AMAZON - FUTURE RETAIL- RELIANCE
AMAZON- FUTURE
RETAIL- RELIANCE: SUPREME COURT
Shubham Budhiraja[1]
I have divided this entire brief
into few parts;
1. History
& Introduction
2. Petitioner
& Respondent contentions
3. Judgment
of the Court
4. Road
ahead
HISTORY & INTRODUCTION
The Dispute between Amazon and
Future Retail and Reliance group has many facets. It is a battle to control the
offline retail market between two dominant players. I.e. Amazon and Reliance
Group
Future Retail is a part of Future
Group which started as offline Retail Company with a single store which later
becomes India’s largest offline retail group in terms of revenue, consumer
base, etc.
The retail sector works in a way
where cash inflows are delayed but cash outflow are on daily basis to maintain
stock requirements, etc. Thus, working capital requirement is always high. Due
to Covid-19, the retail sector particularly future group could not keep intact
with its inflows and fixed debt cost has constrained it to look for
alternatives. The one time settlement scheme it had with SBI was also failed
due to defaults. One question can arise whenever lenders would take future
retail to IBC, the reliance could have buy out them through resolution process
but that might take its own cost because code
often give haircuts to the creditors. So it was in Interest of creditor
as well as future retail to have its revival through means outside the IBC.
The Amazon and Future Group
(precisely future coupon) enter into 3 agreements namely;
1. Shareholder
agreement dated 12.09.2019 enter amongst the future group companies and future
coupon was given a protection w.r.t. future retail assets
2. Shareholder
agreement dated 22.09.2019 enter amongst the amazon and future group companies
including future coupon but not future retail. Vide letter dated 19.12.2019,
similar list of prohibited category added to the future retail agreement
also.
3. Share
subscription agreement dated 22.09.2019 amongst the amazon and future group
companies including future coupon but not future retail but it clearly states
that Investment by amazon in future coupon would flow down to future retail.
This means that future retail could not sell its retail assets unless it took
consent from future coupon which ultimately means consent from amazon. Schedule-III
of this agreement added a list of restricted person with whom future coupon
cannot transfer its assets such as reliance group
On 26.12.2019,
Amazon invested R.S 1431 Crore in future coupon which flowed down to future
retail. However after few months on 29.09.2020, future group and reliance
entered into an scheme of arrangement and compromise to amalgamate the future
retail with reliance group and transfer of its assets and liabilities to
reliance. The law states that any shareholder not happy with amalgamation may
object as per companies act before NCLT.
However Amazon
on 05.10.2020 invoked its arbitration clause against future coupon where seat
of arbitration was New Delhi and parties have confined themselves to Singapore
arbitration institution and its rules which contains provisions for emergency
arbitrator.
The emergency
arbitrator passes interim award in nature of injunction restraining the future
retail in dealing with its amalgamation with reliance.
Since there
was exceed of threshold limit under section 5 of competition act, CCI regulated
the combination and passed the order for approval find nothing anti-competitive
in their combination. The objections raised by amazon were refused by CCI.
Thereafter
instead of filling appeal against the award under section 37, Future retail
filed Order 39 Rule 1&2 to restrain amazon from interfering in transaction
on basis of tortious interference. The Delhi HC find prima facie case but
balance of convinces and irreparable loss lies in favor of Amazon so it
dismissed the anti-injunction suit. Some of its observations were challenged by
amazon before division bench which is pending.
Meanwhile
Amazon and Future retail continue to appear and proceed before arbitrator in
Singapore.
Thereafter,
Amazon filed enforcement of Interim award under section 17 as a deemed decree
which was allowed by the Delhi High Court and it passes order of execution in
nature of attachment of properties of future retail and group.
The Division
bench stayed the operation of execution. Meanwhile NCLT proceedings for
amalgamation proceedings were carrying on between Future retail and Reliance.
The Amazon has
now come before Supreme Court against division bench order and Supreme Court
has decided in favor of Amazon. The apex court have not decided on
-
Whether order of emergency arbitrator was good
on merits
-
It was no-where challenged that terms of
shareholder agreement imposed by amazon on future retail were in nature of
restraint of trade and thus void. To restraining prohibited person such as
Reliance group was not challenged here. It is for arbitrator to decide the
terms of this agreement including its validity.
ISSUES
-
Recognition of emergency arbitration in India
-
Appeal mechanism under Section 37
PETITIONER & RESPONDENT CONTENTIONS
|
The
contentions of future retail are as follows; |
The contentions
of Amazon are as follows; |
|
1. The
amazon is behaving like an east India company (rhetoric) 2. The
meaning of term arbitral tribunal does not include emergency arbitrator 3. Law
commission recommended incorporation of EA but parliament refuses. This shows
intention of law maker 4. The
comparison between language of section 9 and section 17 to show that for
passing an interim award under Section 17, there has to be an arbitral
tribunal in existence whereas emergency arbitrator was not tribunal and it
has passes the award before a tribunal could be constituted 5. The
emergency arbitrator is not an Independent quasi-judicial bodies as it’s
appointment is controlled by president of Singapore arbitration institution 6. The
future retail was never a party and EA should not have passed relief against
a non-party to the agreement |
1. Emergency
arbitrator is recognized in India law by virtue of party autonomy where
parties agreed to an Institution then they also agreed to the institution
rules which may contain emergency arbitrator
2. Group
company doctrine requires passing of award against future retail. Future
retail is not a stranger and it has its basis in all these agreements when
read together. 3. An
award of arbitrator is not in nullity on its head. One has to respect it. The
award was never challenged under Section 37 and rather appeal filed under
Order 39 Rule 2A was not maintainable as Section 37 is complete code in
itself |
SUPREME COURT
1. Section
17(1) says a party “may’ “during arbitral proceedings”, apply to “arbitral
tribunal” where arbitral tribunal means emergency arbitrator also. So order
passed by emergency arbitrator was in essence an order passed by arbitral
tribunal under Section 17(1)
2. Section
37(1) starts with non-obstante clause and it says that appeal shall lie from
following appealable orders only and no other orders. It is based on effect
doctrine.
3. Section
37(2)(b) says where an order of Interim-protection is granted or refused under
Section 17 such as present case then appeal can be filed under section 37.
4. Section
17(2) states “subject to any order passed in appeal under Section 37”, any
order issued by tribunal (emergency arbitrator in present case) then such an
order shall be “deemed to be an order of the court” “for all purposes” and
shall be “enforceable under the code” “in the same manner” as if it were order
of the court.
5. The
order passed under Order 39 Rule 2-A is an enforcement of order under Section
9. In present case, amazon filed Order
39 Rule 2-A because Future retail was not complying with the emergency
arbitrator order of Injunction. The injunction in general are under Order 39
and their enforcement is filed under Order 39 Rule 2-A unlike Permanent
Injunction filed under Order 21 CPC.
6. Section
17(1) and Section 9(1) are same and Injunction order are enforceable under
Order 39 Rule 2A CPC. The legal fiction created under Section 17 is for limited
purpose and it cannot extend to mean that against Order 39 Rule 2-A, there will
be an appeal under Order 43 CPC.
7. The
Language of Section 37 remain un-amended despite amendments made in Section 17
to ad Section 17(2). Section 37 makes no
appeal to enforcement order / or its refusal. Section 37 is complete code
w.r.t. appeal and thus no appeal can be filed under Order 43 CPC against order
under 17(2) which is in substance passed under Order 39 Rule 2A.
8. The
meaning of term
-
“as if”
-
“for all purpose”
-
“deemed to be an order”
-
“enforceable under the code”
9. Order
21 CPC laid down principles w.r.t execution of decree or orders.
10. The
language of Section 36 deals with enforcement of award as decree whereas
language of Section 17(2) deals with enforcement of order under section 17 as
order of the court.
11. Arbitration
proceeding can be administered by a permanent arbitral institution. Importantly,
Section 2(6) makes it clear that parties are free to authorize any person
including an institution to determine issues that arise between the parties.
Also, under Section 2(8), party autonomy goes to the extent of an agreement
which includes being governed by arbitration rules referred to in the aforesaid
agreements. Likewise, under Section 19(2), parties are free to agree on the
procedure to be followed by an arbitral tribunal in conducting its proceedings
12. when
Section 17(1) uses the expression “during the arbitral proceedings”, the said
expression would be elastic enough, when read with the provisions of Section 21
of the Act, to include emergency arbitration proceedings, which only commence
after receipt of notice of arbitration by the Registrar under Rule 3.3 of the
SIAC
13. There
is nothing in the Arbitration Act that prohibits contracting parties from
agreeing to a provision providing for an award being made by an Emergency
Arbitrator. On the contrary, when properly read, various Sections of the Act
which speak of party autonomy in choosing to be governed by institutional rules
would make it clear that the said rules would apply to govern the rights
between the parties, a position which, far from being prohibited by the
Arbitration Act, is specifically endorsed by it.
14. There
can be no doubt that the “arbitral tribunal” as defined in Section 2(1)(d)
speaks only of an arbitral tribunal that is constituted between the parties and
which can give interim and final relief, “given the scheme of the Act”, as Mr.
Salve puts it, as contained in the aforementioned Sections. However, like every
other definition section, the definition contained in Section 2(1)(d) only
applies “unless the context otherwise requires”. Given that the definition of
“arbitration” in Section 2(1)(a) means any arbitration, whether or not
administered by a permanent arbitral institution, when read with Sections 2(6)
and 2(8), would make it clear that even interim orders that are passed by
Emergency Arbitrators under the rules of a permanent arbitral institution
would, on a proper reading of Section 17(1), be included within its ambit. It
is significant to note that the words “arbitral proceedings” are not limited by
any definition and thus encompass proceedings before an Emergency Arbitrator,
as has been held hereinabove with reference to Section 21 of the Act read with
the SIAC Rules. The short point is as to whether the definition of “arbitral
tribunal” contained in Section 2(1)(d) should so constrict Section 17(1),
making it apply only to an arbitral tribunal that can give final reliefs by way
of an interim or final award.
15. The
heart of Section 17(1) is the application by a party for interim reliefs. There
is nothing in Section 17(1), when read with the other provisions of the Act, to
interdict the application of rules of arbitral institutions that the parties
may have agreed to. This being the position, at least insofar as Section 17(1)
is concerned, the “arbitral tribunal” would, when institutional rules apply,
include an Emergency Arbitrator, the context of Section 17 “otherwise
requiring” – the context being interim measures that are ordered by
arbitrators. The same object and context would apply even to Section 9(3) which
makes it clear that the court shall not entertain an application for interim
relief once an arbitral tribunal is constituted unless the court finds that
circumstances exist which may not render the remedy provided under Section 17
efficacious. Since Section 9(3) and Section 17 form part of one scheme, it is
clear that an “arbitral tribunal” as defined under Section 2(1)(d) would not
apply and the arbitral tribunal spoken of in Section 9(3) would be like the
“arbitral tribunal” spoken of in Section 17(1) which, as has been held above,
would include an Emergency Arbitrator appointed under institutional rules.
16. It
is wholly incorrect to say that Section 17(1) of the Act would exclude an
Emergency Arbitrator’s orders. That being the case, even if section 25.2 of the
FCPL Shareholders’ Agreemen (pari materia with section 15.2 of the FRL
Shareholders’ Agreement) make the SIAC Rules subject to the Arbitration Act,
the said Act, properly construed, would include an Emergency Arbitrator’s
awards/orders, ther being nothing inconsistent in the SIAC Rules when read with
the Act.
17. The
arbitration” mentioned in section 25.2 of the FCPL Shareholders’ Agreement
would include an arbitrator appointed in accordance with the SIAC Rules which,
in turn, would include an Emergency Arbitrator
18. Mere
fact that a recommendation of a Law Commission Report is not followed by
Parliament, would not necessarily lead to the conclusion that what has been
suggested by the Law Commission cannot form part of the statute as properly
interpreted.
19. Section
17 was then amended by the very same 2015 Amendment Act (which brought in
sub-sections (2) and (3) to Section 9) to substitute Section 17 so that Section
17(1) would be a mirror image of Section 9(1), making it clear that an arbitral
tribunal is fully clothed with the same power as a court to provide for interim
relief. Also, Section 17(2) was added so as to provide for enforceability of
such orders, again, as if they were orders passed by a court, thereby bringing
Section 17 on par with Section 9.
20. An
Emergency Arbitrator’s “award”, i.e., order, would undoubtedly be an order
which furthers these very objectives, i.e., to decongest the court system and
to give the parties urgent interim relief in cases which deserve such relief.
Given the fact that party autonomy is respected by the Act and that there is
otherwise no interdict against an Emergency Arbitrator being appointed, as has
been held by us hereinabove, it is clear that an Emergency Arbitrator’s order,
which is exactly like an order of an arbitral tribunal once properly
constituted, in that parties have to be heard and reasons are to be given,
would fall within the institutional rules to which the parties have agreed, and
would consequently be covered by Section 17(1), when read with the other provisions
of the Act.
21. Party
cannot be heard to say, after it participates in an Emergency Award proceeding,
having agreed to institutional rules made in that regard, that thereafter it
will not be bound by an Emergency Arbitrator’s ruling. As we have seen hereinabove,
having agreed to paragraph 12 of Schedule 1 to the SIAC Rules, it cannot lie in
the mouth of a party to ignore an Emergency Arbitrator’s award by stating that
it is a nullity when such party expressly agrees to the binding nature of such
award from the date it is made and further undertakes to carry out the said
interim order immediately and without delay.
22. Rule
3 merely states that the President may appoint an Emergency Arbitrator if he
determines that the SIAC should accept the application for emergency interim
relief. Once the Emergency Arbitrator enters upon the reference, he is given
all the powers of an arbitral tribunal under Rule 7 and is to decide completely
independently of any other administrative authority under the SIAC Rules.
Equally, Rule 9 does not, in any manner, impinge upon the independence of the
Emergency Arbitrator as it only lays down the timeframe within which an interim
order or award is to be made, which time is extendable by the Registrar. The
interim order or award that is finally made by the Emergency Arbitrator has
only to be approved by the Registrar as to its “form” and not on merits.
Further, Rule 10 also does not, in any manner, interfere with the independence
of the decision of the Emergency Arbitrator. This argument is, therefore,
rejected.
23. Mr.
Viswanathan also went on to argue, relying upon Section 28 of the Contract Act,
Justice R.S. Bachawat’s Law of Arbitration and Conciliation (Sixth Ed.,
LexisNexis), and the Chancery Division judgment of In Re Franklin and Swathling’s
Arbitration, [1929] 1 Ch. 238, for the proposition that arbitration,
conceptually, is an ouster of the civil court’s jurisdiction and that,
therefore, only what is expressly provided in the ouster provisions can be
followed – there is no room for any implication here. This argument may have
found favour with a court if it were dealing with Arbitration Act, 1940. As has
been held in several decisions of this Court, the Arbitration and Conciliation
Act, 1996 is a complete break with the past and is no longer to be viewed as an
ouster statute but as a statute which favours the remedy of arbitration so as
to de-clog civil courts which are, in today’s milieu, extremely burdened. As a
matter of fact, Section 5 of the Arbitration Act puts paid to the submission
when it overrides all other laws for the time being in force and goes on to
state that in matters governed by Part I of the Act, no judicial authority
shall intervene except where so provided in that Part. The Arbitration Act,
therefore, turns the principle of ouster on its head when it comes to
arbitration as a favoured means of resolving civil disputes
24. No
order bears the stamp of invalidity on its forehead an has to be set aside in
regular court proceedings as being illegal. Even If an order is later set aside
as having been passed without jurisdiction, for the period of its subsistence,
it is an order that must be obeyed.
25. 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 aid of decongesting the civil courts and affording expeditious interim
relief to the parties. Such orders are referable to and are made under Section
17(1) of the Arbitration Act
ON MAINTAINABILITY OF APPEAL UNDER ORDER 43
CPC
1.
Law Commission recommended an amendment to
Section 17 to provide the arbitral tribunal the same powers as a court would
have under Section 9. Section 9(1), after setting out in clauses (i) and (ii)
what interim measures or protection could be granted, then goes on to add, “and the court
shall have the same power for making orders as it has for the purpose of, and
in relation to, any proceedings before it”.
2.
The language of the last part of Section 9(1)
clearly refers to Section 94 of the Code of Civil Procedure read with Order
XXXIX. I.e. supplementary proceedings.
3.
Reading
of Order XXXIX, Rule 2(3) and 2(4) as it originally stood and Order XXXIX, Rule
2-A as it stands after the 1976 Amendment Act is to “prescribe” under Section
94 of the Code of Civil Procedure as to what is the consequence when a
temporary injunction order and/or an order appointing a receiver of property is
flouted.
4.
It
is one thing to say that the power exercised by a court under Order XXXIX, Rule
2-A is punitive in nature and akin to the power to punish for civil contempt
under the Contempt of Courts Act, 1971. It is quite another thing to say that
Order XXXIX, Rule 2-A requires not “mere disobedience” but “wilful
disobedience”. We are prima facie of the view that the latter judgment in
adding the word “wilful” into Order XXXIX, Rule 2-A is not quite correct and
may require to be reviewed by a larger Bench. Suffice it to say that there is a
vast difference between enforcement of orders passed under Order XXXIX, Rules 1
and 2 and orders made in contempt of court. Orders which are in contempt of
court are made primarily to punish the offender by imposing a fine or a jail
sentence or both. On the other hand, Order XXXIX, Rule 2-A is primarily
intended to enforce orders passed under Order XXXIX, Rules 1 and 2, and for
that purpose, civil courts are given vast powers which include the power to
attach property, apart from passing orders of imprisonment, which are punitive
in nature. When an order
for permanent injunction is to be enforced, Order XXI, Rule 32 provides for
attachment and/or detention in a civil prison. Orders that are passed under Order
XXI, Rule 32 are primarily intended to enforce injunction decrees by methods similar
to those contained in Order XXXIX, Rule 2-A. This also shows the object of Order XXXIX,
Rule 2-A is primarily to enforce orders of interim injunction Orders passed under
Section 17(2) of the Arbitration Act, using the power contained in Order XXXIX,
Rule 2-A are, therefore, properly referable only to the Arbitration act.
5.
The
expression “in relation to”, which occurs in both Section 9(1) and Section
17(1), is an expression which is comprehensive in nature, having both a direct
as well as an indirect significance. The expression “any proceedings”,
occurring in Section 9(1) and Section 17(1), would also be an expression
comprehensive enough to take in enforcement proceedings
6.
The
expressions “in relation to” and “any proceedings” would include the power to
enforce orders that are made under Section 9(1), and are not limited to
incidental powers to make interim orders, as was suggested by Mr. Viswanathan.
Thus, if an order under Section 9(1) is flouted by any party, proceedings for
enforcement of the same are available to the court making such orders under
Section 9(1). These powers are, therefore, traceable directly to Section 9(1)
of the Act – which then takes us to the Code of Civil Procedure. Thus, an order
made under Order XXXIX Rule 2-A, in enforcement of an order made under Section
9, would also be referable to Section 9(1) of the Arbitration Act.
7.
Given the fact that the 2015 Amendment Act has
provided in Section 17(1) the same powers to an arbitral tribunal as are given
to a court, it would be anomalous to hold that if an interim order was passed
by the tribunal and then enforced by the court with reference to Order XXXIX
Rule 2-A of the Code of Civil Procedure, such order would not be referable to
Section 17. Section 17(2) was necessitated because the earlier law on
enforcement of an arbitral tribunal’s interim orders was found to be too
cumbersome
8.
It
was to remedy this situation that Section 17(2) was introduced. There is no
doubt that the arbitral tribunal cannot itself enforce its orders, which can
only be done by a court with reference to the Code of Civil Procedure. But the
court, when it acts under Section 17(2), acts in the same manner as it acts to
enforce a court order made under Section 9(1). If this is so, then what is
clear is that the arbitral tribunal’s order gets enforced under Section 17(2)
read with the Code of Civil Procedure. There is no doubt that Section 17(2)
creates a legal fiction. This fiction is created only for the purpose of
enforceability of interim orders made by the arbitral tribunal. To extend it to
appeals being filed under the Code of Civil Procedure would be a big leap not
envisaged by the legislature at all in enacting the said fiction
9.
No
such third party is before us. As to a third party, i.e., a party who is not a
party to the arbitration agreement and to the subject matter covered by the
award and who is affected by an order made in enforcement, we say nothing,
leaving the question open to be argued on the facts of a future case.
10.
There can be no doubt that Section 37 is a
complete code so far as appeals from orders and awards made under the
Arbitration Act are concerned. This has further been strengthened by the
addition of the non-obstante clause by the Arbitration and Conciliation
(Amendment) Act, 2019
11.
Despite
Section 17 being amended by the same Amendment Act, b making Section 17(1) the
mirror image of Section 9(1) as to the interim measures that can be made, and
by adding Section 17(2) as consequence
thereof, significantly, no change was made in Section 37(2 (b) to bring it in
line with Order XLIII, Rule 1(r). The said Section continue to provide appeals
only from an order granting or refusing to grant an interim measure under
Section 17. There can be no doubt that granting o refusing to grant any interim
measure under Section 17 would only refer to the grant or non-grant of interim
measures under Section 17(1)(i) and 17(1) (ii). In fact, the opening words of
Section 17(2), namely, “subject to any orders passed in appeal under Section
37…” also demonstrates the legislature’s understanding that orders that are
passed in an appeal under Section 37 are relatable only to Section 17(1). For
example, an appeal against an order refusing an injunction may be allowed, in
which case subsection (2) of Section 17 then kicks in to enforce the order
passed in appeal. Also, the legislature made no amendment to the granting or refusing
to grant any measure under Section 9 to bring it in line with Order XLIII, Rule
1(r), under Section 37(1)(b). What is clear from this is that enforcement
proceedings are not covered by the appeal provision.
12.
No
appeal lies under Section 37 of the Arbitration Act against an order of enforcement
of an Emergency Arbitrator’s order made under Section 17(2) of the Act.
ROAD AHEAD
1.
Future retail will now have to argue on merits
before arbitral tribunal where it may challenge the validity of terms of
agreement such as prohibiting clauses
2.
The tribunal may or may not vacate the
Injunction against on-going amalgamation
3.
If vacated then Amazon will take pleas under
companies act before NCLT that such amalgamation is oppressive, etc.
4.
If the deal between Reliance and Future retail
fails then lenders may take the future retail to IBC and during CIRP, Reliance
may acquire future retail through resolution process. What will be the position
of amazon here? It may not have any say if he is not a creditor but merely an
Investor.
This work is an original literary
work of the author and therefore subject to all just protections under
copyright act,1957
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