Supreme Court sets aside Delhi High Court orders in Amazon-Future dispute: Future Coupons vs. Amazon (2022)

Date of the Judgment: 01 February 2022

Citation: (2022) INSC 87

Judges: N.V. Ramana, CJI, A.S. Bopanna, J., and Hima Kohli, J.

Can a court enforce an emergency arbitration award without giving the affected parties a fair chance to present their case? The Supreme Court of India recently addressed this critical question in the ongoing dispute between Future Group and Amazon. The court examined whether the Delhi High Court’s orders, which enforced an emergency arbitrator’s award, were valid and followed the principles of natural justice. This case highlights the importance of procedural fairness in arbitration-related court proceedings.

The Supreme Court bench, comprising Chief Justice N.V. Ramana, Justice A.S. Bopanna, and Justice Hima Kohli, delivered the judgment. The opinion was authored by Chief Justice N.V. Ramana.

Case Background

In August 2019, Amazon entered into agreements with Future Coupons Private Limited (FCPL) to acquire a 49% stake. These agreements included an arbitration clause, specifying the Singapore International Arbitration Center (SIAC) rules and New Delhi as the seat of arbitration. FCPL also had a Shareholder Agreement with Future Retail Limited (FRL), granting FCPL certain protective rights, including restrictions on transferring retail assets to restricted parties like the Reliance Group.

In March 2020, FRL faced financial difficulties due to COVID-19 lockdowns. Consequently, FRL decided to sell its retail businesses and assets to Reliance for over ₹25,000 crores. Amazon, objecting to this sale, initiated arbitration proceedings at SIAC, seeking an interim injunction to prevent FRL and FCPL from proceeding with the Reliance transaction. Simultaneously, FRL filed a suit against Amazon in the Delhi High Court, alleging tortious interference.

The Emergency Arbitrator ruled in favor of Amazon on 25 October 2020, issuing an interim award to halt the FRL-Reliance deal. However, a Single Judge Bench of the Delhi High Court on 21 December 2020, did not grant an interim injunction to FRL, noting that both parties had made representations before statutory authorities. This difference in opinion set the stage for further legal battles.

Timeline

Course of Proceedings

Amazon filed a petition to enforce the Emergency Arbitrator’s award in the Delhi High Court on 25 January 2021. The Single Judge, Justice Midha, heard the matter and on 02 February 2021, passed an order stating that the Emergency Arbitrator was indeed an arbitrator and that the order was enforceable under Section 17(2) of the Arbitration and Conciliation Act, 1996. The court also directed the parties to maintain status quo until a detailed order was released.

FRL appealed this order, and the Division Bench of the Delhi High Court clarified that its observations were only for interim relief. Amazon then appealed to the Supreme Court, which allowed the NCLT proceedings to continue but not to finalize any scheme. On 18 March 2021, the Single Judge passed another order, rejecting FRL’s objections, imposing costs, and attaching the assets of the respondents for violating the interim order.

The Division Bench stayed this order, and Amazon appealed to the Supreme Court again. The Supreme Court consolidated all appeals and, on 06 August 2021, answered two legal questions: (i) whether an Emergency Arbitrator’s award is within the contemplation of the Arbitration Act and (ii) whether an order passed under Section 17(2) of the Arbitration Act is appealable. The court held that an emergency arbitrator’s award is valid and that no appeal lies against an order enforcing such an award. However, the Supreme Court did not adjudicate on the merits of the case.

Meanwhile, FRL and FCPL applied to the Arbitral Tribunal to vacate the Emergency Arbitrator’s award. The Tribunal dismissed this application on 21 October 2021. FRL and FCPL challenged this order in the Delhi High Court, which refused any immediate relief on 29 October 2021. This led to the current appeals before the Supreme Court.

Legal Framework

The core of this dispute revolves around the interpretation and enforcement of several key legal provisions and agreements.

Shareholder Agreements: The Shareholder Agreement (SHA) between FCPL and FRL contained Clause 10, which restricted the transfer of retail assets. Specifically, Clause 10.2 stated:

“Accordingly, any sale, divestment, transfer, disposal, etc., of such retail outlets/ formats including without limitation the Small Store Formats shall be in accordance with this Agreement, and the company and the Existing shareholders covenant and undertake that during the subsistence of this Agreement, the company shall not transfer, or dispose off the Retail Assets except as otherwise mutually agreed between the Company, the Existing Shareholders and FCL in writing.”

Clause 10.3 further prohibited the transfer of retail assets to a “Restricted Person,” which included the Reliance Group.

Arbitration and Conciliation Act, 1996: The case also involves the interpretation of Section 17 of the Arbitration and Conciliation Act, 1996, which deals with interim measures ordered by an arbitral tribunal. Section 17(1) allows the arbitral tribunal to order interim measures, and Section 17(2) allows for the enforcement of these orders as if they were orders of the court. The Supreme Court has previously clarified that an Emergency Arbitrator’s award falls under Section 17(1) of the Arbitration Act.

The interplay between these contractual clauses and statutory provisions forms the legal framework within which the dispute was adjudicated.

Arguments

The arguments presented before the Supreme Court highlighted several key points of contention between Future Group and Amazon.

Arguments by Future Group (FRL and FCPL)

• Violation of Natural Justice: Future Group argued that the Delhi High Court’s orders in the enforcement proceedings were passed without granting them a fair opportunity to present their defense. They contended that they were given insufficient time to file a counter-affidavit and that the High Court’s decision was made without considering their arguments.

• Disregard of Earlier Order: Future Group submitted that the High Court disregarded an earlier order of the same court in CS(Comm) No. 493 of 2020, which had found that FRL did not have an arbitration agreement with Amazon. They argued that this order was not stayed and should have been considered.

• Scope of Emergency Award: Future Group contended that the High Court’s orders exceeded the scope of the Emergency Arbitrator’s interim award by directing the recall of approvals granted by statutory authorities.

• Overriding Effect of Arbitral Tribunal’s Order: Future Group argued that the Arbitral Tribunal’s interim order, which rejected the application to vacate the Emergency Arbitrator’s award, should override the Emergency Arbitrator’s interim award, rendering the enforcement proceedings irrelevant.

• Punitive Directions: Future Group argued that the punitive directions issued by the High Court were not justified, especially since they were based on a judgment that has been overruled.

Arguments by Amazon

• Willful Disobedience: Amazon argued that Future Group had willfully disobeyed the Emergency Arbitrator’s interim award, despite agreeing to the arbitration process. They contended that the appellants should abide by the interim orders passed by the Tribunal.

• Validity of Enforcement Orders: Amazon maintained that the enforcement orders were valid and that the Emergency Arbitrator’s award was confirmed by the Arbitral Tribunal, which should be upheld.

• Misplaced Reliance on Suit Order: Amazon argued that Future Group’s reliance on the order in the suit proceedings was misplaced, as the suit was an anti-arbitration suit and a collateral challenge to the arbitration proceedings.

• Clean Hands Doctrine: Amazon contended that Future Group should not be granted any relief as they had not approached the court with clean hands, having failed to comply with judicial orders.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the orders dated 02.02.2021 and 18.03.2021, passed by the learned Single Judge in OMP (ENF) (COM) No.17 of 2021, are valid in law?
2. Whether the orders dated 29.10.2021, passed by the learned Single Judge in Arb. A (Comm.) No. 64 and 63 of 2021, is valid in law?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities in its judgment:

Cases

• Canara Bank v. Debasis Das, (2003) 4 SCC 557 – This case was cited to support the principle that when an order is struck down for violating natural justice, fresh proceedings are left open.

• Ram Kishan v. Tarun Bajaj, (2014) 16 SCC 204 – This case was cited to explain the concept of “willful disobedience” in contempt proceedings, emphasizing that it requires a mental element and a deliberate act.

• M/s. Bhandari Engineers & Builders Pvt. Ltd. v. M/s. Maharia Raj Joint Venture, 2019 SCC Online Del 11879 – This case was relied upon by the Delhi High Court for directions regarding assets attachment, but it was later overruled.

• Delhi Chemical and Pharmaceutical Works Pvt. Ltd. & Anr. v. Himgiri Realtors Pvt. Ltd. & Anr., EFA (OS) (Comm.) No. 4 of 2021 – This Division Bench order overruled the judgment in M/s. Bhandari Engineers & Builders Pvt. Ltd. v. M/s. Maharia Raj Joint Venture.

Legal Provisions

• Section 17 of the Arbitration and Conciliation Act, 1996 – This section deals with interim measures ordered by an arbitral tribunal. The court examined the enforcement of orders under Section 17(2) and the validity of the Emergency Arbitrator’s award under Section 17(1).

• Order XXXIX Rule 2A of the Code of Civil Procedure – This provision deals with the consequences of disobedience or breach of an injunction. The court analyzed whether the High Court’s actions under this rule were justified.

Judgment

The Supreme Court analyzed the submissions made by both parties and the authorities cited. The Court found that the Delhi High Court’s orders in the enforcement proceedings were flawed due to procedural irregularities and a failure to adhere to the principles of natural justice. The Court also noted that the punitive directions issued by the High Court were not justified.

How each authority was viewed by the Court:

• Canara Bank v. Debasis Das [(2003) 4 SCC 557]:* The Court used this case to support its decision that setting aside an order for violating natural justice leaves the proceedings open for fresh consideration.
• Ram Kishan v. Tarun Bajaj [(2014) 16 SCC 204]:* The Court relied on this case to explain that “willful disobedience” requires a mental element and deliberate action, which was not evident in this case.
• M/s. Bhandari Engineers & Builders Pvt. Ltd. v. M/s. Maharia Raj Joint Venture [2019 SCC Online Del 11879]:* The Court noted that the Delhi High Court had relied on this case, which was later overruled, and therefore, the punitive directions were not justified.
• Delhi Chemical and Pharmaceutical Works Pvt. Ltd. & Anr. v. Himgiri Realtors Pvt. Ltd. & Anr. [EFA (OS) (Comm.) No. 4 of 2021]:* The Court noted that this Division Bench order had overruled the judgment in M/s. Bhandari Engineers & Builders Pvt. Ltd. v. M/s. Maharia Raj Joint Venture, leading to the setting aside of punitive directions.
• Section 17 of the Arbitration and Conciliation Act, 1996: The Court recognized the importance of this section in enforcement of interim measures, but noted that the High Court’s orders were flawed.
• Order XXXIX Rule 2A of the Code of Civil Procedure: The Court analyzed the application of this rule and found that the punitive directions were not justified.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the procedural irregularities in the Delhi High Court’s orders and the need to uphold the principles of natural justice. The Court emphasized that parties must be given a fair opportunity to present their case, particularly in commercial matters with significant economic and employment implications. The Court also noted that punitive directions should not be imposed without establishing “willful disobedience.”

The Supreme Court’s reasoning was primarily driven by legal considerations, particularly the procedural aspects of the case and the interpretation of relevant legal provisions. While the factual background was important, the court’s focus was on ensuring that the High Court followed due process.

Logical Reasoning for Issue I

Logical Reasoning for Issue II

The Court considered alternative interpretations but rejected them because of the procedural flaws it identified. The Court’s final decision was to set aside the High Court’s orders and remit the matter back for fresh consideration.

“From the record, we observe that FRL and FCPL were not provided sufficient time or opportunity to file their counter or raise their defense.”

“Natural justice is usually discussed in the context of administrative actions, wherein procedural requirement of a fair hearing is read in to ensure that no injustice is caused.”

“Viewed differently, contempt of a civil nature can be made out under Order XXXIX Rule 2-A CPC not when there has been mere “disobedience”, but only when there has been “wilful disobedience”.”

Key Takeaways

• Importance of Natural Justice: The Supreme Court emphasized the importance of providing a fair opportunity to all parties to present their case, especially in arbitration-related court proceedings. This reaffirms the principle that procedural fairness is essential for the validity of judicial orders.

• Limits of Enforcement Orders: The judgment clarifies that enforcement orders under Section 17(2) of the Arbitration and Conciliation Act, 1996, must adhere to procedural norms and cannot exceed the scope of the underlying arbitral award. This provides guidance on the limits of court intervention in arbitration matters.

• Need for Detailed Reasoning: The court highlighted the need for lower courts to provide detailed reasoning in their orders, especially when dealing with complex commercial disputes. This ensures transparency and allows for effective judicial review.

• Punitive Directions: The judgment clarifies that punitive directions, such as imposition of costs and attachment of assets, should not be imposed without establishing “willful disobedience”.

• Impact on Future Cases: This judgment serves as a reminder to lower courts to be cautious in making observations on the merits of a case during interim proceedings. It also emphasizes the need to respect the principles of natural justice and procedural fairness.

Directions

The Supreme Court issued the following directions:

• The impugned orders dated 02.02.2021 and 18.03.2021 in OMP (ENF)(Comm.) No. 17 of 2021 were set aside.
• The impugned order dated 29.10.2021 in Arb. A. (Comm.) No. 64 and 63 of 2021 was set aside.
• The learned Single Judge was directed to reconsider the issues and pass appropriate orders on its own merits, uninfluenced by any observation made by the Supreme Court.

Conclusion

The Supreme Court’s judgment in the case of Future Coupons Private Limited & Ors. vs. Amazon.com NV Investment Holdings LLC & Ors. is a significant ruling that underscores the importance of procedural fairness in arbitration-related court proceedings. By setting aside the Delhi High Court’s orders, the Supreme Court reaffirmed the principle that parties must be given a fair opportunity to present their case. The Court’s emphasis on natural justice and the need for detailed reasoning in judicial orders will have a lasting impact on how arbitration disputes are handled in India. This case serves as a crucial reminder for lower courts to ensure that their decisions are not only legally sound but also procedurally fair, particularly in complex commercial matters. The decision also clarifies the scope of enforcement orders under the Arbitration Act and sets a precedent for future cases involving emergency arbitration awards.