Case comment on Amazon.com NV Investment Holdings LLC vs. Future Retail Limited (2021)        

Introduction

In the last two years, the idea of urgent ad interim and interim reliefs in dispute resolution process have been catapulted to the forefront. Between the first and second waves of the COVID-19 epidemic, the only factor utilised to determine whether a case should be considered in an electronic court was urgency.

For interim remedy before the courts prior to the formation of the arbitral tribunal, litigants in India had turn to Section 9 of the Arbitration and Conciliation Act, 1996 (“Act”) until four years ago. However, arbitration organisations like the Mumbai Centre for International Arbitration and the Indian Council of Arbitration, among others, have incorporated a mechanism in their arbitration rules for emergency arbitration in accordance with international arbitration organisations like the International Centre for Dispute Resolution, the International Chamber of Commerce, the Singapore International Arbitration Centre (“SIAC”), and the Hong Kong International Arbitration Center.

Although any orders made by an emergency arbitrator are susceptible to revision by the arbitral tribunal once it is constituted, the powers of an emergency arbitrator generally approximate to those granted to an arbitral tribunal under the applicable statute.

One such decision made in an urgent arbitration held in accordance with SIAC Rules was taken into consideration by the Indian courts. Amazon.com NV Investment Holdings LLC (“Amazon”) petitioned the Hon’ble Delhi High Court in March 2021 to have an emergency arbitration award against the Future Retail Group, dated October 25, 2020 (“Award”), enforced according to Section 17(2) of the Act.

An emergency arbitrator constituted in accordance with Schedule 1 of the SIAC Rules approved the Award. An order made under Section 17(2) read with Order XXXIX, Rule 2-A of the Code of Civil Procedure, 1908 (CPC) and stating that an emergency arbitrator’s award constitutes an order under Section 17(1) of the Act was given extensive justification by the learned Single Judge on March 18, 2021. The Future Retail Group filed a first appeal against this ruling with a division bench of the Delhi High Court. The order from the 18th of March 2021 was suspended by the Delhi High Court in a judgement dated March 22, 2021.

The Honourable Supreme Court of India received appeals (Civil Appeal 4492-4493 of 2021) against the order from the 22nd of March 2021. (“Supreme Court”). These appeals were heard and subsequently decided by an order dated August 6, 2021, in which the Supreme Court concluded that emergency arbitration awards were recognised under section 17 of the Act while reiterating the party autonomy recognised under the Act. The Court further observed that such orders are an important step in aid of decongesting the civil courts and affording expeditious interim relief to the parties.

Background of Amazon.com NV Investment Holdings LLC vs. Future Retail Limited

The deal between Amazon and Future Retail

In a deal around Rs 2,000 crores, Amazon NV Investment Holdings acquired a 49% equity stake in Future Coupons Limited. Future Coupons held 7.3% of Future Retail, which meant that after the transaction, Amazon would indirectly hold 3.5% of the business.

The call gave Amazon the authority to buy all or a portion of the assets of the marketing company Future Retail, and it also increased Amazon’s credibility. Reliance Retail is one of a list of businesses that Future Retail is reportedly not allowed to do business with, according to the allegations.

The deal between Future Retail and Reliance

Future Retail Ltd, Future Lifestyle Fashions Ltd, Future Consumer Ltd, Future Supply Chain Solutions Ltd, and Future Market Networks Ltd are just a few of the listed companies that have merged to establish Future Ventures.

The two parties agreed that Future Enterprises will sell Reliance Retail and Fashion Lifestyle Limited its retail, wholesale, and warehouse businesses.

Reliance Retail and Fashion Lifestyle agreed to put up Rs 1200 crore in a preferential stock offering and Rs 400 crore in warrants from Future Enterprises as part of the acquisition.

Future Group was in a dire situation because it had lost Rs 7000 crore in the early stages of the pandemic and had to sell the business as a result of the lost revenue from the worldwide pandemic.

Before the deal could be finalised, Amazon objected, claiming that Future Coupons, the advertisement company of Future Retail, had broken their contract with them.

Amazon further asserted that their sale violated the “call option” granted to them by Future Coupons under the terms of their contract, which allowed them to purchase all or a portion of Future Retail’s stock in the company within three to ten years after the contract.

After that, in October 2020, Amazon resorted to bringing Future Retail before the Singapore International Arbitration Centre for emergency arbitration.

Why did the future group sell its stake?

The debt of the six publicly traded companies in the Future Group climbed to Rs. 12778 crores as of September 2019, according to credit rating agency ICRA.

Over the past few months, Future Retail has made every effort to avoid a loan default. The business sold dollar bonds to raise $500 million in January. Additionally, it reduced its fixed expenses for corporate overheads, operations, labour, and marketing. Then, it closed 177 small-format stores, some of which were in brand-new low-density clusters and others were bottom-of-the-barrel shops. In addition, Biyani sold Amazon and Samara a 49% ownership in Future Coupons for Rs. 1500 crores. In 2012, he previously sold the Aditya Birla group the Pantaloons retail chain.

A senior executive from the group said despite these measures, the coronavirus pandemic and the overall economic slowdown have made things worse.
Kishore Biyani, Group CEO, Future Group said,” As a result of this reorganisation and transaction, Future group will achieve a holistic solution to the challenges that have been caused by covid and the macroeconomic environment. This transaction takes into account the interest of all its stakeholders including lenders, shareholders, creditors, suppliers and employees giving continuity to all its business.”

Role of Singapore International Arbitration Centre (SIAC)

When Future Group and Reliance agreed to sell Future Group’s retail, wholesale, and logistics operations without Amazon’s consent, as required by a contract signed between Future Group and Amazon in August 2019, Amazon decided to bring an urgent arbitration lawsuit against Future Group.

Amazon asserted that the Future Group-Reliance purchase was unlawful because it contravened a 2019 agreement the two parties had made with Future Coupons. The agreement’s competitive company clause, which explicitly designated Reliance as a restricted company, and the deal’s violation of Amazon’s call right to acquire Future Coupons’ ownership stake in Future Group, which could have been implemented between the third and tenth anniversary of the agreement, according to Amazon, disturbed the deal.

Judgement in Amazon.com NV Investment Holdings LLC vs. Future Retail Limited (2021)

The decision delivered in Singapore International Arbitration Centre

The Future-Reliance agreement was suspended for 90 (ninety) days after the Singaporean arbitration ruled in Amazon’s favour and issued an interim injunction, which was later extended. As a result, Amazon approached the Securities Exchange Board of India (SEBI) and the Competition Commission of India (CCI).

Additionally, it petitioned the Delhi High Court to uphold the enforcement of the arbitration order and to halt the Future-Reliance deal. When Future Retail was added to the interim order, Future Group filed an appeal with the Singapore arbitration.

Delhi High Court judgement

Single judge bench and his decision

The verdict of the Singaporean arbitrator was upheld by Justice Midha of the Delhi Court’s Single Judge Bench on February 2, 2021. He made note that the emergency arbitrator is an arbitrator for all purposes in accordance with Section 17(1) of the Arbitration and Conciliation Act, 1996. It assessed fines against some Future Group companies and directors after determining that they had wilfully violated the emergency arbitrator’s ruling in Amazon’s favour.

In order to use the funds to treat elderly inhabitants of Delhi who fall under the BPL category, they were told to transfer the funds to the Prime Minister’s Relief Fund in the Prime Minister’s Relief Fund within two weeks of getting the order. The Court found that the order of the emergency arbitrator was legitimate and enforceable in India.

The purchase was put on hold by the court, which also directed that no action would be taken in contravention of the arbitration decision. It chose to seize the holdings of Future Retail, Future Coupons, Kishore Biyani, and others, and Kishore Biyani was served with a show-cause notice. Justice Midha had imposed a status quo, thus stopping Future Retail’s sale of retail assets to Reliance Retail.

Division bench’s decision, Delhi High Court

Future Group appealed the Division Bench’s ruling against the Single Judge Bench, and the Division Bench overturned Justice Midha’s judgement to block the merger of Future and Reliance and attach the assets of Future Group and Kishore Biyani. The Court acknowledged Future Retail’s non-participation in the arbitration agreement with Amazon and Future Coupons in an interim ruling it delivered on February 8, 2021.

According to the Division Bench, Amazon has substantial ownership over Future Group, which is a violation of the Foreign Exchange Management Act of 1999.

Such control was achieved through three separate agreements involving Amazon and Future Group. The Delhi High Court examined the terms of three agreements: the shareholder agreement between Future Retail and Future Coupons, the shareholder agreement between Future Coupons and Amazon, and the share subscription agreement between Future Coupons and Amazon.

The Court determined that the agreements in favour of Amazon prima facie cross over from a protecting to a controlling right when viewed collectively. The Multi-Brand Retail Foreign Direct Investment Policy, which only permits foreign investment of up to 51 percent (fifty-one percent) with government authorization, was broken by such control rights.

Supreme Court’s judgement

Amazon filed an appeal of the ruling with the Supreme Court, objecting to the Division Bench’s decision to overrule the Single Judge’s order maintaining the status quo. The Supreme Court issued an interim order directing the National Company Law Tribunal to deny the acquisition plan, but it did not overrule the Division Bench’s stay.

The Delhi High Court’s Division Bench was made aware that the matter would not be pursued as the Supreme Court had granted permission for the case to be investigated. The Supreme Court has moved the hearing on the Amazon-Future case until June 28, 2021 so that it can focus on other important issues as the viral pandemic spreads.

Conclusion

The Supreme Court’s decision is significant because it not only reiterated “party autonomy” as the Act’s guiding principle, but it also highlighted the option of “Emergency Arbitrations,” which are now recognised remedies for temporary relief and are enforceable under Indian law as a result of the ruling. Given that parties will now be able to quickly obtain interim relief without burdening the Courts, the judgement has received a great deal of praise from both plaintiffs and attorneys.

This article has been authored by Shivansh Gaurav, a student at CMR University, School of Legal studies, Bengaluru.