The Supreme Court on Friday ruled in favour of e-commerce giant Amazon against the proposed ₹24,713-crore merger deal between Future Retail Limited (FRL)and Reliance Retail.
A Bench of Justices Rohinton F. Nariman and B.R. Gavai upheld the validity and enforceability of a Singapore-based Emergency Arbitrator (EA) award, which restrained Future Retail Limited (FRL), India’s second largest offline retailer, from going ahead with the disputed transaction.
Justice Nariman recorded that the Mukesh Dhirubhai Ambani (MDA) Group, which owns Reliance Retail, was among the “restricted persons” or “prohibited entities” with whom FRL, Future Coupons Private Limited (which owns 9.82% shareholding in FRL) and the Biyanis could not “deal”. This was according to agreements based on which Amazon would invest money.
Despite these agreements, the court noted that FRL entered into a transaction with the MDA Group. The deal envisaged “the amalgamation of FRL with the MDA Group, the consequential cessation of FRL as an entity, and the complete disposal of its retail assets in favour of the group”.
The EA, in the award in October last, injuncted FRL “from taking any steps to complete the disputed transaction with entities that are part of the MDA Group”
The 103-page judgment authored by Justice Nariman dismissed FRL’s argument that the “Emergency Arbitrator is not an arbitral tribunal” under the Arbitration and Conciliation Act of 1996. Senior advocate Harish Salve had argued that the EA, which functions under the Arbitration Rules of the Singapore International Arbitration Centre, is ”‘a foreigner to the Indian Arbitration Act”. He had contended that Amazon, represented by senior advocate Gopal Subramanium, by urging to enforce the EA award, was trying to “fit a square peg in a round hole”.
Mr. Subramaniam, on the other hand, had argued that the EA award can never be characterised as a nullity and ignored. It must be obeyed, he had contended.
Justice Nariman upheld the validity of the EA award. The judgment laid down that the award is “exactly like an order of an arbitral tribunal” contemplated under Section 17 of the 1996 Act. Hence, an award by the EA was like an order under Section 17(1) (interim measures ordered by an arbitral tribunal) of the Act.
Besides, Justice Nariman observed that a party (FRL) “cannot be heard to say, after it participates in an Emergency Award proceeding, that it will not be bound by an Emergency Arbitrator’s ruling”.
Delhi HC judge order
The apex court said the EA orders were “an important step in aid of decongesting the civil courts and affording expeditious interim relief to the parties”. It further held that the order passed by a Single Judge of the Delhi High Court to enforce the award was not appealable.
“No appeal would lie under Section 37 of the Arbitration Act against an order of enforcement of an Emergency Arbitrator’s order made under Section 17(2) of the Act,” Justice Nariman wrote.
The court said the provision in Section 17(2) that an arbitral tribunal’s order should be “deemed” to be an order of the court of law and enforceable under the Code of Civil Procedure was a “legal fiction… created only for the purpose of enforceability of interim orders made by the arbitral tribunal”.
With this, the court upheld the orders of the Single Judge to FRL to maintain ‘status quo’ on the sale of its retail assets to Reliance.
The Single Judge twice upheld the EA award. On February 2, the judge restrained the continuation of the FRL-Reliance Retail deal. Again, on March 18, the judge passed a detailed judgment upholding the validity of the EA award under the Arbitration Act.
Both the orders were stayed by a Division Bench successively on February 8 and March 22. Following this to and fro between the Single Judge and the Division Bench of the High Court, the Supreme Court had stayed the proceedings in the High Court on April 19 and decided to hear the case by itself.
“The judgments of the Division Bench, dated February 8 and March 22, are set aside,” Justice Nariman ordered in the judgment.
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