"Legal analysis in the saga of Amazon v. Reliance judgment dated 6th of August, 2021".
Updated: May 25
Adv. Sakshi Shairwal
Note: This article is an interpretation of the judgment passed by the Hon’ble Supreme Court dated 06.08.2021. After this matter, further developments have been taken place which is not covered under this particular piece.
The Supreme Court on August 6, 2021, ruled in favour of Amazon after the e-commerce company filed an appeal. The petition was filed against a Rs 24,713 crore deal for the amalgamation of Future Retail Limited (FRL) with Reliance Retail. Amazon is enmeshed in a disgruntled, politically laden clash with Reliance Industries, one of the major and most influential companies in India. It fundamentally puts two of the world’s wealthiest people against each other: Reliance chairman, Mukesh Ambani, and Jeff Bezos, the chairman of Amazon, who for many signifies the overwhelming power and wealth of the technology industry. Both Reliance, as well as Amazon, wants a piece of India’s rapidly growing e-commerce and technology market which is worth billions of dollars. At the core of the clash is Future Group, which possesses supermarkets, fashion outlets, and snack shops in some of India’s major cities. There are two significant questions in the appeals –
1. Whether an ‘award’ delivered by an Emergency Arbitrator under the Arbitration Rules of the Singapore International Arbitration Centre (SIAC) can be said to be ordered as per section 17(1) of the Arbitration and Conciliation Act,1996;
2. Whether order passed as per section 17(2) of the Arbitration Act in the enforcement of the awards of an Emergency Arbitrator by a learned single Judge of the High Court is appealable.
This comes just about after a year Future Group’s acquisition by Retail was publicized in August 2020. Reliance Retail had obtained Future’s logistics, retail, warehouse, and wholesale businesses. Amazon had attained a 49% share in Future Retail’s promoter entity Future Coupons in August 2019 and subsequent to the announcement of the acquirement of Future Retail by Reliance Retail took the issue to SIAC and has stated that Future Retail was in violation of the contract. Future Coupons had a 7.3% share in Future Retail, which resulted in Amazon circuitously having a share in Future Retail. Additionally, Amazon’s deal with Future Coupons also provided it a call option, permitting it to acquire a controlling or partial stake in Future Retail, initiating 3 years from the business deal, up to ten years, as per the FDI norms.
Having attentiveness to Future Retail, Amazon put forward its objection to the deal and approached the SIAC in October 2020. It won an interim award as a supporting aspect for the deal with the EA halting the Future Retail – Reliance Retail Deal. Subsequent to this, FR moved the Delhi HC claiming interference by Amazon in the business deal.
Amazon argued that its transaction with Future Coupons disqualified the latter from entering into stake sale agreements with 15 firms which involved Walmart, Reliance, Softbank, and others. On the other hand, the FRL Reliance Retail, the business deal received authorization from SEBI, CCI, and the stock exchanges. The sprawl sale to Reliance Retail that came subsequent to the Future Group was affected by the aftermath of the lockdown in 2020. At the SIAC, and during the Delhi HC hearings, FRL upheld that it was not a party to the deal with Amazon and Future Coupons. The legal altercations between the Delhi HC prolonged with a single-judge bench declining to stay the deal and the order were questioned by Amazon in the High Court. Afterward, a single bench ordered a status quo but it was challenged by FR, with a division bench elating the status quo.
The bench comprising of Justices Rohinton F. Nariman and B.R. Gavai upheld the enforceability and legality of the Singapore-based Emergency Arbitrator (EA) awards, which restricted Future Retail Ltd., India’s largest offline retailer, from going ahead with the dubious transaction. Justice Nariman recorded that the Mukesh Dhirubhai Ambani (MDA) Group, which possesses Reliance Retail, was amongst the “prohibited entities” or “restricted persons” with whom FRL and the Biyanis could not “dispense”. This was as per the agreements based on which Amazon would devote money. Regardless of these agreements, the court observed that FRL entered into a deal with the MDA Group. The business deal envisioned “the amalgamation of FRL with the MDA Group, the consequential cessation of FRL as an entity, and the complete disposal of its retail assets in favour of the group”.
The EA, in the award in October 2020, sanctioned FRL, “from taking any measures to complete the quarreled transaction with individuals that are part of the MDA Group”. The judgment authored by Justice Nariman discharged FRL’s argument that the “Emergency Arbitrator is not an arbitral tribunal” according to the Arbitration and Conciliation Act, 199. It was also contested that the EA, which functions as per the Arbitration Rules of the Singapore International Arbitration Centre, is’ a foreigner to the Indian Arbitration Act’. It was argued that Amazon, by influencing to implementation of the EA award, was attempting to “fit a square peg in a round hole”.
Amazon, on the contrary, had contested that the EA award can never be distinguished as a nullity and disregarded. It should be obeyed, the counsel argued. The judgment laid down that the award is “precisely like an order of an arbitral tribunal” considered as per Section 17 of the 1996 Act. Therefore, an award by the EA was the same as an order under Section17 (1) which states interim steps ordered by an arbitral tribunal of the Act. It was also observed in the judgment that a party (FRL) “cannot be heard to say, after it partakes in an Emergency Award proceeding, that it will not be restrained by an EA’s ruling. The Supreme Court stated that the EA orders were “a significant measure in aid of decongesting the civil court and meeting the expense of prompt interim relief to the parties.” It additionally held that the order passed by a Single Judge of the High Court of Delhi to implement the award was not disputable. “No petition would lie as per Section 37 of the Arbitration Act against an order of enforcement of an EA’s order created under Section 17(2) of the Act”, wrote Justice Nariman.
The court said the proviso in Section 17(2) that an arbitral tribunal’s order must be “deemed” to be an order of the court of law and applicable as per the Code of Civil Procedure was a “legal fiction... formed only for the reason of enforceability of interim orders made by the arbitral tribunal”. With this, the court defended the orders of the Single Judge to FRL to carry on ‘status quo’ on the sale of its retail assets to Reliance.
The judgment is an exceptional win for foreign businesses in a nation that has habitually made efforts to stop their development and keep them from coming out as leading players globally for expansion. India’s economic development has been undermined in the current year, and the severe toll of the COVID-19 outbreak has destructured the nation’s middle class with rigidity. In India’s legal scenario, the judgment was looked upon as another indication of the sovereignty of the nation’s judiciary, which has been condemned in the past for corroding free speech. Various legal professionals have highlighted that the judgment has dealt with issues of law that are scholarly in nature, rather than with the points of disputation between Amazon and FRL.
The article first published on Lexology.com and the same can be accessed here.
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