Amazon deceived CCI, arbitration with Future governed by Indian law can’t continue: Experts


The Future group had approached the Delhi High Court after the arbitral tribunal refused to hear its application for termination of arbitral proceedings as a preliminary issue. The Future group argued that because the CCI has found that Amazon had committed fraud, deception, and misrepresentation while seeking approval for its investment in Future Coupons Private Limited, has directed Amazon to file a proper notification, and kept its earlier approval for the investment in abeyance, the agreements between Amazon and Future Coupons had become unenforceable.

The CCI’s order contains several strongly worded observations against Amazon. The CCI stated that it "has no hesitation to hold that such conducts of Amazon amount to suppression and misrepresentation of the purpose of the Combination, which is a material particular". After listing various instances of misrepresentation and suppression, the CCI noted that "the requirement to disclose these material facts and particulars is paramount as they enable the Commission to appreciate the commercial and economic contours of the combination" and that approvals obtained by suppression and misrepresentation "would effectively amount to approval/consent having been obtained by way of fraud" and a "breach of trust" of the CCI.

The CCI’s order comes in the backdrop of an arbitral dispute between Amazon and Future Coupons, in which Amazon has sought to join Future Retail Limited (the retail arm of the Future group). Future Retail has maintained that it has no contractual relationship with Amazon and therefore cannot be dragged into an arbitration through which Amazon seeks to block a transaction between Future Retail and Reliance.

According to the Future group, the transaction with Reliance was necessary to save Future Retail from insolvency. Amazon on the other hand contends that Future Retail and its retail assets were central to its decision to invest in Future Coupons and there exists a ‘single integrated transaction’ which binds not just Amazon and Future Coupons but also Future Retail.

In the arbitral proceedings, Future Retail had relied on a Delhi High Court judgment which contained a prima facie finding that Amazon’s attempt at creating a ‘single integrated transaction’ encompassing Future Retail would be in violation foreign exchange rules which prohibit foreign direct investment in multi-brand retail trade without government approval. Future Retail also relied on Amazon’s filings before the CCI at the time of investing in Future Coupons, which did not allude to any such ‘single integrated transaction’ and represented Amazon’s interests as lying solely in Future Coupons. Based on this, Future Retail had argued that it should not be treated as a party to the arbitral proceedings. However, this contention was rejected by the arbitral tribunal, which found that Amazon’s CCI filings adequately disclosed Future Retail’s role in the combination between Amazon and Future Coupons. The tribunal also allowed Amazon’s request for an interim injunction on Future Retail proceeding with its transaction with Reliance.

The CCI’s order of 17 December 2021 undercuts Amazon’s stance that its investment in Future Coupons included within its scope rights against Future Retail. It also directly assails the tribunal’s conclusion that Amazon’s interest in Future Retail was disclosed to the CCI and that the CCI had granted approval for the investment knowing that Amazon would be acquiring certain rights in Future Retail. As the CCI’s order went to the very root of the tribunal’s jurisdiction over Future Retail, it had preferred an application for termination of the arbitral proceedings.

Future Retail argued before the tribunal that its application for termination of proceedings must be heard and decided before the tribunal could continue with the proceedings. It contended that the as the CCI had kept its approval for the transaction between Amazon and Future Coupons in abeyance, the underlying transaction documents had become inoperative and could not be enforced through arbitral proceedings. However, the arbitral tribunal did not agree to rule on the application for termination as a preliminary issue and instead insisted on completing the evidentiary hearings.

It was in this context that the Future group approached a Single Judge of the Delhi High Court, seeking a stay of the arbitral proceedings. The Future group also argued that the tribunal’s refusal to defer evidentiary proceedings despite several members of the Future legal team having contracted COVID-19 was a denial of natural justice and equal and full opportunity to present one’s case.

After the Single Judge dismissed the petition seeking stay of arbitral proceedings, the Future group approached the Division Bench of the High Court. The Division Bench has issued notice to Amazon and fixed the matter for further hearing on 1 February 2022. Taking note of the CCI’s observations, the High Court has found that a prima facie case has been made out by the Future group that the agreements forming the basis of the arbitral proceedings have become unenforceable and applications for termination of the proceedings ought to have been decided by the tribunal on a priority. The High Court also found that the balance of convenience lay in favour of not continuing the arbitral proceedings as "irreparable loss" would be caused to the Future group if the proceedings are allowed to continue. Taking into account these factors, as an interim measure, the High Court has stayed the arbitral proceedings.

While there has been some discussion that the Delhi High Court’s orders may pose ‘conflict of laws’ issues, experts familiar with the dispute and the arbitration regime in India say that no such concerns arise in this case.

"The arbitral tribunal in this case is in not a ‘Singapore’ arbitral tribunal. Though constituted under the rules of the Singapore International Arbitration Centre, it is a tribunal seated in New Delhi. It is subject to the supervisory jurisdiction of courts at New Delhi. The Delhi High Court is the court of primary jurisdiction. In fact, Amazon itself has invoked jurisdiction of the Delhi High Court in the past, in the context of the same arbitral proceedings," says Rupin Bahl, Partner at Bahl & Bajaj.

This is indeed not the first instance of Amazon and the Future group having taken their disputes to court. In March last year, Amazon had approached the Delhi High Court for enforcement of an interim order obtained by it from an emergency arbitrator. The Future group had disputed that orders of emergency arbitrators are enforceable under Indian law. The matter had travelled up to the Supreme Court, where a bench headed by Justice RF Nariman had ruled, without going into the merits of the matter, that an order of an emergency arbitrator is enforceable. The interim order passed by the emergency arbitrator (and later confirmed by the arbitral tribunal) is now the subject matter of an appeal preferred by the Future group before the Delhi High Court.

Bahl further added that the Division Bench has adopted a reasonable approach which balances interests of all parties. "As the arbitral tribunal was an India-seated tribunal dealing with agreements subject to Indian substantive law, the CCI’s order and its effect on the enforceability of those agreements is of great importance. It would be prejudicial to allow arbitration proceedings to continue without first examining whether the underlying agreements have been rendered unenforceable by an Indian regulator, particularly when the regulator has made findings of fraud and deception. Unless these findings are set aside on appeal, they must be given effect to."

Abhilaksh Grover, a lawyer practicing in Delhi and Chandigarh,also considers the Delhi High Court order to be a balanced one, and one which leaves open all questions for more detailed consideration. "At this stage, the High Court has only passed an interim order, that too after hearing all parties at considerable length. Amazon has been given an opportunity to file a reply and the High Court will, in due course, consider all issues, including whether the appeal before the Division Bench was maintainable."

The exercise of writ jurisdiction in arbitral proceedings is rare. However, Ajay Marwah, a practicing Advocate on Record in the Supreme Court, says that it is not unheard of, and exceptional circumstances may justify the exercise of such jurisdiction. Jurisdiction under Articles 226 and 227 of the Constitution may be exercised by the High Court when a court or tribunal acts in flagrant disregard of law or rules of procedure or in violation of principles of natural justice. In this case, a combination of factors exists, which could justify such an exceptional exercise of power. The tribunal’s refusal to consider the impact of the CCI’s order on the maintainability of the proceedings before it, its refusal to defer hearings despite one party’s legal team being afflicted with COVID – these factors point to an arguable case of perversity and violation of natural justice.

Further, considering that the tribunal’s had already granted injunctive relief to Amazon, there was no urgency behind concluding the proceedings before examining the effect of the CCI order, particularly when failure to do so could lead to multiplicity of proceedings later on.

(Prof Ruchika Rao is a Litigator & Associate Professor, OP Jindal Law University)


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