Future Group’s Legal Options Against Amazon
Amazon.com Inc.’s recent victory at the Supreme Court of India has resulted in two adverse outcomes for Kishore Biyani’s Future Group.
One, Amazon would like to see its win manifest in corrective steps by Future Group entities. Which means Future Retail, Future Coupons Pvt., and other group entities may soon have to comply with the order passed in March by a single judge bench of the Delhi High Court. And two, the apex court has considerably narrowed Future Group’s remedy before Indian courts.
The Corrective Steps
In its March order, a single judge bench of Justice JR Midha had upheld the validity of the emergency arbitrator’s award. Amazon had won this interim award in October 2020 via which Future Retail and its promoters were barred from taking any steps to fructify the transaction with Mukesh Ambani’s Reliance Retail Ventures. That included seeking regulatory approval for this Rs 27,513-crore deal.
But soon after, Future Retail sought and obtained the approval of the Competition Commission of India, stock exchanges and the Securities and Exchange Board of India. It also filed the scheme of arrangement between Reliance Retail and Future Group with the National Company Law Tribunal.
The single judge had viewed this as a wilful violation of the Emergency Arbitrator’s order and passed the following directions:
Assets of Future Retail, Future Coupons, Kishore Biyani and others to be attached.
File details of their assets within 30 days.
A show-cause notice was issued to Kishore Biyani and others. The court has asked them to show cause why they should not be detained in civil prison.
No further action in violation of the Emergency Arbitrator’s order should be taken.
Competent authorities be approached for recall of the orders passed on their applications in violation of the Emergency Arbitrator’s order.
Future Group and its promoters didn’t have to comply with any of these directions since they were subsequently stayed by a division bench of the high court.
That protection has now been taken away by the Supreme Court.
The single judge's order has been confirmed by the Supreme Court, which means Future Group would have to take some positive steps, namely write to the various regulators putting its deal with Reliance Retail on hold, corporate lawyer Sitesh Mukherjee told BloombergQuint.
I think that will be one of the ways in which the single judge's order could be complied with. Today, if the single judge is satisfied that they’ve taken sufficient action to comply with the order of the emergency arbitrator, then it is possible no punitive directions will be passed against Future Group. For that, Future Group would have to take some positive action.Sitesh Mukherjee, Corporate Lawyer
As the parties wait for the final award by the Singapore arbitral tribunal, Amazon would insist on putting the clock back with the regulators to the extent possible, or to keep things cold to the extent it is not possible to put the clock back, Mukherjee added. "The way the single judge’s order reads, there are things that you need to do to unwind what’s been done".
Promod Nair, founding partner at Arista Chambers concurred. Future Group will have to ensure strict compliance with the ruling of the emergency arbitrator failing which, there could be repercussions, he said.
What the Supreme Court has essentially held is that the decision of the emergency arbitrator is binding on Future Group and I would also imagine that it will be binding on persons who claim through or other entities that belong to the Future Group and the Reliance entity would also be covered. They would therefore have to comply with the decision of the emergency arbitrator in letter and spirit, failing which there could be consequences for contempt of court.Promod Nair, Founding Partner, Arista Chambers
Narrow Legal Remedy
As the second outcome of the apex court’s ruling, Future Group cannot challenge Justice Midha’s order under Section 37 of the Arbitration Act. This provision specifies the nature of orders, granted during arbitral proceedings, which can be appealed.
Here’s how the apex court came to this conclusion.
Section 17(1) of the Arbitration Act allows parties to approach an arbitral tribunal during the arbitration proceeding to seek interim relief. This includes an emergency arbitrator, the Supreme Court has held.
Section 17(2) says that an interim order of an arbitral tribunal will be enforced in the same manner as if it was an order of a court under the provisions of the Code Of Civil Procedure.
Interpreting this provision, the Supreme Court pointed out that arbitral tribunals cannot enforce their own orders. And so, courts have been empowered to do so under section 17(2). But the law i.e. Section 37 doesn’t contemplate any appeals against enforcement orders passed under section 17(2).
This interpretation limits Future Retail's legal options. It essentially means that Future Group can now approach the high court to challenge the emergency arbitrator's interim award. But its appeal against the single judge's judgment, which is an enforcement order, will not stand.
Since the Supreme Court has treated an emergency arbitrator on par with an arbitral tribunal, Future Group can appeal against the October 2020 interim order. But the enforcement order of the single judge is not appealable, Mukherjee explained.
As far as grounds for challenging the decision of the emergency arbitrator is concerned, on general principles, there are probably at least a couple of points that could be taken in appeal, Nair pointed out.
The first could be that under Indian law, generally if there's a breach of contract, damages would be an adequate remedy and courts would be slow to order specific performance of contracts. So, one point that could be made in an appeal is that the counterparty i.e. Amazon could be adequately compensated in damages if it is finally established in Singapore arbitration that there has been a breach of the agreement by Future Group.
The second could be the aspect about third party rights being created, he opined. This refers to Future Group's deal with Reliance Retail.
I think the Supreme Court was careful in its judgment in saying that it is not pronouncing upon the rights of third parties. The ground that could be taken in appeal is that a decision of an emergency arbitrator cannot have an impact on rights that have already been vested or created in favour of third parties and if the emergency arbitrator has done so, the emergency arbitrator has exceeded its jurisdiction and that can be the basis of an appeal.Promod Nair, Founding Partner, Arista Chambers
Unless the single judge order is set aside, Future Group's deal with Reliance Retail will now need to be put on hold, both experts said.
Watch the full discussion here: