Author: Ashwin Singh, II year of BBA LL.B (Hons) from Symbiosis Law School, Pune
BACKGROUND
Kishore Biyani's Future Group had agreed to sell its retail business, wholesale, logistics, and warehousing operations to Reliance Retail. Future Retail will sell its supermarket chain Big Bazaar, upscale grocery supply unit Foodhall, and fashion and clothing superstore Brand Factory's retail and wholesale operations to Reliance Retail as part of the agreement. Amazon filed a filing with the Competition Council of India (CCI) in September 2019 proposing to buy 49 percent of Future Coupons, which is owned by India's second-largest supermarket company, Future Retail.CCI accepted the notification in November 2019.
Aside from the transactional aspect, Amazon gained some credibility grasp of the ‘call opportunity'. The ‘call' issued Amazon the right to purchase all or half of the shares of supporting business Future Retail within 3-10 years of the agreement. Regardless of the Amazon-Future Group pact, Future Group declared an alliance with Reliance Retail in August 2020. According to the agreement, Reliance Retail will compensate INR 24,713 crore for the Future Group's entire retail, wholesale, manufacturing, and warehousing companies.
Future Group was under a lot of pressure from its lenders, headed by the State Bank of India, to handle its debt, and the agreement with Reliance Retail was seen as a way for the company to reduce its debt. Biyani had been wooing several business groups to sell stakes of several Future Group businesses to reduce the debt before the aforementioned sale to Reliance but had not had much progress. The retail company of Future Group had been more stressed after the national lockdown in 2020 to curb the spread of Covid-19. During the lockdown, sales in several of its branded revenue arms Foodhall and Brand Factory came to a halt.
AMAZON’S CONTENTIONS
Amazon wrote to the Securities and Exchange Board of India (SEBI), the Bombay Stock Exchange, and the National Stock Exchange (NSE) requesting that the Future-Reliance contract not be approved due to an interim stay order.
According to the lawyers of Amazon, the e-commerce powerhouse approaching SIAC complied with the deal, which stated that in the event of a disagreement, either party could approach SIAC.
Amazon said the contract violated a non-compete clause and a right-of-first-refusal pact it had negotiated with the Future Group since Future's agreement with Reliance. Future Group was also obliged to notify Amazon before entering into any sales agreements with third parties under the terms of the agreement.
Amazon's SIAC complaint also has to do with Reliance's power and influence in India. Because of the complexities of the stakeholders concerned, Amazon anticipated that there will be challenges.zzAmazon was unsure if it would be able to enforce or obtain a favourable reward. The call option it had to assert its interests due to the transaction's existence even sent it to Singapore. The SIAC, on the other hand, promised an emergency arbitration award within 14 days of the arbitrator's selection.
FUTURE GROUP’S CONTENTIONS
Future Retail made a grievance with the Delhi High Court in November 2020, claiming that SIAC's temporary injunction was invalid because the principle of an emergency arbitrator is not covered under Section 17(1) of the Arbitration and Conciliation Act. Amazon was accused of breaking the Foreign Exchange Management (Non-debt Instruments) Rules 2019 and the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
Future Retail said in a letter to the Bombay Stock Exchange's Department of Corporate Services, the National Stock Exchange's listing department, and the Singapore Exchange Securities Trading Limited that the application had been filed in the high court to prohibit Amazon from "misusing" the interim order issued by the SIAC. The Future Group also stated that it did not sell any stock in the company and was just selling its resources and that it has therefore not broken any contract terms.
A LEGAL ANALYSIS
On December 21, 2020, a single judge bench of Delhi High Court granted a temporary order[1] allowing Amazon to write to the regulatory authority in response to FRL's petition but noted that the US-based Amazon's effort to regulate Future Retail seemed to be in violation of FEMA (Foreign Exchange Management Act) and FDI (Foreign Direct Investment) laws at first glance. While the Delhi High Court order states that the regulatory authority should make a decision on the contract based on the rules, it also upholds the arbitrator's award as binding. Provided that Future Retail was unable to prevent Amazon from submitting itself to different regulatory entities and authorities, Amazon would be given the opportunity to argue its case, based mostly on the arbitration award. To note, the selling of Future Group's wholesale, retail, warehousing, and logistics market to Reliance Retail was authorized by India's antitrust regulator, the Competition Commission of India.
Future Retail's framework of the deal is in accordance with and under section 230-232 of the Companies Act, 2013[2] which permits a company to enter into a scheme of compromise or arrangement with its creditors or another form of creditors. In addition to approvals from SEBI, CCI, and NCLT, three-fourths of shareholders and creditors must approve the scheme as part of the scheme approval process. Variation of shareholder rights is possible under the scheme, but only with the consent of the board of directors. Even if it is deemed a partner in Future Retail, Amazon cannot stifle the scheme's development by enforcing contractual privileges in any way. In this case, it is less so since it does not have a definite say in the matter.
The two parties had agreed to use conflict resolution processes outside of India as part of their contract. People also want neutral jurisdictions for dispute settlement in cross-border dealings, and SIAC distinctly emerges as one of those neutral jurisdictions. Since India is a signatory to the New York and Geneva conventions, which direct signatories to have the right to execute international arbitral awards, there should be no issue with negotiating parties deciding to have any conflict resolved by a mechanism outside of India as it is posted under the Indian Arbitration Act. Legally, when an international emergency award is issued, the applicant must contact the local courts and officials, who must then issue an order for the award to be implemented in that jurisdiction — in this case, India.
However, the Indian Arbitration and Conciliation Act[3], 1996 contains several exceptions in which India may refuse to impose an arbitration award if it is in conflict with India's public policy, fundamental regulation, or interests. The current dispute concerns an injunction grant that Amazon has taken to India and is requesting that Indian regulators and courts impose. In this situation, Amazon received an interim decision, and the Arbitration Act has no provision for the execution of interim orders. Despite Amazon's tie-up with Future group, this may have an effect on Amazon because Future Group's retail and wholesale stores will now prioritize RIL's retail orders over Amazon's orders. True, the rivalry between the two firms isn't just about Amazon attempting to profit from the Reliance contract. Amazon will also try to make it tough for Reliance Retail, India's biggest retailer.
Future Coupons shareholder contract, to which Future Retail is not a party, is being used to compel Future Retail into arbitration. The scheme will be stifled if Future Retail is pulled into arbitration. Future Retail urgently needs judicial action in the form of a mandatory order prohibiting Amazon from halting the scheme. As per India’s arbitration law, the decision of SIAC[4] has to be considered legally valid and binding. Before India's apex court hears the case, the Singapore International Arbitration Centre (SIAC) may hold its hearing and issue the final arbitration award. This may be critical because the deal between Amazon and Future Group stipulates that any conflict between the two sides will be resolved by SIAC, whose decision will be conclusive.
While the case is currently pending before the Supreme Court, it would set a precedent as to whether or not a temporary judgment by an arbitration tribunal is enforceable in India. What influence will the Supreme Court's decision have on Reliance and India's retail industry, and will this decision set the tone for Indian e-commerce for years to come?
[1]Future Retail Ltd. v. Amazon.Com Investment Holdings Ltd & Others,LNIND 2020 DEL 2533. [2]https://www.mca.gov.in/MinistryV2/companiesact2013.html. [3] RanbirKrishan, Overview of the Arbitration and Conciliation Act 1996,JOURNAL OF INTERNATIONAL ARBITRATION263, (2004). [4]MARK MANGAN, JOHN CHOONG, AND NICHOLAS LINGARD, A GUIDE TO THE SIAC ARBITRATIONRULES(Oxford University Press2018).