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Amazon-Future Dispute: SC Sets Aside Delhi HC's Direction For Coercive Steps Against Future Group

Cause Title: Future Coupons Private Limited and Others v. NV Investment Holdings LLC and Others

Case Number: Civil Appeal Nos. 859-860/2022, 861-862/2022, 864/2022 and 864/2022 (arising out of SLP © Nos. 13547-13548/2021, 13556-13557/2021, 18089/2021 and 18080/2021)

Quorum: Chief Justice of India, N.V. Ramana, Justice A.S. Bopanna and Justice Hima Kohli

Judgment Date: 01/02/2022

Learned Counsels: Mr. Harish Salve appeared for FRL, Mr. Mukul Rohatgi appeared for FCPL and their promoters, Mr. Gopal Subramanium appeared for Amazon, Mr. Aspi Chinoy appeared for Amazon

Author: Pragash B, Advocate, Madurai Bench of Madras High Court

Background of the Case

The appeals have been filed against various orders of Delhi High Court connected to the Amazon-Future dispute. Civil Appeals arising out of SLP (C) No. 13547-48 of 2021 and SLP (C) No. 13556-57 of 2021, impugned order dated 02.02.2021 and 18.03.2021 passed in OMP (ENF) (Comm) 17 of 2021, are against impugned orders dated 29.10.2021 passed in Arb. A (Comm.) No. 63 of 2021 and I.A. No. 14285 of 2021 in Arb. A (Comm.) No. 64 of 2021 respectively.

On 22.08.2019, Amazon entered into Shareholder and Share-Subscription Agreements with Future Coupon Private Limited (FCPL). Through these instruments, Amazon intended to acquire 49% stake in FCPL. The aforesaid agreements contained an arbitration agreement, wherein parties resolved to settle their disputes in accordance with the Arbitration Rules of the Singapore International Arbitration Center (SIAC). The parties had further resolved to have the seats at New Delhi. On 12.08.2019, FCPL and its promoters entered into a Shareholder Agreement with Future Retail Limited (FRL). Through this agreement, FCPL was granted certain protective rights and one of the restricted persons included the Reliance Group.

In March 2020, FRL submitted that there was business downturn due to Covid-19 lockdowns as there were restrictions on retail sale through brick-and-mortar shops. The Board of FRL decided to sell, retail businesses and assets to Reliance for a consideration in excess of Rs. 25,000 Crores. Further, it is contended by FRL that there were outstanding loans of about Rs. 20,000 Crores with a serious and tangible risk of becoming insolvent. It is said that the subsequent transaction was entered into to alleviate its financial position and protect employment of around 25,000 employees of the Future Group.

Aggrieved by the transaction, Amazon initiated arbitration proceedings before the SIAC through an application for emergency relief seeking interim prohibitory injunction to prevent FRL and FCPL from taking further steps in the aforesaid transaction with the Reliance Group. Parallely, FRL filed a suit before the Honourable Delhi High Court in CS (COMM) No. 493 of 2020, against Amazon for tortious interference in the Scheme for the sale of assets. On 25.10.2020, the Emergency Arbitrator passed an Interim award in favour of Amazon. It may be noticed that the Emergency Arbitrator and the Single Bench came to diametrically opposite conclusions.

String of Cases filed

In the meanwhile, CCI and SEBI approved the composite Scheme proposed by FRL-Reliance. Thereafter, FRL filed for sanction of the Composite Scheme of arrangement under the provisions of Sections 230 to 232 of the Companies Act, 2013 before the National Company Law Tribunal (NCLT). Amazon filed a petition for enforcement of the Emergency Arbitrator Award, under Section 17(2) of the Arbitration and Conciliation Act, 1996 before the Delhi High Court on 25.01.2021 and the same was heard for the first time on 28.01.2021. The Honourable Delhi High Court held that the order dated 25/10/2020 is enforceable as an order of the High Court under Section 17(2) of the Arbitration and Conciliation Act. The Honourable High Court has reserved the order and directed to maintain status quo till the pronouncement of the reserved order.

Aggrieved by the Stay order granted by the learned Single Judge, while reserving the matter, FRL filed an intra-court appeal before the Division Bench in FAO OS (Comm.) No. 21 of 2021. The Division Bench vide Order dated 08.02.2021 held that the observations made in this order are only a prima facie view for the purpose of grant of interim relief and shall not come in the way of the learned Single Judge in passing the final order. Meanwhile Amazon appealed against the Order before the Honourable Supreme Court of India in SLP (C) No. 2856-57 of 2021, vide order dated 22.02.2021 held that in the meantime, the NCLT proceedings will be allowed to go on but will not culminate in any final order of sanction of scheme.

On 18.03.2021, the learned Single Bench of the Honourable Delhi High Court passed the order in OMP (ENF) (COMM) No. 17 of 2021 stating that the order of the Emergency Arbitrator is an order under Section 17(1) and enforceable as an order of this Court under Section 17(2) of the Arbitration and Conciliation Act. Moreover, the Court imposed cost of Rs. 20,00,000 on the respondents to deposit the amount with the Prime Minister Relief Fund for being used for providing COVID vaccination to the Below Poverty Line category – senior citizens of Delhi and also ordered for attachment of the assets of the respondents.

In the interregnum, the FCPL and FRL approached the Division Bench of the Delhi High Court in FAO (OS) (COM) no. 50 and 51 of 2021 respectively against the impugned order passed by the learned Single Judge which was stayed vide Order dated 22.03.2021. Subsequently, Amazon filed SLP (C) Nos. 6113-6114 of 2021 before our Apex Court against the order dated 22.03.2021 passed by the Division Bench of the High Court.

The Honourable Supreme Court of India consolidated all the appeals filed by Amazon and passed a final judgment dated 06.08.2021 which does not deal with the merits of the case and limited its reasoning only to answer the legal questions which arose within. The Supreme Court of India in that consolidation of appeals held the full party autonomy is given by the Arbitration Act to decide a dispute which include Emergency Arbitrators delivering Interim Orders, described as “awards”. Such orders are referable to and are made under Section 17(1) of the Arbitration Act and 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.

While that be the scenario, FRL filed an application under Para 10 of Schedule 1 of SIAC Rules for vacating the Award of the Emergency Arbitrator before the Arbitral Tribunal. The Honourable Apex Court through its interim order on 09.09.2021, directed all the authorities i.e. NCLT, CCI and SEBI not to pass any final order for a period of four weeks from the date of interim order and the order has been passed with the consent of both the parties. Thereafter the applications filed by FRL and FCPL for vacating the award of the Emergency Arbitrator was dismissed by the Arbitral Tribunal by Order dated 21.10.2021. The same was challenged before the Delhi High Court in Arb. Pet. No. 63 of 2021 and Arb. Pet. No. 64 of 2021 praying for staying the operation of the impugned order and pass an order to take steps to pursue the scheme. The Learned Single Judge, Justice Suresh Kumar Lalit refused to grand any immediate relief through the Order dated 29.10.2021.

Questions Raised

1. Whether the orders dated 02.02.2021 and 18.03.2021 passed by the learned Single Judge in OMP (ENF) (COM) No. 17 of 2021, are valid in law?

2. Whether the orders dated 29.10.2021, passed by the learned Single Judge in Arb. A. (Comm.) No. 64 and 63 of 2021, is valid in law?

Findings of the Court

Question 1:

The Honourable Supreme Court of India observed that serious procedural errors were committed by the learned Single Judge. Natural justice is an important facet of a judicial review. Providing effective natural justice to affected parties, before a decision is taken, is necessary to maintain the Rule of Law. Natural Justice is usually discussed in the context of administrative actions, wherein procedural requirement of a fair hearing is read in to ensure that no injustice is caused. When it comes to judicial review, the natural justice principle is built into rules and procedures of the Court, which are expected to be followed meticulously to ensure that highest standards of fairness are afforded to the parties. (Para 36)

It is well known that natural justice is the sworn enemy of unfairness. It is expected of the Courts to be cautious and afford a reasonable opportunity to parties, especially in commercial matters having a serious impact on the economy and employment of thousands of people. Coming to the facts herein, the opportunity provided to the appellants herein was insufficient and cannot be upheld in the eyes of law. (Para 37)

When an order is struck down as invalid being in violation of the principles of natural justice, there is no final decision of the case and fresh proceedings are left open. All that is done is to vacate the order assailed by virtue of its inherent defect. Such proceedings are not terminated and are usually remitted back. (Para 38)

Viewed differently, contempt of a civil nature can be made out under Order XXXIX Rule 2A CPC not when there has been mere “disobedience”, but only when there has been “wilful disobedience”. The allegation of wilful disobedience being in the nature of criminal liability, the same has to be proved to the satisfaction of the court that the disobedience was not mere “disobedience” but “wilful” and “conscious”. (Para 41)

The Honourable Supreme Court of India while dealing with the merits of the case held

Coming to the merits of the case, we would like to mention a disconcerting aspect wherein the interim order enforcing the Emergency Award has adopted a standard beyond ‘prima facie view’, as required under law. It is expected of Courts to be cautious while making observations on the merits of the case, which would inevitably influence the Arbitral Tribunals hearing the matters on merit” (Para 41)

Question 2:

The Honourable Apex Court of India stated

“ 45. At the outset, it is agreed by learned advocates appearing on both side that the impugned order dated 29.10.2021 in IA No. 14285/2021 moved in Arb. A (Comm.) No. 64 of 2021, needs to be set aside for non-consideration of the orders of this Court in the proper perspective. Our order dated 09.09.2021, imposed no bar on the High Court to adjudicate the issue concerning legality of the vacate application order by the Arbitral Tribunal. In our opinion, adjudication of the applications under Section 37(2), Arbitration Act filed by the appellants before the Delhi High Court are distinct from the earlier appeals filed before this Court.

46. Further, certain important questions of law concerning the effect of the award of an Emergency Arbitrator and the jurisdiction of an Arbitral Tribunal qua such awards arise in the present matter. Therefore, these matters need to be remitted back for adjudication on its own merits.”

In view of the above, we order

I. Setting aside of impugned orders dated 02.02.2021 (1st impugned Order) and 18.03.2021 (2nd impugned order) in OMP (ENF) (Comm.) No. 17 of 2021.

II. Setting aside of 3rd impugned order dated 29.10.2021 in Arb. A. (Comm.) No. 64 and 63 of 2021. The learned Single Judge shall reconsider the issues and pass appropriate orders on its own merits, uninfluenced by any observation made herein.

Cases Referred

1. Canara Bank v. Debasis Das, (2003) 4 SCC 557.

2. M/S. Bhandari Engineers and Builders Pvt. Ltd. v. M/S. Maharia Raj Joint Venture, 2019 SCC Online Del. 11879.

3. Delhi Chemical and Pharmaceutical Works Pvt. Ltd. & Anr. v. Himgiri Realtors Pvt. Ltd. & Anr., EFA (OS) (Comm.) No. 4 of 2021.

4. Ram Kishan v. Tarun Bajaj, (2014) 16 SCC 204.