The legality of the Emergency Arbitration Award in India
This article deals with the validity of the emergency arbitration award in India and the legality of the transaction that happened between Future Retail Ltd. And Amazon
Table of content:
- Introduction
- Future Retail Ltd. vs Amazon.Com Investment Holding LLC & Ors. [CS (COMM) 493/ 2020]
- Background of the case
- Submission of the parties
- Issues Involved
- Judgment passed
- Case Laws:
- Reliance Natural Resources Limited vs. Reliance Industries Limited
- Centrotrade Minerals and Metal Inc. vs. Hindustan Copper Limited
- Antrix Corporation Limited vs. Devas Multimedia Pvt. Ltd
- Narayan Prasad Lohia vs. Nikunj Kumar Lohia
- Goodwill Non-Woven P. Ltd vs. Xcoal Energy & Resources LLC
- Sushil Kumar Mehta vs. Gobind ram Bohrab
- Ajudh Raj & Ors. vs. Moti
- Murtiza Khan vs. the State of M.P
- Sheolal & Ors. Vs. Sultan & Ors.
- Firm Ashok Traders & Anr. Vs. Gurumukh Das Saluja & Ors.
- Tayabbhai M. Bagasarwalla v. Hind Rubber
- Balailal Mukherjee vs. Sea Traders
- Most Rev. P.M.A. Metropolitan v. Moran Mar Marthoma
Introduction
This article deals with the Emergency Arbitration Award. Emergency Arbitration is a weapon which a party seeks to get interim relief before the formation of an arbitral tribunal. SIAC and ICC had made the provision regarding the appointment of an emergency arbitrator. In India the Arbitration and Conciliation Act (hereafter referred to as A& C Act) Part 1 doesn’t deal with the appointment of the emergency arbitrator. Section 9 of the A& C Act provides that:-
“A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court—
(i) For the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or
(ii) For an interim measure of protection in respect of any of the following matters, namely:—
(a) The preservation, interim custody, or sale of any goods which are the subject matter of the arbitration agreement;
(b) Securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorizing for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
(d) Interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.”
Future Retail Ltd. vs Amazon .Com Investment Holding LLC & Ors. [CS (COMM) 493/ 2020]
Parties Involved:
Plaintiff: Future Retails Ltd.
Defendants:
- com NV Investment Holdings LLC (hereafter referred to as Amazon)
- Future Coupons Pvt. Ltd. (hereafter referred to as FCPL)
- e promoters of the plaintiff (hereafter referred to as Biryanis)
- Future Corporate Resources Private Limited (hereafter referred to as FCRPL)
- Akar Estate and Finance Private Limited (hereafter referred to as AEFPL)
- Reliance Retail Ventures Limited (hereafter referred to as RRVL)
- Reliance Retail and Fashion Lifestyle Limited (hereafter referred to as RRFLL)
Background of the case
The petitioner company, that is, Future Retail Ltd. is a listed company and holds more than three lakh shareholders and the company has its operation in over 400 cities and is engaged with around 25,000 employees. But the company suffered economic depression for several years and due to the Covid 19 pandemic, the situation of a company becomes more worsen. The company was on the edge of insolvency, it is when the company decided to engage with the Reliance group in the form of acquisition and reliance group fix the deal to save the company from insolvency at Rs. 24, 713 Crores and the reliance group further provided that the company is also going to undertake the liability of the petitioner which was about Rs. 12, 801 Cr. And the amount of Rs. 2800 Cr. was going to be invested by the Reliance group in order to restore the economic condition of the company.
However, Amazon who is holding 3.5% shares in Future Retails Ltd. was against this transaction and knock on the door of the arbitral tribunal to acquire an injunction order against this transaction. On October 26th, 2020an an emergency arbitral award was passed in which an injunction was granted to Amazon in respect of the disputed acquisition transaction.
Aggrieved from the emergency arbitral award the plaintiff, Future Retails Ltd. approached the Delhi High Court by challenging the emergency arbitral award and sought to restrict amazon from interfering in the transactions.
Submissions of the Parties
The Contention of the plaintiff
Learned Counsel Mr. Harish Salve submitted on behalf of Future Retail Ltd. (FRL)
- Currently, FRL is holding more than 3 lakhs shareholders and Amazon is one of them and as Covid 19 leaves a very deep impact (in negative) on the economy and specifically on the retail sector and therefore this transaction is in benefit for all these stakeholders.
- It is prayed before the Delhi High Court to grant an injunction against amazon as amazon is unlawfully interfering in the transaction. The act of amazon is considered to be tortious as amazon FRL and SHA and it interfering in the lawful contractual rights of the FRL.
- The intention of amazon is to prevent competition through its schedule, provide a list of ‘Restricted Person’ which ultimately causes irreparable damages to FRL as well as also causes prejudice to the plaintiff.
- Furthermore being a public listed company any promoter of FRL if signed and engaged in a private contract then it will not bind upon the company and therefore the act of the amazon held to be void it was contended by referring to the decision laid in Reliance Natural Resources Limited vs. Reliance Industries Limited.
- In both the domestic and international commercial arbitration under Part-I, Emergency Arbitrator is barred, as the remedy for seeking any interim relief before the Arbitral Tribunal is constituted, is under Section 9 of the A&C Act from a Court. That being the only remedy available, Amazon cannot bypass the said remedy and seek the appointment of an Emergency Arbitrator.
- It is contended that the SIAC Rules cannot override the mandatory provisions of Part-I of the A&C Act Thus Amazon’s reliance on Rule- 1.1 of the SIAC Rules is of no avail to the extent that SIAC Rules are in derogation of the provisions of Part-I of the A&C Act.
- Section 11 (2) of the A&C act provides a right to the parties to appoint the arbitrator(s) and this section cannot read so far as to appoint an emergency arbitrator when such a concept doesn’t contemplate in the A& C Act. As reported by Amazon, Centrotrade Minerals and Metal Inc. vs. Hindustan Copper Limited, this case deals with two-tier arbitration.
- Also, in Antrix Corporation Limited vs. Devas Multimedia Pvt. Ltd the parties filed a petition under section 11 of the act after nominated an arbitrator by following the ICC rules whereas in the present case FRL has not appointed any nominee arbitrator.
- Even the decision of Narayan Prasad Lohia vs. Nikunj Kumar Lohia upon which Amazon has relied upon, has no relevance with the present case as the instant case has dealt with two arbitrators.
- The reliance of Amazon on the ruling of Goodwill Non-Woven P. Ltd vs. Xcoal Energy & Resources LLCis also not relevant with the present case as the instant case deals with the foreign arbitration which dealt by Part 2 of the A& C Act whereas the present case is dealt with the Part 1 of the act where the definition provided under Section 2 (1) of the act applies on arbitration tribunal which doesn’t talk about emergency arbitration.
- the emergency arbitration order being a nullity shall be set aside by the court on the ground of legality and the reliance was given on the ruling of Sushil Kumar Mehta vs. Gobind ram Bohrab; Ajudh Raj & Ors. Vs. Moti; Mohd. Murtiza Khan vs. State of M.P Sheolal & Ors. Vs. Sultan & Ors.
- The claim of FRL SHA, FCPL SHA, FCPL SSA constituted to be “Single Integrated Bargain’ and also the list of ‘Restricted Persons’ provided by amazon is misleading.
The contention of the defendants excluding Amazon
Learned Counsel Mr. Mukul Rohatgi submitted the following on the behalf of the defendants:
- It is provided that an arbitral tribunal is constituted either on the basis of the agreement between the parties or under section 11 of the A& C Act but in the present case neither there was an agreement nor there was any direction provided under section 11 of the act for appointing of an emergency arbitrator.
- Further Section 9 of the A&C Act does not contain the phrases like “subject to any agreement to the contrary” or “unless otherwise agreed by the parties”, thus, the parties cannot derogate from Section 9 of the A&C Act.
- Further SIAC Rules prohibit a challenge/review or any order passed by the Emergency Arbitrator which in itself shows that the Emergency Arbitrator’s award is not under Section 17 of the A&C Act. Thus the Emergency Arbitrator lacked inherent jurisdiction under the provisions of the A&C Act. Though these issues were raised before the Emergency Arbitrator, however, the same was not considered.
- In respect of the contention raised by the plaintiff regarding the nullity of Emergency Arbitration, a simple reading of FCPL SHA provides that substantive law of Arbitration law is the A& C Act whereas SIAC rules prescribe the procedure for proceedings. And in case of conflict, the provision of A& C will prevail.
- Under Section 17 (2) of the A&C Act, an interim order of an Arbitral Tribunal is enforceable as an order of the Court however, an interim order of an Emergency Arbitrator under the SIAC Rules is temporary in nature and ceases to be binding automatically if the Arbitral Tribunal is not constituted within 90 days
- Since Amazon is misrepresenting the legality of the EA order claiming that it binds FRL and thereby causing prejudice not only to FRL but to Reliance also by asking the Regulators to deny statutory permissions for the valid and legal transaction.
- The UNCITRAL Model Law also does not contain any provision in relation to an Emergency Arbitrator. Since the Indian Arbitration and Conciliation Act is based on the UNCITRAL Model Law, it does not contemplate the appointment of an Emergency Arbitrator by relying on the ruling of Firm Ashok Traders & Anr. Vs. Gurumukh Das Saluja & Ors.
- It is thus prayed that Amazon is injuncted from interfering in the transaction between FRL and Reliance.
The contention on behalf of Amazon
Learned Counsel Mr. Gopal Subramanian submitted the following on behalf of Amazon:-
- The suit filed by the FRL is not maintainable as the statutory authorities already take cognizance of the said matter.
- It was added that FRL has now cannot oppose the decision of the Emergency Arbitration as the plaintiff of the present case itself attended the proceeding of the Emergency Arbitration which was commenced on October 5th, 2020.
- The emergency arbitration order cannot be held invalid as according to the Indian Substantive law parties can opt for emergency arbitration by mutual agreement. Reliance is placed on Tayabbhai M. Bagasarwalla v. Hind Rubber.
- As Emergency Arbitration is considered and constituted as an arbitral tribunal therefore court does not have authority to interfere according to section 9 (3) of the act.
- It is also contended that in a case of tortious interference with a contract, a party must show that there was a lawful contract and the other party had no lawful justification to interfere with such a contract. [Balailal Mukherjee vs. Sea Traders]
- It was further contended that the present case is not maintainable upon two grounds:-
- The matter involved in the present case was already heard by the emergency arbitral tribunal.
- The Emergency Arbitration Award cannot be challenged before the court.
Issues Involved
- Whether the present suit is maintainable before the court?
- Whether the Emergency Arbitration doesn’t have legal recognition under Part 1 of the act and henceCoram Non-Judice?
- Is the resolution passed by the FRL is void or contrary to any statutory provision?
- Whether by the conflation of the FRL SHA, FCPL SHA, and FCPL SSA, Amazon seeks to exercise ‘Control’ on FRL which is forbidden under the FEMA FDI Rules?
- Whether prima facie a case for tortious interference is made out by FRL?
- Whether FRL is entitled to an interim injunction?
Judgment Passed
- 1st Issue:- the court held that even though if the plaintiff doesn’t raise an objection regarding the validity of EA, this court has the jurisdiction to entertain the present case as section 9 of the CPC provides that
“The Courts shall (subject to the provisions herein contained) have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is neither expressly nor impliedly barred.”
And with respect to this, the court relied on the SC decision in Most Rev. P.M.A. Metropolitan v. Moran Mar Marthoma.
- 2nd Issue:- the court held that the EA is not invalid in its entirety as per the provisions of the A&C Act the parties can opt different procedural laws and the said act doesn’t restrict the party to go for EA . the court make 3 conclusions regarding this fact:-
- Parties who go for International Arbitration can depart from section 9 of the A&C Act via mutual agreement.
- While determining such a case the court has to see that such a choice doesn’t contradict the Indian Law and also it must not be in conflict with any public policy.
- While interpreting the SIAC rules it cannot be said that these rules are in contradiction of the A& C Act and thus EA cannot be held invalid.
- 3rd Issues: – the resolution passed by the Board would not be held as void or contrary to any statutory provision as the decision of the board doesn’t affect the Article of Association of FRL in which it was clearly specified that FRL is bound only by its AOA and by FCPL.
- 4th Issue:- the court held that rights obtained by the conflation of FRL SHA, FCPL SHA, and FCPL SSA cannot be claimed as the protective rights by Amazon as to fall beyond the test of “control”.
- 5th Issue: – the court is of opinion that the interference of Amazon in the acquisition contract of FRL and Reliance is considered as a hindrance in the exercise of their contractual rights and thus treated as a civil wrong which is actionable before the court of law.
- 6th Issue:- interim injunction is granted on 3 grounds:
- Prima facie case
- Irreparable loss
- Balance of convenience
In the present case, in accordance with the court’s observation FRL is successfully establishing a prima facie case and with respect to the ground of balance on convenience is falling under both sides and at last, FRL doesn’t suffer any irreparable loss with the interference of the amazon in the acquisition and therefore this court is not in a position to grant an interim injunction.