Author: Muskaan Bangani, 4th Year, Mody University of Science and Technology.
Citation: 2021 SCC OnLine Del 1279
Date of Decision: 18th March, 2021
Bench: J.R. Midha
Original Copy: N/A
- In 2019, the second largest organised offline dealer in India, the Future Group, intended to engage in the company with foreign investors. A group entity, FutureCoupons Private Limited , was restored by the promoters and acquired Future Retail Limited’s shares.
- Amazon.com NV Investment Holdings LLC invested Rs.1.431 Crores in FCPL, which was a brilliant opportunity to acquire 49 per cent of its shareholdings, in August 2019, and entered into a share agreement with Biyanis (“FCPL-SSA”). It was decided mutually by the FCPL-SSA that Biyanis and Amazon exercises the rights of the FCPL in FRL together, and in particular never without Amazon’s consent
- Amazon learned after 1 year, August 2020, that FRL had permitted a disputed transaction with a prohibited person, i.e. with the Mukesh Dhirubhai Ambani group without its knowledge or authorization. Amazon was completely surprised. The FCPL-SSA clearly barred certain contentious transactions and limited persons.
- Aggravated, Amazon called upon the arbitration of Singapore International Arbitration Center’s FCPL-SSA (“SIAC”) and had New Delhi as its headquarters. Because of the urgency involved, Amazon requested the emergency arbitrator appointment under the SIAC regulations in October 2020 and was therefore assigned an Emergency Arbitrator (“EA”).
- The FRL (co-respondent) replied that it raised the preliminary objection to the jurisdiction and appointment of the EA. The Commission was likewise satisfied, amongst other things, that the FRL and Amazon had no genuine arbitration agreement.
- The EA rejected the respondent’s argument that the EA does not have the jurisdiction to act on Amazon’s prayer. The EA concluded that all the parties agreed on equal terms and that they had inextricably linked their obligations with the arbitral proceedings of SIAC. The following has been noted:
- “Section 2 (8) of the Indian Arbitration Act, 1996 specifies that, in respect of the parties in part I of the Act, the agreement shall include the rules of arbitration referred to in the agreement of the parties. Thus, the Act permits for the incorporation into arbitrations of any arbitration rules approved by the parties. Unless explicitly barred, it would be a matter of triviality if the parties could not rescind their agreement to permit any party to select an urgent arbiter. In addition, Section 17 of the Act, it gives the arbitral tribunal power to issue interim relief, does not prevent or deny that the parties are unable to agree to institutional provisions which permit the recourse to urgent arbitration. The Parties may accept arbitral proceedings in the absence of a mandatory banning under the Indian Arbitration Act 1996 or other restriction of public policy.
- Plaintiff argued that Later, Amazon proceeded to the Delhi High Court for the EA’s order dated 25 October 2020 under Section 17(2) of the Act read with Order 39 Rule 2A of the Code of Civil Procedure, 1908 to be enforced immediately.
- In the Court Proceeding, Amazon provided further proof that EA’ is defined in Section 2(1)(d) of the Act, and claimed that EA’ is entirely permissible. The orders of the EA are still valid and binding qua parties after they have been passed in accordance with the SIAC Regulations.
- The Court relied on the concept of the party autonomy and its consequences to conclude that the definition “Arbitral Tribunal” refers to the selection by the parties of the SIAC Rules governing the arbitral provision and that the parties themselves indicate that they agree to be bound by the Order of the EA.
- Amazon also relied on the Rules of the Delhi International Arbitrations Centre, the Mumbai Centre, and the Madras High Court of Arbitration to provide for emergency arbitration proceedings under Indian law.
- Although Amazon submitted that it was prepared to provide financial support as well as possible to the Future group, its shareholding was diluted by its disruptive effects as a result of the disputed transactions with a restrained person by the Future group (i.e. MDA) in contravention of the FCPL-SSA terms.
- In view of the precedents set by the SUCC Chloro Control India Private Limited c. Sever N Trent Water Purification Inc., Cheran Properties Limited c. Kasturi and Sons Limited, MTNL c. Canara Banking etc. Amazon argued, furthermore, that, as correctly stated by the EA, the doctrine of the Group is applicable to the dispute.
- Respondent argued that Arbitral Tribunal was defined under Section 2(1)(d) of the Act, and respondents said that it does not include an EA.
- Under SIAC rules, an EA appointment is invalid, thus any order issued by the EA would be as well. Relying on these sources, the Respondents argued that even if the EA’s ruling were to be an order of the “Arbitral Tribunal,” as dictated by the Act and SIAC Rules, it could never be, since this body has no power to issue such orders. Other respondents contended that the language of Section 17(2) of the Act, which reads “any order, decision, direction, award, determination, ruling, verdict, decision, etc.”, cannot be stretched or the definition of “Arbitral Tribunal” could not be expanded through the use of construction in order to create a situation where an order/award of by an EA is considered on equal ground with an order/award of by an Arbitral Tribunal. Briefly stated, respondents explained that the Indian courts are only interested in enforcing orders made by EAs in foreign seated arbitrations when actions were brought under Section 9 of the Act, not to enforce an EA’s order.
- The group of companies doctrine applies only in court procedures such as the present, but not in proceedings under Section 8 of the Act.
- In relation to FRL, which is not a signatory of the arbitration agreement, the EA held that it was at the core of a group of enterprises associated in the Future Group which, in a conceptual context, agreed unambiguously to engage into a contractual deal with Amazon. The EA had the idea of defining “party” as a “Party to Arbitration Agreement,” and not, significantly, as a “signatory” to the arbitration agreement, under Section 2(1)(h) of the Act 1996 (“Act”). Consequently, FRL was considered a party to the procedure of arbitration.
- What is the status of the law of an EA, i.e. that it is an arbitrator under the Act and that the provisional decree of an EA shall be an order under paragraph 17(1) and shall apply under paragraph 17(2) of the Act?
- Whether the EA misapplied the doctrine of the Group of Companies, which is only applicable under Section 8 of the Act?
- Is the EA provisional order null and void as passed without jurisdiction?
The Delhi High Court
- The High Court had stated that an EA is an arbitrator appointed by an arbitral institution for emergencies, who applies Rules of an arbitral institution to arbitration proceedings where the parties have agreed to arbitrate according to those Rules. If an order/award of the EA is given, it is binding on all parties, and if an order/award of the EA is received, it is binding on all parties. After an institution such as SIAC receives a request for the purpose of which an EA has been requested, the EA’s application is accepted and made if it is decided within 15 days. the court declared,
- The EA is a collective arbitrator in every respect, as these concepts can be clearly understood by the statutory reading of Sections 2(1)(d), 2(6), 2(8), 19(2) of the Act, and SIAC Rules, which are all part of the arbitration agreement according to Section 2(8) of the Act. In the view of the Court, 2(1)(d) is sufficiently broad to encompass an EA. The Arbitral Tribunal possesses the same judicial powers under Section 17(1) of the Act, and in accordance with Section 17(2), an interim order is enforceable in the same manner as a court order. Finally, the Court added that, within the current Indian legal system, the principles of Emergency Arbitration have been well established and there is no demand for legislation on this matter.
- The Court has determined that, in light of the Supreme Court’s rulings in Chloro, Cheran, and MTNL, the law on the Group of Companies theory is clearly established. When several agreements demonstrate a clear purpose on the part of the parties to bind both the signing and non-signatory entities in the same group, the Group of Companies theory applies.
- The Group of Companies doctrine, the Supreme Court laid forth a variety of tests that may be used to determine whether or not the concept should be applied, few of which have been described below:
- the arbitrator must have a direct relationship to the party that is a signatory to the arbitration agreement
- There is direct correspondence between the subject content and the agreement; thus, the transaction is a composite one.
- For accomplishing the shared objective, the transaction should be of a composite type, incorporating aid, execution, and performance of additional or ancillary agreements.
- If the joint objective of all the parties was to bind both the signatories and their affiliates, regardless of whether or not they were the company’s own affiliates, the arbitration agreement applies.
- In non-signatory participation, the non-signatory entity has already begun the contract negotiation or performance.
- When an agreement is comprised of agreements that are consequential, such as a follow-up to the main agreement, and are organically intertwined or interconnected, then the composite performance of these agreements shall be considered.
- An all-inclusive list of parties of this kind must serve justice.
- Since the courts have long since established a law dealing to Group of Companies doctrines, as recognised by the Supreme Court, the Court can conclude that FRL is a proper party to the arbitration action because of the stated grounds by the EA.
- The Respondents claim that the interim order was completely null and void. While they did not contest the legality of the different agreements entered into between the parties, they disputed the fairness of the terms of the contracts.
- The Delhi High Court harshly admonished the Respondents, who appealed the interim order and still failed to argue the validity of the nullity of the decision. It was argued by the respondents that their approach was not simply innocent, as they could not be assumed to be unaware of the laws regarding nullity. It was unclear whether this was a purposeful attempt to deceive the court.
- Courts observed that Amazon was always willing and able to assist with finding a legal solution to the issues faced by FRL, and it is disturbing that FRL did not contact Amazon in order to work out a commercial solution. In the event, it chose a partner in the form of MDA, which was marked as ‘limited’ according to the FCPL-SSA.
- At the end of the case, the court upheld the EA’s ruling, which granted both parties the opportunity to file their written pleadings and oral arguments. The EA also recorded the various points of contention as well as providing an extensive analysis of their veracity.
- With an emergency award, you need to approach it from a different perspective. Although Emergency Awards usually alleviates financial distress, the most frequent result is preservation of assets and preservation of the situations when a paddle-back approach would not hinder the harm already done.
- This judgement is a groundbreaking investigation of the enforceability of the concept of Emergency Arbitration under Indian law.
- The order is enforceable, in accordance with Indian law, because it utilises provisions for emergency arbitration in addition to the term “Emergency Arbitration” not being included in the Act.