. A non-signatory without any causal connection with the process of negotiations preceding the arbitration agreement could not be made party to the arbitration, the court had held.
Here, the Articles of Association on Future Coupons will have a big role to play — two clauses to be specific.
One, the actions and decisions of the authorised representative will be binding on Future Coupons’ shareholders and its affiliates. And two, Future Coupons will provide all assistance and cooperation to the shareholders [which includes Amazon] for the purpose of consummation of rights under the shareholders’ agreement.
Amazon had no reason to doubt this since the Biyani family was, in fact, the promoter of all the Future Group entities and controlled them. This is also borne out by the AoA of Future Coupons which incorporates the terms of the SHA and imposes a “further undertaking” obligation on the parties to procure (through the entities that they control and affiliates) compliance with the terms of the SHA.Murali Neelakantan, Corporate Lawyer
And that meets the test laid down under Chloro Controls, which could make Future Retail a party to the arbitration proceedings, he said.
Collateral Damage To Investments In Reliance Retail
Over the last few months, Reliance Retail has raised over Rs 30,000 crore from investors like Mubadala, GIC, TPG, Silver Lake, General Atlantic, and KKR & Co.
These investment agreements are likely to have a Material Adverse Change clause, Neelakantan said, which could get triggered if there’s a risk to Future Group and Reliance Retail deal.
It’s unlikely that these investors would’ve been unaware of the rights Amazon has vis-à-vis Future Retail. Further, when they are investing such large sums of money, there would be a clear understanding of what would be done with it, he explained.
I would suspect that one of the uses would be the acquisition of Future Group’s businesses. If the rationale for these investment was this deal, it’s customary for an investor to think what if this deal doesn’t happen? It’ll be interesting to see when that MAC clause gets triggered.Murali Neelakantan, Corporate Lawyer
What’s of significance is the content and language of the MAC clause, there’s no template for it, Nankani said. “The length and breadth of this agreement can be very different.”
BloombergQuint’s email to Reliance Retail for clarity on this clause remains unanswered.
Watch the full conversation here...