Delhi HC Restrains Future Retail-Reliance Deal
Delhi HC Restrains Future- Reliance Deal
In a big relief for Amazon, the Delhi High Court on Thursday restrained the Kishore Biyani led Future retail group from proceeding with its $3.4-billion deal with Mukesh Ambani’s Reliance group.
Holding the future group guilty of violating the terms and conditions of the emergency award, the court issued a show-cause notice asking the respondents as to why they should not be detained in civil prison for 3 months. The court also asked the respondents to deposit INR 20 Lakhs towards the Prime Minister’s relief fund for breaching the terms and conditions of the emergency award.
The petitioner has filed this petition under Section 17(2) of the Arbitration and Conciliation Act, 1996 read with Order XXXIX Rule 2A and Section 151 of Code of Civil Procedure for enforcement of the interim order dated 25th October 2020 passed by the Emergency Arbitrator.
Three pertinent questions before the Court are:
Emergency Arbitrator is an arbitrator under the Indian Arbitration Law affirms Delhi HC
Delhi High Court held that Emergency Arbitrator is an Arbitrator for all intents and purposes; 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.
On the question of applying the group of Companies doctrine, it was held that Respondent No.2 is a proper party to the arbitration proceedings and the Emergency Arbitrator has rightly invoked the Group of Companies doctrine by applying the well-settled principles laid down by the Supreme Court in Chloro Controls Cheran Properties (supra) and MTNL. The respondents have raised a plea contrary to the well-settled law relating to the Group of Companies doctrine laid down by the Supreme Court.
Upholding the validity of the interim order passed by the emergency arbitrator the court held that respondents have raised a vague plea of Nullity without substantiating the same. The interim order of the Emergency Arbitrator is not a Nullity as alleged by respondent No.2. Combining/treating all the agreements as a single integrated transaction does not amount to control of the petitioner over FRL and therefore, the petitioner’s investment does not violate any law.
The court was of the view that the respondents have willfully violated the interim order dated 25th October 2020 and therefore the assets of respondents are liable to be attached. The respondents were directed to approach all the competent authorities for recall of the orders passed on their applications in violation of the interim order dated 25th October 2020 within two weeks.
The respondents are directed to file an affidavit to place on record the actions taken by them after 25th October 2020 and the present status of all those actions at least three days before the next date of hearing.
Last month, the judge had ordered maintenance of the status quo in the deal till the pronouncement of this order. The status quo direction was subsequently stayed by a division bench of the High Court. Amazon's appeal against the stay order on the status quo is pending before the Supreme Court and will be heard next month.
Legal experts on Delhi High Court’s Order
Bharat Chugh, Former Judge and Advocate Supreme Court of India, while lauding the dispassionate and objective view of the Court that could potentially put India on the world map as an investor-friendly country with a positive business environment, said:
“I believe today’s order would send a very positive message to all foreign investors that India is a jurisdiction which upholds the sanctity of contracts/investments, and Indian Courts respect foreign court/tribunal’s orders. It reaffirms that Indian Courts would not be unduly swayed by emotive arguments and narratives such as the one sought to be painted here by one of the parties: that of a ‘Big American’ company trying to scuttle the rescue of a ‘Domestic’ company because of its greed. The decision also reaffirms the fact that Indian Courts can, and do look at the contractual obligations and facts of a case— dispassionately and objectively.
Further, it is good to note that the Courts responded with great alacrity to protect the investment of a foreign investor. Time is really of the essence in such cases. This was important as any delay in enforcing the SIAC order could have led to irreparable damage to Amazon; damage which may not be capable of monetary recompense, later. In such cases, it has been seen that once the transaction goes through (and is not stayed till the decision of the case), it is very difficult (if not impossible!) to unscramble the scrambled egg and undo the transaction. Therefore, the decision today should be appreciated.”
Shedding light on the touchstones of an investor-friendly business ecosystem and the larger impact of this order, Chugh added, “Speedy enforcement of contractual obligations and foreign arbitration rulings in a given jurisdiction is an important criterion that a foreign investor keeps in mind while assessing the attractiveness of an investment destination. Rulings such as this would definitely help India’s otherwise floundering reputation as a good place to invest and do business in.”
With another perspective concerning the prolonged conundrum around the jurisprudence on enforcement of interlocutory or interim foreign arbitral awards Praveen Raju, Partner, Spice Route Legal said:
“The back and forth on this by the courts clearly indicates a lack of jurisprudence on enforcement of interlocutory or interim foreign arbitral awards. A strict interpretation of the Act, I believe, does not extend to such orders. The ball is now back in Future’s court and it will be interesting to see how this pans out over the next few days. Last time around the status quo passed by the same court was vacated in a matter of days by the division bench.”
On a similar note speculating about the weight of the order, Kanika Chaudhary Nayar, Partner, L&L Partners said:
“Given that the Supreme Court too had sought responses from both sides on following the High Court's earlier direction to maintain status quo and was looking into it, had allowed Future Retail to seek implementation of the scheme and had allowed the continuance of the proceedings before the NCLAT on a non-conclusive basis; the legality of the single judge's order will have to be studied in that light.”
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