Amazon is betting on its minority stake in a subsidiary firm of Future Group to stall Reliance Retail Ventures’ (RRV) deal to buy the retail, wholesale and warehousing assets of the Biyani-led companies. Its delaying tactics, despite being on a weak wicket, will help no one. The emergency arbitration award which Amazon has won in the Singapore International Arbitration Centre (SIAC) against Future Retail is not enforceable in India, legal experts say.
For those new to the story, on 12 August 2019, Future Retail Ltd signed a shareholder agreement with a promoter firm Future Coupons Ltd (FCL) giving the latter special rights. These rights include FRL having to seek FCL’s consent before selling or transferring assets. A few days later, Amazon, acquired a 49 percent stake in FCL. FCL in turn owns 9.83 percent in FRL. A shareholder agreement signed by FCL, other Biyani entities and Amazon gave the first right of refusal to purchase a stake in FRL if FCL plans to sell any shares in the listed retail between the third and tenth year. It also gives the rights acquired by FCL in FRL to Amazon.
Firstly, corporate lawyers say that FRL is not a party to the shareholder agreement between Amazon and FCL. That means, it can’t be made part of the arbitration simply because it consents to appear before the emergency arbitrator. In case, the two shareholder agreements are treated as an integrated transaction that means Amazon has indirect control over FRL which is prohibited by law.
Second, the appointment of an emergency arbitrator and the grant of emergency relief have no place in the Indian Arbitration and Conciliation Act, 1996. Note that even though both companies agreed on SIAC, arbitration is subject to Indian law even if the SIAC process allows for an emergency arbitrator. Simply put, the emergency arbitrator’s order has no status in Indian law.
Further, corporate lawyers say that even under SIAC Rules, the emergency arbitrator award is a temporary one. It ends when the arbitration tribunal takes over or at the end of 90 days. In that sense, it’s like a holding order.
Hence, SIAC emergency arbitration proceedings are entirely inconsistent with Indian laws. SIAC is a non-profit body. It offers 'an alternative,' dispute resolution in any cross-border deal, involving foreign companies. The cases in a system like SIAC are settled privately and confidentially and are not binding on the court system. Also, orders that may be passed by the emergency arbitration is not appealable under the SIAC Rules.
Indian Arbitration Act recognizes only an order passed by an Arbitral Tribunal, which is also appealable before any High Court having jurisdiction. Further, Indian laws allows interim relief only if parties approach the High Court having jurisdiction.
Even if Amazon were to try and enforce the award by filing a suit in a High Court under the Arbitration Act, precedent shows that judges hear the case afresh on its merits.
With such a strong case against the enforceability of the emergency arbitration award, some lawyers see Amazon’s actions as just delaying tactics. Why would a global company indulge in such actions? The answer, as always, lies in the size and potential of the Indian market.
According to various estimates, India's retail market is to reach $1.75 trillion by 2026 from $0.79 trillion in 2018. The Indian e-commerce industry is expected to cross $200 billion by 2026, growing at a CAGR of 30 percent. The share of the organized retail market is projected to increase to 22-25 percent by 2021.
By delaying a player to consolidate the market and grow it, is not only a bad business strategy but also detrimental to the brand that has a global presence.
(The author is a senior business journalist. Views are personal)
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First Published: IST