HM Journal

Amazon.Com NV Investment Holdings LLC v. Future Coupons Private Limited & Ors.

FACTS

Future Group, India’s second largest organized offline retailer, sought to work with international investors to expand its company in 2019. Future Coupons Private Limited (“FCPL”) was reorganized by the promoters (“Biyanis”) to purchase shares in Future Retail Limited (“FRL”).

Amazon.com NV Investment Holdings LLC (“Amazon”), seeing it as a fantastic opportunity, invested Rs.1,431 crores in FCPL in August 2019 to buy 49 percent of its shares and entered into a Share Subscription Agreement (“FCPL-SSA”) with Biyanis. Biyanis and Amazon agreed that they would jointly execute FCPL’s rights in FRL under the FCPL-SSA, and that they would never do so without Amazon’s permission.

After a year, in August 2020, Amazon learned, much to their surprise, that FRL had authorized a disputed transaction with a restricted person, namely Mukesh Dhirubhai Ambani Group (“MDA”), without their knowledge or consent.

Amazon filed a claim under the FCPL-SSA, which was controlled by the Singapore International Arbitration Centre (“SIAC”) and had a seat in New Delhi. Because of the urgency, Amazon filed an application for appointment of an emergency arbitrator under the SIAC Rules in October 2020, and an Emergency Arbitrator (“EA”) was appointed.

FRL (co-Respondent) responded by raising a preliminary objection to the EA’s jurisdiction and appointment. It was also determined that there was no legitimate arbitration agreement between the FRL and Amazon, among other things.

AWARD OF THE EMERGENCY ARBITRAL TRIBUNAL

The EA dismissed the Respondent’s argument that the EA lacked the necessary authority to act on Amazon’s petition. According to the EA, all of the parties agreed to SIAC arbitral proceedings on the same conditions, and their mutual responsibilities are inextricably intertwined. It was discovered that:

“Section 2(8) of the Indian Arbitration Act 1996 expressly provides that where Part I of the Indian Arbitration Act 1996 refers to an ―agreement of the parties, such agreement shall include the arbitration rules referred to in the parties agreement.  In this way, the Indian Arbitration Act 1996 provides that any arbitration rules agreed to by the parties are incorporated into the arbitration agreement. Unless expressly excluded, it is trite that the parties cannot resile from the terms of their arbitration agreement, including their agreement to allow either party to request the appointment of an emergency arbitratorFurther, Section 17 of the Indian Arbitration Act 1996, which empowers an arbitral tribunal to grant interim reliefs, does not preclude or intimate that parties cannot agree to institutional rules which allow recourse to emergency arbitration. In the absence of a mandatory prohibition contained in the Indian Arbitration Act 1996 or public policy constraints, the parties may agree to any arbitral procedure.”

The EA found that this case is about a collection of linked Future Group companies engaging into an indivisible contractual arrangement with Amazon within a conceptual framework that they all clearly consented to, even though FRL was not a signatory to the arbitration agreement. The EA was under the idea that a ‘party’ is defined as a ‘party to the arbitration agreement’ and not as a ‘signatory’ to the arbitration agreement under Section 2(1)(h) of the Arbitration and Conciliation Act, 1996 (‘Act’). As a result, FRL was deemed a participant in the arbitration proceedings.

THE ENFORCEMENT PROCEEDING

Amazon filed a petition with the Delhi High Court under Section 17(2) of the Act and Ruling 39 Rule 2A of the Code of Civil Procedure, 1908 (‘Court Proceeding’) to enforce the EA’s order of October 25, 2020.

ISSUES

1.What is an EA’s legal standing, i.e., is an EA an arbitrator under the Act, and is an EA’s interim order an order under Section 17(1) of the Act and enforceable under Section 17(2) of the Act?

2.Did the EA use the Group of Companies doctrine incorrectly, which arguably only applies to actions brought under Section 8 of the Act?

3.Is the EA’s interim order null and invalid since it was issued without jurisdiction?

CONTENTIONS OF THE PETITIONER

Amazon supported the EA’s ruling in court, arguing that the EA falls clearly within the description of “arbitral tribunal” as defined by Section 2(1)(d) of the Act. The EA’s order remains valid and binding qua parties since it was passed in line with the SIAC Rules.

The Court relied on the concept of party autonomy and its consequences to conclude that EA meets the definition of a ‘Arbitral Tribunal,’ because the parties’ choice of SIAC Rules to govern the arbitral proceeding, which include provisions for Emergency Arbitration, indicates the parties’ consent to be bound by the EA’s order.

Amazon further argued that Emergency Arbitration is recognized by Indian law, citing the Rules of the Delhi International Arbitration Centre, Mumbai Centre of International Arbitration, and Madras High Court Arbitration Centre, all of which provide for Emergency Arbitration processes.

Amazon stated that they were willing to support Future Group financially in any way they could, but that it was surprised to see that their ownership had been reduced as a result of disputed transactions between Future Group and a restricted person, namely MDA, in breach of the FCPL-SSA.

Amazon also claimed that, as the EA correctly stated, the Group of Companies doctrine applies squarely to the dispute, citing Supreme Court precedents such as Chloro Controls India Private Limited v. Sever N Trent Water Purification Inc, Cheran Properties Limited v. Kasturi and Sons Limited, MTNL vs. Canara Bank, and others.

CONTENTIONS OF THE RESPONDENTS

Respondents argued that an EA is not a “arbitral tribunal” as defined in Section 2(1)(d) of the Act.

Respondents argued that because the appointment of an EA under SIAC Rules was void, any order issued by the EA would be void as well. The Respondents reasoned that the EA’s ruling could never constitute an order of the “Arbitral Tribunal” under the Act’s provisions or the SIAC Rules.

Respondents further claimed that the language of Section 17(2) of the Act, as well as the term of “Arbitral Tribunal,” cannot be extended or enlarged via the construction process to make a decision/award made by an EA equal to an order made by an Arbitral Tribunal. Respondents argued that Indian courts have only taken notice of EA orders in the context of foreign seated arbitrations, where proceedings were filed under Section 9 of the Act to seek enforcement of the foreign EA’s order, rather than in cases where an EA’s order is treated as one issued under Section 17 of the Act.

Respondents contended that the group of businesses concept only applies in Section 8 of the Act actions, not in court procedures like this one.

DECISION OF THE DELHI HIGH COURT

Legal Status of EA

The Delhi High Court has ruled that an EA is a single arbitrator appointed by an arbitral institution to examine applications for emergency interim relief in instances where the parties have agreed to arbitrate under the arbitral institution’s Rules, which include provisions for emergency arbitration. Because the EA’s standing is founded on party autonomy, any order or award made by the EA is binding on all parties.

The Court then went over the key elements of an emergency arbitration, ruling that an EA can only deal with emergency temporary relief, and that his order/award can only be appealed at the arbitration seat. SIAC, for example, appoints an EA within 24 hours of a party’s request, and the application for the specified purpose is resolved within 15 days. According to the Court,

“so, if the order of the Emergency Arbitrator is not enforced, it would make the entire mechanism of Emergency Arbitration redundant.”

As a result of the combined reading of Sections 2(1)(d), 2(6), 2(8), 19(2) of the Act and SIAC Rules, which are part of the arbitration agreement by virtue of Section 2(8) of the Act, the Delhi High Court ruled that the EA is an arbitrator for all intents and purposes. Furthermore, the Court believes that Section 2(1)(d) is broad enough to encompass an EA. The Arbitral Tribunal has the same authority to make interim orders as the Court under Section 17(1) of the Act, and Section 17(2) renders such interim orders enforceable in the same way as a Court order.

Whether the EA misapplied the Group of Companies doctrine which arguably applies only to proceedings under Section 8 of the Act?

The Supreme Court, the Court said, has fully clarified the law pertaining to the notion of Group of Companies doctrine in Chloro, Cheran, and MTNL. When numerous agreements indicate a clear purpose of the parties to bind both the signatory and non-signatory companies within the same group, the Group of Companies doctrine binds the non-signatory entity.

The Supreme Court established a variety of criteria to be used for applying the Group of Companies concept, some of which are listed below.

1.a direct link to the arbitration agreement’s signing party, 2.a direct commonality of the subject matter, and the agreement between the parties being a composite transaction

3.The transaction should be of a composite type, in which the mother agreement’s performance may not be possible without the help, execution, and performance of supplemental or auxiliary agreements, in order to achieve the shared goal.

4.Where an arbitration agreement is signed into by a firm that is part of a larger group of companies, if the circumstances show that all parties intended to bind both signatories and non-signatory affiliates.

5.The group’s non-signatory entity has been involved in the contract’s negotiation or performance.

6.It is their composite performance where the agreements are consequential and in the character of a follow-up to the primary or mother agreement, and are organically intertwined or interconnected.

7.The parties’ combined reference must serve the purposes of justice.

As a result, the Court was convinced that the Group of Companies concept is relevant to the current case and that FRL is a legitimate party to the arbitration proceedings for the reasons stated by the EA after applying the Supreme Court’s well-established legislation on the subject.

Whether the interim order of Emergency Arbitrator is null and void as being passed without jurisdiction?

The interim order was null and invalid, according to the Respondents. They did not, however, question the validity of the numerous agreements reached between the parties.

The Delhi High Court slammed the Respondents for claiming the interim judgment was null and invalid without citing the legislation on nullity. The Court stated that the Respondents’ approach did not appear to be innocent, as it is unlikely that they were unaware of the nullity legislation. It looked to be a calculated effort to deceive the Court.

Furthermore, the Court noted that Amazon was always available and eager to assist FRL in a legal manner, and it is concerning that FLR did not engage with Amazon to find a business solution to the issues it was experiencing. Instead, it did so by seeking out partners, specifically MDA, who was designated as a restricted person under the FCPL-SSA.

Finally, the Court noted that the EA had provided both parties a fair chance to submit written pleadings and oral arguments, affirming the legality of the order issued by the EA. The EA had also documented the parties’ respective arguments and provided extremely thorough reasoned findings.

Refernece

  1. https://www.advocatekhoj.com/library/judgments/announcement.php?WID=13888
  2. https://indiankanoon.org/doc/149951609/
  3. https://www.lawyersclubindia.com/judiciary/amazon-com-nv-investment-holdings-llc-vs-future-retail-limited-ors-order-u-s-17-2-enforcing-emergency-arbitrator-s-award-is-not-appealable-u-s-37-5395.asp
  4. https://www.livemint.com/companies/news/amazon-dispute-future-retail-says-will-exercise-available-remedies-in-law-after-sc-verdict-11628238900764.html

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