The Amazon-Future Group Dispute: Evaluating Alternative Resolution Approach
[Priya is a student at National Law University, Delhi.]
The recent deal between Future Group and Reliance has been the centre of discussion among legal and business circles in India, the newest contentious issue being whether the order of the emergency arbitrator imposing a stay on the acquisition by Reliance can be extended for application in India. If not, does Amazon have any possible recourse under the Indian law to seek its implementation? However, before delving into these technical aspects, it is imperative that we understand the genesis of this deal and the background of this dispute.
What is the Amazon-Future Group Dispute?
Amazon had purchased a 49% stake in the Kishore Biyani owned Future Coupons, the promoter group holding 7.3% in Future Retail in August 2019. This effectively meant that after this acquisition, Amazon holds a 5% stake in Future Retail. The agreement between Amazon and Future Coupons has certain anti-competitive clauses according to which Future Retail and Future Group could not do business or sell its holding to a list of 29 companies, who are competitors of Amazon in the retail markets.
Further, the parties while signing the contract had agreed to have a call option as an exit clause, which specified that Amazon shall exercise the right of first refusal in a scenario where Kishore Biyani wishes to sell its shares. Additionally, there is a clause that states that Future Group shall not sell any asset within 10 years of the deal with Amazon. It is these clauses which have become the basis of the arguments by both sides.
The last few months have seen Future Retail suffering losses and hitting a rough patch in terms of profitability. So, recently in August 2020, Future entered into an INR 24,713 crore slump sale deal with Reliance group to sell its retail, warehousing, logistics and wholesale business units to Reliance Group. This became the bone of contention and has led to the ongoing dispute between the two mega companies.
Order by the Singapore Emergency Arbitrator
The parties in their 2019 agreement had agreed on Singapore as their chosen seat for arbitration. Now, under the rules of SIAC, parties may approach for appointing an emergency arbitrator and seek urgent interim relief, even while the process for appointment of the main arbitral tribunal is going on. Thus, to avoid any irreparable loss to its business, Amazon had filed an emergency arbitration with the Singaporean International Arbitration Centre (SIAC) which is considered as a neutral arbitration place.
Amazon had pleaded for injunctive relief based on their contention that Future has violated the non-compete clause and the ROFR Call option clause of their 2019 agreement. However, Future group argued that this is merely a deal involving asset sale and that these clauses will not be applicable for a period of 3 years from entering into the agreement i.e. until November 2022. Further, it has been pointed out that the ROFR clause was to be applicable after 3 years and until 10 years of the agreement between Amazon and Future Group. However, since it has been less than a year, the applicability of the ROFR clause does not arise.
Based on these considerations and arguments, the SIAC recently gave its order and restrained Future Group from going ahead with the deal. The Future Group does not have any recourse to challenge this order that was passed by the emergency arbitrator except waiting till the constitution of the arbitral tribunal. The only option here is to make an application to the emergency arbitrator supported with proper cause as to why the order should be vacated or modified.
Applicability of the SIAC Order in India
Under the existing arbitration law in India, there does not exist any specific express mechanism that may be used for the enforcement of orders given by an emergency arbitrator in any dispute. Their validity is dependent on the general practice of the parties who may voluntarily agree to honour the order and comply with the award or reliefs passed by the emergency arbitrator. Future Group has cited the same and stated that the emergency arbitrator order is not binding upon it.
In a scenario where the parties refuse to follow the order, the party in whose favour the emergency award has been passed can move under Section 9 of the Arbitration and Conciliation Act 1996 (Act). Under this provision, the party can seek an interim relief and request for obtaining a similar relief from the High Court, as has been granted by the emergency arbitrator. This has been seen in several previous cases where the High Courts have passed orders which indirectly enforced the reliefs granted by the emergency arbitrator.
This aspect came up for consideration before the Bombay High Court in the 2014 case of Avitel Post Studioz Limited & Others v. HSBC PI Holdings (Mauritius) Limited. The appellant (Avitel) had got a favourable award from SIAC Emergency Arbitrator and had then filed a petition under Section 9 of the Act, seeking to get similar relief from the High Court. The bench upheld the award of the emergency arbitrator and granted interim relief. However, it becomes important to note that the parties had entered the agreements before the landmark judgment of Bharat Aluminium v Kaiser Aluminium (BALCO) came out. The ruling in that case that Part I of the Act will not apply to foreign seated arbitrations was to be applied prospectively. Therefore, the BALCO ratio was found to be inapplicable in this scenario.
The Delhi High Court has also entertained Section 9 application in such emergency arbitrator matters in several instances. In the case of Raffles Design International India Private Limited v. Educomp Professional Education Limited, the parties had obtained a favourable order from the emergency arbitrator at SIAC and later filed a Section 9 application for similar relief. Though it was held that the emergency award could not be enforced under the Act, the court highlighted the relevance of Section 2(2) of the Act. The 2015 amendment has widened the powers vested within the court to grant interim reliefs since Section 9 now effectively becomes applicable to international commercial arbitrations despite the place of arbitration being outside India.
However, this Section 9 approach has certain hurdles that may pose a substantive challenge for Amazon. The Act is silent on the enforcement of foreign seated emergency orders and there is also a lack of jurisprudence that may provide such relief of enforcement. Thus, Indian courts cannot exercise enforcement jurisdiction in such matters (as seen in Raffles Design International India Private Limited v. Educomp Professional Education Limited) and they will only be able to give interim measures of protection. Further, the respondent party would have the option to re-raise all the objections that were heard by the emergency arbitrator. Thus, this Section 9 approach may end up rendering the favourable order of the emergency arbitrator as a redundant step.
Considering the shortcoming of the Section 9 approach, Amazon can instead seek to enforce the order of emergency arbitrator as an interim order of a foreign court as under Section 44 read with Section 13 of the Code of Civil Procedure 1908. Under the Indian jurisprudence, the interim orders of foreign courts have been enforced many a time by Indian courts as a matter of principle of comity of courts. Under this principle, it is required that due respect must be given even to such orders passed by a foreign court, as was discussed the case of Surya Vadanan v. State of Tamil Nadu & Others.
Thus, as an alternative to the Section 9 approach, Amazon could consider getting the order of the emergency arbitrator confirmed as an order or judgment from the High Court of Singapore. Once that happens, Amazon shall get an option to file a suit to enforce the Singapore High Court order/judgment before the appropriate commercial court in India.
In such a scenario where the award passed by SIAC emergency arbitrator cannot be directly enforced within the Indian jurisdiction, it is advisable that Amazon adopts the path under Section 9 of Act. The current status of the dispute is that the Competition Commission of India has recently approved the company's proposed acquisition of retail, wholesale, logistics and warehousing businesses of Future Group.
However, Amazon has also written to SEBI and stock exchanges and requested them to take into consideration the order passed by the SIAC emergency arbitrator. On the other hand, Future Group has filed a caveat before the Delhi High Court requesting that no adverse order be passed by the court, without giving them a fair opportunity of being heard. It remains to be seen how future developments shape the course of this tussle and what finally happens in this dispute.