Arbitrations have a Safe 'Future' in India

The focus here is limited to an analysis of recent order passed by Delhi High Court wherein, exercising its Writ Jurisdiction under the Indian Constitution, it stayed further proceedings before the Arbitral Tribunal.
Amazon - Big Bazaar
Amazon - Big Bazaar

The on-going legal tussle between Amazon and Future, with all its twists and turns, is like an entire season of the famous American TV drama “Suits.” But for the real-world Harvey Specters, i.e., legal practitioners, it is nothing short of a case study. With all the jurisprudence that is sure to come out of the multiple court cases and arbitral proceedings one is hopeful that in the process many unaddressed legal principles will finally get settled. As a consequence, a lot weighs on the decisions that Courts have or are likely to make in this mega dispute.

Satvik Varma
Satvik Varma

The focus here is limited to an analysis of the recent order passed by a Division Bench of the Delhi High Court wherein, exercising its Writ Jurisdiction under the Indian Constitution, it stayed further proceedings before the Arbitral Tribunal. As a general principle no one can debate that there should be minimal court inter-reference with arbitration proceedings and courts should be circumspect in exercising their Writ jurisdiction for arbitration disputes. In fact, previously one argued as much. But as held by the Supreme Court as recent as in 2021, there isn’t and can’t be an absolute bar on the exercise of Writ jurisdiction and the powers can be exercised in “exceptional rarity” and where there is clear “bad faith” by one of the parties to the dispute. For reasons detailed below, presumably this would have weighed on the mind of the Division Bench owing to recent developments in the Amazon-Future dispute clearly making it that “exceptional” case.

To fully understand the Division Bench order, it is necessary to note some background, facts and highlight certain sequence of events that have emerged over the past year plus of this dispute.

Amazon - Future - Reliance
Amazon - Future - Reliance

1. Future Retail Limited (FRL) and certain other entities of the Future Group had proposed to enter into a scheme of arrangement under Sections 230-232 of the Companies Act, 2013 with Reliance Retail Ventures Limited (Reliance).

2. Amazon believed that the above transaction was in violation of (i) a shareholders agreement (FCPL SHA) and a share subscription agreement (FCPL SSA) which Amazon had with another Future Group company called Future Coupons Private Limited (FCPL); and (ii) another shareholders agreement between FRL and FCPL (FRL SHA). Under these contracts, FCPL or its promoters were prohibited from selling any of the retail assets of FRL to any company of the Reliance group.

3. To stall the above transactions, Amazon invoked its arbitration rights under the FCPL SHA which stipulates that the seat and venue of the arbitration proceedings shall be New Delhi and the substantive law of the contract will be Indian law but the arbitration shall be conducted in accordance with the arbitration rules of the Singapore International Arbitration Centre (“SIAC”).

4. Wanting to seek immediate relief, Amazon pressed into action the Emergency Arbitration (EA) provisions under the SIAC rules. The Emergency Arbitrator by an order dated 25.10.2020 (EA Order) held that all the three agreements, i.e. the FCPL SHA, FCPL SSA and FRL SHA constituted a single integrated transaction and restrained FRL, FCPL and its promoters from entering into the proposed scheme of arrangement with Reliance.

5. Notably and as a matter of law, Amazon could also have sought interim relief from the courts in New Delhi, given that the seat and venue was designated as New Delhi, but it nevertheless chose to go to Singapore.

6. Pursuant to the EA Order, Amazon addressed communications to Indian regulators and statutory authorities asking them not to approve the scheme of FRL with Reliance. In response, FRL filed a suit, on grounds of tortious interference, before the Delhi High Court seeking a restraint on Amazon from interfering with FRL’s contract with Reliance. The Single Judge of the Delhi High Court prima-facie found favour in FRL’s claim and directed authorities to decide the approvals for the scheme of arrangement in accordance with law.

7. Thereafter, Amazon filed an execution petition before the Delhi High Court seeking to enforce the EA Order. The Single Judge passed an order in favour of Amazon to enforce the award and also sanctioned FRL, FCPL and its promoters for disobedience of the EA award.

8. FRL filed an appeal against the order passed in execution proceedings and while the Division Bench stayed the order, eventually the Supreme Court finally laid down the law recognising emergency arbitration and that an emergency arbitrator’s order is an order under Section 17 of The Arbitration and Conciliation Act, 1996 (the Act). The Supreme Court also held that no appeal can be filed under Section 37 against an enforcement order passed under Section 17(2) of the Act.

9. Consequently, FRL and FCPL challenged the Single Judge’s order enforcing the EA Order before the Supreme Court.

10. The EA Order was thereafter confirmed by the arbitral tribunal, a requirement under the SIAC rules. FRL and FCPL challenged the arbitral tribunal’s order before the Delhi High Court under Section 37 of the Act and sought a stay on the orders which was refused by the High Court. FRL and FCPL thereafter filed SLPs before the Supreme Court against the orders refusing the stay.

11. Independent of the Arbitration process, at the time of seeking approval of the above-mentioned shareholders and subscription agreements under the Competition Act, a requirement in law for such combinations, Amazon represented before the CCI that the FRL SHA was independently negotiated between FCPL and FRL and that it was investing in FCPL. It was on that basis that the CCI accorded its preliminary approval back in 2019. But to the arbitral tribunal and courts, Amazon held out that the three agreements were a single integrated transaction and negotiated together and that Amazon was actually investing in FRL. It was in this context that CCI initiated proceedings to determine whether Amazon obtained its approval by disclosing all material facts or whether it was based on false statements and misrepresentations.

12. On 17.12.2021, the CCI passed an order (CCI Order) holding held that Amazon had by deliberate design, suppressed the true intent and purpose of its transaction with FCPL and FRL. That it has made false statements as to the nature of its investment and did not notify the FRL SHA. On this basis, CCI put in abeyance its previous approval, something which is very rare, and asked Amazon to file a fresh notification. It also imposed on Amazon a hefty penalty of Rs. 202 crores. An appeal against the CCI Order has been subsequently filed and was admitted by the National Company Law Appellate Tribunal (NCLAT). However, the Appellate Tribunal granted no stay against the CCI Order thereby making it enforceable.

13. In view of the CCI Order, FCPL and FRL filed application under Section 32(2)(c) of the Act before the arbitral tribunal seeking a termination of the arbitration proceedings on the ground that the three agreements can no longer be acted upon and no relief can be granted thereupon. The arbitral tribunal deferred the hearing on the termination application till after the recording of the expert witness evidence.

14. In these circumstances, FCPL and FRL filed a Writ Petition before the Delhi High Court against the refusal of the arbitral tribunal to first hear the termination applications.

15. The Single Judge refused to exercise his discretion in granting any reliefs and it was that order which was carried in appeal which led to the order of Stay as passed by the Division Bench.

Director General CCI
Director General CCI

Armed with the above information let us now examine the order of the Division Bench. The court carefully considered the CCI Order and also noted specific paras that it found concerning. In fact, a review of the CCI Order shows that the three-member bench of CCI was quite displeased with the conduct of Amazon and observed that Amazon had “failed to disclose true and complete details of the purpose of the Combination.” The CCI also noted that Amazon has also “suppressed relevant and material documents” and such suppression was against provisions and stipulations under the Competition Act. The CCI noted in its order “if a party conceals/suppresses and/or misrepresents to the Commission the scope and purpose of the Combination and obtains approval, the same would effectively amount to approval/consent having been obtained by way of fraud. Such breach of trust of the Commission, established under the Act for the benevolent purpose of promoting and sustaining competition in markets in India, manifests a deliberate disregard to the trust based regulatory mechanism provided under the Act.”

We need no reminder that the Supreme Court has time and again upheld the principles from the legal maxim “SuppressioVeri and Suggestio Falsi” and observed that if any party conceals facts or does not candidly disclose all the relevant facts and materials then it is guilty of misleading the court and such party is not entitled to any relief and their claim should be dismissed without even considering the merits of their claim.

Once the CCI order had been shared with the Arbitral Tribunal should it not have taken cognizance of the startling observations made therein and put everything else on hold and first heard Future Group’ application for termination of the proceedings owing to the proceedings having become “unnecessary” or “impossible?” Normally, the sanctity of the arbitral process or the time-lines should not be compromised, but does the CCI order not militate against the very continuation of the arbitration proceedings? And since the arbitral tribunal observed that Amazon had a right to appeal against the CCI order, now that Amazon has filed the appeal before the NCLAT and was not granted a stay against the operation of the CCI order does that not vindicate the stand of the Future Group? If an issue is so important that it goes to the root of the dispute then what can be so compelling for the arbitral tribunal to put it on the back-burner? It was only post this order of the arbitral tribunal that Future invoked the Writ jurisdiction of the court which has supervisory jurisdiction over the arbitration proceedings.

On a previous occasion, while hearing a Writ Petition filed against an ongoing arbitral proceeding where issues of jurisdiction had been raised, the Delhi High Court held that when issues of jurisdiction are raised before the Arbitral Tribunal they must be decided at the earliest, as a preliminary ground, and went on to hold that in fact the same was mandated under Section 16(5) of the Act. Does administrative convenience of an arbitral tribunal, having set a schedule for hearing, outweigh the legal mandate on what has to be heard in what priority? And if it didn’t do so and a party approached a Writ court showing exceptional circumstances, then is it not expected that such court must exercise its extraordinary and discretionary powers to issue a prerogative writ for doing substantial justice if it is convinced of the exceptionality?

Supreme Court, Amazon, Future group, Reliance and Justice Nariman and BR Gavai
Supreme Court, Amazon, Future group, Reliance and Justice Nariman and BR Gavai

Which leads us to the 2021 decision of the Supreme Court which held that the High Courts have the authority to exercise their powers to issue prerogative writs and being a Constitutional provision, it remains untouched by the non-obstante clause of Section 5 of the Act. But it also observed that though petitions can be filed, yet the High Court should be extremely circumspect in interfering with the same, taking into account the statutory policy as adumbrated by the Court. Such statutory policy includes within its ambit bad faith of one of the parties.

Black’s Law Dictionary defines bad faith as “dishonesty of belief or purpose.” It goes on to note that “A complete catalogue of types of bad faith is impossible, but the following types are among those which have been recognized in judicial decisions: evasion of the spirit of the bargain, lack of diligence and slacking off….

Along similar lines, a three-judge bench of the Supreme Court in its seminal decision of Express Newspapers had extracted the findings of a professor and noted that “the concept of bad faith eludes precise definition, but in relation to the exercise of statutory powers it may be said to comprise to dishonesty (or fraud) and malice.” In fact, bad faith in Latin is known as mala-fides and a High Court in India has noted that “bad faith is a legal concept in which a malicious or bad motive on the part of a party in a lis undermines their case, which effects ability to maintain causes of action and obtain legal remedies. We can say that court not only look at the legal rights of the parties in a lis on transaction; it also look behind the activity, at the parties' motive in attempting to obtain the court's assistance. If a court feels that these motives effectively abuse the law or the power or the court, it will generally deny eligibility for a legal remedy to which a party would otherwise be entitled.”

Applying all of the above are not the actions of Amazon, as held by CCI in its order, acts of bad faith? Should a Constitutional court in India ignore and completely overlook the finding of a quasi-judicial body which has extensively noted the concealment of facts by a party? Are these observations not scathing enough for the court to have exercised its discretionary powers even in an ongoing arbitration? It is one thing to say that courts should be circumspect in interfering with arbitral proceedings, but would ignoring these glaring facts not have been against the basic tenets of the rule of law? In our quest to become an arbitration friendly jurisdiction can we blindfold ourselves to the wrongful acts of a party? Is it not expected that our courts must prevent against any abuse of the process of law and decline any and all relief to parties that don’t come clean before our judicial authorities? Are we therefore not getting carried away in criticizing all judicial interference in an arbitral process when a judicial authority has held that the underlying basis for the arbitration proceedings to be non-est on grounds including misrepresentation and fraud? Have we completely forgotten that fraud vitiates all acts, judicial, ecclesiastical or temporal!

The answers to all these questions are self-evident. No matter who the parties and what stakes are involved, the message to the international business community, that India has all the prerequisites of becoming the preferred arbitration destination, must also highlight the robustness of our courts and that they have no tolerance for bad faith and falsities. And in exceptional circumstances our courts will step-in to prevent any abuse of the judicial process in India.

While it seems imminent that this legal saga will continue for some time, the law that gets laid down in the process will govern India’s arbitration landscape for a much longer period. No matter which party eventually wins, as arbitration practitioners we must continue to repose faith in our legal systems and work steadfastly to achieve our objectives of making India a hub for international arbitrations. After all, it is for us to ensure that the 'future' of arbitrations continues to be safe in India!

Satvik Varma is a Senior Advocate based in New Delhi. A graduate of Harvard Law School he’s licensed to practice in India and New York. ­­

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