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Future Retails Vs Amazon: Delhi High Court's Findings On 4 Major Issues

Shreya Agarwal
21 Dec 2020 7:52 AM GMT
Future Retails Vs Amazon: Delhi High Courts Findings On 4 Major Issues
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Future Retail Ltd(FRL) suffered a set back on Monday as the Delhi High Court refused to allow its plea for interim injunction to restrain Amazon Inc from writing to Indian statutory authorities objecting to FRL's proposed asset sale to Reliance group.A single bench of Justice Mukta Gupta refused to grant any interim reliefs on FRL's plea to direct Amazon not to write to statutory...

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Future Retail Ltd(FRL) suffered a set back on Monday as the Delhi High Court refused to allow its plea for interim injunction to restrain Amazon Inc from writing to Indian statutory authorities objecting to FRL's proposed asset sale to Reliance group.

A single bench of Justice Mukta Gupta refused to grant any interim reliefs on FRL's plea to direct Amazon not to write to statutory authorities informing them about an award by a Singapore based Emergency Arbitrator.

Here are the findings of the Court on the key issues in the case

On Validity of Emergency Arbitration

"Where the parties exercising autonomy expressly choose different procedural rules for conduct of arbitration, they are assumed to be aware of the provisions of such rules, including the procedure for obtaining interim relief, and the fact that such rules provide for emergency arbitration by appointment of an emergency arbitrator. In the present case, the parties had with open eyes left it for themselves, to choose between availing interim relief from the emergency arbitrator on the one hand, or the Courts under Section 9 of the A&C Act on the other hand. Thus, Amazon has exercised its choice of the forum for interim relief as per the arbitration agreement between the parties. Nothing in the A&C Act prohibits the parties from doing so."
The court held that, "Firstly, the parties in an international commercial arbitration seated in India can by agreement derogate from the provisions of Section 9 of the A&C Act; Secondly, in such a case where parties have expressly chosen a curial law which is different from the law governing the arbitration, the court would look at the curial law for conduct of the arbitration to the extent that the same is not contrary to the public policy or the mandatory requirements of the law of the country in which arbitration is held; Thirdly, inasmuch as Section 9 of the A&C Act along with Sections 27, 37(1)(a) and 37(2) are derogable by virtue of the proviso to Section 2(2) in an International arbitration seated in India upon an agreement between the parties, it cannot be held that the provision of Emergency Arbitration under the SIAC rules are, per se, contrary to any mandatory provisions of the A&C Act. Hence the Emergency Arbitrator prima facie is not a coram non judice and the consequential EA order not invalid on this count."
On Validity of FRL's Resolution Approving Deal with Reliance Industries
"From the documents filed by Amazon it is clear that Kishore Biyani in March, 2020 informed Amazon expressing its fear of Covid-19 disrupting capital markets globally leading to significant deterioration of FRL's market capitalization with the stock falling down per share, leading to a requirement for increased encumbrances of FRL‟s shares and a shortfall in security in two of their facilities under UBS AG and L & T Finance Ltd.
Amazon was also asked to step in and nominate lenders of financial institutions (replacement financial institutions) to avoid alienation or disposal of FRL‟s shares held by the promoter groups. Considering the down turn in the market in April and May, 2020 several of FRL‟s lenders began recalling their facilities. From the documentation it is clear that the grim situation of FRL was duly notified to Amazon and though Amazon through its various options including from SAMARA was trying to negotiate however, nothing concrete resulted. It is in this peculiar circumstance and the fact, as the shares of FRL fell down with investors recalling their securities, it was essential for FRL to act, to survive. This is thus a case of supervening circumstance and as noted by the Supreme Court in Energy Watchdog's decision (supra) a multi-factorial approach should be adopted and the acts of both FRL and Amazon have to be tested on the said anvil.
Though the claim of Amazon in the representation to statutory authorities regarding the transaction is that the same is in breach of FCPL SHA and FRL SHA and the resolution dated 29th August, 2020 passed by the Board of Directors of FRL is void, however, no material has been placed on record by the FRL to show that the resolution dated 29th August, 2020 passed by the Board of Directors of FRL is void or contrary to any statutory provision. Case of FRL is that its Board Resolution dated 29th August, 2020 does not violate any provision of the FRL's Article of Association or any provision of law and that the same is in compliance with the fiduciary duty owed by FRL to its stakeholder, which averments have not been seriously disputed by Amazon except contending that the Board Resolution dated 29th August, 2020 is in breach of FCPL SHA and FRL SHA. The resolution being in breach of the FRL SHA and FCPL SHA is distinct from the resolution being void or contrary to any statutory provision or contrary to the Articles of Association of FRL. Further contention of Amazon is that the Board Resolution dated 29th August, 2020 of FRL is in contravention with FCPL's Article of Association. However, FRL is bound by its Article of Association and not that of FCPL's.
In view of the discussion above, this Court is of the opinion that the Board Resolution dated 29th August, 2020 of FRL is prima facie neither void nor contrary to any statutory provision nor the Articles of Association of FRL."
Whether conflation of the FRL SHA, FCPL SHA and FCPL SSA amounts to 'Control' of Amazon on FRL
"The promoters of FCPL are the majority shareholders of FRL. Further, 9.82% of FRL's shareholding is with FCPL. Thus as per the FCPL SHA, on matters which require the consent of FCPL as set out in FRL SHA, no matter can be taken up, decided or implemented by the majority shareholders of FRL and the shareholders of FCPL without the consent of Amazon. These covenants prima facie transgress from a protective right to a controlling right in favour of Amazon particularly in view of the fact that the matters essentially requiring the consent of Amazon are of a very wide ambit, and the matters within the sole discretion of FRL are very limited.
This seems to be for the reason that Amazon was not only safeguarding its investments by creating protective rights, but also creating preemptive right in contemplation of any change in Indian law that would permit Amazon to hold substantial shareholding of FRL. The rights granted to Amazon by conflation of the two Shareholders
Agreements are prima facie disproportionate to the actual shareholding of Amazon and by camouflaging of words, the extensive rights held by Amazon by the provisions of the inter se agreements set out above, cannot be masked as mere protective rights so as to fall beyond the test of "control‟ as elaborated in Arcelor Mittal (supra).
Therefore, this Court is prima facie of the opinion that the conflation of the three agreements i.e. FRL SHA, FCPL SHA and FCPL SSA besides creating protective rights in favour of Amazon for its investments also transgress to 'control' over FRL requiring government approvals and in the absence thereof are contrary to FEMA FDI Rules."
Tortious Interference
"Applying the principles to determine the "unlawful means" as laid down by Lord Hoffman in OBG Ltd. (supra) to the facts of the present case, it is evident that on two counts, that is, Amazon asserting that the Resolution dated 29th August, 2020 is void and also asserting its right conflating the FCPL SHA and FRL SHA which amount to control over FRL, the act of Amazon would fall foul of the freedom of FRL and Reliance to enter into the transaction thereby causing loss to both FRL and Reliance which would be a civil wrong actionable by both FRL and Reliance in case they suffer any loss. Thus Amazon's interference on the basis of the incorrect representation would be a civil wrong committed against FRL and Reliance and would thus fall within the test as laid down for „unlawful means‟ as defined in OBG Ltd. Therefore, on two counts, FRL has been able to make out a prima facie case of tortious interference by Amazon. It is clarified that it is not the making of the representation by Amazon to the statutory authorities or the Regulators, which is an actionable wrong but making a representation based on incorrect assertions which makes the act based on "unlawful means". It is further clarified that at this stage this Court is only required to form prima facie opinion which this Court has done on the facts before it and as held by the Division Bench of this Court in the case of Inox Leisure Ltd, that whether there is an unlawful interference or not, can be finally determined only after the parties have lead evidence."
Interim Injunction
"Since this Court has held that prima facie the representation of Amazon based on the plea that the resolution dated 29th August, 2020 of FRL is void and that on conflation of the FCPL SHA and FRL SHA, the 'control' that is sought to be asserted by Amazon on FRL is not permitted under the FEMA FDI Rules, without the governmental approvals, this Court finds that FRL has made out a prima facie case in its favour for grant of interim injunction. However, the main tests in the present case are in respect of "balance of convenience" and "irreparable loss". Even if a prima facie case is made out by FRL, the balance of convenience lies both in favour of FRL and Amazon. If the case of FRL is that the representation by Amazon to the statutory authorities /regulators is based on illegal premise, Amazon has also based its representation on the alleged breach of FCPL SHA and FRL SHA, as also the directions in the EA order. Hence it cannot be said that the balance of convenience lies in favour of FRL and not in favour of Amazon. It would be a matter of trial after parties have led their evidence or if decided by any other competent forum to determine whether the representation of Amazon that the transaction between FRL and Reliance being in breach of the FCPL SHA and FRL SHA would outweigh the plea of FRL in the present suit.
Further in case Amazon is not permitted to represent its case before the statutory authorities/Regulators, it will suffer an irreparable loss as Amazon also claims to have created preemptive rights in its favour in case the Indian law permitted in future. Further there may not be irreparable loss to FRL for the reason even if Amazon makes a representation based on incorrect facts thereby using unlawful means, it will be for the statutory authorities/Regulators to apply their mind to the facts and legal issues therein and come to the right conclusion. There is yet another aspect as to why no interim injunction can be granted in the present application for the reason both FRL and Amazon have already made their representations and counter representations to the statutory authorities/regulators and now it is for the Statutory Authorities/Regulators to take a decision thereon.
Therefore, this Court finds that no case for grant of interim injunction is made out in favour of the FRL and against Amazon."

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