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The Battle Of The Two Big-Shots: Future Uncertain For Future Group

One of the largest commercial battles in Indian history is ready to come to an end. Two industrial titans are fighting for the ruins of a fallen Indian retail giant. The case involves a challenge by NV Investment Holdings (hereinafter referred to as Amazon) against Future Group's[1] retail assets sale to Reliance Retail Ventures Ltd.[2] (herein after referred to as Reliance), for Rs. 24,713 crores.

Amazon, Future Group, and Reliance took their battle in numerous courts across India and even in Singapore, might define the future of Indian retail business and e-commerce business. This article aims to examine the actual reason behind the disagreement emerged between Amazon and Future Group which restricts the latter's ability to merge into Reliance.

The Collapse Of The Future Group

The Indian economy is considered to be a developing economy in the global markets. Over time, the country has evolved into the most important centre for both domestic and international trades. The Indian Government has time and again, promoted local businesses while simultaneously recruiting international businesses through the Foreign Direct Investments[3] (FDI) model for more than a decade.

Since 2000, the Indian economy has been a technological and e-commerce hub. The Indian economy has benefited greatly from electronic commerce and automation applications. Because of the increasing market share of smartphones and internet service providers, internet penetration was clearly required to make a bigger impact on the Indian market. India's e-commerce boom has sparked a digital revolution. As a result, consumers have grown accustomed to online shopping and delivery options.

Conversely, the former kings of traditional retail business with physical stores began to see a steady decline prompting the development of new methods to harness the power of technology. The Future Group, with its three other business models and numerous superstore chains, was one of the pioneers of traditional retail business practises in India. Over three decades, the homegrown retail giant has serviced fashion, cuisine, sports, and accessories.

However, with the advent of e-commerce and the technology penetration into every home, e-commerce business models have gained popularity in India. As a result of such fierce competition, the retail sector's sales and profitability have suffered.Companies like Future Group have become rich to rag and have been forced to close their doors after losing even more money.

The Life-Saving Amalgamation Deal

It all started with the Great Recession of 2008-2009, which was a worldwide economic downturn. The crisis has impacted India hard due to a sudden suspension in capital flows and a collapse in both external and domestic demand. As a result, 8 out of the 37 companies lost Rs. 1,835 crores in 2010. The Company, in order to survive the crisis, struggled to maintain market share by spending and borrowing excessively. To remain competitive, the company had to borrow money from investors. Due to which, the promoters pledged all of their company's shares to lenders, increasing the debt to Rs 12,778 crore.

In 2020, due tothe COVID-19 epidemic, Future Group was tormented by mountain of debt. Following the retail shutdown, began exploring considering selling a portion of its share capital in its insurance and retail companies. Financial institutions, led by the State Bank of India, put enormous pressure on Future Group to control its debt.

The Future Group's retail operation has been severely strained since the state-wide closure in March to combat Covid-19. Several premium food sales divisions, including Foodhall and Brand Factory, had been shut down for over six months. Following the COVID-19 outbreak, the corporation was obliged to pay hundreds of crores in foreign bond interest to prevent default.

Reliance Industries Ltd. stepped in to save the Future group. The company announced its acquisition of Future Group's assets. The deal was a win-win for both parties, as it ensures the survival of the Future Group's businesses while also protecting the interests of its lenders, shareholders, creditors, suppliers, and employees.

On the other hand, the acquisition would enable Reliance Ltd. expand its rapidly growing retail sector and e-commerce activities to compete with Amazon. Finally, in August 2020, the Future Group agreed to sell its retail, wholesale, logistics and warehousing businesses as going concerns on a slump sale basis for a lumpsum aggregate price of INR 24,713 crore.

The Rise Of The Tussle

In 2019, Amazon, entered into a Share Subscription Agreement (SSA) with Future Coupons Ltd.[4] and Share Purchase Agreement (SPA) with Future Retail Ltd. Amazon acquired a 49% stake in Future Coupons, the promoter firm of Future Retail Ltd., in a deal worth Rs. 1,430 crores. Future Coupons, owns 9.82% of Future Retail's voting shares. Therefore, with a minor investment in Future Coupons, Amazon indirectly acquired a 3.58% per cent stake in Future Retail.

In addition, Amazon and Future Coupon agreed to a Right of First Refusal agreement in which the latter was prohibited from being licensed, transferred, or alienated to transfer its assets to a list of companies fall under restricted persons without the former's permission in order to prevent competitors from acquiring them, a breach of which would result in Amazon liquidating its shares in the company. The list featured 30 retail companies, including Reliance. As part of the deal, Amazon also gets a call option in which Amazon has the option to acquire all or part of the promoter's Future Retail Ltd. shares in three or 10 years.

In response to Reliance's decision to purchase the entities of Future Group in a slump sale, Amazon filed a lawsuit against the company. In the opinion of Amazon, the transaction jeopardised with Amazon's call option to purchase Future Coupon's stake in Future Retail, which could have been exercised from the third year to the tenth year of the agreement.

Moreover, the deal between Reliance and Future Coupons violated the non-compete clause and also violated the right of first refusal pact it had signed with the Future Coupon which specifically mentioned Reliance as a restricted company for the purposes of investment in Future Coupons. Furthermore, Future Coupon was meant to notify Amazon before entering into any new agreements, which it failed to do.

On the other hand, Future Group claims that it has not sold any stake in the companyand is just selling its assets, and that it has thus not breached any of the contract's terms and conditions.

The Colossal-Legal Battle

Amazon approached the Singapore International Arbitration Centre (SIAC)[5] and sought emergency interim remedies from the emergency arbitration (hereinafter referred to as EA) under the SIAC Rules in the form of injunctions against the aforesaid transactions.

Upon taking note of the case,the Singapore arbitrator granted Amazon an emergency arbitration and halted the Future-Reliance deal by stating that no further deals with Reliance or other restricted parties were allowed under Amazon's and Future Coupon's non-compete clauses.

Along these lines, Amazon wrote to the Securities and Exchange Board of India (SEBI), the Bombay Stock Exchange (BSE), and the National Stock Exchange (NSE), as well as the Competition Commission of India (CCI), requesting that they deny approval to the Future-Reliance deal due to an interim stay on its implementation.

The SEBI requested that Amazon file an appeal with the Delhi High Court, citing a clause of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) that allows an interim order issued in a foreign-seated arbitration to be enforced, effectively rendering the Singapore arbitration valid.

Amazon responded by filing a petition with the Delhi High Court, arguing that Future Group had violated the terms of the agreement made by Amazon and that Amazon was within its rights to request Future Group refrain from engaging with Reliance Ltd. Additionally, Amazon requested the Hon'ble Delhi High Court under Section 17(2) of the Act that the SIAC's decision be heard and recognised in India, thereby invalidating the deal between Reliance and Future Group.

The Single Judge Bench of Delhi High Court upheld the order of Singapore Arbitrator. The learned Single Judge issued a detailed judgement, giving reasons for an order made under Section 17(2) read with Order XXXIX of the Act, Rule 2-A of the Code of Civil Procedure, 1908 (CPC), holding that the emergency arbitrator is an arbitrator for all intents and purposes under Section 17(1) of the Act. The emergency arbitrator's order was determined to be valid and enforceable in India by the Court. The Hon'ble Court ordered a status quo, thus halting Future Group's sale of retail assets to Reliance.

Future Group, on the other hand, proceeded with the challenged transaction, arguing the EA's award was null and void and the EA was coram non judice[6]. Accordingly, Future Group chose not to appeal the EA's award under Section 37 of the Act, instead filing a civil suit in the Delhi High Court seeking an injunction against the arbitration proceedings and an order prohibiting Amazon from writing to statutory authorities based on the EA's award, claiming that doing so was a "tortious interference" with its civil rights as Amazon was unlawfully interfering in the merger.

The Delhi High Court initially stated that it would not intervene in the acquisition but then declined to prevent Amazon from approaching statutory authorities, thereby rejecting Future Group's request to exclude Amazon from the process.

Future Retail filed a petition with the Division Bench Delhi High Court, challenging the single judge's decision. After hearing the Future Group's arguments, the Division Bench granted the relief by lifting the restraining order against the merger between Reliance and Future Group.

The Final Verdict
Amazon appealed the Division Bench's for reversal of the Single Judge's status quo order to the Supreme Court. The Supreme Court did not overturn the Division Bench's stay, but it did order the National Company Law Tribunal (NCLT) not to approve the merger. The Supreme Court had admitted the case for examination, so the Delhi High Court Division Bench should not proceed with it. Further the Supreme Court agreed to examine the validity and enforcement of award. The court has also stated that it will assess whether the EA's decision can be recognised and enforced by an arbitral tribunal as an interim award under Section 17 of the Act.

The Supreme Court, while reiterating party autonomy recognised under the Act, held that EA awards were recognised under section 17 of the Act. The Court noted that such orders help decongest the civil courts and provide parties with expedited temporary relief. One of the questions raised in the case is whether the EA's ruling, which barred Future Group from proceeding with its agreement with Reliance, is legal and enforceable under Indian law.

The Apex Court comprising considered the following two questions in the Appeals:
  1. Whether an "award" delivered by an Emergency Arbitrator appointed under Schedule 1 of the SIAC Rules can be said to be an order under Section 17(1) of the Act?
    The Supreme Court answered affirmatively to this question, holding as follows:
    1. According to sections 2(6), 2(8), 19(2), and 21 of the Act, parties are free to agree on the procedure an arbitral tribunal should follow. Section 21 of the Act provides those arbitral proceedings in connection with a particular dispute begin on the date the respondent receives a request to refer the dispute to arbitration.
    2. The Supreme Court, relying on a catena of judicialprecedents, emphasised the principle of party autonomy as a pillar of the Act. The Court categorically stated that nothing in the Act precludes contractual parties from agreeing to a provision for an EA's award.
    3. In conjunction with other Act provisions, nothing in Section 17(1) prevents the parties from agreeing to the application ofarbitral institution rules. The term "arbitral proceedings" is not limitedand thus includes EA proceedings and interim awards made by emergency arbitrators.
    4. Sections 9(2) and 9(3) of the Act were enacted in order to decongest the judicial system and establish arbitral tribunals that give interim remedies in a fast and effective way. An EA's order would achieve this goal by providing the parties with urgent temporary relief in circumstances where it is warranted.
    5. A party cannot claim that it will not be bound by an EA's verdict after participating in an emergency award hearing, consenting to institutional norms created in that regard, and committing to abide by the award.
  2. Whether an order passed under Section 17(2) of the Act in enforcement of the award of an Emergency Arbitrator by a learned Single Judge of the High Court is appealable?
    The Supreme Court concluded that there is no right of appeal under Section 37 of the Act against an order of enforcement of an EA's order made under Section 17(2) of the Act:
    1. Section 17(1) of the 2015 Amendment Act gives an arbitral tribunal the same powers as a court. It would be anomalous to hold that an interim order made by the tribunal and enforced by the court with reference to Order XXXIX Rule 2-A of the CPCwould not be referrableto Section 17. The earlier law on enforcement of an arbitral tribunal's interim orders was found to be too cumbersome. Acting under Section 17(2) is similar to enforcing a court order made under Section 9(1) of the Act.
    2. A legal fiction is created by Section 17(2) of the Act.This fiction exists solely to enforce arbitral tribunal interim orders. Extension to civil appeals would be a huge step that the legislature did not anticipate when creating the above fiction. The legal fiction created under Section 17(2) of the Act for the purpose of enforcing interim orders is only for that purpose. Extending this fiction to include appeals from such orders would be going beyond the legislature's clear intent.
    3. Section 17(1) mirrors Section 9(1) in terms of the types of interim measures that can be used. Due to the addition of Section 17(2), no changes were made to Section 37(2)(b) to bring it into compliance with Order XLIII, Rule 1(r). It is also clear from the first sentence of Section 17(2) that the legislature believes that orders made in an appeal under Section 37 are only applicable to proceedings under Section 17(1).
    4. If an appeal against a denial of an injunction is allowed, subsection (2) of Section 17 of the Act takes effect. The legislature also did not change the procedure for granting or refusing any measure under Section 9 of the Act to conform to Order XLIII, Rule 1(r)as required by Section 37(1) of the Act.As a result, enforcement proceedings are clearly exempt from the appeal provision.
    5. The arbitral tribunal cannot enforce its decisions on its own; this can only be done by a court using the CPC. However, when the court acts pursuant to Section 17(2), it operates in the same manner as it would while enforcing a court order entered pursuant to Section 9 (1) of the Act. If this is the case, it is obvious that the arbitral tribunal's order is enforceable pursuant to Section 17(2) of the Act read in conjunction with the CPC.
    6. According to the 2019 Amendment Act, Section 37 of the Actis a complete code in terms of appeals from arbitral tribunal orders and awards.

A significant aspect of the Supreme Court's decision is that it has not only re-emphasised the principle of "party autonomy," which was previously under consideration, but it has also brought into focus the option of "emergency arbitrations," which are now recognised remedies for interim relief and are enforceable under Indian law as a result of the decision.

Current Scenario
After a long legal battle, the Supreme Court ruled in favour of Amazon, causing the company to celebrate for a few weeks. However, the Future Group filed a second petition in the Supreme Court against Amazon at the end of August, hoping to get the Future-Reliance deal approved. Future allegedly contended that there is an exceptional urgency to hear and stay the impugned orders made by the Delhi High Court's single-member bench, failing which the firm would be liquidated.

According to Future Retail, the NCLT cannot approve the proposed merger. As a result, the scheme, which benefits all stakeholders, including the general public and several public sector banks, may fail; if the scheme fails, FRL will certainly default on its debt. Among other things, Rs 28,000 crore of public funds are at risk which is "incomprehensible," considering the loss of over 35,575 employments at FRL and other Scheme participants. Also, it will affect over 8,050 small and medium-sized businesses.

Currently, The Supreme Court has granted Future Retail some sigh ofrelief by staying the seizure of Future Group assets for further 4 weeks.The Bench also ordered the NCLT, CCI, and SEBI not to issue final orders in this case.

No doubt that the Supreme Court judgment which outlined the notions of the new phenomenon of Emergency Arbitration in India is likely to be one of the most important landmark judgments in the field of arbitration law. The judgement would change the discourse on arbitration in India It has been highly commended by both litigants and lawyers alike, as it means that parties will now be able to get interim relief more quickly and without having to burden the Courts with their requests.

Moreover, the final verdict will also lay down crucial provisions of law in the domain of competition law. The final decision, on the other hand, appears to be almost certain to set a precedent that many investors, multinational corporations, and legal professionals have been anticipating.

  1. Future Group is an Indian conglomerate, founded by Kishore Biyani. Future Retail Limited and Future Lifestyle Fashions Limited, are the two operating companies of Future Group.
  2. A subsidiary of Reliance Industries Limited.
  3. A foreign direct investment is an investment for controlling ownership in a business in one country by an entity based in another country.
  4. One of the Group Companies of the Future Group. It retails merchandise products through e-commerce sites and mobile apps.
  5. Singapore International Arbitration Centre is an arbitration organisation which administers arbitrations under its own rules of arbitration and the UNCITRAL Arbitration Rules.
  6. Coram non judice, is a legal term typically used to indicate a legal proceeding that is outside the presence of a judge, with improper venue, or without jurisdiction.
Written by Sagar Agarwal; B.A. LL.B., currently practicing in the Hon'ble Delhi High Court and Subordinate Courts in Delhi

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