The Hon'ble Supreme Court in a recent decision in Future Coupons Pvt. Ltd. v. Amazon.com NV Investment Holdings LLC1 has set aside the Delhi High Court orders which issued punitive directions against Future group companies for alleged violation of the emergency arbitrator's award. The Apex Court also set aside the Delhi High Court order which refused to grant an interim stay against the arbitral order refusing to vacate emergency arbitrator's interim award that restrained Future group's deal with Reliance. In this article, we briefly navigate through the facts and findings of the aforesaid matter.

Facts

On 22.08.2019, Amazon entered into Shareholder and Share-Subscription Agreements (Agreements) with Future Coupon Private Limited (FCPL). Through these instruments, Amazon intended to acquire 49% stake in FCPL. The Agreements contained an arbitration agreement, wherein parties resolved to settle their disputes in accordance with the Arbitration Rules (Rules) of the Singapore International Arbitration Center (SIAC). The parties had further resolved to have the proceedings seated at New Delhi.

On 12.08.2019, FCPL and its promoters entered into a Shareholder Agreement (FCPL-FRL SHA) with Future Retail Limited (FRL). Through the FCPL-FRL SHA, FCPL was granted certain protective rights. One such right provided that any sale, divestment, transfer and disposal will be in accordance with the FCPL-FRL SHA. Further, notwithstanding anything, FRL could not transfer any of its retail assets in favour of a 'Restricted Person' which included the Reliance group.

In March 2020, FRL witnessed a business downturn due to Covid-19 lockdowns and consequent restrictions on retail sales through brick-and-mortar shops. Considering the same, the Board of FRL decided to sell, retail businesses and assets to Reliance, for a consideration in excess of INR 25,000 crores (FRL-Reliance Transaction). Further, FRL's outstanding loans grew up to a figure of INR 20,000 crores leaving a serious and tangible risk of insolvency. In this context, the FRL-Reliance Transaction was entered into to alleviate the financial position and protect around 25,000 employees of the Future group.

Aggrieved by the sale transaction, Amazon initiated arbitration proceedings before the SIAC. Amazon filed an application for emergency relief with the SIAC seeking interim prohibitory injunction to prevent FRL and FCPL from taking further steps in FRL-Reliance Transaction. Parallelly, FRL filed a suit before the Delhi High Court (High Court) against Amazon for tortious interference in the scheme for the sale of assets. On 25.10.2020, the Emergency Arbitrator (Arbitrator) passed an interim award (Interim Award) in favour of Amazon. The findings of the single judge came vide an order dated 21.12.2020 and were diametrically opposite to the Interim Award.

In the meanwhile, CCI and SEBI approved the composite scheme proposed by FRL and Reliance. Thereafter, Amazon filed a petition for enforcement of the Interim Award under Section 17(2) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) before the High Court on 25.01.2021. On 02.02.2021, an order was passed by High Court (First Impugned Order) which held that the Arbitrator had rightly proceeded in the matter by issuing protective orders for Amazon and the Interim Award was not a nullity. Accordingly, an interim stay order was granted directing all authorities to maintain status quo with respect to the FRL-Reliance Transaction. The single judge also observed that details reasons would follow in the reserved order. Aggrieved by the First Impugned Order, FRL filed an appeal before the division bench. The division bench of the High Court vide order dated 08.02.2021 held that the First Impugned Order was only a prima facie view for granting an interim relief and would not come in way of the single judge in passing the final order.

Amazon appealed against the division bench order dated 08.02.2021 before the Hon'ble Supreme Court. The Apex Court by an order dated 22.02.2021 held that NCLT proceedings would be allowed to continue but shall not culminate in any final order of sanction of scheme. Thereafter, on 18.03.2021 the single judge of High Court passed the detailed order (Second Impugned Order) in this matter affirming the Interim Award and also passed punitive orders against FCPL and FRL under Order XXXIX Rule 2A of the Civil Procedure Code, 1908 (CPC). FCPL and FRL approached the division bench of the High Court in appeal which stayed the Second Impugned Order vide an order dated 22.03.2021. Subsequently, Amazon filed a special leave petition before the Apex Court against the order dated 22.03.2021 passed by the division bench of the High Court.

The Hon'ble Supreme Court consolidated all appeals filed by Amazon and answered two legal questions. Firstly, the Apex Court held that the Arbitration Act granted complete party autonomy to have the disputes decided as per institutional rules before an emergency arbitrator. Such orders were referrable to and are made under Section 17(1) of the Arbitration Act. Secondly, the Apex Court held that no appeal lied under Section 37 of the Arbitration Act against an order of enforcement of an emergency arbitrators order made under Section 17(2) of the Arbitration Act. Accordingly, the impugned orders of the division bench dated 08.02.2021 and 22.03.2021 were set aside.

The above judgment of the Hon'ble Supreme Court dated 06.08.2021 did not adjudicate upon the merits of the case and limited its reasoning only to answer the legal questions which arose therein. The judgment narrated facts leading up to the appeal but did not return any findings on the facts.

FRL filed an application under Para 10 of Schedule 1 of the Rules for vacating the Interim Award. The arbitral tribunal reserved orders upon hearing the parties between 12.07.2021 to 16.07.2021. Contemporaneously, FCPL and FRL preferred appeals before the Hon'ble Supreme Court against the First Impugned Order and the Second Impugned Order. The Apex Court considered the fact that orders were expected shortly from the arbitral tribunal on the aspect of vacating the Interim Award. Accordingly, an interim order was passed by the Apex Court on 09.09.2021 directing all authorities i.e., NCLT, CCI and SEBI to not pass any final order for a period of four weeks. This order was passed with the consent of both parties.

In the meanwhile, the applications filed by FRL and FCPL for vacating the Interim Award of the Arbitrator were dismissed by the arbitral tribunal by an order dated 21.10.2021 (Tribunal Order). The order of the arbitral tribunal rejecting to vacate the petition was challenged by FCPL and FRL before the Delhi High Court. While issuing notice in the matters, the Delhi High Court by an order dated 29.10.2021 (Third Impugned Order), refused to grant any immediate relief to FRL. Aggrieved by the aforesaid order, FCPL and FRL approached the Hon'ble Supreme Court in the present matter.

Contentions of the Parties

FRL and FCPL had the following submissions in the matter:

  1. FRL submitted that the orders of enforcement proceedings were rendered in complete disregard of the order passed by the single judge of the Delhi High Court on 21.12.2020 particularly the finding that FRL did not have any arbitration agreement with Amazon.
  2. FRL also submitted that the impugned orders passed in enforcement proceedings merit setting aside as the proceedings were conducted contrary to the principles of natural justice. The procedure adopted in enforcement proceedings caused serious prejudice to the appellants in the present case as, after denying them an opportunity to file a reply affidavit, the impugned orders recorded that FRL had not made any pleas on the issue as to why the Interim Award was a nullity.
  3. It was also stated that the impugned orders passed in the enforcement proceedings extended beyond the scope of Interim Award by directing recall of the approvals granted by the statutory authorities to the proposed transaction.
  4. While relying on the Rules, it was submitted that the Tribunal Order overrides the Interim Award which is the subject matter of the impugned enforcement proceedings. As a result, the enforcement proceedings and the impugned order lost their relevance due to the subsequent events.
  5. FCPL argued that no opportunity was granted for filing any response which had resulted in various factual and legal errors creeping in the impugned order.
  6. FCPL further submitted that no prejudice would be caused to Amazon by setting aside the impugned order passed in the enforcement proceedings or by the passing of an interim measure allowing continuation of proceedings before NCLT.

Amazon had the following submissions in the matter:

  1. Amazon submitted that the appellants, by their conduct, demonstrated willful and intentional disobedience of the Interim Award after agreeing to emergency proceedings. It was submitted that Amazon was not interested in pursuing the punitive direction imposed on FCPL and others. However, the Interim Award stood confirmed by the arbitral tribunal which ought to have been abided by the appellants.
  2. Amazon also argued that the appellant's reliance on the order dated 21.12.20 passed by the single judge of the High Court was misplaced. It was submitted that in the first instance, the suit instituted by FRL before the Delhi High court was in the nature of anti-arbitration suit and a challenge to Section 5 of the Arbitration Act.
  3. Finally, FCPL submitted that no relief should be granted to the appellants as they failed to approach the Hon'ble Supreme Court with clean hands having failed to comply with any judicial order passed previously.

Issues before the Hon'ble Supreme Court

  1. Whether the First Impugned Order and the Second Impugned Order passed by the single judge of the High Court were valid in law?
  2. Whether the Third Impugned Order passed by the learned single judge of the High Court was valid in law?

Decision of the Hon'ble Supreme Court

Issue No. 1

The First Impugned Order of the single judge was challenged on the grounds of lack of an opportunity being granted to FCPL and FRL to file a counter to establish their defense. On a perusal of the First Impugned Order, it was found that serious procedural errors were committed by the single judge. It was observed that courts should be cautious and afford a reasonable opportunity to parties to be heard, especially in commercial matters of large proportions. The Hon'ble Supreme Court observed that the opportunity provided to the appellants was insufficient and therefore, could not be upheld in law.

The Apex Court observed that whenever an order is struck down as being invalid and in violation of the principles of natural justice, there is no final decision of the case and the proceedings are left open. Such proceedings are not terminated and are usually remitted back.2

However, in the instant case, the Hon'ble Supreme Court observed that much water had flown under the bridge since the passing of the First Impugned Order by the single judge which has now been rendered redundant for the following reasons:

  1. Initially, the Hon'ble Supreme Court by its order dated 22.02.2021 had allowed proceedings to continue before the NCLT without the finalization of the scheme.
  2. Thereafter, the single judge passed the Second Impugned Order on 18.03.2021 without considering the order of the Hon'ble Supreme Court dated 22.02.2021.
  3. Subsequently, the division bench stayed the Second Impugned Order of the single judge of the High Court vide an order dated 22.03.2021.
  4. The Hon'ble Supreme Court finally disposed of the case, answering only two legal questions without adjudicating into the merits of the matter.
  5. FRL and FCPL moved the arbitral tribunal for vacating the Interim Award granted by the emergency arbitrator.

The Apex Court then observed that one aspect which may be highlighted is that the Second Impugned Order containing punitive directions relied on the decision in M/s Bhandari Engineers & Builders Pvt. Ltd. v. M/s. Maharia Raj Joint Venture3 which was overruled by a division bench order in Delhi Chemical and Pharmaceutical Works Pvt. Ltd. & Anr. v. Himgiri Realtors Pvt. Ltd. & Anr.4 Upon interpreting the provisions carried under Order XXXIX Rule 2-A of CPC, the Apex Court set aside the punitive directions issued in the First Impugned Order and the Second Impugned Order.

Coming to the merits of the case, the Apex Court mentioned that the interim order dated 25.12.2020 for enforcing the Interim Award adopted a standard above and beyond the prima facie view as required by law. The Hon'ble Supreme Court observed that the courts must be cautious while making observations on the merits of a case which would inevitably influence the arbitral tribunals hearing the matters on merit.

Accordingly, the First Impugned Order and the Second Impugned Order were set aside.

Issue No. 2

The Apex Court noted that at the outset, both sides agreed that the Third Impugned Order needs to be set aside for non-consideration of the orders of the Hon'ble Supreme Court. The Apex Court observed that through its order dated 09.09.2021, it imposed no bar on the High Court to adjudicate the issue concerning the legality of the Tribunal Order.

Conclusion of the Supreme Court

The Hon'ble Supreme Court noted that certain important questions of law concerning the effect of the award of an emergency arbitrator and the jurisdiction of the arbitral tribunal qua such awards arose in the present matter. Therefore, these matters needed to be remitted back for adjudication on their own merits. Accordingly, the Apex Court ordered for:

  1. setting aside of the First Impugned Order dated 02.02.2021 and Second Impugned Order dated 18.02.2021.
  2. setting aside of the Third Impugned Order dated 29.10.2021. The single judge of the High Court was directed to reconsider the issues and pass appropriate orders on the merits uninfluenced by any observations made in the instant matter.

Footnotes

1. Future Coupons Private Ltd. v. Amazon.com NV Investment Holdings LLC, Civil Appeal Nos. 859-860 of 2022.

2. Canara Bank v. Debasis Das, 2003 4 SCC 557.

3. M/s Bhandari Engineers & Builders Pvt. Ltd. v. M/s. Maharia Raj Joint Venture, 2019 SCC Online Del. 11879.

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

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