Delhi High Court
Future Retail Ltd. vs Amazon.Com Nv Investment ... on 21 December, 2020
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 20th November, 2020
Decided on: 21st December, 2020
+ CS(COMM) 493/2020
FUTURE RETAIL LTD. ..... Plaintiff
Represented by: Mr.Harish Salve and Mr.Darius J.
Khambata, Sr.Advocates with
Mr.Somasekhar Sundaresan,
Mr.Raghav Shankar, Mr.Ameet Naik,
Mr.Aditya Mehta, Mr.Tushar
Hathiramani, Mr.Abhishek Kale,
Ms.Madhu Gadodia,
Mr.Harshvardhan Jha and
Mr.Darshan Furia, Advocates.
versus
AMAZON.COM INVESTMENT
HOLDINGS LLC & ORS. ...... Defendants
Represented by: Mr.Gopal Subramanium, Mr.Gourab
Banerji, Mr.Rajiv Nayar, and
Mr.Amit Sibal, Sr.Advocates with
Mr.Anand S.Pathak, Mr.Amit K.
Mishra, Mr.Shashank Gautam,
Ms.Sreemoyee Deb, Mr.Mohit Singh,
Mr.Harshad Pathak, Ms.Promit
Chaterjee, Mr.Shivam Pandey,
Ms.Kanika Singhal, Ms.Saloni
Agarwal, Ms.Didon Misri, Advocates,
Mr.Vijayendra Pratap Singh,
Mr.Rachit Bahl, Ms.Roopali Singh,
Mr.Abhijnan Jha, Mr.Priyank Ladoia,
Mr.Aman Sharma, Mr.Tanmay
Sharma, Mr.Arnab Ray, Mr.Vedant
Kapur, Advocates,
Mr.Pawan Bhushan, Ms.Hima
Lawrence, Ms.Ujwala Uppaluri,
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Mr.Mohit Pandey, Ms.Raka Chatterji,
Ms.Manjira Dasgupta, Mr.Aishvary
Vikram, Mr.Ambar Bhushan and
Mr.Vinay Tripathi, Advocates for
defendant No.1.
Mr.Mukul Rohtagi and Mr.Vikram
Nankani, Sr.Advocates with
Mr.Mahesh Agarwal, Mr.Rishi
Agarwala, Mr.Karan Luthra,
Mr.Pranjit Bhattacharya and Mr.Ankit
Banati, Advocates for defendant
Nos.2 to 13.
Dr.Abhishek Manu Singhvi,
Sr.Advocate with Mr.Avishkar
Singhvi, Ms.Madhavi Khanna,
Mr.K.R.Sasiprabhu and Mr.Aditya
Swarup, Advocates for defendant
Nos.14 and 15.
CORAM:
HON'BLE MS. JUSTICE MUKTA GUPTA
I.A.10376/2020 (under Order XXXIX Rule 1 and 2 CPC)
Brief Facts
1.1 The plaintiff-Future Retail Ltd. (in short 'FRL') has filed the present
suit impleading Amazon.com NV Investment Holdings LLC (in short
„Amazon‟) as defendant No.1; Future Coupons Pvt. Ltd. ( in short 'FCPL')
as defendant Nos.2; the promoters of the plaintiff (in short 'Biyanis') as
defendant Nos.3 to 11, Future Corporate Resources Private Limited (in short
'FCRPL'), Akar Estate and Finance Private Limited (in short 'AEFPL') as
defendants No.12 and 13 respectively, and Reliance Retail Ventures Limited
(in short 'RRVL') and Reliance Retail and Fashion Lifestyle Limited (in
short 'RRFLL' as defendant Nos.14 and 15 respectively (together referred as
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Reliance) with the following prayers:
(a) Restrain by an order of permanent injunction the
Defendant No. 1 (Amazon), their officers, servants,
agents, assigns, affiliates, representatives, or any person
claiming through or under them, jointly and severally,
from interfering in any manner with the Disputed
Transaction, including by way of injuncting the initiation
or continuation by the Defendant No. 1 (Amazon), their
officers, servants, agents, assigns, affiliates,
representatives, or any person claiming through or under
them, jointly and severally, of proceedings before any
court, arbitral tribunal, regulator, statutory authority or
otherwise seeking to stay, injunct or in any other manner
interdict consideration of Disputed Transaction by the
jurisdictional authorities in accordance with law.
(b) Restrain by an order of permanent injunction the
Defendant No. 1 (Amazon), their officers, servants,
agents, assigns, affiliates, representatives, or any person
claiming through or under them, jointly and severally,
from taking any steps that would constitute an
interference with the steps being taken by the plaintiff to
secure the requisite sanctions and permissions for giving
effect to the scheme of arrangement and honouring its
contractual rights on its contract with Defendant Nos. 14
and 15 including steps by way of relying upon/acting in
furtherance of the purported Interim Order dated
October 25, 2020 passed by the Emergency Arbitrator;
(c) Restrain by an order of permanent injunction the
Defendant No. 1 (Amazon), their officers, servants,
agents, assigns, affiliates, representatives, or any person
claiming through or under them, jointly and severally,
from in any manner seeking any relief or remedy from
any court, arbitral tribunal, regulator, statutory authority
or otherwise, on the basis that the FCPL SHA, FCPL
SSA and the FRL SHA constitute a single integrated
agreement/composite transaction;
(d) Pass an order for damages against Defendant No. 1, in
addition to the above, to the extent of ₹100 crores for
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drawing the Plaintiff (FRL) into unnecessary, frivolous
and oppressive litigation alongwith pendente lite and
future interest at the rate of 18% per annum;
(e) An order for costs of the suit and the proceedings;
(f) Pass such other orders in favour of the Plaintiff and
against the Defendant, which this Hon'ble Court may
deem fit and proper in the facts and circumstance of the
case and in the interest of justice, equity and good
conscience.
1.2 Prayers in the interim application, that is, I.A.10376/2020 (under
Order XXXIX Rule 1 and 2 CPC) are identical to prayers (a), (b) and (c) in
the plaint.
1.3 At the outset on a query raised by this Court as to whether the parties
agree that this application can be finally decided based on the arguments on
behalf of the parties without formal counter affidavits, learned counsels for
the parties stated that the application be finally decided without formal
affidavits based on oral arguments on behalf of the parties. Mr.Harish Salve,
learned Senior Counsel appearing for the plaintiff further stated that in the
interim application, he is not seeking any anti arbitration injunction or any
anti suit injunction but only an interim restraint on Amazon to not interfere
before the authorities such as SEBI etc. in relation to the lawful 'transaction'
between FRL and Amazon pending consideration before the Regulators and
statutory authorities.
1.4 Though not challenging the Emergency Award order (in short 'EA
order') dated 25th August, 2020 on merits before this Court which challenge
is also not maintainable in the present suit, grievance of FRL in the present
suit is to the use of EA order and the interim directions passed therein
restraining FRL from proceeding further with the Resolution dated 29th
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August, 2020. Thus in the present suit and application though FRL does not
seek a declaration as to the invalidity of the EA order on merits, however,
the legal status of the Emergency Arbitrator and the consequential EA order
is an issue in the present suit and application. Argument on behalf of FRL
duly supported by the defendants except Amazon is that the concept of
emergency arbitration is outside the scope of Part-1 of the Arbitration and
Conciliation Act, 1996 (in short the 'A&C Act'), thus the EA order passed is
bereft of jurisdiction and a nullity. Therefore, the directions on the strength
of which Amazon is filing representations/complaints to various statutory
authorities interferes in the course of business of FRL and amounts to
tortiuous interference for which FRL seeks injunction in the present suit.
1.5 Case of FRL and other defendants except Amazon is that FRL is a
listed company having more than three lakhs shareholders and over 25,000
employees, operating retail chains in more than 400 cities in every State of
the country through digital platforms and also through about 1534 physical
stores across India. Covid-19 pandemic has had a devastating impact on the
Indian retail sector including FRL which is in serious economic peril. FRL‟s
financial condition is rapidly deteriorating with notices being received from
banks, financial institutions, creditors, landlords and vendors etc. Reliance is
acquiring the retail and wholesale business as also the logistic and
warehousing business from the Future Group as going concerns on a slump
sale basis for lumpsum aggregate consideration of INR 24,713 crores,
subject to adjustments as set out in the composite scheme of arrangement (in
short „the scheme‟). The transaction will address concerns of FRL‟s
creditors as Reliance will acquire not only FRL‟s retail assets but also its
liabilities amounting to approximately ₹12,801/- crores. Further as per the
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transaction Reliance has agreed to invest a sum of ₹2,800/-crores into the
merged entity which besides others will be used to pay FRL‟s residual
liabilities. Therefore, the transaction will avert FRL‟s insolvency. In case
the transaction falls out, FRL will go into liquidation, causing damage to the
public shareholders, livelihood of the employees etc. The transaction will
infact preserve the value of the Amazon‟s investment in FCPL whose
primary asset is its shares in FRL. In case FRL becomes insolvent, the same
will destroy the substratum of Amazon‟s investment in FCPL. It is,
therefore, also claimed that de hors the invalidity of EA order, the conduct
of Amazon in the interfering before the statutory authorities/Regulators
amounts to tortious interference.
1.6 Since the assets of FRL are suffering deterioration at a rapid pace, it is
imperative that the transaction between FRL and reliance is expeditiously
concluded to stave off the prospects of the company going into liquidation.
The transaction is presently at the stage of seeking various regulatory
approvals from inter alia the Stock Exchanges and the Securities and
Exchange Board of India (in short SEBI) Despite the fact that Amazon was
in loop in respect of the transaction as is evident from the various
correspondences, Amazon for the first time on 3rd October, 2020 wrote to
NSE/BSE/SEBI, raising the plea that the transaction between Amazon and
Reliance violated its contractual rights, that is, FCPL SHA and the
authorities should decline to grant approval of the transaction. Amazon also
instituted arbitration proceedings under the FCPL SHA resulting in the
interim award which purports to injunct FRL from proceeding with the
transaction with Reliance including by prosecuting the applications before
the various authorities.
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1.7 Operative portion of the EA order dated 25th October, 2020 directs
FRL, FCPL, Biyanis, FCRPL and AEFPL as under:
285. In the result, I award, direct, and order as follows:
(a) the Respondents are injuncted from taking any steps in
furtherance or in aid of the Board Resolution made by
the Board of Directors of FRL on 29 August 2020 in
relation to the Disputed Transaction, including but not
limited to filing or pursuing any application before any
person, including regulatory bodies or agencies in India,
or requesting for approval at any company meeting;
(b) the Respondents are injuncted from taking any steps to
complete the Disputed Transaction ·with entities that are
part of the MDA Group;
(c) without prejudice to the rights of any current Promoter
Lenders, the Respondents are injuncted from directly or
indirectly taking any steps to transfer/ dispose/
alienate/encumber FRL's Retail Assets or the shares held
in FRL by the Promoters in any manner without the prior
written consent of the Claimant;
(d) the Respondents are injuncted from issuing securities of
FRL or obtaining/securing any financing, directly or
indirectly, from any Restricted Person that will be in any
manner contrary to Section 13.3.1 of the FCPL SHA;
(e) the orders in (a) to (d) above are to take effect
immediately and will remain in place until further order
from the Tribunal, when constituted;
1.8 Relevant list of dates and events
(i) Shareholders agreement dated 12th August, 2019 executed between
FCPL, FRL and persons listed in Schedule-I, being Biyanis, FCRPL and
AEFPL (in short FRL SHA).
(ii) Letter dated 12th August, 2018 by FRL to Stock Exchange informing
Stock Exchanges that FRL has entered into a FRL SHA dated 12th August,
2019 in terms of Regulation 30 of SEBI, (Listing Obligations and Disclosure
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Requirements) Regulation, 2015;
(iii) Shareholders agreement dated 22nd August, 2019 between Amazon,
FCPL and persons listed in Schedule-I, that is, Biyanis, FCRPL and AEFPL
(in short FCPL SHA).
(iv) Share subscription agreement dated 22nd August, 2019 executed
between Amazon, FCPL and persons listed in Schedule-I being Biyanis,
FCRPL and AEFPL (in short FCPL SSA);
(v) Letter dated 22nd August, 2019 by FRL to the Stock Exchanges in
relation to execution of FCPL SHA and FCPL SSA;.
(vi) An application dated 23rd September, 2019 filed before the
Competition Commission of India (in short 'CCI') by Amazon (investor) for
obtaining the approval of CCI for proposed acquisition of 34,02,713 Class-A
voting equity shares and 63,71,678 Class-B non-voting equity shares
aggregating to 49% of the total voting and non-voting equity share capital in
FCPL, (a wholly owned subsidiary of FCRPL; FCPL and FCRPL being
owned and controlled by the promoter group, that is, Biyanis);
(vii) Letter dated 19th December 2019 by FCPL to FRL in relation to the
FRL SHA dated 12th August, 2019 notifying the "effective date" for the
purposes of the FRL SHA to be the date of the said letter and that the list of
restricted persons was as set out in the Annexure - I of the letter;
(viii) E-mails dated 12th March, 2020; 15th March, 2020; 19th March, 2020
and 25th March, 2020 received from FCRPL intimating Amazon about the
various notices received from the banks and the financial institutions and
informing about consequences of an event of default;
(ix) Letter dated 29th August, 2020 from FRL to stock exchanges
intimating the outcome of the Board meeting held on 29 th August, 2020
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approving the proposed amalgamation of FRL along with other transferor
companies;
(x) Default notices dated 3rd October, 2020 by Amazon to FCPL, FCRPL
and defendant No.3.
(xi) Three separate letters dated 3rd October, 2020 by Amazon to the stock
exchanges, SEBI and FRL;
(xii) Notice of arbitration dated 5th October, 2020 by Amazon invoking
emergency arbitration under the SIAC Rules and on the same date filing an
application for emergency interim relief;
(xiii) Interim order passed by the Emergency Arbitrator dated 25th October,
2020.
1.9 Facts pleaded by Amazon in the petition before CCI
(A) That the proposed combination required to be notified before the
Commission comprises of three transactions:
(i) Proposed Transaction I relates to the issue of 91,83,754 Class A
voting equity shares of FCPL to FCRPL;
(ii) Proposed Transaction II relates to the transfer of 1,36,66,287 shares of
FCPL held by FCRPL (representing 2.52% of the issued subscribed and paid
up equity share capital of FRL, on a fully diluted basis) to FCPL. It was
also pointed out that FCPL shall be a wholly owned subsidiary of FCRPL at
the time of, and immediately post the transfer of the said shares;
(iii) Proposed Transaction III relates to the acquisition of the Subscription
Shares representing 49% of the total issued, subscribed and paid-up equity
share capital of FCPL (on a fully diluted basis) by Amazon, by way of a
preferential allotment. The remaining 1,01,83,754 Class A voting equity
shares, representing 51% of the issued, subscribed and paid-up equity share
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capital of FCPL will be held by FCRPL.
(B) Amazon notified under Section 5 of the Competition Act to the CCI
as under:
(i) It is submitted that neither Proposed Transaction I nor
Proposed Transaction II, on a standalone basis, is notifiable to
the Hon'ble Commission, as both Proposed Transaction I and
Proposed Transaction II are contemplated between a parent and
its subsidiary.
(ii) It is also submitted that even Proposed Transaction III, on
a standalone basis, benefits from the Target Exemption because
the value of the assets and turnover of FCL (as of March 31,
2019) (which is the target for the purposes of Proposed
Transaction Ill) are below the thresholds provided in the Target
Exemption.
(iii) Accordingly, it is submitted that each of the constituent
transactions of the Proposed Combination, on a standalone
basis, are not notifiable to the Hon'ble Commission.
(iv) Without prejudice to the foregoing, should the Hon'ble
Commission consider the Proposed Combination to be a
notifiable combination, the Amazon is notifying the Proposed
Combination in terms of Section 6(2) of the Competition Act
read with Sub-regulation (4) of Regulation 9 of the
Combination Regulations.
5.1.3. Right(s) acquired or arising out of or in connection
with the transaction(s) referred to at 5.1.1 and 5.1.2
above.
(v) It is clarified that the Amazon is not acquiring control
over FCPL in any manner pursuant to the Proposed Transaction
III. The Amazon submits that the rights to be acquired by the
Amazon pursuant to the consummation of the Proposed
Transaction III are mere investor protection rights, which are
typically granted to minority investors with a view to protect the
investment made by such investor and do not confer control.
(vi) The rights that will be acquired by the Amazon pursuant
to the consummation of the Proposed Transaction III will be
exclusively governed by the terms of the SHA. In this regard, it
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is also clarified that the Proposed Transaction I and Proposed
Transaction II will not vest any rights on the Amazon."
(C) The rights proposed to be acquired by Amazon in terms of the SHA to
protect its investment were described as:
(i) Two directors were to be nominated and appointed by
Amazon as Investor Directors as long as Amazon held 49% of
the equity share capital of FCPL.
(ii) Amazon may request to appoint an Investor Director as
an observer on the board of the Material Entities who may
attend but without voting rights in board proceedings.
(iii) Items identified in Schedule IX and Schedule X have a
direct bearing on the investment of Amazon in FCPL. Items
identified in Schedule IX can be considered by FCPL‟s Board
only after procuring a prior written consent from Amazon and
items identified in Schedule X can be considered by the FCPL‟s
Board or shareholders with a prior notice of at least 15 business
days to be served on Amazon and the Investor Directors.
(iv) Section 13 and 14 which are material to the present case
in the FCPL SHA were notified by Amazon before CCI as
under:
Section 13: Consent and compliance in relation to
Material Entity matters : Prior written consent
from the Amazon would be required before: (a) FCPL
decides on or implements any matter under the FRL
SHA which requires FCPL's consent; (b) FCPL decides
to decline, recuse itself, or not subscribe to its pro-rata
entitlement in relation to issuance of securities by a
Material Entity; (c) Any updates to the list of "Restricted
Persons" and its communication to FRL under the FRL
SHA; and (d) Assignment of the rights and obligations of
FCPL and the Promoters (as defined in the SHA) under
the FRL SHA.
Section 14 : Transfer of Retail Assets (as defined in the
SHA) : FCPL and the promoters have agreed not to
undertake any sale, divestment, transfer, disposal, etc. of
retail outlets across various formats operated by FRL
(which is an integral part of the business conducted by
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FRL) except as mutually agreed (in writing) between the
Promoters and the Investor, or contained in the FRL SHA
or any commercial agreement between a Material Entity
(as defined in the SHA) and an affiliate of the Amazon.
FCPL and the Promoters have also agreed not to transfer,
encumber, divest or dispose of these Retail Assets (as
defined in the SHA), directly or indirectly, in favour of a
mutually agreed list of Restricted Persons (as defined in
the SHA).
(D) In Para 29 Amazon notified that the rationale of FCPL was that the
Promoters have invited Amazon to invest in FCPL with a view to strengthen
and augment the business of FCPL. FCPL believes that the Proposed
Combination will provide an opportunity to FCPL to learn global trends in
digital payments solutions and launch new products and usage of in-built
payment mechanisms can lead to acquisition of customers' base and
increased loyalty.
(E) In Para 30 Amazon notified the rationale for Amazon as it believes
that FCPL holds a potential for long term value creation and providing
returns on its investment. Amazon has decided to invest in FCPL with a
view to strengthen and augment the business of FCPL (including the
marketing and distribution of loyalty cards, corporate gift cards and reward
cards to corporate customers) and unlock the value in the company.
1.10 Thus, the proposed combination contained of Proposed Transactions
I, II and III as notified by Amazon to CCI was that Amazon would have
acquisition of 49% of the share capital of FCPL and that pursuant to the
proposed combination, the control of FCPL including day-to-day operational
matters and policy decisions will remain with FCRPL with 51% of the share
holding and that FCPL SHA and FCPL SSA will determine the rights and
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obligations of Amazon and the promoters in respect of their rights and
obligations as shareholders of FCPL. It was also clarified that the rights
proposed to be acquired by Amazon under the FCPL SHA were for
protecting its investment in FCPL, besides the rights to be exercised in
relation to material entity i.e. FRL and its retail assets through FCPL
provided under Clauses 13 and 14 of FCPL SHA as noted above.
1.11 On 19th December, 2019 FCPL wrote to FRL notifying the "effective
date" for the purpose of FRL SHA to be the date of the letter, that is, 19 th
December, 2019. Para, 2, 3 4 of the letter dated 19 th December, 2019 from
FCPL to FRL read as under:
2. Pursuant to Clause 2 of the FRL SHA, we hereby
designate that the ‗Effective Date' for the purposes of the
FRL SHA shall be the date of this letter.
3. We also hereby inform you that the list of 'Restricted
Persons' shall be as set out in Annexure 1 of this letter.
4. Reference is also made to Clause 6.2.1 of the FRL SHA
pursuant to which the Existing Shareholders (and the
Existing Shareholder Affiliates), and FCL have agreed
that that they shall not, Transfer or Encumber any of the
Securities of the Company held by it to any Person or
create any Encumbrance over the Securities of the
Company held by it except pursuant to mutual written
consent of FCL and the Existing Shareholders.
Accordingly, FCL hereby provide its consent for any
Transfer or Encumbrance over Securities of the
Company, if such Transfer or Encumbrance is in
accordance with the provisions of the FCL SHA. For the
purposes of this paragraph 4, the term 'FCL SHA' shall
mean the shareholders' agreement dated August 22, 2019
entered into between FCL, the Existing Shareholders and
Amazon.com NV Investment Holdings LLC (as may be
amended, modified or supplemented from time to time).
Further, by executing, and returning a copy of this letter,
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the Existing Shareholders shall be deemed to have
provided their irrevocable, and unconditional consent for
any Transfer or Encumbrance over Securities of the
Company held by FCL, if such Transfer or Encumbrance
is in accordance with the provisions of the FCL SHA.
Contentions on behalf of FRL
2.1 According to Mr.Harish Salve, learned Senior Counsel appearing for
FRL states that FRL is a listed company having more than three lakhs
shareholders, over 25,000 employees and several other stakeholders
(including banks and financial institutions). The Covid-19 pandemic has had
significant impact on Indian businesses, particularly the retail sector, in
which FRL carries on its business and thus the transaction between FRL and
Reliance is to protect the interest of all the stakeholders of FRL through a
large infusion of funds and acquisition of liabilities of FRL‟s business by
Reliance.
2.2 According to the learned Senior Counsel, the present plaint seeks
injunction against Amazon from unlawfully interfering with the
performance of the transaction between FRL and Reliance (defendant
Nos.14 and 15) to restructure and transfer a part of FRL‟s business to
Reliance to raise funds immediately required by FRL inter-alia to meet its
debt repayments. Since Amazon is resorting to measures that constitute
tortiuous interference with lawful contracts being entered into between FRL
and Reliance, by attempting to interdict performance of the transaction, FRL
has been constrained to approach this Court. Despite Amazon not being a
party to the FRL SHA and FRL not being the party to the FCPL SHA and
FCPL SSA, Amazon claims contravention of its contractual rights based on
the FCPL SHA.
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2.3 In an attempt to interdict the transaction between FRL and Reliance,
Amazon invoked the Emergency Arbitration before SIAC and in its
representations to various authorities relying on the EA order dated 25th
October, 2020 seeks to restrain various regulatory approvals from the Stock
Exchanges, SEBI etc in respect of the transaction. Despite FRL not being a
party to FCPL SHA under which Amazon invoked the arbitration, FRL was
joined as a party to the proceedings.
2.4 It is now the case of Amazon that the FRL SHA, FCPL SHA and
FCPL SSA constitute a "Single Integrated Bargain" to which Amazon, FRL,
FCPL and the Promoters are all parties. The stand of Amazon based on the
conflation of FRL SHA and FCPL SHA amounts to illegality as it results in
creation of control over FRL in favour of Amazon violating inter-alia the
Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (in
short „FEMA FDI Rules‟) as also violates the provisions of the Companies
Act, 2013 since it amounts to vesting the power that resides in the Board of
Directors of FRL, in a foreign company, even in the absence of any such
provision in the articles of FRL and in derogation of the fiduciary duty of
the Directors of FRL including independent Directors to act in the interest of
FRL. Further Amazon‟s investments in FCPL also do not gain if FRL loses
its value.
2.5 The present act of Amazon is to prevent any competition in the Indian
retail market as is evident from the Schedule containing the list of
'Restricted persons' and is, therefore, obstructing the transaction. In case the
statutory authorities are restrained from acting in terms of the provisions of
the Indian laws, an irreparable prejudice would be caused to FRL and no
prejudice would be caused to Amazon by the interim relief for the reason,
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the procedure established by law for conclusion of transaction including
sanction of the scheme of arrangement by the NCLT adequately safeguards
Amazon‟s interest. By the collapse of FRL‟s business, Amazon would gain
as a large competitor in the form of FRL would be out of the business. The
balance of convenience, therefore, also lies in restraining Amazon from in
any manner interfering with the transaction.
2.6 Claim of Amazon that the FRL SHA, FCPL SHA and FCPL SSA are
a Single Integrated Transaction is not only contrary to the provisions of FRL
SHA, FCPL SHA and FCPL SSA but also the representation of Amazon
before the Competition Commission of India (CCI).
2.7 Contention of Amazon based on the letter dated 19th December, 2019
issued by FCPL to FRL under the FRL SHA notifying the effective date of
FRL SHA as 19th December, 2019 and listing the Restricted Persons for the
purposes of FRL SHA is fallacious and misleading. Based on this letter
Amazon contends that FCPL SHA and FRL SHA are interlinked since the
list of Restricted Persons notified under this letter was the same as the list of
Restricted Persons set out in the FCPL SHA.
2.8 According to FRL the said letter was issued by FCPL in accordance
with the provisions of FRL SHA which stipulates that the effective date of
FRL SHA would mean the date designated in writing by FCPL after receipt
of any approval from any government authority including the CCI, if
applicable, that may be required by FCPL. The letter dated 19th December,
2019 merely notifies the list of restricted persons as contemplated in Clause
10.3 of FRL SHA.
2.9 According to learned Senior Counsel for FRL, FRL is a listed public
limited company with over three lakhs shareholders and a private contract
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entered into by the Promoters, undertaken in their capacity as shareholders
of FRL, cannot bind FRL. Reliance is placed on the decision reported as
2010 (7) SCC 1 Reliance Natural Resources Limited vs. Reliance Industries
Limited (in short „RNRL vs. RIL‟) wherein an identical argument canvassed
was rejected.
2.10 Representation of Amazon to the statutory authority/ regulators that
the "transaction" being in breach of FCPL SHA and FRL SHA and the
resolution dated 29th August, 2020 passed by the Board of Directors of the
FRL is void, is without any merit for the reason Firstly, FRL‟s Board
Resolution does not violate any provision of FRL‟s Article of Association or
any provisions of law and, therefore, cannot be considered to be void;
Secondly, the Board of FRL in compliance with their fiduciary duty owed to
FRL approved the transaction with a view to salvage FRL and its
stakeholders who had been adversely impacted by the Covid-19 pandemic
and the Board approval of the transaction is in the best interest of its
employees, lenders and shareholders of FRL; Thirdly, the Board of FRL
approved the transaction in accordance with Clause-10 of FRL SHA only
after FCPL accorded its written consent dated 29th August, 2020 which fact
has been noted by FRL in para-29 of the plaint stating that FCPL has
granted its consent. Fourthly, the Resolution can be termed void, only if it is
contrary to law and the Board Resolution of FRL is not contrary to law. The
Resolution is fully compliant with FRL‟s Article of Association and hence
not ultra vires.
2.11 Amazon‟s contention before this Court that Board Resolution is void
as it contravenes FCPL‟s Article of Association is also misconceived as the
Board of Directors of FRL cannot be bound by FCPL‟s Article of
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Association. Further before the Emergency Arbitrator, Amazon accepted
that the Board Resolution is not illegal or void or contrary to any regulation
or statute.
2.12 Amazon‟s case that it was persuaded to invest in FCPL being assured
of certain rights under the FRL SHA, does not confer upon Amazon any
derivative rights under the FRL SHA. Amazon knew, being a foreign
investor, its limit of investment in view of Regulatory Regime in India and
thus it was content with an investment made with the shareholder of FRL.
Reliance is placed on the decisions reported as (2012) 6 SCC 613 Vodafone
International Holdings BV vs. Union of India; RNRL vs. RIL (supra); 2000
(3) Mh LJ 700 Rolta India Ltd vs. Venire Industries Ltd.; 1959 AC 324
Scottish Co-operative Wholesale Society Ltd vs. Mayer and [2009] EWCA
Civ 291 Hawkes vs. Cuddy to contend that the Directors of a listed entity
have to act in fiduciary duty and not merely follow the direction of
Promoters which tantamount to destroy the value of public shareholders and
other stakeholders.
2.13 The WhatsApp chats between the parties clearly reveal that Amazon
was aware of the fact that FRL was engaged in the talks to transfer its
business to Reliance since June/July, 2020 and the representation of Amazon
to the Authorities that it only came to know of the transaction on 16th
September, 2020 is false. As a matter of fact, informal discussions were
also held between Amazon and Reliance wherein Reliance informed
Amazon that it was acquiring the assets of FRL when Amazon did not raise
any objection.
2.14 Since Amazon is unlawfully interfering with the lawful transaction
between FRL and Reliance by masquerading the EA order to be an order
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under Section 17(2) of the A&C Act, the same amounts to unlawful
interference with the transaction and is contrary to the business and
economic interests of FRL. Consequently, FRL is entitled to seek an
injunction against Amazon on the principles governing the tort of unlawful
interference. Reliance is placed on the decisions reported as 1983 WLR 778
Merkur Island Shipping Corporation vs. Laughton & Ors.; [1991] 3 WLR
188 Lonhro PLC vs. Fayed & Ors. and [2007] UKHL 21 OBG Ltd vs. Allan
& Ors.
2.15 Though Amazon contends that the tort of unlawful interference is not
applicable as FRL has failed to produce the contract entered into between
FRL and Reliance, however, this contention of Amazon is contrary to its
own submissions in the application seeking emergency relief before the
Emergency Arbitrator which notes the alleged breach of FCPL SHA and
FRL SHA on the ground that FRL has invalidly announced a transaction
with companies of the MDA Group. Further the fact that FRL and Reliance
are entering into a transaction is noted in the scheme which is also in the
knowledge of Amazon.
2.16 Learned Senior Counsel for FRL further contends that in Clause-
15.17 in the FCPL SHA it has been explicitly recorded that the
understanding between the Promoters and the Investors was no agreement or
understanding whatsoever in relation to acquisition of shares or voting rights
in/or exercising control over FRL and that the company, the Promoters and
the Investors otherwise do not intend to act in concert with each other in any
way whatsoever. However, in the teeth of Clause 15.17 Amazon tries to
exercise control over the working of FRL. It is further stated that FCPL and
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much less Amazon do not even have the status of a minority shareholder and
can thus not interfere by exercising control over FRL.
2.17 Mr.Darius J. Khambata, learned Senior Counsel appearing on behalf
of FRL further contends that the EA order is a nullity and Amazon is
unlawfully interfering in the transaction by masquerading the EA order as a
binding order under Section 17 of the A&C Act. Though the
legality/illegality on merits of the EA order is not an issue in the present suit
but the legal status of the EA order is an issue in the present suit. FRL is not
challenging the legality of the findings in the EA order on merits nor seeking
a declaration as to the invalidity of the EA order but since the Emergency
Arbitrator has no legal status, thus the EA order is not binding, FRL seeks
its relief on the basis that the EA order is a nullity. Since Amazon claims
that the EA order is valid, same is an issue to be decided by this Court.
2.18 Appearance of the FRL before the Emergency Arbitrator was subject
to its objections as to the jurisdiction and the said objection cannot be
waived. According to learned Senior Counsel, FRL appeared before the
Emergency Arbitrator without prejudice to the objection that an Emergency
Arbitrator is not recognized under Part-1 of the A&C Act as is evident from
the letters of FRL dated 6th October, 2010 and 7th October, 2020 to SIAC
and the response dated 12th October, 2020. Thus Amazon‟s contention that
FRL waived the objection to the jurisdiction of the Emergency Arbitrator is
false and misconceived.
2.19 Further since the Emergency Arbitrator lacks legal status under Part-I
of the A&C Act, the parties by consent could not confer jurisdiction on the
Emergency Arbitrator. Despite the fact that the order of an Emergency
Arbitrator is not recognized under Part-I of the A&C Act, Amazon has
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represented the EA order to be binding on FRL in its letters dated 28th
October, 2020 and 8th November, 2020 addressed to SEBI and the Stock
Exchanges respectively.
2.20 According to learned Senior Counsel for FRL, validity of the
appointment of Emergency Arbitrator has been canvassed on behalf of
Amazon on five counts, that is, (i) Emergency Arbitrator is not incompatible
with Part-I of the A&C Act, (ii) Part-I of the A&C Act allows parties to
agree to procedural Rules and in the present case as per the FCPL SHA
parties agreed to be governed by SIAC Rules; (iii) Termination of the
mandate and substitution of Arbitrator has been provided under Section 15
of the A&C Act; (iv) the decisions of this Court reported as 2020 SCC
OnLine Del 721 Ashwani Minda and Jay Ushin Ltd. vs. U-Shin Ltd. and
2016 SCC OnLine Del 5521 Raffles Design International Pvt. Ltd. vs.
Educomp Professional Education Ltd. & Ors. recognize emergency
arbitration in India; (v) unless set aside the interim EA order is a decree and
not a waste paper.
2.21 Responding to these propositions canvassed on behalf of Amazon,
learned Senior Counsel states that the legal status of an Emergency
Arbitrator is an issue in this suit even though the plaintiff is not required to
challenge the legality of the EA order before this Court. In para-51 to 64 of
the plaint, the plaintiff has set out as to how the appointment of the
Emergency Arbitrator is a nullity and lacks jurisdiction. In prayers (b) and
(c) in the plaint, plaintiff has sought prayers claiming lack of jurisdiction of
the Emergency Arbitrator. The entire attack of Amazon on FRL‟s case is
based on the binding nature of the EA order. Amazon has misrepresented to
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the Regulatory Authorities in its letters claiming the binding nature of the
emergency arbitrator award.
2.22 According to learned Senior Counsel for FRL, arbitration has been
invoked by Amazon in terms of Clause 25.2.1 of the FCPL SHA to which
FRL is not a signatory which may be an International commercial arbitration
seated in Delhi however, the arbitration agreement to which FRL is a party
is not an International commercial arbitration as FRL SHA contemplates a
purely domestic arbitration. This is a primary conflict in the two arbitration
clauses, one being purely domestic arbitration and the other International
commercial arbitration seated at Delhi, in India. Further in both the
domestic and international commercial arbitration under Part-I, Emergency
Arbitrator is barred, as the remedy for seeking an interim relief before the
Arbitral Tribunal is constituted, is under Section 9 of the A&C Act from a
Court. That being the only remedy available, Amazon cannot bypass the
said remedy and seek appointment of an Emergency Arbitrator.
2.23 Under Section 11(1) of the A&C Act, an Arbitrator has a degree of
permanence. The A&C Act also does not contemplate that for the first six
months there would be one arbitrator and than other one. Further Sections
12 and 13 of the A&C Act which permit a party to challenge the jurisdiction
of an Arbitrator, provide for the grounds and procedure on which
appointment of the Arbitrator can be challenged. Section 15 of the A&C
Act provides for the manner in which the mandate of an Arbitrator can be
terminated and another Arbitrator can be substituted. It is contended that the
SIAC Rules cannot override the mandatory provisions of Part-I of the A&C
Act. Referring to Section 2(6) of the A&C Act, it is submitted that the
parties have freedom to authorize any persons including an institution to
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determine a certain issue only where Part-I leaves the parties free to do so.
The said freedom cannot derogate from the mandatory provisions of the
A&C Act. Section 17 of the A&C Act specifically provides that during
arbitral proceedings, a party may only apply to an Arbitral Tribunal for
interim reliefs and prior to the constitution of the Arbitral Tribunal, the
remedy under Section 9 of the A&C Act is the only remedy available to a
party. Further even Section 2 (8) of the A&C Act is applicable, subject to
the situations where Part-I recognizes the parties agreement and does not
override the provisions of Part-I. Thus Amazon‟s reliance on Rule- 1.1 of
the SIAC Rules is of no avail to the extent that SIAC Rules are in derogation
of the provisions of Part-I of the A&C Act. Moreover, Section 11 (2) of the
A&C Act merely provides parties with the right "to agree on a procedure for
appointing the arbitrator or arbitrators". The freedom to determine the
procedure of appointment of an Arbitrator/Arbitrators cannot be read so far
as to enable the parties to appoint the Emergency Arbitrator, when the
concept of Emergency Arbitrator is not contemplated by the A&C Act.
2.24 Distinguishing the decision relied upon by Amazon reported as 2017
(2) SCC 228 Centrotrade Minerals and Metal Inc. vs. Hindustan Copper
Limited it is stated that in the said decision the Court was dealing with a two
tier arbitration. Recognition of the two tier arbitration is not akin to an
emergency arbitration which is not recognized under the A&C Act and
hence, the said decision has no applicability to the facts of the present case.
Distinguishing the decision relied upon by Amazon reported as 2014 (11)
SCC 560 Antrix Corporation Limited vs. Devas Multimedia Pvt. Ltd., it is
contended that in the said decision the party had filed a petition under
Section 11 after having nominated an Arbitrator pursuant to the ICC Rules
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however, in the present case FRL has not appointed any nominee arbitrator.
Hence the decisions are of no assistance and in any case they do not deal
with the concept of an emergency arbitration.
2.25 Even the decision reported as 2002 (2) SCC 572 Narayan Prasad
Lohia vs. Nikunj Kumar Lohia, relied upon on behalf of Amazon has no
application to the facts of the present case as in the said case two Arbitrators
were appointed and the Court held that the appointment of two Arbitrators
would not frustrate Section 10 of the A&C Act as in the event the two
Arbitrators arrive at conflicting views, they could very well appoint a third
Arbitrator to act as a presiding Arbitrator. Reliance of Amazon on the Rules
of Delhi International Arbitration Centre ("DIAC Rules"), Mumbai Centre
of International Arbitration ("|MCIA Rules") and Madras High Court
Arbitration Centre ("MHCAC Rules") which provide for emergency
arbitration procedures to contend that emergency arbitration is recognized
under the A&C Act is also misconceived as DIAC, MCIA and MHCAC
Rules cannot override the mandatory provisions of the A&C Act. Further
these Rules have been made flexible so as to apply to foreign seated
arbitrations as well and the Rules were framed in anticipation of the
amendment proposed by 246th Law Commission Report which sought
amendment to Section 2(1)(d) of the A&C Act to include emergency
arbitration which was not accepted by the Parliament.
2.26 Reliance of Amazon on the decisions in Raffles (supra) and 2020 SCC
Online Del 631 Goodwill Non-Woven P. Ltd vs. Xcoal Energy & Resources
LLC is also misconceived as the said decisions pertain to foreign seated
arbitration governed by Part-II of the A&C Act wherein the proceedings
under Section 9 were filed for de-novo interim relief before the Indian Court
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despite the foreign emergency award. Since the present arbitration is
governed by Part-I of the A&C Act to which definition of Arbitral Tribunal
under Section 2(1)(d) of the A&C Act applies, which does not contemplate
Emergency Arbitrator, appointment of an emergency arbitrator is thus a
nullity and contending the validity of the said EA order, the acts of Amazon
representing to the regulators/statutory authorities amount to tortiuous
interference in the rightful business of FRL. It is thus contended that since
the concept of Emergency Arbitrator is alien to the Part-I of the A&C Act,
the EA order is wholly without jurisdiction and a coram non judice. The EA
order being a nullity, it need not be set aside by a Court and is required to be
ignored for lack of legal status. Reliance is placed on the decisions reported
as 1990 (1) SCC 193 Sushil Kumar Mehta vs. Gobind ram Bohra, 1991 (3)
SCC 136 Ajudh Raj & Ors. vs. Moti; Manu/SC/0372/1966 Mohd. Murtiza
Khan vs. State of M.P. and 1969 (2) SCC 883 Sheolal & Ors. vs. Sultan &
Ors.
2.27 The decisions relied upon by Amazon for the proposition that an order
has to be challenged to assert coram non judice are not applicable to the
facts of the present case as in the said cases there was no inherent lack of
jurisdiction to pass the order as in the present case with the Emergency
Arbitrator Therefore, due to the lack of jurisdiction even in collateral
proceedings, this Court can hold that the Emergency Arbitrator has no legal
status under Part-I of the A&C Act and thus the EA order is a nullity.
Contentions on behalf of Defendant Nos.2 to 13
3.1 Mr.Mukul Rohtagi, learned Senior Counsel appearing on behalf of
defendant Nos.2 to 13 contended that on 5th October, 2020 Amazon issued a
notice invoking arbitration under Clause-25.2 of the FCPL SHA under the
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SIAC Rules. The only persons who were party to the FCPL SHA were
Amazon and defendant Nos.2 to 13 and not FRL. Before the Emergency
Arbitrator, defendant Nos.2 to 13 raised the objection that the FCPL SHA
was governed by the A&C Act and the concept of an Emergency Arbitrator
prior to the constitution of an Arbitral Tribunal is foreign to the A&C Act
and hence the Emergency Arbitrator cannot be recognized as coram judice
for granting any reliefs under the A&C Act. Despite challenging the
jurisdiction of the Emergency Arbitrator to grant interim relief as the said
jurisdiction under the A&C Act is either vested in the Court in terms of
Section 9(1) of the A&C Act or before the Arbitral Tribunal once it is
constituted under Section 9(3) of the A&C Act, the Emergency Arbitrator
passed the EA Order.
3.2 It is well settled that an Arbitral Tribunal is constituted either on the
basis of agreement between the parties or under Section 11 of the A&C Act
and in the present case there was neither an agreement between the parties
nor a direction under Section 11 of the A&C Act for appointment of the
Emergency Arbitrator Under Section 2 (6) read with Section 19 (2) of the
A&C Act, derogation of the A&C Act is only possible where the A&C Act
itself permits the parties to derogate therefrom. Further Section 9 of the
A&C Act does not contain the phrases like "subject to any agreement to the
contrary" or "unless otherwise agreed by the parties", thus, the parties
cannot derogate from Section 9 of the A&C Act. The parties cannot by
consent confer jurisdiction upon a body not recognized under the A&C Act
to pass any interim relief prior to the constitution of the Arbitral Tribunal.
The SIAC Rules are merely procedural in nature and cannot provide a
substantive jurisdiction to a Forum to grant interim reliefs other than what is
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mandated under Part-I of the A&C Act in Sections 9 and 17. Emergency
Arbitrator is a creature of Rule 30.2 of the SIAC which is foreign to the
A&C Act. The seat of arbitration as per the FCPL SHA being at New Delhi,
any interim relief could have been claimed by a party prior to the
constitution of the Arbitral Tribunal only before a Court defined under
Section 2 (1) (e) read with Section 9 of the A&C Act. The A&C Act does
not allow the parties to agree to the rules which provide or create substantive
rights to either of the parties which are not in consonance with Part-I of the
A&C Act. Further SIAC Rules prohibit a challenge/review or any order
passed by the Emergency Arbitrator which in itself shows that the
Emergency Arbitrator‟s award is not under Section 17 of the A&C Act.
Thus the Emergency Arbitrator lacked inherent jurisdiction under the
provisions of the A&C Act. Though these issues were raised before the
Emergency Arbitrator however, the same were not considered.
3.3 Mr.Vikram Nankani, learned Senior Counsel appearing on behalf of
FCPL contends that FCPL has already granted its consent to FRL for the
transaction with Reliance in terms of the FRL SHA which fact is noted in
para-29 of the plaint by acknowledging the FRL‟s letter dated 29th August,
2020, which was issued pursuant to the Board Resolution dated 29 th August,
2020 of FCPL. Mr.Nankani also sought time to file the statement of truth in
support of the letter dated 29th August, 2020, in his submissions on 20th
November, 2020, which this Court declined as the same can be filed while
completing formal pleadings with the written statements and replications.
Contentions on behalf of Defendant Nos. 14 & 15
4.1 Dr.Abhishek Manu Singhvi, learned Senior counsel on behalf of
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Reliance contends that the EA order is a nullity in law and incapable of
enforcement under Part-I of the A&C Act. The proceedings before the
Emergency Arbitrator are void as it is coram non judice. A plain reading of
Clause 25 of the FCPL SHA providing for arbitration clearly notes that the
substantive law of arbitration is the Indian Arbitration and Conciliation Act,
1996 and the SIAC Rules merely prescribe the procedure for the arbitration
proceedings. In case of conflict with Indian substantive law, the provisions
of the A&C Act will prevail and apply mutatis mutandis. The seat of
arbitration being New Delhi, the arbitration proceedings are governed by
Part-I of the A&C Act. Under Part-I of the A&C Act, interim order can only
be passed under Section 9 or 17 of the A&C Act. The Emergency Arbitrator
being a temporary creature under the SIAC Rules is not the Arbitral
Tribunal and has no jurisdiction to pass orders under Section 17 of the A&C
Act.
4.2 Reiterating the provisions under the SIAC Rules and Section 11 of the
A&C Act relating to the appointment of Arbitral Tribunal, Sections 13 to 15
and 32 of the A&C Act relating to the manner in which the mandate of
Arbitral Tribunal can be terminated and Sections 14 or 15 for appointment
of a substitute arbitrator, it is contended that under Part-I of the A&C Act
there is no scope of appointment of different Arbitral Tribunals for various
stages of arbitral proceedings viz. Emergency Arbitrator at the initial stage
whose mandate automatically ends when the Tribunal is constituted.
4.3 Under Section 17 (2) of the A&C Act, an interim order of an Arbitral
Tribunal is enforceable as an order of the Court however, an interim order of
an Emergency Arbitrator under the SIAC Rules is temporary in nature and
ceases to be binding automatically if the Arbitral Tribunal is not constituted
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within 90 days. Further Rule 12 of the Schedule-I of the SIAC Rules
purports to preclude the parties from appealing against an order of the
Emergency Arbitrator, despite the fact that Section 37(2) (b) of the A&C
Act confers the statutory right of appeal against an interim order passed by
the Arbitral Tribunal under Section 17 of the A&C Act.
4.4 The concept of Emergency Arbitrator is antithetical to Section 9 of
the A&C Act. In Raffles (supra) this Court in para-104 noted that the
emergency award passed by the Arbitral Tribunal cannot be enforced under
the A&C Act and the only method for enforcing the same would be to file
the suit. Further Clause -25.2.1 of the FCPL SHA specifically provides for
arbitration as per the SIAC Rules "as may be modified by the provisions of"
Indian Law. The parties, therefore, recognized that the SIAC Rules cannot
override the provisions of Indian law and the A&C Act and were subject
thereto.
4.5 Since Amazon is misrepresenting the legality of the EA order
claiming that it binds FRL and thereby causing prejudice not only to FRL
but to Reliance also by asking the Regulators to deny statutory permissions
for the valid and legal transaction inter-se FRL and Reliance, its invalidity
can be set up even in collateral proceedings. Reliance is placed on the
decision reported as 1990 (1) SCC 193 Sushil Kumar Mehta vs. Gobind Ram
Bohra to contend when a decree passed by a Court is nullity and is non-est,
its invalidity can be set up even at the stage of execution or in collateral
proceedings. The Single Integrated Transaction in the FRL SHA, FCPL
SHA and FCPL SSA, as claimed by Amazon is violative of the FEMA FDI
Regulations and SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011.
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4.6 The UNCITRAL Model Law also does not contain any provision in
relation to an Emergency Arbitrator. Since the Indian Arbitration and
Conciliation Act is based on the UNCITRAL Model Law, it does not
contemplate appointment of an Emergency Arbitrator which position of the
law is affirmed by the Supreme Court in the decision reported as 2004 (3)
SCC 155 Firm Ashok Traders & Anr. vs. Gurumukh Das Saluja & Ors.
4.7 Chapter XV of the Companies Act, 2013 read with the Companies
(Compromise, Arrangement and Amalgamations) Rules, 2016, the National
Company Law Tribunal Rules, 2016 and the Securities and Exchange Board
of India (Listing Obligations and Disclosure Requirements) Regulations,
2015 („SEBI LODR‟) form a complete code governing all aspects of the
scheme of arrangement between the company, its members and its creditors.
4.8 The Board of Directors of FRL vide Resolution dated 29 th August,
2020 have approved the transaction in a properly constituted meeting at
which the majority of the Directors voted in favour of the proposed
transaction.
4.9 It is thus prayed that Amazon be injuncted from interfering in the
transaction between FRL and Reliance.
Contentions on behalf of Amazon
5.1 According to Mr. Gopal Subramanium, learned Senior counsel
appearing on behalf of Amazon the suit as filed by the plaintiff seeking an
anti-arbitration injunction, anti-suit injunction and injunction with respect to
communication to statutory authorities is not maintainable. The arbitration
proceedings having commenced on 5th October, 2020 under Part 1 of the
A&C Act in respect of a valid and subsisting arbitration agreement which
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has not been challenged, the relief as sought are barred under Section 5 read
with Section 8 of the A&C Act. Further, the relief of anti-suit injunction is
also barred by Section 41(b) of the Specific Relief Act, 1963. The reliefs of
FRL seeking to restrain Amazon from addressing communication to
statutory authorities, objecting to the transaction including by relying on the
order of the Emergency Arbitrator also cannot be granted for the reason
representations have already been made to the statutory authorities, who
have already taken cognizance of the arbitration proceedings and the EA
order and have sought responses from FRL and Amazon. Further, relief
sought by FRL is contrary to the stand before the Emergency Arbitrator that
Amazon was free to place its objections regarding the transaction before
appropriate statutory and regulatory authority. The reliefs sought in the
interim application under Order XXXIX Rule 1 & 2 CPC seeking temporary
injunction are identical to the final relief sought in the suit and hence the
said relief cannot be granted. The prayer in the application is for an
intermediary injunction seeking restoration of the status-quo ante, which
cannot be granted as FRL has not made out any case for grant of
extraordinary relief at the interim stage.
5.2 The present suit is an abuse of the process of the Court for the reason
FRL has participated in the arbitration proceedings that commenced on 5th
October, 2020 and after appearing before the Emergency Arbitrator filed
various submissions including those raised in the present suit. FRL
continues to participate in the arbitration proceedings and has filed a
response to Amazon‟s notice of arbitration on 21 st November, 2020.
Therefore FRL recognises that the proper forum for raising its objection is in
the arbitration proceedings.
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5.3 In the present suit, the EA order has not been challenged and cannot
be challenged. Despite the fact there is no challenge to the EA order in the
present suit, FRL and defendant No.2 to 13 during the course of arguments
have made an endeavour to show that EA order is illegal and hence cannot
be acted upon. Without challenging the EA order, FRL seeks to claim it to
be a nullity in the present proceedings. This is impermissible as a collateral
challenge cannot be maintained under the Indian Law.
5.4 Though FRL has not seriously questioned the Emergency Arbitrator‟s
findings about the applicability of the „group of companies‟ doctrine and/or
the theory of implied consent in these proceedings, however FRL continues
to argue that it was not a signatory to the arbitration agreement in FCPL
SHA. The issues agitated before the Emergency Arbitrator cannot be re-
agitated in the present proceedings. During the course of arguments neither
FRL nor defendant Nos.2 to 13 have addressed arguments on the breaches
committed of the FCPL SHA and FRL SHA. Thus, no case is made out for
the present action to safeguard the transaction, which is post the EA order,
premised on a breach and an afterthought with the sole motive of a
collateral challenge. Therefore, no case of tortious interference is made out.
5.5 Learned Senior counsel for Amazon takes serious objection to the
filing of the documents dated 29th August, 2020 filed by FRL and FCPL on
12th November, 2020 before this Court without being accompanied by a
statement of truth. This document was not produced before the Emergency
Arbitrator and in this regard a finding has been returned by the Emergency
Arbitrator. Further this document dated 29th August, 2020 is not produced
along with Board Resolution of either FCPL or FRL which has authorized it
to consent to the transaction. It is contended on behalf of Amazon that FRL
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has suppressed material documents. The e-mail dated 9th April, 2020 has
only the first spreadsheet which is also illegible and the remaining
documents have not been filed which have been now filed by Amazon in its
additional compilation at pages 1 to 10. Further FRL has also not produced
the entire chain of correspondence which demonstrates Amazon‟s
engagement with Biyanis for finding a resolution for FRL.
5.6 The principle of „party autonomy‟ entitles Amazon to seek emergency
relief under the SIAC Rules and such choice is enforceable under Section
2(8) of the A&C Act as SIAC Rule have been incorporated in the arbitration
agreement. Reliance is placed on the decision in (2017) 2 SCC 228
Centrotrade Minerals v. Hindustan Copper Limited. The EA order was
passed under Rule 30.2 of the SIAC Rules read with Rule 8, Schedule I to
the SIAC Rules which empowers the Emergency Arbitrator to pass interim
order, pending constitution of the Arbitral Tribunal to protect and preserve
the subject matter of the dispute. Further Section 2(6) of the A&C Act
authorizes parties to choose the authority to determine any issue unless Part
I of the A&C Act expressly disallows such determination. Reliance is
placed on the decision in (2014) 11 SCC 560 Antrix Corporation Limited v.
Devas Multimedia. In terms of Rule 12 of the SIAC Rules, the EA order is
binding on FRL and the same can be challenged only in appropriate
proceedings. The EA order is an interim measure passed by an Arbitral
Tribunal under Section 17(1) of the A&C Act and thus enforceable under
Section 17(2) of the A&C Act. The EA order cannot be treated as a mere
„waste paper‟, especially when parties have agreed that it would be binding
on them. Reliance is placed on (1969) 2 SCR 244 Satish Kumar v. Surinder
Kumar.
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5.7 An Emergency Arbitrator constitutes an „Arbitral Tribunal‟ for the
purpose of passing the EA order for the reason Firstly, because Section
2(1)(d) of the A&C Act defines an Arbitral Tribunal to mean „a sole
arbitrator or a panel of arbitrator‟. Therefore, Emergency Arbitrator is an
arbitrator under the SIAC Rules and accordingly under the A&C Act;
Secondly, an Arbitral Tribunal will comprise an Emergency Arbitrator in
terms of Section 2(8), Section2(1)(d) of the A&C Act and the SIAC Rules in
accordance with the principle of party autonomy; Thirdly, under the SIAC
Rules, the Emergency Arbitrator occupies the position of and functions as an
arbitrator till the Arbitral Tribunal is fully constituted. Rule 1.3 of the SIAC
Rules defines an „Emergency Arbitrator‟ as „an arbitrator appointed in
accordance with Para 3 of Schedule I‟. Besides several other provisions of
SIAC Rules such as Rule 38, 39 and Schedule I, reinforce that an
Emergency Arbitrator occupies the position of an arbitrator and functions as
an arbitrator. Further there is nothing in the A&C Act which prohibits,
disempower or nullify proceedings before an Emergency Arbitrator.
Reliance is placed on the decision in (1998) 3 SCC 573 K.K. Modi v. K.N.
Modi. Submission of FRL that since an Emergency Arbitrator is not
expressly provided under the A&C Act, it must follow that the A&C Act
prohibits emergency arbitration is fallacious. In Centrotrade Minerals
(supra) Supreme Court held that merely because the A&C Act does not
expressly recognize the procedure agreed to by the parties, in exercise of the
„grund norm‟ of „party autonomy‟ the A&C Act does not prohibit such a
procedure. It is on this basis that in Centrotrade Minerals Supreme Court
upheld a two-tier arbitration to be valid under the A&C Act even though the
same is not contemplated expressly in the A&C Act. Reliance is also placed
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on the decision in (2002) 3 SCC 572 Narayan Prasad Lohia v. Nikunj
Kumar Lohia.
5.8 Contention on behalf of the FRL that Section 15 of the A&C Act
implicitly prohibits the appointment of an Emergncy Arbitrator is
misconceived for the reason Section 15(1)(b) read with Section 16(2) of the
A&C Act provide that the mandate of an arbitrator may terminate by or
pursuant to an agreement of the parties and another arbitrator or arbitrators
may be appointed. Further the SIAC Rules, inasmuch as they provide for an
Emergency Arbitrator to function before an Arbitral Tribunal is fully
constituted, represents this agreement of parties under Section 15(1)(b) of
the A&C Act. Therefore, the A&C Act contemplates different arbitrators
adjudicating at different stages of the Arbitral Tribunal.
5.9 FRL‟s contention that the term „Arbitral Tribunal‟ cannot include an
„Emergency Arbitrator‟ for the reason the same though suggested in the Law
Commission‟s recommendation in its 246th report, was not accepted by the
Parliament, is incorrect. The fact that the Parliament did not accept the
recommendations of the 246th Law Commission‟s report has no bearing on
the interpretation of the provision in the A&C Act, as held in the decision in
(2020) SCC Online 656 Avitel Post Studioz Limited v. HSBC PI Holdings
(Mauritius) Limited and Ors. By mutual agreement parties can agree to a
remedy such as an Emergency Arbitrator and since an Emergency Arbitrator
constitutes an Arbitral Tribunal, the Courts ought to refrain from acting by
virtue of Section 9(3) of the A&C Act. Further rules under many arbitration
institutions in India i.e. DIAC, MCIA, MHCAC provide for Emergency
Arbitrators. FRL‟s contention that these arbitration centres deal with foreign
seated arbitration and not arbitration governed under the A&C Act is
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incorrect for the reason, the rules of these centres provide that the orders of
an Emergency Arbitrator shall be enforceable in the manner as provided in
the A&C Act. Therefore, the proceedings before the Emergency Arbitrator
were valid under the Indian law and the EA order constitutes an interim
measure under Section 17(1) of the A&C Act enforceable as an order of the
Court under Section 17(2) of the A&C Act.
5.10 Referring to the decisions in (2016) 9 SCC 44 Anita International v.
Tungabadra Sugar Works; (2011) 3 SCC 363 Krishnadevi Malchand v.
Bombay Environmental Action Group; (2002) 7 SCC 46 Prakash Narain v.
Burmah Shell learned counsel for Amazon contends that unless an order is
set aside, the same is valid and cannot be indirectly challenged in collateral
proceedings. Thus the challenge of FRL to the EA order in the present suit
is not maintainable. Since the EA order is an interim measure under Section
17(1) of the A&C Act, it is deemed to be an order of the Court under Section
17(2) of the A&C Act and can be challenged only in the manner prescribed
by law and not otherwise. Contention of FRL that since the EA order is
without jurisdiction and a coram non judice, hence, not required to be
challenged as per the requirement of law and order in this respect thereto can
be passed by this Court in the present proceedings is misconceived.
Reliance is placed on the decision in (1997) 3 SCC 443 Tayabbhai M.
Bagasarwalla v. Hind Rubber.
5.11 It is further contended that the EA order has been passed in exercise
of jurisdiction by the Emergency Arbitrator under the SIAC Rules and there
is a distinction between existence of jurisdiction and any issue relating to
exercise of jurisdiction. Jurisdiction is defined as the authority to decide or
take cognisance of the matters presented in a formal way for decision.
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Reliance is placed on the decision in (1919) XXIV CWN 723 Hriday Nath
Roy v. Ramachandra Barna and (1962) 2 SCR 747 Hira Lal Patni v. Sri
Kali Nath. The Emergency Arbitrator derives the jurisdiction from the
arbitration agreement in the FCPL SHA which incorporates the SIAC Rules
and under Rule 30.2 of the SIAC Rules, parties are entitled to seek
emergency interim relief pursuant to the procedures set out in Schedule I.
The arbitration agreement in FCPL SHA having not been challenged in
these proceedings, the Emergency Arbitrator was thus clothed with the
authority to adjudicate the disputes between the parties. [see (2007) 8 SCC
559 Carona v. Parvathy Swaminathan]. In terms of Rule 7 and 12 of the
Schedule I to the SIAC Rules, the Emergency Arbitrator was thus
empowered to rule on his own jurisdiction as also provided under Section 16
of the A&C Act.
5.12 Referring to Gary Born, International Arbitration Agreements and
Competence-competence in Gary Born,International Commercial
Arbitration (2nd ed., 2014) and Redfern and Hunter, Agreement to Arbitrate
in Redfern and Hunter on International Arbitration , learned senior counsel
emphasises the applicability of the principle of competence-competence and
the supremacy of the arbitration agreement which empowers an arbitrator to
rule on its own jurisdiction. Reliance is also placed on the decisions
reported as (2016) 10 SCC 386 A. Ayyasamy v. A. Paramasivam, and (2014)
5 SCC 1 Enercon (India) Limited and Ors. V. Enercon GmBH. Therefore,
there is no basis to contend that Emergency Arbitrator lacks inherent
jurisdiction. Further from the relief sought it is evident that FRL‟s grievance
stems from the outcome of the proceeding before the Emergency Arbitrator
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and not from the proceeding itself and hence no collateral challenge to the
EA order can be maintained in these proceedings.
5.13 In response to the FRL‟s argument that it was not a party to the FCPL
SHA reliance is placed on the decisions in (2013) 1 SCC 641 Chloro
Controls India (P) Ltd. v. Severn Trent; (2018) 16 SCC 413 Cheran
Properties v. Kasturi; (2019) SCC Online SC 995 MTNL v. Canara Bank
and (2017) SCC Online Del 11625 GMR Energy v. Doosan Power to
contend that non-signatories can also be bound as parties to the arbitration
agreement.
5.14 Learned Senior counsel for Amazon contends that the agreements i.e.
FRL SHA, FCPL SHA and FCPL SSA were negotiated at the same time
amongst Amazon, FRL, FCPL and the Biyanis. The future group, including
FRL was represented by a common team of legal counsel. Further, FRL
SHA though executed on 12th August, 2019 became effective only on 19th
December, 2019 vide letter dated 19th December, 2019 issued by FCPL to
FRL, once FCPL communicated the list of restricted persons under the FRL
SHA. These facts were duly considered by the Emergency Arbitrator, who
held that besides these facts, the terms of the agreement established „cogent
commonality, intimate inter-connectivity and undeniable indivisibility of the
contractual agreements‟. In the present proceedings FRL has not seriously
questioned the application of theory of implied consent and the doctrine of
„group of companies‟ as applied by the Emergency Arbitrator.
5.15 Contention on behalf of FRL that reading of the FRL SHA and FCPL
SHA as one single transaction would give Amazon control over FRL is
incorrect, as the same proceeds on the fundamentally mistaken assumption
that FCPL, de-hors the Biyanis, acquired control of FRL under the FRL
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SHA. In the FCPL SHA, Biyanis excluding FCPL, have been defined as the
existing shareholder and thus FCPL is not part of Biyanis for the purpose of
FRL SHA. FCPL on a standalone basis does not have any positive control
over FRL under the FRL SHA, as it has only 9.82 % shareholding in FRL
and has no right to appoint any director on the Board of FRL. FCPL (and
hence Amazon) has only negative/protective rights, including protective
rights relating to the continued operation of FRL to the same business.
Relying upon the decision in Arcelor Mittal (supra) it is contended that
preventing a company from doing what the latter wants to, is by itself not
control. Therefore, the consequence of treating FCPL SHA and the FRL
SHA as a single integrated transaction can only mean that Amazon steps
into the shoes of FCPL and not the Biyanis. Further as FCPL has no control
over FRL, Amazon also cannot have any greater right than FCPL under the
FRL SHA.
5.16 Reliance of learned Senior counsel on behalf of FRL on Section 15.17
of the FCPL SHA is misconceived. Section 15.17 of the FCPL SHA has to
be read in the light of its caption i.e. „FRL Call Option and Associated
Matters‟. The provision is relevant only if and when the call option is
exercised pursuant to the FCPL SHA upon a change in law event, which is
not the case presently. Therefore, Amazon‟s rights under the FCPL SHA
and FRL SHA are only protective of its investment, rights and economic
interest in FCPL and FRL „being the direct beneficiary of the money
invested by Amazon‟ and such rights do not amount to control.
5.17 Refuting the contentions on behalf of FRL that Amazon‟s position
before the Emergency Arbitrator was inconsistent with its representation
before the CCI, it is stated that Amazon‟s position in the arbitration
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proceedings and before this Court are consistent with its notification to the
CCI dated 23rd September, 2019. Amazon notified the CCI that it had
invested into FCPL and a key basis for that investment was the continued
operation of FRL‟s retail business by FRL and the Biyanis. Before the CCI,
FRL also acknowledged and confirmed this understanding by executing the
FRL SHA. The integrated nature of the understanding amongst Amazon,
FCPL, the Biyanis and the FRL was thus set out clearly in the representation
to the CCI.
5.18 It is further contended that the FRL SHA, FCPL SHA and FCPL SSA
constituting a single, integrated transaction do not make the agreement
illegal being in violation of the Foreign Exchange laws. Amazon does not
control FRL. FRL forms a part of the future group of companies.
Defendant No.3 and 8 herein are the directors on the Board of FRL;
defendant No.3 being the Executive Chairman and defendant No.8 being the
Managing Director of FRL. Thus, they are the person who are entrusted
with substantial power of management of the affairs of the company, as
defined under Section 2(54) of the Companies Act, 2013. At the time of
entering into FRL SHA and FCPL SHA, defendant No.3 to 13 (excluding
FCPL) held 47.2% shares of FRL (which translate into 43.58% of FRL
shares on a fully diluted basis). Thus defendant No.3 to 13 collectively
(excluding FCPL) are the single largest shareholders of FRL with
fragmented public shareholding and are in de-facto control of FRL.
5.19 Further Amazon‟s investment in FCPL does not violate the Foreign
Exchange laws. As per the FEMA (FDI) Rules, foreign investment up to
51% under the government route is permitted with entities engaged in multi-
brand retail trading, subject to other attendant conditions prescribed in the
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FEMA FDI Rules. Further under paragraph 15.1, Schedule I to the FEMA
FDI Rules, foreign investment up to 100% is permitted under the automatic
route in FCPL, which is engaged in „cash and carry wholesale trading/
wholesale trading‟.
5.20 It is further contended that under Rule 23(1) of the FEMA FDI Rules,
an Indian entity will be considered to have received indirect foreign
investment only if the investment flows from an entity which is not Indian
owned and controlled. In the present case FRL received investment from
FCPL which is an Indian owned and controlled entity. Amazon neither
owns nor controls FCPL in terms of explanation to Rule 23 of the FEMA
FDI Rules which defines ownership. FCPL is owned by the Biyanis and not
Amazon. Further, explanation to Rule 23 of the FEMA FDI Rules defines
"control" to mean " the right to appoint majority of directors or to control
the management or policy decision". Amazon does not have right to appoint
majority directors of FCPL and the right granted to Amazon under the FCPL
SHA are merely protective rights that do not relate to the day-to-day
management and operation of FCPL or FRL. The illustration in the FDI
Policy, 2017 clearly establishes that there will be no indirect foreign
investment in a downstream entity if the upper-tier entity is owned and
controlled by resident Indian citizens. FCPL is an Indian owned and
controlled entity and any investment received by FRL from FCPL does not
trigger any of the sectoral conditions set out in the FEMA FDI Rules.
5.21 Reliance is placed on the decision in (2017) SCC Online Del 7810
Cruz City vs. Unitech Limited wherein this Court passed adverse
observations on the attempt of parties to wriggle out of contractual
obligations by citing alleged breaches of foreign exchange laws.
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5.22 It is also contended that in a case of tortious interference with
contract, a party must show that there was a lawful contract and the other
party had no lawful justification to interfere with such a contract. [see
(1990) SCC Online Cal 55 Balailal Mukherjee vs. Sea Traders].
5.23 Amazon having demonstrated before the Emergency Arbitrator and
before this Court that the transaction is in egregious breach of the FRL SHA
and FCPL SHA, no case for grant of interim injunction as prayed for is
made out. Consequently, the application be dismissed.
ISSUES
6.1 On the arguments addressed by the parties, following issues arise for
consideration before this Court:
I. Whether the present suit is prima facie maintainable?
II. Whether the Emergency Arbitrator lacks legal status under Part
I of the A&C Act and thus coram non judice?
III. Whether the Resolution dated 29th August, 2020 of FRL is
void or contrary to any statutory provision?
IV. Whether by conflation of the FRL SHA, FCPL SHA and FCPL
SSA, Amazon seeks to exercise 'Control' on FRL which is
forbidden under the FEMA FDI Rules?
V. Whether prima facie a case for tortious interference is made
out by FRL?
VI. Whether FRL is entitled to an interim injunction?
Whether the present suit is prima facie maintainable
7.1 Objections of Amazon to the maintainability of the present suit
confined to the issues raised in the present application are; firstly, that the
arbitration proceedings having already commenced on 5 th October, 2020, the
present suit is an abuse of the process of the Court and secondly, there can
be no collateral challenge to the EA order. It is also stated that all the issues
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urged before this Court having already been argued before the Emergency
Arbitrator, the present suit is not maintainable. Learned Senior Counsel for
Amazon relies upon the decisions reported as 2002 (7) SCC 46 Prakash
Narain vs. Burmah Shell, 2011 (3) SCC 363 Krishnadevi Malchand vs.
Bombay Environmental Action Group, and 2016 (9) SCC 44 Anita
International vs. Tungabadra Sugar Works.
7.2 According to Mr. Gopal Subramanium, learned Senior Counsel for
Amazon, the EA order has not been challenged before this Court on merits
and cannot be challenged in the present suit. Further validity of EA order
can only be challenged as per the procedure prescribed under the SIAC
Rules or Part-I of the A&C. It is stated that the plea of FRL seeking to
discard the EA order on the basis of a self styled judgment declaring it to be
a nullity in the present proceedings is impermissible, as a collateral
challenge cannot be manifested under the Indian law.
7.3 In response, pleas of FRL are that the EA order is not in challenge on
merits before this Court and only the legal status of the Emergency
Arbitrator and the consequential EA order on that ground alone is an issue
before this Court. Even if the present suit does not seek a declaration as to
the invalidity of the EA order on merits, this Court has jurisdiction to
entertain the plea of FRL challenging the legal status of the Emergency
Arbitrator and the same being invalid, the use of EA order by Amazon
before the Statutory Authorities and the Regulators is illegal.
7.4 Mr.Darius J. Khambata, learned Senior Counsel appearing on behalf
of FRL contends that since Amazon is using and relying upon the EA order,
FRL can maintain a challenge to the jurisdiction and validity of Emergency
Arbitrator in the present suit. In this regard he relies upon the decisions
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reported as 1990 (1) SCC 193 Sushil Kumar Mehta vs. Gobind Ram Bohra,
1991 (3) SCC 136 Ajudh Raj & Ors. vs. Moti and MANU/SC/0372/1966
Mohd.Murtiza Khan vs. State of M.P.
7.5 FRL claims that the acts of Amazon in interfering with the rights of
FRL (not a signatory to FCPL SHA) and to other third party i.e. Reliance,
with performance of their obligations under the "transaction" is illegal,
amounting to tortious interference in lawful acts of FRL and Reliance. The
three grounds urged by FRL to support its plea of tortious interference by
Amazon are; Firstly, that the EA order on the strength of which Amazon
seeks to obstruct the approval of the transaction before the Statutory
Authorities/Regulators is invalid as the Emergency Arbitrator is a coram
non judice; Secondly, Amazon is illegally claiming the Resolution dated
29th August, 2020 of FRL as void and contrary to the statutory provisions;
and Thirdly, by conflation of the FRL SHA, FCPL SHA and FCPL SSA,
Amazon seeks to exercise 'control' over FRL which is forbidden under the
FEMA FDI Rules.
7.6 Section 9 of the CPC provides as under:-
"9. Courts to try all civil suits unless barred-
The Courts shall (subject to the provisions herein contained)
have jurisdiction to try all suits of a civil nature excepting suits
of which their cognizance is neither expressly or impliedly
barred."
7.7 Supreme Court in 1995 Supp (4) SCC 286 Most Rev. P.M.A.
Metropolitan v. Moran Mar Marthoma, noting the basic principle of law that
every right has a remedy and every civil suit is cognizable unless it is barred,
held:
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"28. One of the basic principles of law is that every right has a
remedy. Ubi jus ibi remediem is the well-know maxim. Every
civil suit is cognizable unless it is barred, ―there is an inherent
right in every person to bring a suit of a civil nature and unless
the suit is barred by statute one may, at one's peril, bring a suit
of one's choice. It is no answer to a suit, howsoever frivolous
the claim, that the law confers no such right to sue‖
7.8 Reading of Section 9 of the Code of Civil Procedure (CPC) makes it
clear that only where the jurisdiction of the civil court is expressly or
impliedly barred, the civil court will have no jurisdiction. In the present case
FRL is asserting its rights to proceed with the transaction with Reliance and
is aggrieved by the acts of Amazon in interfering with the said transaction,
amounting to tortious interference. Therefore, the cause of action in the
present suit pleaded by FRL being the alleged tortious interference in its
future course of action in entering into the transaction with Reliance,
whereas the cause of action before the Emergency arbitrator being the
alleged breach of the FCPL SHA and FRL SHA as pleaded by Amazon
against FRL, the present suit is based on a distinct cause of action and thus
maintainable.
7.9 Plea of learned Senior counsel on behalf of Amazon that since all
these pleas were urged before the Emergency Arbitrator and thus cannot be
reagitated in this suit is also flawed for the reason, factual foundations being
same for different causes of action, overlap of factual and legal issues may
occur, however, the same will not impact the maintainability of the suit.
7.10 Further the present civil suit is also not barred due to the invocation of
Emergency Arbitration by the Amazon. Maintainability of the suit is
determined on the basis of cause of action. Cause of action for
determination before the Emergency Arbitrator was based on the claim of
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Amazon in respect of the breach of two agreements i.e. FCPL SHA and FRL
SHA and a relief consequential to the breach, however the cause of action in
the present suit by FRL is based on the alleged interference of Amazon in
the "transaction" which is essential for the survival of FRL and that the same
amounts to tortious interference entailing a relief of injunction. Further,
merely because Amazon impleaded FRL as a party in the Emergency
Arbitration based on the conflation of the FCPL SHA, FCPL SSA and FRL
SHA as also on the basis of the principle of 'group of companies' that does
not imply that FRL is barred from taking any civil action against Amazon
except through invoking Arbitration for the reason there is no arbitration
agreement between FRL and Amazon as such.
7.11 In the present suit, seeking the relief against tortious interference by
Amazon, one of the grounds urged by FRL is the invalidity of the
Emergency Arbitrator amounting to use of 'unlawful means' in its
representations to the authorities. Therefore, also FRL in these proceedings
is entitled to challenge the legal status of Emergency Arbitrator, to the extent
required for making out the ingredients of 'unlawful means'.
7.12 The issue in the present suit is not the violation of the EA order or
whether the EA order is binding on FRL or not, but whether this Court can
consider the legal status of the Emergency Arbitrator or that the same can be
decided only in proceedings as envisaged under Part-I of the A&C Act.
7.13 Supreme Court in the decision reported as AIR 1962 SC 199 Hira Lal
Patni vs. Sri Kali Nath held that the validity of a decree can be challenged in
execution proceedings on the ground that the Court which passed the decree
was lacking in inherent jurisdiction, in the sense that it could not have seisin
of the case, because the subject matter was wholly foreign to its jurisdiction
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or that the defendant was dead at the time the suit had been instituted or
decree passed, or some such other ground which could have the effect of
rendering the Court entirely lacking in jurisdiction, in respect of the subject
matter of the suit or over the parties to it. Therefore, in the case of inherent
lack of jurisdiction in a Court or an authority, the same can be challenged
even in collateral proceedings.
7.14 In a Full Bench Reference, the Calcutta High Court in XXIV The
Calcutta Weekly Notes 723 Hriday Nath Roy & Ors. vs. Ram Chandra
Barna Sarma & Ors., noting the distinction between existence of
jurisdiction and exercise of jurisdiction held that the authority to decide a
cause at all and not the decision rendered therein is what makes up
jurisdiction; and when there is jurisdiction of the person and subject matter,
the decision of all other questions arising in the case is but an exercise of
that jurisdiction.
7.15 Supreme Court in Sushil Kumar Mehta (supra) held that normally a
decree passed by a Court of competent jurisdiction, after adjudication on
merits of the rights of the parties, operates as res-judicata in a subsequent
suit or proceedings and binds the parties or the persons claiming through
them and its validity should be assailed only in an appeal or revision as the
case may be. It was further held that however, a decree which is passed by a
Court without jurisdiction over the subject matter or on other grounds which
go to the root of its exercise of jurisdiction/lacks inherent jurisdiction is a
coram non judice. A decree passed by such a Court is a nullity and is non-
est. Its invalidity can be set up whenever it is sought to be enforced or is
acted upon as a foundation for a right, even at the stage of execution or in
collateral proceedings.
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7.16 In Krishna Devi Malchand (supra) relied upon by learned counsel for
Amazon, Supreme Court noted the settled legal position that even if an order
is void, it requires to be so declared by a competent forum and it is not
permissible for any person to ignore the same merely because in his opinion
the order is void. Supreme Court in the said decision was not dealing with
the issue of the competence of a Court to decide the inherent lack of
jurisdiction of the forum which passed the order, in a collateral proceedings.
Thus the said decision has no application to the facts of the present case.
7.17 Challenge of FRL to the EA order is not on merits and no declaration
for the EA order being invalid or illegal on merits is sought from this Court.
Case of the FRL is that since Amazon is trying to enforce and act upon the
EA order before the Statutory Authority/Regulators and as the Emergency
Arbitrator is a coram non-judice, this Court can go into the validity of the
same to the extent asserted in the present suit. In the present suit, the cause
of action pleaded by FRL is the tortuous interference by Amazon in its
lawful transaction and to determine the ingredients of the said cause of
action, i.e. whether use of 'unlawful means' is being resorted by Amazon,
this Court is required to return a finding.
7.18 In view of the discussion aforesaid, this Court is of the considered
opinion that prima facie the present suit cannot be held to be not
maintainable on the two grounds urged by Amazon, that is, that the EA
order cannot be challenged in the present proceedings and secondly, that the
grounds urged by FRL before this Court have already been urged and
considered by the Emergency Arbitrator.
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Validity of Emergency Arbitration
8.1 Claim of FRL in the present suit is that the EA order is wholly
without jurisdiction and a nullity as the Emergency Arbitrator lacked legal
status under Part I of the A&C Act and the parties even by consent could not
have conferred jurisdiction on the Emergency Arbitrator being a coram non
judice.
8.2 It is made clear at the outset that this Court is examining only the
issue of the legal status of an Emergency Arbitrator, i.e. whether the same
was permissible in terms of the FCPL SHA and Part I of Act and not in
conflict thereto. This Court is not going into the legality on merits of the EA
order because the same is not under challenge before this Court.
8.3 Relevant clause providing for arbitration in the FCPL SHA under
which Amazon has invoked arbitration is Clause-25 which reads as under:
25. GOVERNING LAW AND DISPUTE RESOLUTION
25.1. Governing Law:
This Agreement shall be governed by and construed in
accordance with Laws of India. Subject to the provisions
of Section 25.2 (Dispute Resolution), the courts at New
Delhi, India shall have exclusive jurisdiction over any
matters or Dispute (hereinafter defined) relating or
arising out of this Agreement.
25.2. Dispute Resolution
25.2.1. Arbitration.
Any dispute, controversy, claim or disagreement of any
kind whatsoever between or among the Parties in
connection with or arising out of this Agreement or the
breach, termination or invalidity thereof (hereinafter
referred to as a ―Dispute‖), failing amicable resolution
through negotiations, shall be referred to and finally
resolved by arbitration irrespective of the amount in
Dispute or whether such Dispute would otherwise be
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considered justifiable or ripe for resolution by any court.
The Parties agree that they shall attempt to resolve
through good faith consultation, any such Dispute
between any of the Parties and such consultation shall
begin promptly after a Party has delivered to another
Party a written request for such consultation. In the event
the Dispute is not resolved by means of negotiations
within a period of 30 (thirty) days or such different
period mutually agreed between the parties, such Dispute
shall be referred to and finally resolved by arbitration in
accordance with the arbitration rules of the Singapore
International Arbitration Centre (―SIAC‖), and such
rules (the ―Rules‖) as may be modified by the provisions
of this Section 25 (Governing Law and Dispute
Resolution). This Agreement and the rights and
obligations of the parties shall remain in full force and
effect pending the award in such arbitration proceeding,
which award, if appropriate, shall determine whether
and when any termination shall become effective.
25.2.2.Seat and Venue of Arbitration.
The seat and venue of the arbitration shall be at New
Delhi unless otherwise agreed between the Parties to the
Dispute and the arbitration shall be conducted under and
in accordance with this Section 25 (Governing Law and
Dispute Resolution). This choice of jurisdiction and
venue shall not prevent either Party from seeking
injunctive reliefs in any appropriate jurisdiction.‖
(Emphasis supplied)
8.4 As noted above, FCPL and Amazon agreed that the agreement shall
be governed by and construed in accordance with the laws of India and
subject to provisions of Clause 25.2, the Courts at New Delhi, India shall
have exclusive jurisdiction over any matters or disputes relating to or arising
out of the agreement. Further, any dispute, controversy or claim between the
parties arising out of the agreement or the breach, termination or invalidity
thereof, failing amicable resolution through negotiations, was to be resolved
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through arbitration. The parties further mutually agreed that the said dispute
shall be referred and finally resolved by arbitration in accordance with the
Arbitration Rules of SIAC and such Rules as may be modified by the
provisions of Clause 25. It is thus agreed between the parties that though the
law of contract and the law of arbitration agreement was Indian law with
exclusive jurisdiction of Courts at New Delhi, however, the arbitration
would be conducted and governed by the Rules of SIAC and such Rules as
may be modified by the provisions of Clause 25 of the SHA. Therefore, the
arbitration between FCPL and Amazon is an International Commercial
Arbitration seated in New Delhi, India and governed by Part I of the A&C
Act, however, conducted in accordance with SIAC Rules.
8.5 Contention on behalf of FRL is that since an Emergency Arbitrator is
outside the scope of Part I of the A&C Act which provides for a remedy for
seeking interim relief, prior to the constitution of the arbitral tribunal, before
a Court under Section 9 of the A&C Act, the EA order is without
jurisdiction and invalid. However, contention on behalf of Amazon is that
since parties under the FCPL SHA, voluntarily choose the Arbitration Rules
of SIAC as the governing law of dispute resolution and the SIAC Rules
provide for appointment of an Emergency Arbitrator and seeking interim
relief thereunder, there is no want of jurisdiction in the Emergency
Arbitrator, thus this plea of FRL is fundamentally flawed.
8.6 The provisions of the A&C Act which have been adverted to by the
parties and relevant to the present case i.e. Sections 2(1)(d), 2(2), 2(6), 2(8),
9(1)(ii), 9(2) & (3), 17(1) (ii) and 17(2) read as under:
―2. Definitions. (1) In this Part, unless the context otherwise
requires,-
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(a) xx xx xx
(b) xx xx xx
(d) ―arbitral tribunal‖ means a sole arbitrator or a panel of
arbitrators;
(2) This Part shall apply where the place of arbitration is in
India:
[Provided that subject to an agreement to the contrary, the
provisions of sections 9, 27 and clause (a) of sub-section (1)
and sub-section (3) of section 37 shall also apply to
international commercial arbitration, even if the place of
arbitration is outside India, and an arbitral award made or to
be made in such place is enforceable and recognised under the
provisions of Part II of this Act.]
xxx xxx xxx
(6) Where this Part, except section 28, leaves the parties free
to determine a certain issue, that freedom shall include the
right of the parties to authorise any person including an
institution, to determine that issue.
xxx xxx xxx
(8) Where this Part--
(a) refers to the fact that the parties have
agreed or that they may agree, or
(b) in any other way refers to an agreement of the
parties,
that agreement shall include any arbitration rules referred to in
that agreement.‖
(9) Interim measures, etc., by Court.--[(1)]A party may,
before or during arbitral proceedings or at any time after the
making of the arbitral award but before it is enforced in
accordance with section 36, apply to a court--
(i) xxx xxx xxx
(ii) for an interim measure of protection in respect of
any of the following matters, namely:--
(a) the preservation, interim custody or sale of any
goods which are the subject-matter of the arbitration
agreement;
(b) securing the amount in dispute in the
arbitration;
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(c) the detention, preservation or inspection of any
property or thing which is the subject matter of the
dispute in arbitration, or as to which any question may
arise therein and authorizing for any of the aforesaid
purposes any person to enter upon any land or building
in the possession of any party, or authorising any
samples to be taken or any observation to be made, or
experiment to be tried, which may be necessary or
expedient for the purpose of obtaining full information or
evidence;
(d) interim injunction or the appointment of a
receiver;
(e) such other interim measure of protection as
may appear to the Court to be just and convenient,
and the Court shall have the same power for making
orders as it has for the purpose of, and in relation to, any
proceedings before it.
(2) Where, before the commencement of the arbitral
proceedings, a Court passes an order for any interim measure
of protection under sub-section (1), the arbitral proceedings
shall be commenced within a period of ninety days from the
date of such order or within such further time as the Court may
determine.
(3) Once the arbitral tribunal has been constituted, the Court
shall not entertain an application under sub-section (1), unless
the Court finds that circumstances exist which may not render
the remedy provided under section 17 efficacious.
xxx xxx xxx
(17) Interim measures ordered by arbitral tribunal.--(1) A
party may, during the arbitral proceedings 2***, apply to the
arbitral tribunal--
(i) xxx xxx xxx
(ii) for an interim measure of protection in respect of
any of the following matters, namely:--
(a) the preservation, interim custody or sale of any
goods which are the subject-matter of the arbitration
agreement;
(b) securing the amount in dispute in the arbitration;
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(c) the detention, preservation or inspection of any
property or thing which is the subject matter of the
dispute in arbitration, or as to which any question may
arise therein and authorizing for any of the aforesaid
purposes any person to enter upon any land or building in
the possession of any party, or authorising any samples to
be taken, or any observation to be made, or experiment to
be tried, which may be necessary or expedient for the
purpose of obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may
appear to the arbitral tribunal to be just and convenient,
and the arbitral tribunal shall have the same power for
making orders, as the court has for the purpose of, and
in relation to, any proceedings before it.
(2) Subject to any orders passed in an appeal under section 37,
any order issued by the arbitral tribunal under this section
shall be deemed to be an order of the Court for all purposes
and shall be enforceable under the Code of Civil
Procedure,1908 (5 of 1908), in the same manner as if it were
an order of the Court.
8.7 Relevant provisions of SIAC Rules and the Schedule thereunder,
including providing for Emergency Arbitration are as under:
1. Scope of Application and Interpretation
1.1 Where the parties have agreed to refer their disputes to
SIAC for arbitration or to arbitration in accordance with
the SIAC Rules, the parties shall be deemed to have
agreed that the arbitration shall be conducted pursuant
to and administered by SIAC in accordance with these
Rules.
1.2. xxx xxx xxx
1.3 In these Rules:
―Award‖ includes a partial, interim or final award and
an award of an Emergency Arbitrator;
―Emergency Arbitrator‖ means an arbitrator appointed
in accordance with paragraph 3 of Schedule 1;
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―Rules‖ means the Arbitration Rules of the Singapore
International Arbitration Centre (6th Edition, 1 August
2016);
―SIAC‖ means the Singapore International Arbitration
Centre; and
―Tribunal‖ includes a sole arbitrator or all the
arbitrators where more than one arbitrator is appointed.
xxx xxx xxx
30. Interim and Emergency Interim Relief
30.1 The Tribunal may, at the request of a party, issue an
order or an Award granting an injunction or any other
interim relief it deems appropriate. The Tribunal may
order the party requesting interim relief to provide
appropriate security in connection with the relief sought.
30.2 A party that wishes to seek emergency interim relief prior
to the constitution of the Tribunal may apply for such
relief pursuant to the procedures set forth in Schedule 1.
30.3 A request for interim relief made by a party to a judicial
authority prior to the constitution of the Tribunal, or in
exceptional circumstances thereafter, is not incompatible
with these Rules.
xxx xxx xxx
SCHEDULE
Emergency Arbitrator
1. A party that wishes to seek emergency interim relief may,
concurrent with or following the filing of a Notice of
Arbitration but prior to the constitution of the Tribunal,
file an application for emergency interim relief with the
Registrar. The party shall, at the same time as it files the
application for emergency interim relief, send a copy of
the application to all other parties. The application for
emergency interim relief shall include:
a. the nature of the relief sought;
b. the reasons why the party is entitled to such relief;
and
c. a statement certifying that all other parties have
been provided with a copy of the application or, if
not, an explanation of the steps taken in good faith
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to provide a copy or notification to all other
parties.
xxx xxx xxx
6. An Emergency Arbitrator may not act as an arbitrator in
any future arbitration relating to the dispute, unless
otherwise agreed by the parties.
7. xxx xxx xxx
8. The Emergency Arbitrator shall have the power to order
or award any interim relief that he deems necessary,
including preliminary orders that may be made pending
any hearing, telephone or videoconference or written
submissions by the parties. The Emergency Arbitrator
shall give summary reasons for his decision in writing.
The Emergency Arbitrator may modify or vacate the
preliminary order, the interim order or Award for good
cause.
xxx xxx xxx
11. Any interim order or Award by the Emergency Arbitrator
maybe conditioned on provision by the party seeking
such relief of appropriate security.
12. The parties agree that an order or Award by an Emergency
Arbitrator pursuant to this Schedule 1 shall be binding on the
parties from the date it is made, and undertake to carry out the
interim order or Award immediately and without delay. The
parties also irrevocably waive their rights to any form of
appeal, review or recourse to any State court or other judicial
authority with respect to such Award insofar as such waiver
may be validly made.
8.8 The Courts of India have for long recognized the legal position that in
an International Commercial Arbitration, there are three sets of law that may
apply, i.e. proper law of the contract; proper law of the arbitration
agreement/lex arbitri; and proper law of the conduct of arbitration/lex
fori/curial law.
8.9 Supreme Court in the decision reported as 1992 (3) SCC 551 National
Thermal Power Corporation vs. Singer Company &Ors. dealt with the
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consequences of parties having chosen a different governing law and
procedural law in an International Commercial Arbitration, though under the
Arbitration Act of 1940 and held:-
26. Whereas, as stated above, the proper law of arbitration
(i.e., the substantive law governing arbitration) determines the
validity, effect and interpretation of the arbitration agreement,
the arbitration proceedings are conducted, in the absence of
any agreement to the contrary, in accordance with the law of
the country in which the arbitration is held. On the other hand,
if the parties have specifically chosen the law governing the
conduct and procedure of arbitration, the arbitration
proceedings will be conducted in accordance with that law so
long as it is not contrary to the public policy or the mandatory
requirements of the law of the country in which the arbitration
is held. If no such choice has been made by the parties,
expressly or by necessary implication, the procedural aspect of
the conduct of arbitration (as distinguished from the
substantive agreement to arbitrate) will be determined by the
law of the place or seat of arbitration. Where, however, the
parties have, as in the instant case, stipulated that the
arbitration between them will be conducted in accordance with
the ICC Rules, those rules, being in many respects self-
contained or self-regulating and constituting a contractual code
of procedure, will govern the conduct of the arbitration, except
insofar as they conflict with the mandatory requirements of the
proper law of arbitration, or of the procedural law of the seat
of arbitration. [See the observation of Kerr, LJ. in Bank
Mellat v. HellinikiTechniki SA [(1983) 3 All ER 428 (CA)]. See
also Craig, Park and Paulsson, International Chamber of
Commerce Arbitration, 2nd edn. (1990).] To such an extent the
appropriate courts of the seat of arbitration, which in the
present case are the competent English courts, will have
jurisdiction in respect of procedural matters concerning the
conduct of arbitration. But the overriding principle is that the
courts of the country whose substantive laws govern the
arbitration agreement are the competent courts in respect of all
matters arising under the arbitration agreement, and the
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jurisdiction exercised by the courts of the seat of arbitration is
merely concurrent and not exclusive and strictly limited to
matters of procedure. All other matters in respect of the
arbitration agreement fall within the exclusive competence of
the courts of the country whose laws govern the arbitration
agreement. [See Mustil& Boyd, Commercial Arbitration, 2nd
edn.; Allen Redfern and Martin Hunter, Law & Practice of
International Commercial Arbitration, 1986; Russel on
Arbitration, 20th edn. (1982); Cheshire & North's Private
International Law, 11th edn. (1987).]
27. The proper law of the contract in the present
case being expressly stipulated to be the laws in force in
India and the exclusive jurisdiction of the courts in
Delhi in all matters arising under the contract having
been specifically accepted, and the parties not having
chosen expressly or by implication a law different from
the Indian law in regard to the agreement contained in
the arbitration clause, the proper law governing the
arbitration agreement is indeed the law in force in
India, and the competent courts of this country must
necessarily have jurisdiction over all matters
concerning arbitration. Neither the rules of procedure
for the conduct of arbitration contractually chosen by
the parties (the ICC Rules) nor the mandatory
requirements of the procedure followed in the courts of
the country in which the arbitration is held can in any
manner supersede the overriding jurisdiction and
control of the Indian law and the Indian courts.
28. This means, questions such as the jurisdiction
of the arbitrator to decide a particular issue or the
continuance of an arbitration or the frustration of the
arbitration agreement, its validity, effect and
interpretation are determined exclusively by the proper
law of the arbitration agreement, which, in the present
case, is Indian law. The procedural powers and duties
of the arbitrators, as for example, whether they must
hear oral evidence, whether the evidence of one party
should be recorded necessarily in the presence of the
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other party, whether there is a right of cross-
examination of witnesses, the special requirements of
notice, the remedies available to a party in respect of
security for costs or for discovery etc. are matters
regulated in accordance with the rules chosen by the
parties to the extent that those rules are applicable and
sufficient and are not repugnant to the requirements of
the procedural law and practice of the seat of
arbitration. The concept of party autonomy in
international contracts is respected by all systems of
law so far as it is not incompatible with the proper law
of the contract or the mandatory procedural rules of the
place where the arbitration is agreed to be conducted
or any overriding public policy.
48. It is true that the procedural law of the place of
arbitration and the courts of that place cannot be
altogether excluded, particularly in respect of matters
affecting public policy and other mandatory
requirements of the legal system of that place. But in a
proceeding such as the present which is intended to be
controlled by a set of contractual rules which are self-
sufficient and designed to cover every step of the
proceeding, the need to have recourse to the municipal
system of law and the courts of the place of arbitration
is reduced to the minimum and the courts of that place
are unlikely to interfere with the arbitral proceedings
except in cases which shock the judicial conscience.
(See the observations of Kerr, LJ. in Bank
Mellat v. HellinikiTechniki SA [(1983) 3 All ER 428
(CA)].)
49. Courts would give effect to the choice of a
procedural law other than the proper law of the
contract only where the parties had agreed that matters
of procedure should be governed by a different system
of law. If the parties had agreed that the proper law of
the contract should be the law in force in India, but had
also provided for arbitration in a foreign country, the
laws of India would undoubtedly govern the validity,
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interpretation and effect of all clauses including the
arbitration clause in the contract as well as the scope of
the arbitrators' jurisdiction. It is Indian law which
governs the contract, including the arbitration clause,
although in certain respects regarding the conduct of
the arbitration proceedings the foreign procedural law
and the competent courts of that country may have a
certain measure of control. (See the principle stated by
Lord Denning, M.R. in International Tank and Pipe
SAK v. Kuwait Aviation Fuelling Co. KSC [(1975) 1 All
ER 242 (CA)].)
51. In sum, it may be stated that the law expressly
chosen by the parties in respect of all matters arising
under their contract, which must necessarily include the
agreement contained in the arbitration clause, being
Indian law and the exclusive jurisdiction of the courts
in Delhi having been expressly recognised by the
parties to the contract in all matters arising under it,
and the contract being most intimately associated with
India, the proper law of arbitration and the competent
courts are both exclusively Indian, while matters of
procedure connected with the conduct of arbitration
are left to be regulated by the contractually chosen
rules of the ICC to the extent that such rules are not in
conflict with the public policy and the mandatory
requirements of the proper law and of the law of the
place of arbitration. The Foreign Awards Act, 1961 has
no application to the award in question which has been
made on an arbitration agreement governed by the law
of India. (emphasis supplied)
8.10 Thus the finding of the Supreme Court in NTPC vs. Singer (supra) is
that in case the parties have not chosen the procedural law, the procedure for
conduct of arbitration will be determined by the law of the seat of
arbitration. However, if the parties have expressly chosen the Rules or the
procedure to be applicable on the conduct of the arbitration, the said Rules
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will apply so long as the same are not in conflict to the public policy or the
mandatory requirements of the law of the country in which the arbitration is
seated. Therefore, as per the decision of the Supreme Court in NTPC vs.
Singer (supra) the SIAC Rules will apply to the arbitration conducted in
terms of Clause 25 of the FCPL SHA, to the extent they are not contrary to:
(i) public policy of India; and/or (ii) mandatory requirements of the law
under the A&C Act.
8.11 In the decision reported as 1998 (1) SCC 305 Sumitomo Heavy
Industries Ltd. vs. ONGC Ltd. &Ors., Supreme Court defined the area of
operation of curial law relying upon various foreign decisions and
commentaries concluding that (i) in the absence of an expressed agreement
regarding the choice of curial law, the curial law would be the same as the
law of the place of arbitration on the ground, that is the country most closely
connected with the proceedings; (ii) it is open for the parties to chose a
curial law which is different from the law governing the arbitration
agreement; and (iii) when the law governing the arbitration agreement and
the curial law are different, the Court will first look at the arbitration
agreement to see if the dispute is arbitrable, then to the curial law to seek
how the reference should be conducted and then return to the first law in
order to give effect to the resulting award. The relevant extract of the report
is set out hereunder:-
10. In the Law and Practice of Commercial Arbitration in
England, 2nd Edn. by Mustill and Boyd, there is a chapter on
―The Applicable Law and the Jurisdiction of the Court‖. Under
the sub-title ―Laws Governing the Arbitration‖, it is said,
―An agreed reference to arbitration involves two groups of
obligations. The first concerns the mutual obligations of the
parties to submit future disputes, or an existing dispute to
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arbitration, and to abide by the award of a tribunal constituted
in accordance with the agreement. It is now firmly established
that the arbitration agreement which creates these obligations
is a separate contract, distinct from the substantive agreement
in which it is usually embedded, capable of surviving the
termination of the substantive agreement and susceptible of
premature termination by express or implied consent, or by
repudiation or frustration, in much the same manner as in more
ordinary forms of contract. Since this agreement has a distinct
life of its own, it may in principle be governed by a proper law
of its own, which need not be the same as the law governing the
substantive contract.
The second group of obligations, consisting of what is generally
referred to as the ‗curial law' of the arbitration, concerns the
manner in which the parties and the arbitrator are required to
conduct the reference of a particular dispute. According to the
English theory of arbitration, these rules are to be ascertained
by reference to the express or implied terms of the agreement to
arbitrate. This being so, it will be found in the great majority of
cases that the curial law, i.e., the law governing the conduct of
the reference, is the same as the law governing the obligation to
arbitrate. It is, however, open to the parties to submit, expressly
or by implication, the conduct of the reference to a different law
from the one governing the underlying arbitration
agreement. In such a case, the court looks first at the
arbitration agreement to see whether the dispute is one which
should be arbitrated, and which has validly been made the
subject of the reference, it then looks to the curial law to see
how that reference should be conducted and then returns to the
first law in order to give effect to the resulting award.
***
It may therefore be seen that problems arising out of an
arbitration may, at least in theory, call for the application of
any one or more of the following laws--
1. The proper law of the contract, i.e., the law governing the
contract which creates the substantive rights of the parties, in
respect of which the dispute has arisen.
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2. The proper law of the arbitration agreement, i.e., the law
governing the obligation of the parties to submit the disputes to
arbitration, and to honour an award.
3. The curial law, i.e., the law governing the conduct of the
individual reference.
***
1. The proper law of the arbitration agreement governs the
validity of the arbitration agreement, the question whether a
dispute lies within the scope of the arbitration agreement; the
validity of the notice of arbitration; the constitution of the
tribunal; the question whether an award lies within the
jurisdiction of the arbitrator; the formal validity of the award;
the question whether the parties have been discharged from any
obligation to arbitrate future disputes.
2. The curial law governs the manner in which the reference is
to be conducted; the procedural powers and duties of the
arbitrator; questions of evidence; the determination of the
proper law of the contract.
3. The proper law of the reference governs the question whether
the parties have been discharged from their obligation to
continue with the reference of the individual dispute.
***
In the absence of express agreement, there is a strong prima
facie presumption that the parties intend the curial law to be
the law of the ‗seat' of the arbitration, i.e., the place at which
the arbitration is to be conducted, on the ground that that is the
country most closely connected with the proceedings. So in
order to determine the curial law in the absence of an express
choice by the parties it is first necessary to determine the seat
of the arbitration, by construing the agreement to arbitrate.‖
15. We think that our conclusion that the curial law does not
apply to the filing of an award in court must, accordingly, hold
good. We find support for the conclusion in the extracts from
Mustill and Boyd which we have quoted earlier. Where the law
governing the conduct of the reference is different from the law
governing the underlying arbitration agreement, the court looks
to the arbitration agreement to see if the dispute is arbitrable,
then to the curial law to see how the reference should be
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conducted, ―and then returns to the first law in order to give
effect to the resulting award‖. (Emphasis supplied)
8.12 In the light of the law settled by the Supreme Court in Singer v. NTPC
(supra) and Sumitomo (supra), while it is perfectly legal for the parties to
choose a different procedural law, the issue which is required to be
considered is whether the provisions of Emergency Arbitration of such
procedural law (in this case the SIAC rules), are in any manner contrary
to/repugnant with the public policy of India, or with the mandatory
requirements of the procedural law under the Arbitration and Conciliation
Act, 1996 (A&C Act).
8.13 It is now well settled that party autonomy is the backbone of
arbitration. The courts in India have given due importance to the concept of
party autonomy, and have further given full effect to the choice of the
parties with respect to all three laws involved in an arbitration agreement,
subject to the public policy of India and the mandatory provisions of the
A&C Act. Supreme Court in (2017) 2 SCC 228 Centrotrade Minerals &
Metal Inc. v. Hindustan Copper Ltd reiterated the importance of party
autonomy as under:-
"38. Party autonomy is virtually the backbone of arbitrations.
This Court has expressed this view in quite a few decisions. In
two significant passages in Bharat Aluminium Co. v. Kaiser
Aluminium Technical Services Inc. [Bharat Aluminium
Co. v. Kaiser Aluminium Technical Services Inc., (2016) 4 SCC
126 : (2016) 2 SCC (Civ) 580, Hon'ble Judges/Coram: Anil R.
Dave, Kurian Joseph and Amitava Roy, JJ.] this Court dealt
with party autonomy from the point of view of the contracting
parties and its importance in commercial contracts. In para 5
of the Report, it was observed: (SCC p. 130)
―5. Party autonomy being the brooding and guiding
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spirit in arbitration, the parties are free to agree on
application of three different laws governing their entire
contract-- (1) proper law of contract, (2) proper law of
arbitration agreement, and (3) proper law of the
conduct of arbitration, which is popularly and in legal
parlance known as ―curial law‖. The interplay and
application of these different laws to an arbitration has
been succinctly explained by this Court in Sumitomo
Heavy Industries Ltd. v. ONGC Ltd., [Sumitomo Heavy
Industries Ltd. v. ONGC Ltd., (1998) 1 SCC 305] which
is one of the earliest decisions in that direction and
which has been consistently followed in all the
subsequent decisions including the recent Reliance
Industries Ltd. v. Union of India [Reliance Industries
Ltd. v. Union of India, (2014) 7 SCC 603 : (2014) 3 SCC
(Civ) 737] .‖ (Emphasis supplied)
8.14 In Centrotrade (supra), a three judge bench of the Supreme Court was
called upon to test the legality of a double-tier arbitration agreement. The
parties had agreed that if either of them is dissatisfied with the domestic
award rendered in India, they would have the right to appeal in a second
arbitration seated in London. The Supreme Court upheld the validity of the
double-tier arbitration agreement between the parties. Dealing with the issue
of public policy of India, Supreme Court held that there is nothing in the
A&C Act that prohibits the contracting parties from agreeing upon a second
instance or the appellate arbitration-either explicitly or implicitly. No such
prohibition or mandate can be read into the A&C Act except by an
unreasonable and awkward misconstruction and by straining its language to
a vanishing point. The Court further noted that despite granting finality to
the domestic award as per the A&C Act, the parties deliberately and
consciously chose to agree upon an appellate arbitration, and that one party
cannot wriggle out of solemn commitment made by it voluntarily. The
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relevant observations of the Supreme Court in addition to the
aforementioned extract, are set out hereunder:-
46.For the present we are concerned only with the fundamental
or public policy of India. Even assuming the broad delineation
of the fundamental policy of India as stated in Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015)
2 SCC (Civ) 204] we do not find anything fundamentally
objectionable in the parties preferring and accepting the two-
tier arbitration system. The parties to the contract have not by-
passed any mandatory provision of the A&C Act and were
aware, or at least ought to have been aware that they could
have agreed upon the finality of an award given by the
arbitration panel of the Indian Council of Arbitration in
accordance with the Rules of Arbitration of the Indian Council
of Arbitration. Yet they voluntarily and deliberately chose to
agree upon a second or appellate arbitration in London, UK in
accordance with the Rules of Conciliation and Arbitration of
the International Chamber of Commerce. There is nothing in
the A&C Act that prohibits the contracting parties from
agreeing upon a second instance or appellate arbitration --
either explicitly or implicitly. No such prohibition or mandate
can be read into the A&C Act except by an unreasonable and
awkward misconstruction and by straining its language to a
vanishing point. We are not concerned with the reason why the
parties (including HCL) agreed to a second instance
arbitration -- the fact is that they did and are bound by the
agreement entered into by them. HCL cannot wriggle out of a
solemn commitment made by it voluntarily, deliberately and
with eyes wide open." (Emphasis supplied)
8.15 In the present case, the parties have expressly chosen the SIAC Rules
as the curial law governing the conduct of arbitration proceedings. The said
Rules are self sufficient to govern the proceedings under arbitration at every
stage. The Courts in such cases would uphold the express choice of the
parties subject to the public policy of India and the mandatory provisions of
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the A&C Act. As observed by the Supreme Court in NTPC v. Singer
(Supra), it would be unlikely for the Courts to interfere with such arbitral
proceedings except in cases which shock the judicial conscience.
8.16 Rule 30 of the SIAC Rules deals with Interim and Emergency Relief.
Rule 30.3 in clear terms provides that the parties to the arbitration are also
entitled to apply to a judicial authority for grant of interim relief, and that
such request made to a judicial authority for grant of interim relief shall not
be incompatible with the SIAC Rules. Therefore, the SIAC rules themselves
recognize and uphold the right of a party to avail interim relief under Section
9 of the A&C Act. The SIAC rules however provide an option to the
aggrieved party to either approach the emergency arbitrator for interim
relief, or to approach a judicial authority for the same, prior to the
constitution of the Tribunal. In such circumstances, this Court finds that the
SIAC Rules do not take away the substantive right of the parties to approach
the Courts in India for interim relief.
8.17 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.
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8.19 The Indian law of arbitration allows the parties to choose a procedural
law different from the proper law, and this Court finds that there is nothing
in the A&C Act that prohibits the contracting parties from obtaining
emergency relief from an emergency arbitrator. An arbitrator‟s authority to
act is implied from the agreement to arbitrate itself, and the same cannot be
restricted to mean that the parties agreed to arbitrate before an arbitral
tribunal only and not an Emergency Arbitrator. Further the parties having
deliberately left it open to themselves to seek interim relief from an
emergency arbitrator, or the Court in terms of Rule 30.3 of SIAC Rules, the
authority of the said emergency arbitrator cannot be invalidated merely
because it does not strictly fall within the definition under Section 2(1)(d) of
the A&C Act.
8.20 Mr. Harish Salve, learned Senior Counsel on behalf of FRL contended
that under Section 2(d) of the A&C Act, the term 'arbitral tribunal' cannot
deem to include an Emergency Arbitrator for the reason the same was
recommended by the Law Commission in its 246th Report, however, the
said recommendation was not accepted by the Parliament and no
amendment was brought to Section 2(1)(d) of the A&C Act. It is thus
contended that what was expressly rejected by the Parliament cannot be
deemed to be included in the definition of 'arbitral tribunal' under Section
2(1)(d) of the A&C Act. On the contrary, Mr.Gopal Subramanium
contended that the Parliament in its wisdom did not accept the
recommendation of the Law Commission to provide for an Emergency
Arbitrator in the amendment to the A&C Act, does not mean that the
Emergency Arbitrator was excluded in the A&C Act, and that the
recommendation of the Law Commission has no bearing on the
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interpretation of a provision in the A&C Act.
8.21 In the decision reported as 2020 SCC OnLine 656 Avitel Post Studioz
Ltd. & ors. vs. HSBC PI Holdings (Mauritius) Ltd., Supreme Court dealing
with the contention that an amendment to Section 16 proposed by the 246th
Law Commission Report in the light of the Supreme Court decision i.e.
2010 (1) SCC 72 N. Radhakrishnan vs. Maestro Engineers which appears to
denude an Arbitral Tribunal of the power to decide on issues of fraud etc.
claimed that the decision in N. Radhakrishnan (supra) having not been
legislatively overruled, cannot now be said to be in any way deprived of its
precedential value, as the Parliament has taken note of the proposed Section
16 (7) in the 246th Law Commission Report, and has expressly chosen not to
enact it. Supreme Court held that the development of law by the Supreme
Court cannot be thwarted merely because a certain provision recommended
in a Law Commission Report is not enacted by the Parliament. It noted that
the Parliament may have felt, that it was unable to make up its mind and
instead, leave it to the Courts to continue, case by case, deciding upon what
should constitute the fraud exception. Parliament may also have thought
that Section 16(7), proposed by the Law Commission, is clumsily worded as
it speaks of "a serious question of law, complicated questions of fact, or
allegations of fraud, corruption, etc." The judgment of the Supreme did not
lay down that serious questions of law or corruption etc. is vague and,
therefore, Parliament may have left it to the Courts to work out the fraud
exception.
8.22 In view of the decision of Supreme Court in Avitel Post (supra), it
cannot be held that an Emergency Arbitrator is outside the scope of Section
2(1)(d) of the A&C Act, because the Parliament did not accept the
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recommendation of the Law Commission to amend Section 2(1)(d) of the
A& C Act to include an ' Emergency Arbitrator'.
8.23 FRL has also relied upon Section 2(6) of the A&C Act to contend that
the said provision grants freedom to the parties to authorise any person
including an institution to determine a certain issue, only when Part 1 of the
A&C Act allows the parties to do so. It was submitted that since Part 1 of
the A&C Act does not grant parties, the freedom to approach any other
person except the Court under Section 9 of the A&C Act and the Tribunal
under Section 17 for grant of interim relief, it is apparent that Emergency
Arbitrator is incompatible with the provisions of the A&C Act. Further, FRL
relied on Section 2(8) of the A&C Act and contended that although this
provision also recognizes the agreement of parties as to arbitration rules, but
such rules cannot override the provisions of Part 1 of the A&C Act itself.
8.24 As noted in the proviso to Section 2(2) of the A&C Act, in the case of
an International Commercial Arbitration even if the place of arbitration is
outside India, and an arbitral award made or to be made in such place is
enforceable and recognized under the provisions of Part II of the A&C Act,
provisions of Section 9, 27 and Clause (b) of sub Section (1) and sub Section
(3) of Section 37 of the A&C Act, would be applicable, subject to an
agreement to the contrary between the parties. Thus, parties by agreement
can decide to the inapplicability of these provisions. The phrase "even if the
place of arbitration is outside India‖, further makes it clear that the said
entitlement of the parties to exclude the aforementioned provisions by
agreement is available in international commercial arbitrations seated in
India, and even if the seat of such international commercial arbitration is
outside India. Clarifying the position, Supreme Court in (2012) 9 SCC 522
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Bharat Aluminium Co. vs. Kaiser Aluminium Technical Services Inc.
(BALCO) held that if the parties to an arbitration seated outside India
choose the A&C Act to govern the arbitration proceedings, it would still not
make Part 1 of the A&C Act applicable. Instead, only the provisions in the
A&C Act relating to the internal conduct of the arbitration proceedings will
be applicable, to the extent they are not inconsistent with the mandatory
provisions of the curial law of the seat of arbitration. Thus, the fact that
applicability of Section 9 can be excluded in an International Commercial
Arbitration, conducted as per the provisions of A&C Act indicates that
Section 9 of the A&C Act is not a mandatory provision.
8.25 Thus, this Court finds no merit in the contention of FRL with respect
to Section 2(6) and 2(8) of the A&C Act, in view of the finding that the
SIAC Rules relating to emergency arbitration are not contrary to the
mandatory provisions of the A&C Act. As discussed above, the parties have
chosen SIAC Rules that grant them freedom to approach the Court also
under Section 9 of the A&C Act to obtain interim relief, thus, to that extent
there is no incompatibility between Part I of the A&C Act and the SIAC
Rules.
8.26 From a conspectus of the discussion above, this court arrives at the
conclusion 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,
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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.
Whether the Resolution of FRL dated 29th August, 2020 is
void or contrary to statutory provisions
9.1 Supreme Court in (2012) 6 SCC 613 Vodaphone International
Holdings B.V. Vs. Union of India that a shareholders' agreement (SHA) is
essentially a contract between some or all shareholders in a company, the
purpose of which is to confer rights and impose obligations over and above
those provided by the company law. It was held that SHA is a private
contract between the shareholders compared to the Articles of Association
of the company, which is a public document. Being a private document, it
binds parties thereon and not the other remaining shareholders of the
company. Explaining the advantages of a SHA, Supreme Court noted that it
gives greater flexibility, unlike Articles of Association and makes provision
for resolution of any dispute between the shareholders and also how the
future capital contributions have to be made. It was further held that the
provisions of the SHA may also go contrary to the provisions of the Articles
of Association, however, in that event, naturally provisions of Articles of
Association would govern and not the provisions in SHA.
9.2 Following the decision in AIR 1965 SC 1535 Shanti Prasad Jain Vs.
Kalinga Tubes Limited, Supreme Court in Vodaaphone (supra) further held
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that the agreement between non-members and members of a company will
not bind the company, but there is nothing unlawful in entering into
agreement for transferring of shares. Of course, the manner in which such
agreement is to be enforced in the case of breach is given in the general law
between the company and the shareholders. A breach of SHA which does
not breach the articles of association is a valid corporate action and the
parties aggrieved can get remedies under the general law of the land.
9.3 Therefore, a shareholders‟ agreement is a private contract between the
shareholders, an agreement enforceable under the Contract Act and for the
breach thereof, any party aggrieved can seek remedy under the law or in
case provided under the agreement through arbitration, however, as held by
the Supreme Court in case of conflict between the shareholders agreement
and the Articles of Association of the company, the later will prevail.
9.4 The rationale behind the Articles of Association of a company
prevailing over a shareholder's agreement stems from the basic principles
that the general law i.e. the Contract Act has to give way to the Special Act
i.e. the Companies Act, in case of conflict. Indubitably, it is in the interest
of the society that the integrity of the contracts are maintained as contractual
remedies promise broad commercial stability, however it is equally true that
the Indian Contract Act is not a complete Code as was noted by the Privy
Council in AIR 1929 PC 132 Jwaladutt R. Pillani vs. Bansilal Moti Lal
based on the preamble of the Indian Contract Act, 1872 which notes,
"whereas it is expedient to define and amend certain parts of the law
relating to contracts".
9.5 Further, Section 56 of the Contract Act acknowledges the
supervening circumstances not contemplated by the parties resulting in
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making the contract impossible of being performed. Supervening
circumstances/ subsequent impossibilities on occurrence of an unexpected
event or change of circumstances which are beyond what was contemplated
by the parties at the time when they entered into the agreement have been
duly recognized in the various Supreme Court decisions. In AIR 1954 SC 44
Satyabrata Ghose Vs. Mugneeram Bangor & Co. & Anr. Supreme Court
held that when such an event or change of circumstance occurs, which is so
fundamental, to be regarded by law striking at the root of contract as a
whole, it is the Court which can pronounce the contract to be frustrated and
at an end. It was held that the word "impossible" has not been used in the
Section, in the sense of physical or literal impossibility and though the
performance of an act may not be literally impossible but it may be
impracticable and useless from the point of view of the object and purpose
of the parties.
9.6 Supreme Court in the decision (2017) 14 SCC 80 Energy Watchdog
vs. Central Electricity Regulatory Commission & Ors. noted the evolution of
law in relation to the impact of an unforeseen event on the performance of a
contract, after it is made, as under:
"34. ―Force majeure‖ is governed by the Contract Act, 1872.
Insofar as it is relatable to an express or implied clause in a
contract, such as the PPAs before us, it is governed by Chapter
III dealing with the contingent contracts, and more
particularly, Section 32 thereof. Insofar as a force majeure
event occurs dehors the contract, it is dealt with by a rule of
positive law under Section 56 of the Contract Act. Sections 32
and 56 are set out herein:
―32. Enforcement of contracts contingent on an
event happening.--Contingent contracts to do or not
to do anything if an uncertain future event happens,
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cannot be enforced by law unless and until that
event has happened.
If the event becomes impossible, such contracts
become void.
xx xx xx
56. Agreement to do impossible act.--An agreement
to do an act impossible in itself is void.
Contract to do act afterwards becoming impossible
or unlawful.--A contract to do an act which, after
the contract is made, becomes impossible, or, by
reason of some event which the promisor could not
prevent, unlawful, becomes void when the Act
becomes impossible or unlawful.
Compensation for loss through non-performance of
act known to be impossible or unlawful.--Where one
person has promised to do something which he
knew, or, with reasonable diligence, might have
known, and which the promisee did not know, to be
impossible or unlawful, such promisor must make
compensation to such promisee for any loss which
such promisee sustains through the non-
performance of the promise.‖
35. Prior to the decision in Taylor v. Caldwell
[Taylor v. Caldwell, (1863) 3 B & S 826 : 122 ER 309 : (1861-73)
All ER Rep 24], the law in England was extremely rigid. A
contract had to be performed, notwithstanding the fact that it had
become impossible of performance, owing to some unforeseen
event, after it was made, which was not the fault of either of the
parties to the contract. This rigidity of the Common law in which
the absolute sanctity of contract was upheld was loosened
somewhat by the decision in Taylor v. Caldwell
[Taylor v. Caldwell, (1863) 3 B&S 826 : 122 ER 309 : (1861-73)
All ER Rep 24] in which it was held that if some unforeseen event
occurs during the performance of a contract which makes it
impossible of performance, in the sense that the fundamental basis
of the contract goes, it need not be further performed, as insisting
upon such performance would be unjust.
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36. The law in India has been laid down in the seminal decision
of Satyabrata Ghose v. Mugneeram Bangur & Co. [Satyabrata
Ghose v. Mugneeram Bangur & Co., 1954 SCR 310 : AIR 1954
SC 44] The second paragraph of Section 56 has been adverted
to, and it was stated that this is exhaustive of the law as it
stands in India. What was held was that the word ―impossible‖
has not been used in the section in the sense of physical or
literal impossibility. The performance of an act may not be
literally impossible but it may be impracticable and useless
from the point of view of the object and purpose of the parties.
If an untoward event or change of circumstance totally upsets
the very foundation upon which the parties entered their
agreement, it can be said that the promisor finds it impossible
to do the Act which he had promised to do. It was further held
that where the Court finds that the contract itself either
impliedly or expressly contains a term, according to which
performance would stand discharged under certain
circumstances, the dissolution of the contract would take place
under the terms of the contract itself and such cases would be
dealt with under Section 32 of the Act. If, however, frustration
is to take place dehors the contract, it will be governed by
Section 56.
37. In Alopi Parshad & Sons Ltd. v. Union of India [Alopi
Parshad & Sons Ltd. v. Union of India, (1960) 2 SCR 793 : AIR
1960 SC 588] , this Court, after setting out Section 56 of the
Contract Act, held that the Act does not enable a party to a
contract to ignore the express covenants thereof and to claim
payment of consideration, for performance of the contract at
rates different from the stipulated rates, on a vague plea of
equity. Parties to an executable contract are often faced, in the
course of carrying it out, with a turn of events which they did
not at all anticipate, for example, a wholly abnormal rise or fall
in prices which is an unexpected obstacle to execution. This
does not in itself get rid of the bargain they have made. It is
only when a consideration of the terms of the contract, in the
light of the circumstances existing when it was made, showed
that they never agreed to be bound in a fundamentally different
situation which had unexpectedly emerged, that the contract
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ceases to bind. It was further held that the performance of a
contract is never discharged merely because it may become
onerous to one of the parties.
38. Similarly, in Naihati Jute Mills Ltd. v. Khyaliram
Jagannath [Naihati Jute Mills Ltd. v. Khyaliram Jagannath,
(1968) 1 SCR 821 : AIR 1968 SC 522] , this Court went into the
English law on frustration in some detail, and then cited the
celebrated judgment of Satyabrata Ghose v. Mugneeram
Bangur & Co. [Satyabrata Ghose v. Mugneeram Bangur &
Co., 1954 SCR 310 : AIR 1954 SC 44] Ultimately, this Court
concluded that a contract is not frustrated merely because the
circumstances in which it was made are altered. The courts
have no general power to absolve a party from the performance
of its part of the contract merely because its performance has
become onerous on account of an unforeseen turn of events.
39. It has also been held that applying the doctrine of
frustration must always be within narrow limits. In an
instructive English judgment, namely, Tsakiroglou & Co.
Ltd. v. Noblee Thorl GmbH [Tsakiroglou & Co. Ltd. v. Noblee
Thorl GmbH, 1962 AC 93 : (1961) 2 WLR 633 : (1961) 2 All
ER 179 (HL)] , despite the closure of the Suez Canal, and
despite the fact that the customary route for shipping the goods
was only through the Suez Canal, it was held that the contract
of sale of groundnuts in that case was not frustrated, even
though it would have to be performed by an alternative mode of
performance which was much more expensive, namely, that the
ship would now have to go around the Cape of Good Hope,
which is three times the distance from Hamburg to Port Sudan.
The freight for such journey was also double. Despite this, the
House of Lords held that even though the contract had become
more onerous to perform, it was not fundamentally altered.
Where performance is otherwise possible, it is clear that a mere
rise in freight price would not allow one of the parties to say
that the contract was discharged by impossibility of
performance.
40. This view of the law has been echoed in Chitty on
Contracts, 31st Edn. In Para 14-151 a rise in cost or expense
has been stated not to frustrate a contract. Similarly, in Treitel
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on Frustration and Force Majeure, 3rd Edn., the learned
author has opined, at Para 12-034, that the cases provide many
illustrations of the principle that a force majeure clause will not
normally be construed to apply where the contract provides for
an alternative mode of performance. It is clear that a more
onerous method of performance by itself would not amount to a
frustrating event. The same learned author also states that a
mere rise in price rendering the contract more expensive to
perform does not constitute frustration. (See Para 15-158.)
41. Indeed, in England, in the celebrated Sea Angel
case [Edwinton Commercial Corpn. v. Tsavliris Russ
(Worldwide Salvage & Towage) Ltd. (The Sea Angel), 2007
EWCA Civ 547 : (2007) 2 Lloyd's Rep 517 (CA)] , the modern
approach to frustration is well put, and the same reads as
under:
―111. In my judgment, the application of the
doctrine of frustration requires a multi-factorial
approach. Among the factors which have to be
considered are the terms of the contract itself,
its matrix or context, the parties' knowledge,
expectations, assumptions and contemplations,
in particular as to risk, as at the time of the
contract, at any rate so far as these can be
ascribed mutually and objectively, and then the
nature of the supervening event, and the parties'
reasonable and objectively ascertainable
calculations as to the possibilities of future
performance in the new circumstances. Since the
subject-matter of the doctrine of frustration is
contract, and contracts are about the allocation of
risk, and since the allocation and assumption of
risk is not simply a matter of express or implied
provision but may also depend on less easily
defined matters such as ―the contemplation of the
parties‖, the application of the doctrine can often
be a difficult one. In such circumstances, the test of
―radically different‖ is important: it tells us that
the doctrine is not to be lightly invoked; that mere
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incidence of expense or delay or onerousness is
not sufficient; and that there has to be as it were a
break in identity between the contract as provided
for and contemplated and its performance in the
new circumstances.‖ (Emphasis supplied)
9.7 At this stage, this Court is only required to prima facie consider the
supervening circumstances for application of the doctrine of frustration
which requires a multi factorial approach as noted in the decision reported
as 2007 EWCL Civ 547 (the Sea Angel's case) and approved by the
Supreme Court in Energy Watchdog (supra). In the present suit, case of FRL
is of the supervening circumstance that due to the COVID-19 pandemic, the
retail sector has taken a big hit and FRL a listed company having public
shareholdings besides the shareholders who entered into FCPL SHA, has
also been seriously impacted. FRL has a large number of stores all over
India with 25000 employees therein and is burdened with loans from banks
and financial institutions and is on the verge of collapse, which fact was
duly informed to Amazon. FRL thus required more funds to survive, failing
which the company will be defaulting entailing serious consequences on the
company and its directors. This distressed financial position of FRL is not
disputed by Amazon. As a matter of fact, it is Amazon's case that to help
FRL out of this position, Amazon was in touch with other entities to infuse
funds in FRL. It is the case of FRL that since the directors of FRL stand in
fiduciary capacity, they will have to act in the best interest of the company
which position of law cannot be disputed in view of Section 166 of the
Companies Act, 2013 and decisions noted hereinafter.
9.8 The Companies Act, 2013 which is a special enactment codifies the
fiduciary duty of the directors of a company under Section 166 as under:
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―166. Duties of directors
(1) Subject to the provisions of this Act, a director of a company
shall act in accordance with the articles of the company.
(2) A director of a company shall act in good faith in order to
promote the objects of the company for the benefit of its
members as a whole, and in the best interests of the company,
its employees, the shareholders, the community and for the
protection of environment.
(3) A director of a company shall exercise his duties with due and
reasonable care, skill and diligence and shall exercise
independent judgment.‖
9.9 Supreme Court in AIR 1950 SC 172 Nanalal Zaver & Anr. Vs.
Bombay Life Assurance Co. Ltd. & Ors. reiterating the well settled principle
that in exercising their powers, whether general or special, the directors,
must always bear in mind that they hold a fiduciary position and must
exercise their powers for the benefit of the company and for that alone. It
was held that the Court can intervene to prevent the abuse of a power,
whenever such abuse is held proved, and also cautioned that where directors
have a discretion and are bona-fidely acting in the interest of the company, it
is not the habit of Court to interfere with the same. It was further held that
when a company is in no need of further capital, directors are not entitled to
use their power of issuing shares merely for the purpose of maintaining
themselves and their friends in management over the affairs of a company,
or merely for the purpose of defeating the wishes of the existing majority of
the shareholders. It was held:
―41. It is well established that directors of a company are in a
fiduciary position vis-a-vis the company and must exercise their
power for the benefit of the company. If the power to issue
further shares is exercised by the directors not for the benefit of
the company but simply and solely for their personal
aggrandisement and to the detriment of the company, the Court
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will interfere and prevent the directors from doing so. The very
basis of the Court's interference in such a case is the existence
of the relationship of a trustee and of cestui que trust as
between the directors and the company.‖
9.10 Following the decision in Nanalal Zaver (supra), this principle of
fiduciary duty of the directors of a company was reiterated by the Supreme
Court in (1981) 3 SCC 333 Needle Industries Ltd. & Ors. Vs. Needle
Industries Newey (India) Holdings Ltd. & Ors.
9.11 Learned Senior Counsel for FRL has relied upon the decision reported
as 1959 AC 324, Scottish Co-operative Wholesale Society Ltd. vs. Meyer &
Anr. wherein the House of Lords was dealing with the duties of the nominee
Directors, in relation to a company formed as a subsidiary to a co-operative
wholesale society to enable it to get licenses and participate in the
manufacture and sale of rayon materials, the production whereof was
controlled till 1952. The two respondents therein were appointed as Joint
Managing Directors of the company. It was noted that nominees of a parent
company upon the Board of a subsidiary company may be placed in a
difficult and delicate position. It is, then, the more incumbent on the parent
company to behave with scrupulous fairness to the minority shareholders
and to avoid imposing upon their nominees, the alternative of disregarding
their instructions or betraying the interests of the minority. It was noted that
the society pursued a different course. It acted in oppression and
unscrupulously which act was promoted by the action or inaction of the
nominee Directors. The company which might had recovered its former
prosperity could not do as the Directors thought it had served its purposes
and it can conveniently be liquidated. It was held:
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―The short answer is that it was the policy of the society that
the affairs of the company should be so conducted and the
minority shareholders were content that it should be so. They
relied--how unwisely the event proved--upon the good faith of
the society, and, in any case, they were impotent to impose their
own views. It is just because the society could not only use the
ordinary and legitimate weapons of commercial warfare but
could also control from within the operations of the company
that it is illegitimate to regard the conduct of the company's
affairs as a matter for which they had no responsibility. After
much consideration of this question, I do not think that my own
views could be stated better than in the late Lord President
Cooper's words on the first hearing of this case. "In my view,"
he said, "the section warrants the court in looking at the
business "realities of a situation and does not confine them to a
narrow "legalistic view. The truth is that, whenever a
subsidiary is "formed as in this case with an independent
minority of share-"holders, the parent company must, if it is
engaged in the same "class of business, accept as a result of
having formed such a "subsidiary an obligation so to conduct
what are in a sense its "own affairs as to deal fairly with its
subsidiary." At the opposite pole to this standard may be put
the conduct of a parent company which says: "Our subsidiary
company has served its "purpose, which is our purpose.
Therefore let it die," and, having thus pronounced sentence, is
able to enforce it and does enforce it not only by attack from
without but also by support from within. If this section is inept
to cover such a case, it will be a dead letter indeed. I have
expressed myself strongly in this case because, on the contrary,
it appears to me to be a glaring example of precisely the evil
which Parliament intended to remedy.‖
―Lastly, on the facts, it is to be noted that while the society's
directors of the company, who were also directors of the
society, knew all that was happening within the society, Dr.
Meyer and Mr. Lucas knew nothing apart from what they could
infer from the communications, verbal and written, which they
had received, with reference to the alignment of the
shareholding and the taking over of shares from the petitioners,
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and the general attitude of the society's directors on the
company's board. On the vital matters affecting the company's
prosperity known to the nominee directors these directors
remained silent, concealed the facts from the petitioners and
took no action and gave no advice helpful to the company. As
Lord Sorn put it, their conduct as directors was a negative one
to "let the company drift towards "the rocks."
My Lords, if the society could be regarded as an organization
independent of the company and in competition with it, no legal
objection could be taken to the actions and policy of the society.
Lord Carmont pointed this out in the Court of Session. But that
is not the position. In law the society and the company were, it
is true, separate legal entities. But they were in the relation of
parent and subsidiary companies, the company being formed to
run a business for the society which the society could not at the
outset have done for itself, unless they could have persuaded
Dr. Meyer and Mr. Lucas to become servants of the society.
This the petitioners were not prepared to do. The company,
through, the knowledge, the experience, the connections, the
business ability and the energies of the petitioners, had built up
a valuable goodwill in which the society shared and which
there is no reason to think would not have been maintained, if
not increased, with the co-operation of the society. The
company was in substance, though not in law, a partnership
consisting of the society, Dr. Meyer and Mr. Lucas. Whatever
may be the other different legal consequences following on one
or other of these forms of combination one result, in my
opinion, followed in the present case from the method adopted,
which is common to partnership, that there should be the
utmost good faith between the constituent members. In
partnership the position is clear. As stated in Lindley on
Partnership, 11th ed., p. 401: "A partner cannot, without the
consent of his co-"partners lawfully carry on for his own
benefit, either openly or "secretly, any business in rivalry with
the firm to which he "belongs." It may not be possible for the
legal remedies that would follow in the case of a partnership to
follow here, but the principle has, I think, valuable application
to the circumstances of this case.‖
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9.12 In the decision reported as [2009] EWCA Civ 291; [2010] B.C.C. 597
Hawkes vs. Cuddy the Court of Appeals held, the fact that a Director of a
company was nominated to that office by a shareholder did not, of itself,
impose any duty on the director, owed to his nominator. The director may
owe duties to his nominator if he was an employee or officer of the
nominator, or by reason of a formal or informal agreement with his
nominator. Such duties did not arise out of his nomination, but out of a
separate agreement or office. Such duties could not, however, detract from
his duty to the company of which he was a director when he was acting as
such. An appointed director, without being in breach of his duties to the
company, may take the interests of his nominator into account, provided that
his decisions as a director were, in what he genuinely considered to be the
best interests of the company; but that was a very different thing from his
being under a duty to his nominator by reason of his appointment by it.
9.13 In RNRL vs. RIL (supra), Supreme Court reiterated that the Board of
Directors has to act in a fiduciary capacity vis-a-vis the shareholders and
that this duty has been a part of broader understanding of company law from
the time of settlement companies that were the precursors of joint stock
companies. Supreme Court deprecating the demand of RNRL that the
Board of RIL only act at the behest and as rubber stamp of the decisions of
the promoters held, that acceptance of such demands would destroy the
fabric of the Company Law itself and the foundation of trust, faith and
honest dealing with the shareholders.
9.14 According to Amazon its investment in FCPL was premised on the
basis that defendant Nos.3 and 8 in the present suit who were the major
shareholders of FCPL were also the Executive Chairman and Managing
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Director of FRL respectively, exercised control over FRL. However, as
noted above defendant Nos. 3 and 8 were also required to perform their
fiduciary duty towards FRL even though bound by FCPL SHA and FRL
SHA.
9.15 From the documents filed by Amazon it is clear that defendant No.3
(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.
9.16 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.
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9.17 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.
9.18 To claim that the Board Resolution of FRL dated 29th August, 2020
is void, Amazon also contends that consent of FCPL as required under the
FRL SHA has not been taken in this regard. However, FRL has placed on
record the letter dated 29th August, 2020, signed on behalf of both FRL and
FCPL wherein FCPL has granted its approval for the transaction between
FRL and Reliance. During the course of arguments, learned counsel for
FRL contested the letter dated 29th August, 2020 claiming that the same is
not accompanied by a statement of truth based on affidavit, however, as
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noted in the preceding paras, since arguments in the application have been
heard finally at the ad interim stage, both parties have filed documents
without filling the necessary affidavits, which the parties will be required to
in the suit, while completing the pleadings.
9.19 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
10.1 The third ground on which FRL claims that Amazon is unlawfully
interfering in the transaction is that by conflating the FCPL SHA and FRL
SHA, Amazon seeks to control the affairs of FRL which is impermissible as
at best it is a shareholder of FCPL and any rights vis-à-vis that of a
shareholder of FCPL vests in Amazon and in the said garb it cannot exercise
control over FRL. Further the 'control' exercised by Amazon amounts to
violation of FEMA FDI Rules. Relying upon the decision reported as 2019
(2) SCC 1 Arcelormittal India Pvt. Ltd. vs. Satish Kumar Gupta & Ors.,
learned Senior Counsel for Amazon contends that Amazon does not have
right to appoint the majority Directors of FCPL and the rights granted to
Amazon under FCPL SHA are merely protective rights that do not relate in
any manner to the day-to-day management and operation of FCPL or FRL.
This is exactly the dichotomy of which FRL is aggrieved of. According to
FRL, though Amazon claims that in terms of FCPL SHA the rights, if any,
with Amazon are protective rights for its investments with no interference in
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day-to-day management and operations of FCPL or FRL, however, on
conflation of the FCPL SHA and FRL SHA, Amazon has complete control
over the functioning of FRL.
10.2 According to Amazon, the FRL SHA, FCPL SHA and the FCPL SSA
being a single integrated transaction do not violate the foreign exchange
laws of India. It is stated that FRL is a part of Future Group of Companies,
defendant No.3 is the Executive Chairman of FRL and defendant No.8 is the
Managing Director of FRL and they continue to hold the powers of
management of the affairs of FRL. Further the Biyanis excluding FCPL are
collectively the single largest shareholders of FRL with fragmented public
shareholding and therefore, in de-facto control of FRL. According to
Amazon as per FEMA FDI Rules, foreign investment upto 51% under the
government route is permitted in entities engaged in multi-brand retail
trading, subject to other attendant conditions under the rules. Further as per
para-15.1, Schedule-I of FEMA FDI Rules, foreign investments upto 100%
is permitted under the automatic route in FCPL which is engaged in "cash
and carry wholesale trading/wholesale trading". By the various agreements
Amazon has only created protective rights for its investments in FCPL
amounting to 49% of shareholding of FCPL which holds less than 10%
shares in FRL. Thus even by the downstream investment Amazon has less
than 5% investment in FRL. Since the investment in FRL is not by Amazon
but by FCPL which is an Indian entity, it cannot be considered an indirect
foreign investment as the investment flows from an entity which is Indian
owned and controlled. It is the specific case of Amazon that it neither owns
nor controls FCPL much less FRL. Amazon further relies upon the
illustration in the FDI Policy, 2017 which reads as under:
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"(ii) Counting of indirect foreign investment
(a) The foreign investment through the investing Indian
company/LLP would not be considered for calculation of the
indirect foreign investment in case of Indian companies/LLPs
which are ‗owned and controlled' by resident Indian citizens
and/or Indian Companies/LLPs which are owned and
controlled by resident Indian citizens.
...
To illustrate, if the indirect foreign investment is being
calculated for Company X which has investment through an
investing Company Y having foreign investment, the following
would be the method of calculation:
(A) where Company Y has foreign investment less than 50%-
Company X would not be taken as having any indirect foreign
investment through Company Y.‖
10.3 Provisions of FEMA FDI Rules relevant to the contentions of the
parties and relied upon by FRL are as under:
"2(r) ―FDI‖ or ―Foreign Direct Investment‖ means investment
through equity instruments by a person resident outside India in an
unlisted Indian company; or in ten per cent or more of the post issue
paid-up equity capital on a fully diluted basis of a listed Indian
company;
2 (t) ―foreign portfolio investment‖ means any investment made by a
person resident outside India through equity instruments where such
investment is less than ten per cent of the post issue paid-up share
capital on a fully diluted basis of a listed Indian company or less than
ten per cent of the paid-up value of each series of equity instrument of
a listed Indian company;
2(u) ―FPI‖ or ―Foreign Portfolio Investor‖ means a person
registered in accordance with the provisions of the Securities and
Exchange Board of India (Foreign Portfolio Investors) Regulations,
3. Restriction on investment in India by a person resident outside
India.- Save as otherwise provided in the Act or rules or regulations
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made thereunder, no person resident outside India shall make any
investment in India :
Provided that an investment made in accordance with the Act
or the rules or the regulations made thereunder and held on the date
of commencement of these rules shall be deemed to have been made
under these rules and shall accordingly be governed by these rules:
Provided further that the Reserve Bank may, on an application
made to it and for sufficient reasons and in consultation with the
Central Government, permit a person resident outside India to make
any investment in India subject to such conditions as may be
considered necessary.
xx xx xx
6. Investments by person resident outside India: - A person resident
outside India may make investment as under:-
(a) may subscribe, purchase or sell equity instruments of an Indian
company in the manner and subject to the terms and conditions
specified in Schedule I:
Provided that a person who is a citizen of Bangladesh or
Pakistan or is an entity incorporated in Bangladesh or Pakistan
cannot purchase equity instruments without the prior government
approval:
Provided further that a citizen of Pakistan or an entity
incorporated in Pakistan cannot invest in defence, space, atomic
energy and sectors or activities prohibited for foreign investment even
through the government route.
Note: Issue or transfer of ―participating interest or right‖ in oil fields
by Indian companies to a person resident outside India would be
treated as foreign investment and shall comply with the conditions
laid down in Schedule I.
(b) A person resident outside India, other than a citizen of Bangladesh
or Pakistan or an entity incorporated in Bangladesh or Pakistan, may
invest either by way of capital contribution or by way of acquisition
or transfer of profit shares of an LLP, in the manner and subject to
the terms and conditions specified in Schedule VI.
(c) A person resident outside India, other than a citizen of Bangladesh
or Pakistan or an entity incorporated in Bangladesh or Pakistan, may
invest in units of an investment vehicle, in the manner and subject to
the terms and conditions specified in Schedule VIII.
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(d) A person resident outside India may invest in the depository
receipts (DRs) issued by foreign depositories against eligible
securities in the manner and subject to the terms and conditions
specified in Schedule IX.
xx xx xx
10. Investment by FPI - A FPI may make investments as under:-
(1) A FPI may purchase or sell equity instruments of an Indian
company which is listed or to be listed on a recognised stock
exchange in India, and/or may purchase or sell securities other than
equity instruments, in the manner and subject to the terms and
conditions specified in Schedule II.
Note - A FPI may trade or invest in all exchange traded derivative
contracts approved by Securities and Exchange Board of India from
time to time subject to the limits specified by the Securities and
Exchange Board of India and the conditions prescribed in Schedule
II.
(2) A FPI may purchase, hold, or sell Indian Depository Receipts
(IDRs) of companies resident outside India and issued in the Indian
capital market, in the manner and subject to the terms and conditions
as prescribed in Schedule X.
xxx xxx xxx
23. Downstream investment -
(1) Indian entity which has received indirect foreign investment shall
comply with the entry route, sectoral caps, pricing guidelines and
other attendant conditions as applicable for foreign investment.
Explanation: Downstream investment by an LLP not owned and not
controlled by resident Indian citizens or owned or controlled by
persons resident outside India is allowed in an Indian company
operating in sectors where foreign investment up to one hundred
percent is permitted under automatic route and there are no FDI
linked performance conditions.
xx xx xx
Explanation.- For the purposes of this rule,-
(a) ―ownership of an Indian company‖ shall mean beneficial
holding of more than fifty percent of the equity instruments of
such company and ―ownership of an LLP‖ shall mean
contribution of more than fifty percent in its capital and having
majority profit share;
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(b) ―company owned by resident Indian citizens‖ shall mean
an Indian company where ownership is vested in resident
Indian citizens and/ or Indian companies, which are ultimately
owned and controlled by resident Indian citizens and ―LLP
owned by resident Indian citizens‖ shall mean an LLP where
ownership is vested in resident Indian citizens and/ or Indian
entities, which are ultimately owned and controlled by resident
Indian citizens;
(c) ―company owned by persons resident outside India‖ shall
mean an Indian company that is owned by persons resident
outside India and ―LLP owned by persons resident outside
India‖ shall mean an LLP that is owned by persons resident
outside India;
(d) ―control‖ shall mean the right to appoint majority of the
directors or to control the management or policy decisions
including by virtue of their shareholding or management rights
or shareholders agreement or voting agreement and for the
purpose of LLP, ―control‖ shall mean the right to appoint
majority of the designated partners, where such designated
partners, with specific exclusion to others, have control over all
the policies of an LLP;
(e) ―company controlled by resident Indian citizens‖ means an
Indian company, the control of which is vested in resident
Indian citizens and/ or Indian companies which are ultimately
owned and controlled by resident Indian citizens and ―LLP
controlled by resident Indian citizens‖ shall mean an LLP, the
control of which is vested in resident Indian citizens and/ or
Indian entities, which are ultimately owned and controlled by
resident Indian citizens;
(f) xx xx xx;
(g) xx xx xx
(i) ―indirect foreign investment‖ means downstream investment
received by an Indian entity from,-
(A) another Indian entity (IE) which has received foreign
investment and (i) the IE is not owned and not controlled by
resident Indian citizens or (ii) is owned or controlled by
persons resident outside India; or
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(B) an investment vehicle whose sponsor or manager or
investment manager (i) is not owned and not controlled by
resident Indian citizens or (ii) is owned or controlled by
persons resident outside India : Provided that no person
resident in India other than an Indian entity can receive
Indirect Foreign Investment;
(j) ―total foreign investment‖ means the total of foreign
investment and indirect foreign investment and the same will be
reckoned on a fully diluted basis"
10.4 Additional condition under the FDI Policy Circular of 2017:
b. In any sector/activity, where Government approval is
required for foreign investment and in cases where there are
any inter-se agreements between/amongst shareholders which
have an effect on the appointment of the Board of Directors or
on the exercise of voting rights or of creating voting rights
disproportionate to shareholding or any incidental matter
thereof, such agreements will have to be informed to the
approving authority. The approving authority will consider
such interse agreements for determining ownership and control
when considering the case for approval of foreign investment.‖
10.5 Para-3 of Schedule-I of FEMA FDI Rules, reads as under:
―(3) Permitted sectors, entry routes and sectoral caps for total
foreign investment Unless otherwise specified in these Rules or
the Schedules, the entry routes and sectoral caps for the total
foreign investment in an Indian entity shall be as follows,
namely:-
(i) ―automatic route‖ means the entry route through which
investment by a person resident outside India does not require
the prior approval of the Reserve Bank or the Central
Government;
(ii) ―government route‖ means the entry route through which
investment by a person resident outside India requires prior
Government approval and foreign investment received under
this route shall be in accordance with the conditions stipulated
by the Government in its approval;
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(iii) Aggregate foreign portfolio investment up to forty-nine
percent of the paid-up capital on a fully diluted basis or the
sectoral or statutory cap, whichever is lower, shall not require
Government approval or compliance of sectoral conditions as
the case may be, if such investment does not result in transfer of
ownership and control of the resident Indian company from
resident Indian citizens or transfer of ownership or control to
persons resident outside India and other investments by a
person resident outside India shall be subject to the conditions
of Government approval and compliance of sectoral conditions
as laid down in these rules.‖
10.6 The decision of this Court reported as 2017 SCC OnLine Del. 7810
Cruz City 1 Mauritius Holdings vs. Unitech Limited relied upon by Amazon
does not support its case as the said judgment does not permit violation of
the foreign exchange law. The decision held that the foreign award could not
be set aside merely on the ground that the enforcement of the foreign award
required remittance in the form of foreign exchange for which necessary
approvals could be taken from the RBI.
10.7 Before this Court case of Amazon is that FRL SHA, FCPL SHA and
FCPL SSA are a single integrated transaction and Amazon entered into the
transaction based on two broad sets of special and protective rights as per
the three agreements; the first set of rights being that the retail assets of FRL
would not be alienated without the prior consent of Amazon, never to a
restricted person mentioned in the Schedule and that Biyanis had agreed that
FRL would remain the sole vehicle for conduct of the retail business. The
second set of rights that were granted in favour of Amazon by the three
agreements as a single integrated transaction was that, if the Indian laws
permitted Amazon could become the single largest shareholder of FRL and
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in this regard, the Biyanis agreed to maintain the minimum shareholdings of
16.18% free from encumbrances.
10.8 On the date of notification of FRL SHA, that is, 26 th December, 2019,
only 16.18% FRL securities were free from encumbrances and as per
Clause-17.2(i) of the FCPL SHA, the promoters were under an obligation to
reserve the said minimum shareholding.
10.9 'Control' is defined in the Companies Act, 2013 under Section 2(27)
as:
"2 In this Act, unless the context otherwise requires,--
"control" shall include the right to appoint majority of the
directors or to control the management or policy decisions
exercisable by a person or persons acting individually or in
concert, directly or indirectly, including by virtue of their
shareholding or management rights or shareholders
agreements or voting agreements or in any other manner"
10.10 Similar definition of 'control' is provided under the Insolvency and
Bankruptcy Code 2016, SEBI (Substantial Acquisition of Shares and
Takeover) Regulations, 1997, Insurance Laws (Amendment) Act, 2015 and
Explanation to Rule 23 FEMA FDI Rules.
10.11 In Arcelormittal (supra), Supreme Court dealing with the meaning of
expression „management and control‟ under the Insolvency and Bankruptcy
Code held that the expression „management‟ would refer to the de-jure
„management‟ of a corporate debtor and the expression „control‟ denotes
any positive control, which means that the mere power to block special
resolution of a company cannot amount to „control‟ and as contrasted with
„management‟, means de-facto control of actual management or policy
decisions that can be or are in fact taken. It was held:
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49. The expression ―control‖ is defined in Section 2(27) of
the Companies Act, 2013 as follows:
―2. (27) ―control‖ shall include the right to appoint
majority of the Directors or to control the management or
policy decisions exercisable by a person or persons acting
individually or in concert, directly or indirectly, including
by virtue of their shareholding or management rights or
shareholders agreements or voting agreements or in any
other manner;‖
50. The expression ―control‖ is therefore defined in two
parts. The first part refers to de jure control, which includes the
right to appoint a majority of the Directors of a company. The
second part refers to de facto control. So long as a person or
persons acting in concert, directly or indirectly, can positively
influence, in any manner, management or policy decisions, they
could be said to be ―in control‖. A management decision is a
decision to be taken as to how the corporate body is to be run
in its day-to-day affairs. A policy decision would be a decision
that would be beyond running day-to-day affairs i.e. long-term
decisions. So long as management or policy decisions can be,
or are in fact, taken by virtue of shareholding, management
rights, shareholders agreements, voting agreements or
otherwise, control can be said to exist.
51. Thus, the expression ―control‖, in Section 29-A(c),
denotes only positive control, which means that the mere power
to block special resolutions of a company cannot amount to
control. ―Control‖ here, as contrasted with ―management‖,
means de facto control of actual management or policy
decisions that can be or are in fact taken. A judgment of the
Securities Appellate Tribunal in Subhkam Ventures (I) (P)
Ltd. v. SEBI [Subhkam Ventures (I) (P) Ltd. v. SEBI, 2010 SCC
OnLine SAT 35], made the following observations qua
―control‖ under the SEBI (Substantial Acquisition of Shares
and Takeover) Regulations, 1997, wherein ―control‖ is defined
in Regulation 2(1)(e) in similar terms as in Section 2(27) of the
Companies Act, 2013. The Securities Appellate Tribunal held:
(SCC OnLine SAT para 6)
―6. ... The term control has been defined in Regulation
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2(1)(c) of the Takeover Code to ―include the right to appoint
majority of the Directors or to control the management or
policy decisions exercisable by a person or persons acting
individually or in concert, directly or indirectly, including
by virtue of their shareholding or management rights or
shareholders agreements or voting agreements or in any
other manner‖. This definition is an inclusive one and not
exhaustive and it has two distinct and separate features: (i)
the right to appoint majority of Directors or, (ii) the ability
to control the management or policy decisions by various
means referred to in the definition. This control of
management or policy decisions could be by virtue of
shareholding or management rights or shareholders
agreement or voting agreements or in any other manner.
This definition appears to be similar to the one as given
in Black's Law Dictionary (Eighth Edn.) at p. 353 where this
term has been defined as under:
‗Control--The direct or indirect power to direct the
management and policies of a person or entity, whether
through ownership of voting securities, by contract, or
otherwise; the power or authority to manage, direct, or
oversee.'
Control, according to the definition, is a proactive and not a
reactive power. It is a power by which an acquirer can
command the target company to do what he wants it to do.
Control really means creating or controlling a situation by
taking the initiative. Power by which an acquirer can only
prevent a company from doing what the latter wants to do is
by itself not control. In that event, the acquirer is only
reacting rather than taking the initiative. It is a positive
power and not a negative power. In a board managed
company, it is the board of Directors that is in control. If an
acquirer were to have power to appoint majority of
Directors, it is obvious that he would be in control of the
company but that is not the only way to be in control. If an
acquirer were to control the management or policy
decisions of a company, he would be in control. This could
happen by virtue of his shareholding or management rights
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or by reason of shareholders agreements or voting
agreements or in any other manner. The test really is
whether the acquirer is in the driving seat. To extend the
metaphor further, the question would be whether he controls
the steering, accelerator, the gears and the brakes. If the
answer to these questions is in the affirmative, then alone
would he be in control of the company. In other words, the
question to be asked in each case would be whether the
acquirer is the driving force behind the company and
whether he is the one providing motion to the organization.
If yes, he is in control but not otherwise. In short control
means effective control.‖ (Emphasis supplied)
10.12 In the decision reported as 2000 (3) Mh.L.J 700 Rolta India Ltd.,
Mumbai & Anr. vs. Venure Industries Ltd. Haryana & Ors. the Division
Bench of the Bombay High Court dealing with the pooling agreement
between two or more shareholders held that by such an agreement
shareholders bind one another to vote as they mutually agree. These
agreements are enforceable because the right to vote is a proprietary right
which right to vote may be aided and effectuated by a contract. It was also
held that a pooling agreement may be utilized in connection with an election
of Directors and shareholders‟ resolution where shareholders have a right to
vote however, a pooling agreement cannot be used to supersede the statutory
right given to the Board of Directors to manage the company, the underlying
reason being the shareholders cannot achieve by pooling agreement that
what is prohibited to them if they are voting individually. It was held:
"22. A pooling agreement may be utilised in connection with
the election of Directors and shareholders' Resolutions where
shareholders have a right to vote. However, a pooling
agreement cannot be used to supersede the statutory rights
given to the Board of Directors to manage the company, the
underlying reason being that the shareholders cannot achieve
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by pooling agreement that which is prohibited to them, if they
are voting individually. Therefore, the power of shareholders to
unite is not extended to contracts, whereby restrictions are
placed on the powers of Directors to manage the business of the
Corporation. It is for this reason that a pooling agreement
cannot be between Directors regarding their powers as
Directors. There is vast difference in principle between the case
of a shareholder binding himself by such a contract and the
Director of the Company undertaking such an obligation by
compromising his fiduciary status. The shareholder is dealing
with his own property. He is entitled to consider his own
interests, without regard to interests of other shareholders.
However, Directors are fiduciaries of the Company and the
shareholders. It is their duty to do what they consider best in
the interests of the Company. They cannot abdicate their
independent judgment by entering into pooling agreements. The
Company works through two main organs, viz. the shareholders
and the Board of Directors.‖ (Emphasis Supplied)
10.13 Therefore, 'control' includes the right to appoint majority of
Directors, the right to control management and the right to control the policy
decision. Such rights can be exercised individually or collectively, directly
or indirectly by shareholdings‟ management rights, shareholders agreements,
voting agreements etc. Such control based on the rights accruing through
the shareholding/voting rights may be easily determinable however, when
the same are through agreements assessments of such rights often becomes
complex due to the camouflage of the language used. Though the basic
principle governing the field is that veto rights not amounting to acquisition
of control may be protective in nature rather than participative, that is, that
such rights are vested in the investor to protect his investment or prevent
dilution of his shareholding however, there is a thin line between these rights
being confined to veto rights which are protective in nature and the veto
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rights transgressing to acquisition of control on the company, the later being
subject to FEMA FDI Rules. Thus to determine whether the rights
conferred on Amazon under the FCPL SHA and the FRL SHA, amount to
control over FRL would be a question to be determined on analysis of the
various clauses of the agreement and can be determined only after the
parties have completed their necessary pleadings and documents showing
the underlined intention or by the competent fact finding authority. At this
stage, this Court is only forming a prima facie opinion thereon based on the
clauses of the FCPL SHA and FRL SHA.
10.14 Relevant Clauses of FCPL SHA read as under:
4. COMMITMENT OF THE PARTIES
4.1. The Promoters hereby agree, covenant and undertake:
(i) to perform and observe and also cause the Company to
perform all of the provisions of this Agreement and the
Organizational Documents;
(ii) that in their capacity as Shareholders they will exercise
any power to vote or cause the power to vote to be
exercised, at any meeting of the Shareholders of the
Company so as to enable the approval of any and every
resolution of the Company necessary or desirable to give
full effect to this Agreement and the FRL SHA and
likewise so as to ensure that no resolution of the
Company is passed which is not in accordance with this
Agreement and, or, the FRL SHA;
(iii) that they will cause any Person appointed by them as
their nominee Director on the Board to exercise any
power to vote or cause the power to vote to be exercised,
at any meeting of the Board of the Company (or any
committee thereof) so as to enable the approval of any
and every resolution necessary or desirable to give full
effect to this Agreement and the FRL SHA, and likewise
so as to ensure that no resolution is passed which is not
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in accordance with this Agreement and, or, the FRL
SHA;
(iv) that they will exercise any power to vote or cause the
power to vote, on behalf of themselves and the Company,
to be exercised, at any meeting of the shareholders of the
Material Entities so as to enable the approval of any and
every resolution necessary or desirable to give full effect
to this Agreement and the FRL SHA, and the likewise so
as to ensure that no resolution of any Material Entity is
passed which is not in accordance with this Agreement
and, or, the FRL SHA, as the case may be; and
(v) to cause its Affiliates, to comply with the provisions of
paragraph (i), paragraph (ii), paragraph (iii), and
paragraph (iv) of this Section 4.1.
xx xx xx
8.1. Notwithstanding anything contained in this Agreement,
the Promoters and the Company hereby agree, covenant
and undertake that the matters set out in Schedule IX
(Investor Protective Matters) (―Investor Protective
Matters‖) shall not be taken-up, decided, acted upon or
implemented by the Company; nor the Investor
Protective matter be placed for a vote thereon at a
Shareholders' meeting of the Company; nor any decision
be taken by the Shareholders or Board or any committee
of the Board; nor the Company be bound/committed to
any resolutions/transactions pertaining to the Investor
Protective matters, unless the Investor Protective Matter
has been, first approved in the affirmative, in writing, by
the Investor. Without limiting the generality of the
foregoing, in the event that the Company proposes to
take up, or decide any Investor Protective matters, in (a)
any meeting of the Board, or any committee thereof, such
matter shall be taken-up only if the written consent of the
Investor has been obtained prior to such meeting, or if at
least 1(one) Investor Nominee Director is present in such
meeting, and such Investor Nominee Director votes in
favour of such matter, or (b) any meeting of the
Shareholders of the Company, such matter shall be
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taken-up only if the written consent of the Investor has
been obtained prior to such meeting, or if an authorized
representative of the Investor is present in such meeting,
and such representative votes in favor of such matter.
xx xx xx
10. 1 Ownership and Control of the Promoters and Promoter
Affiliates.
10.1.1.The Promoters hereby agree, covenant and undertake
that they shall, and shall undertake and ensure that, any
promoter Affiliate, holding Company Securities (in
accordance with this Agreement) shall, at all times till it
holds any Company Securities, (i) (if it is a body
corporate) be wholly Controlled, to the exclusion of
others, by the Ultimate Controlling Person, and his
Immediate Relative, and the Ultimate Controlling Person
and his Immediate Relative shall hold (directly and or
indirectly) at least 76% (seventy six percent) of the legal
and beneficial ownership and voting interests, on a fully
diluted basis of such Promoter and, or, Promoter
Affiliate; (ii) (if it is a body corporate), undertake and
ensure that no Restricted Person shall hold any
ownership interest, voting interests or share capital or
Control in, or over such Promoter, or such Promoter
Affiliates, and (iii) qualify as a ‗resident Indian citizen'
as defined under the FEMA Regulations, and where such
Promoter or such Promoter Affiliate is a Person other
than a natural Person, it shall be ultimately owned and
Controlled by Persons who are resident Indian citizens
under the FEMA Regulations.
10.1.2.It is hereby agreed that the provisions of Section
10.1.1(ii) shall apply mutatis mutandis to any Person
(not being a natural Person) which holds securities,
ownership or voting interests, whether directly, and, or
indirectly in the Promoters which hold Company
Securities, or Promoter Affiliates which hold Company
Securities. The Promoters shall cause and ensure
compliance by such Person as referred to in this Section
10.1.2 with Section 10.1.1(ii).
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10.2. Restrictions on Transfer
10.2.1.Except where the prior written consent of the Investor
has been obtained in accordance with Section 8 (Investor
Protective Matters and Investor Protective Notice
Matters) or Section 10.2.2, or as expressly permitted by
this Agreement in Section 10.3 (Transfer to Promoter
Affiliates and Promoter Trust), Section 10.4 (Transfer by
the Investor), Section 11 (Exit of the Investor) and
Section 15 (FRL Call Option and Associated matters),
the Shareholders agree, covenant and undertake that no
Shareholder shall Transfer, or Encumber any Company
Securities to another Person, without the prior written
consent of the other Shareholder, which consent may be
provided or withheld in such Shareholder's sole and
absolute discretion.
xx xx xx
13.1 Consent of the investor, and the Promoters.
13.1.1.Notwithstanding anything to the contrary contained in
this Agreement, the Parties hereby agree, covenant and
undertake that the Promoters and the Company shall,
and shall cause a Material Entity to, not (i) take-up,
decide, act upon or implement the matters set out in the
FRL SHA which require the consent of the Company, or
(ii) place such matters for a vote thereon at the board of
shareholders meeting of the material Entity, or (iii) take
any decision or cause any decision to be taken by the
shareholders or the board or any committee of the board
of the Material Entity on such matters, or (iv) be
bound/committed to any resolutions/transactions
pertaining to such matters; unless a prior written consent
of the Investor and the Promoters has been obtained by
the Company; provided however, that for a matter which
pertain to issuance of Securities by a Material Entity and
where the Company intends to or proposes to decline, or
recuse itself from participating in such issuance, or not
subscribing to its entire pro-rata entitlement required to
maintain the Company's shareholding in the Material
Entity (on a fully diluted basis) as on the date
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immediately prior to such issuance by the Material
Entity, a written consent shall be required to be obtained
only from the Investor prior to the Company declining,
recusing itself, or not subscribing to its pro-rata
entitlement in the Material Entity.
13.1.2.The Company and the Promoters agree, covenant and
undertake that any updates to the list of Restricted
Persons and its communication to FRL under FRL SHA
shall be undertaken only after a prior written consent of
the Investor has been obtained.
13.1.3.The Company and the Promoters agree, covenant and
undertake that any assignment of the rights and
obligations of the Company or the Promoters under the
FRL SHA shall be undertaken only after a prior written
consent of the Investor has been obtained.
13.2. FRL SHA
13.2.1.The Promoters and the Company agree, covenant and
undertake to comply with the provisions of the FRL
SHA at all times. If any provision of the FRL SHA is
breached or likely to be breached (―FRL SHA
Breach‖), the Promoters and the Company shall be
obligated to undertake all actions necessary to ensure
that such a breach is duly addressed and, or rectified
and the rights and, or, interests of the Company under
the FRL SHA are not violated and shall promptly,
notify the Investor in writing in relation to such FRL
SHA Breach.
13.2.2.Upon the occurrence of a FRL SHA Breach, the
Company, and, or, the Promoters shall promptly issue a
notice to the Investor, specifying in such notice, details
with respect to the FRL SHA Breach, and the remedial
actions proposed to be undertaken by the parties thereto.
Without prejudice to the foregoing, the Investor shall
have the right to issue a written notice to the Company
specifying the details of the FRL SHA Breach to the
extent the details of the breach are available with it,
along with the remedial measures and steps that it is of
the opinion that the Company should undertake in
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respect of such FRL SHA Breach to enforce and protect
the rights of the Company (the notice issued by the
Investor pursuant to this Section 13.2 (FRL SHA)
hereinafter, the ―FRL SHA Breach Notice‖)
13.2.3.Within 10 (ten) days of receipt of the FRL SHA Breach
Notice, the Company shall and the Promoters shall cause
the Company to take all such actions as may be
necessary and, or, as may be suggested by the Investor
under the FRL SHA Breach Notice for rectifying the
concerned breach of the FRL SHA and ensuring that the
terms of the FRL SHA are strictly complied with.
13.2.4.In the event the Company and, or, the promoters fail
to take appropriate and adequate steps and actions to
protect and enforce the rights and entitlements of the
Company under the FRL SHA and the applicable Laws,
pursuant to such FRL SHA Breach, within a period of 15
(fifteen) Business Days or such other extended period as
may be approved in writing by the Investor, or in the
event the Promoters and the Company fail to get the FRL
SHA Breach rectified or abandon the conduct of the
remedial measures initiated, at any point in time, for
rectification or resolution of the FRL SHA Breach, to the
satisfaction of the Investor, the Company and the
Promoters agree and acknowledge that the Investor shall
be deemed to be the Company's duly appointed attorney
with the full power, rights and authority to take such
actions and steps as it deems fit on behalf of the
Company and in the name of the Company in order to
protect and enforce the rights, entitlements and interests
of the Company. In this regard, the Company hereby
grants the authority and the power to the Investor and its
advisors, authorized representatives, officers and agents,
to act as the legal representative/nominee/attorney of the
Company and exercise, as the Investor deems fit on
behalf of the Company, all such rights and powers that
may be available to the Company under the FRL SHA
and as a shareholder of FRL, including but not limited to
the right to vote, attend shareholders' meetings (for and
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on behalf of the Company), initiate any legal proceedings
against FRL and, or, the Promoters, for the purposes of
ensuring that the FRL SHA is strictly complied with and
the Company's rights under the FRL SHA are adequately
safeguarded.
13.2.5.The company and the Promoters hereby agree that any
action or decision that may be undertaken pursuant to
Section 13.2 (FRL SHA) above is being undertaken in the
best interest of the Company and to safeguard rights and
entitlements of the Company.
10.15 Relevant Clauses of FRL SHA read as under:-
4.1. The Existing Shareholders hereby agree, covenant, and
undertake:
(i) To perform and observe all of the provisions of this
Agreement, the Memorandum of Association, and the
Articles of Association.
(ii) To ensure and procure that every Person for the time
being representing it in its capacity as a Shareholder will
exercise any power to vote or cause the power to vote to
be exercised, at any meeting of the Shareholders so as to
enable the approval of any and every resolution
necessary or desirable to give full effect to this
Agreement, and likewise so as to ensure that no
resolution is passed which is not in accordance with this
Agreement; and
(iii) To cause its Affiliates, to comply with the provisions of
paragraph (i) and (ii) of this Section 4.1.
xx xx xx
6. TRANSFER OF SECURITIES.
6.1. Ownership and Control of the Existing Shareholders and
Existing Shareholder Affiliates.
6.1.1. The Existing Shareholders hereby represent and warrant
that the shareholding/ownership pattern of the Existing
Shareholders listed in Part B of Schedule I (Existing
Shareholders) as on the Execution Date is, and as on the
Effective Date shall be, as set forth in Schedule V
(Shareholding Patten of Existing Shareholders) and that as on
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the Execution Date, and the Effective Date, the Ultimate
Controlling Person wholly owns and shall own, directly and
through his Immediate Relatives, and Controls, and shall
Control, each of the Existing Shareholders listed in Part B of
Schedule I (Existing Shareholders).
6.1.2. Each Existing Shareholder (including any Existing
Shareholder and, or, Existing Shareholder Trust) which
acquires Securities pursuant to Section 6.2.4 (Transfer to
Affiliates) hereof, or any Affiliate or person forming part
of the Promoter Group (as defined in the SEBI (ICDR)
Regulations) of the Company who acquires further
Securities of the Company (and each such Person, the
"Existing Shareholder Affiliate"), which is a body
corporate, hereby agrees, covenants, and undertakes that
as long as it holds any Securities of the Company, the
Ultimate Controlling Person and his Immediate
Relatives, shall Control such Existing Shareholder,
Existing Shareholder Trust or Existing Shareholder
Affiliate (to the exclusion of other Persons), and own and
hold at least 76% (seventy six percent) of the legal and
beneficial ownership (and voting interests) on a fully
diluted basis of such Existing Shareholder, Existing
Shareholder Trust and, or Existing Shareholder Affiliate.
6.2. Restrictions on Transfer of or Encumbrances over Existing
Shareholder Securities.
6.2.1. Each of the Existing Shareholders hereby covenant,
undertake and agree that it shall not, and shall ensure
that the Existing Shareholder Affiliates shall not and
FCL hereby agrees, covenants, and undertakes that it
shall not, Transfer or Encumber any of the Securities of
the Company held by it to any Person or create any
Encumbrance over the Securities of the Company held by
it except pursuant to mutual written consent of FCL and
the Existing Shareholders. All Transfer of Securities
permitted by this Agreement may only be made in
compliance with requirements of Law.
6.2.2. Encumbrances over Existing Shareholder Securities: In
the event there is a breach, or event of default, or any
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other event or occurrence, under any agreement, or
arrangement relating to any loan, and, or debt taken or
raised by the Company with a Lender whereby the
Lender makes or is entitled to make a claim of any
interests over the Existing Shareholders Securities (such
event, the ―Existing Shareholders Event of Default" ),
including any right of alienation, disposal etc., the
Existing Shareholders shall immediately, and no later
than 1(one) day from the occurrence of such event, notify
FCL, in writing, of such event and in such case, the
Company shall, if requested by the Existing
Shareholders, and the FCL, undertake all such actions as
may be required to replace the Lenders of the Company
with such other Persons as may be nominated by the
Existing Shareholders, and FCL.
6.2.3. The Company shall not assume any share transfer
restrictions (including without limitation any lock-in,
right of first refusal, right of first offer, tag-along rights)
on the Existing Shareholder Securities in favour of any
Person, without the prior consent in writing of FCL
(which consent may be provided, or denied by FCL, in its
sole and absolute discretion). Any request for FCL's
consent pursuant to this Section 6.2.3 by the Company
shall be made in writing and shall be accompanied with
adequate details of the exact nature of rights proposed to
be granted, the third party to whom the rights are
proposed to be granted, the tenure of these rights, and
true and accurate copies of any agreements proposed to
be executed with such third party.
6.2.4. Transfer to Affiliates.
(i) Notwithstanding anything to the contrary
contained in this Agreement, any Existing
Shareholder may Transfer Existing Shareholder
Securities:
(a) to its Affiliate (provided such Affiliate satisfies the
requirement of Section 6.1 (Ownership and
Control of the Existing Shareholders and Existing
Shareholder Affiliates) and the Existing
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Shareholder has obtained an executed Deed of
Adherence from such Affiliate, and delivered the
same to the Company and FCL) or to another
Existing Shareholder; or
(b) to a trust whose only trustees and only ultimate
beneficiaries are such Existing Shareholder's
Immediate Relatives, and if such Existing
Shareholder is not a natural Person, then to a trust
whose only trustees and only ultimate beneficiaries
are the Ultimate Controlling Person, or his
Immediate Relatives ("Existing Shareholder
Trust''), as part of a bona fide succession-planning
exercise, provided that the Existing Shareholders
have obtained an executed Deed of Adherence
from such trust, and its trustees, and delivered the
same to the Company and FCL; or
(ii) If, after any Transfer pursuant to Section
6.2.4(i)(a), or Section 6.2.4( i)(b), the applicable
Affiliate ceases to be an Affiliate (or ceases to
satisfy the requirement of Section 6.1). or the trust
ceases to be Existing Shareholder Trust, then the
Existing Shareholder that made the Transfer (the
"Transferring Party") shall, procure that such
Person shall immediately Transfer such Existing
Shareholder Securities to the Transferring Party
or to another Affiliate, or Existing Shareholder
Trust of the Transferring Party in accordance with
the terms of this Section 6.2.4 and the Transferring
Party shall immediately give notice to the
Company, and FCL that such Transfer has
occurred.
xx xx xx
9. RESERVED MATTERS AND OTHER MATTERS.
9.1. Notwithstanding anything to the contrary, the Existing
Shareholders, and the Company hereby agree and
undertake that the matters set forth below shall not be
taken-up, decided, acted upon or implemented by the
Company ("Reserved Matters"); nor the Reserved
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Matters be placed for a vote thereon at a Shareholders'
meeting of the Company; nor any decision be taken by
the Shareholders or Board or any committee of the
Board; nor the Company be bound/ committed to any
resolutions/ transactions pertaining to the Reserved
Matters, unless the Reserved Matter has been, first
approved in the affirmative, in writing, by FCL. Without
limiting the generality of the foregoing, in the event that
the Company proposes to take up, or decide any
Reserved Matters, in (a) any meeting of the Board, or
any committee thereof, such matter shall be taken up only
if the written consent of FCL has been obtained prior to
such meeting, or (b) any meeting of the Shareholders of
the Company, such matter shall be taken-up only if the
written consent of FCL has been obtained prior to such
meeting.
(i) except as otherwise provided in Section 9.2
(Permitted Transactions), any transfer or license
of all or substantially all of the Assets of the
Company (including all, or substantially all
Intellectual Property), including without limitation
a Restricted Transfer;
(ii) any Restricted Transfer to an Affiliate, or a
'related party' of the Company, or the Existing
Shareholders;
(iii) any amendment to the Articles of Association
which is in conflict with the rights of FCL under
this Agreement; and
(iv) any issuance of Securities to a Proposed Investor
not in accordance with Section 7 (Further Issue of
Capital).
10.16 Rights to veto in relation to amendment to Memorandum and Article
of Association of a company which adversely impact the investors‟ right,
alteration in its capital structure, material divestment, transfer or disposal of
an undertaking, material acquisition of any company business, undertaking
or joint venture which have a direct effect on the investment do not form
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part of the ordinary course of business and are meant for protection of the
investment and may not amount to control on the company, however, the
imposition of restriction on voting rights for all the promoters and
shareholders without the prior consent of the investor and the rights to
interfere beyond the protective rights of the investment and disproportionate
thereto, may cross over from the protective rights to controlling rights.
10.17 A conflated reading of the Clause-4.1 (iv) of the FCPL SHA and
Clause-4.1 of the FRL SHA would show that vide the FCPL SHA a control
was created even on the voting rights of the promoters of FCPL in relation
to their decisions as shareholders of FRL so as to enable the approval of any
and every resolution necessary or desirable to give effect to FCPL SHA and
FRL SHA and likewise to ensure that no resolution of FRL is passed which
is not in accordance with the FCPL SHA and/or FRL SHA. Even Clause-
4.1 of the FRL SHA correspondingly provides for an obligation on every
person representing as a shareholder of FRL, to exercise any power to vote
or cause the power to vote to be exercised at any meeting of the shareholders
so as to enable the approval of any and every resolution necessary or
desirable to give full effect to the FRL SHA and to ensure that no resolution
which is not in accordance with FRL SHA is passed.
10.18 Clause 9.1 of the FRL SHA relates to reserved matters. It is a non-
obstante clause that obligates the existing shareholders (as set out in
Schedule 1) and FRL to undertake that FRL would not take up, decide, act
upon or implement certain „Reserved Matters‟, and further that such
Reserved Matters shall not be voted upon at a shareholders meeting of FRL,
nor any decision would be taken on such reserved matters by the
shareholders or the directors or any committee of the board of FRL, nor
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would FRL be bound to any such resolutions relating to such reserved
matters, unless such Reserved Matter has been first approved in the
affirmative by FCPL.
10.19 The reserved matters are set out in Clause 9.1(i) to (iv) and comprise
of:-
i) Any transfer or license of all or substantially all of the Assets of
FRL (including all, or substantially all Intellectual Property),
including without limitation a Restricted Transfer;
ii) Any Restricted Transfer to an Affiliate or a „related party‟ of
FRL or the Existing Shareholders.
iii) Any amendment to the Articles of FRL which is in conflict
with the rights of FCPL under the FRL SHA; and
iv) Any issuance of securities to a Proposed Investor not in
accordance with Section 7 of the FRL SHA (relating to further
issue of capital).
10.20 Clause 9.1 therefore provides that all „Reserved Matters‟ as stipulated
in Clause 9.1(i) to (iv) cannot be taken up, voted upon or implemented by
FRL unless the same are expressly permitted by FCPL.
10.21 Whereas clause 9.1 makes it mandatory for FRL to first obtain
consent of FCPL for acting upon Reserved Matters, Clause 13.1 of the
FCPL SHA requires FCPL to take consent of Amazon for all such matters,
Clause 13.1 of the FCPL SHA is also a non-obstante clause that obligates
the Promoters and FCPL to not cause the material entity, i.e, FRL, to take up
the following matters unless a prior written consent of the Investor, i.e.,
Amazon and the Promoters has been obtained by FCPL:
i) Take up, decide, act upon or implement the matters set out in
the FRL SHA which require the consent of FCPL, or
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ii) Place such matters which require the consent of FCPL for a
vote thereon at the board of directors meeting or shareholders
meeting of FRL, or
iii) Take any decision or cause any decision to be taken by the
shareholders of the board of directors or any committee of the
board of FRL on matters requiring consent of FCPL or
iv) Be bound or committed to any resolutions or transactions
pertaining to such matters which require the consent of FCPL;
10.22 Further Clause 13.1.1 of the FCPL SHA requires the promoters of
FCPL and FCPL to not cause FRL to take up, decide, act upon or implement
the matters as set out in FRL SHA, which require the consent of FCPL or
place such matters for a vote thereon at the board or shareholders meeting of
the FRL or take any decision or cause any decision to be taken by the
shareholders or the Board or any committee of the board of FRL on such
matters, or be bound/committed by any resolutions/transactions pertaining to
such matters unless a prior written consent of Amazon and the promoters
has been obtained by FCPL. It further provides that FCPL is required to
take prior written consent from Amazon in case FRL issues securities which
FCPL proposes to decline to subscribe.
10.23 A conjoint reading of Clause 9.1 of the FRL SHA and Clause 13.1 of
the FCPL SHA therefore shows that firstly, express consent of FCPL is
required by FRL to act upon „Reserved Matters‟ under Clause 9.1, and that
secondly, such „Reserved Matters‟ that require the consent of FCPL squarely
fall under Clause 13.1 of the FCPL SHA, which cannot be acted upon by
FCPL or the Promoters unless approved in writing by Amazon.
10.24 Cumulatively, it is clear that Amazon‟s consent is required by FRL to
act upon „Reserved Matters‟ and that without the consent of Amazon, FRL
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is only entitled to deal with and carry out „Permitted Transactions‟ which are
set out in Clause 9.2 of the FRL SHA.
10.25 Clause 9.2 (i) and (ii) set out the Permitted Transactions. It is severely
limited in its operation and includes the sale or transfer of „Non-Core
Assets‟ (other than Retail Assets) which constitute less than 2% of the
turnover or Assets of FRL at the time of such sale, provided that such sale is
undertaken at fair market value, and that in any one financial year, the FRL
does not undertake more than one of such transaction. Another Permitted
Transaction under 9.2(ii) is the sale or transfer of securities of any Person
held by FRL where such Person operates the convenience stores under the
brand name „7-Eleven‟ which is an exempted entity.
10.26 Accordingly, for any sale or transfer to be undertaken by FRL which
is not a Permitted Transaction (covered under Clause 9.2 of the FRL SHA),
FRL would require the express consent of FCPL, and FCPL would in turn
require the express consent of Amazon for all such matters as per Clause
13.2 of the FCPL SHA. As set out above, given the narrow ambit of
permitted matters that can be taken up by FRL without requiring the consent
of Amazon, there is prima-facie a very limited discretion available to FRL
for conducting its own business.
10.27 Clause 15.17 of the FCPL SHA strongly relied upon by FRL
provides:
"For the avoidance of doubt, Parties hereby expressly record
their undertaking that the Promoters and the Investor have no
agreement or understanding whatsoever in relation to the
acquisition of shares or voting rights in, or exercising control
over, FRL and that the Company, the Promoters and the
Investors otherwise do not intend to act in concert with each
other in any way whatsoever.‖
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10.28 According to Amazon Clause 15.17 of the FCPL SHA is under the
heading Call Options and not the main provisions. Clause 15 of the FCPL
SHA provides Amazon with a Call option to purchase FRL shares, to
become the single largest shareholder, upon the occurrence of a change in
law event which is defined to include a relaxation if any, or all conditions
prescribed, as on the Execution Date, under FEMA Regulations, with
respect to foreign direct investment in multi retail brand. Thus, even on
being able to exercise the call option if Amazon is not to have control over
FRL then Amazon cannot exercise control over FRL in praesenti based on
the conflation of the FCPL SHA and FRL SHA. Further as per Clause 15.1
Amazon though has a right in its sole discretion, to purchase either by itself
or by its permitted affiliates, the FRL call option securities upon occurrence
of a FRL change in Law Event, Amazon had no obligation to exercise the
said option.
10.29 As noted above, 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 rights
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in contemplation of any change in Indian law that would permit Amazon to
hold substantial shareholding of FRL.
10.30 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).
10.31 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
11.1 Case of FRL is that Amazon is unlawfully interfering in FRL's
endeavour to survive by amalgamation of FRL alongwith other group
companies with Future Enterprises Limited (FEL) and the subsequent
transfer and vesting of the 'retail and wholesale undertaking' from FEL as a
going concern on a slump sale basis to Reliance. FRL‟s transaction with
Reliance being legal and valid, interference of Amazon therein amounts to
tortious interference, hence Amazon is liable to be injuncted. Specific case
of FRL is that the EA itself being a nullity, as the Emergency Arbitrator is a
coram non judice, upholding the illegality thereof and/or holding that the
Resolution dated 29th August, 2020 of FRL is not void or contrary to the
statutory provisions and the right sought to be exercised by Amazon by
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conflating the FRL SHA, FCPL SHA and FCPL SSA as a single integrated
contract, being illegal and violative of FEMA FDI Rules 2019, Amazon is
liable to be injuncted from interfering in the transaction which is being
carried out in the best interest of FRL and its stakeholders.
11.2 The tort of unlawful interference in a contract, also referred to as
„tortious interference‟ and „causing loss by unlawful means‟ forms a species
of economic torts and has since decades been a subject of judicial and
academic debate. Lord Nicholls of Birkenhead in his opinion in OBG Ltd v
Allan, [2007] UKHL 21 described the complexity in determining the
ingredients of the tort of unlawful interference as under:-
"139. ..... In particular the House is called upon to consider
the ingredients of the tort of interference with a business by
unlawful means and the tort of inducing breach of contract.
These are much vexed subjects. Nearly 350 reported decisions
and academic writings were placed before the House. There
are many areas of uncertainty. Judicial observations are not
always consistent, and academic consensus is noticeably
absent. In the words of one commentator, the law is in a
‗terrible mess'. So the House faces a daunting task.
(Emphasis Supplied)
11.3 Similar observations were made by the Supreme Court of Canada in
the decision of A.I. Enterprises Ltd. Versus Bram Enterprises Ltd. and Jamb
Enterprises Ltd, 2014 SCC Online Can SC 16. Writing for the Court,
Cromwell, J., opined:-
28. I will not dwell on the unfortunate state of the common
law in relation to the unlawful means tort. As I noted earlier,
there is not even consensus about what it ought to be called.
One leading scholar simply observed that ―[t]he economic torts
[of which the unlawful means tort is one] are in a mess‖: H.
Carty, ―Intentional Violation of Economic Interests: The Limits
of Common Law Liability‖ (1988), 104 Law Q. Rev. 250, at p.
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278. Careful review of the development of the unlawful means
tort reveals confusion, overlap and inconsistency: see, e.g.,
Carty, An Analysis of the Economic Torts (2nd ed.), at pp. 73-
78; P. Burns, ―Tort Injury to Economic Interests: Some Facets
of Legal Response‖ (1980), 58 Can. Bar Rev. 103, at pp. 145-
48; T. Weir, Economic Torts (1997), at pp. 36-43; L.L. Stevens,
―Interference With Economic Relations -- Some Aspects of the
Turmoil in the Intentional Torts‖ (1974), 12 Osgoode Hall L.J.
595, at pp. 617-19. At its core, however, the tort has two key
ingredients: intention and unlawfulness. The gist of the tort is
the intentional infliction of economic harm by unlawful means.
(Emphasis Supplied)
11.4 One of the leading decisions on this subject and relied upon by FRL is
the decision of the House of Lords in OBG Ltd. v. Allan (Supra), where the
House of Lords was deciding 3 appeals that involved the same issues of law,
though the facts therein were different. This decision succinctly lays down
the law in relation to economic torts. The decision also discusses the other
two decisions cited by FRL i.e. Lonhro PLC vs. Fyed and Merkur Island
Shipping Corporation (supra)
11.5 In OBG Ltd. v Allan (Supra), the House of Lords rejected the unified
theory propounded in Torquay Hotel Co Ltd v Cousins [1969] 2 Ch 106,
where Lord Denning held that there could be liability for preventing or
hindering performance of the contract (unlawful interference) on the same
principle as liability for procuring a breach of contract. The decision in
Torquay Hotel of Lord Denning was approved by Lord Diplock in Merkur
Island (Supra). Therefore, pursuant to Merkur Island, the courts treated
inducement/procurement of a breach of contract as the same tort as causing
loss by unlawful means (tort of unlawful interference).
11.6 In OBG Ltd., the court rejected this unified theory and held that the
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tort for inducement/procuring the breach of contract is distinct from the tort
of unlawful interference/causing loss by unlawful means. The position was
concluded by Lord Nichols in Paragraph 194:-
"194. It may be helpful to pause and take an overall look at
where this leaves the law. The effect of the views expressed
above is to draw a sharp distinction between two economic
torts. One tort imposes primary liability for intentional and
unlawful interference with economic interests. The other tort
imposes accessory liability for inducing a third party to commit
an actionable wrong, notably a breach of contract, but possibly
some other actionable civil wrongs as well."
11.7 In para 45, the House of Lords held that the most important question
concerning this tort is determining what constitutes as 'unlawful means'.
Lord Hoffman opined as under:-
"45. The most important question concerning this tort is what
should count as unlawful means. It will be recalled that in Allen
v Flood [1898] AC 1, 96, Lord Watson described the tort thus-
when the act induced is within the right of the immediate actor,
and is therefore not wrongful in so far as he is concerned, it
may yet be to the detriment of a third party; and in that
case...the inducer may be held liable if he can be shown to have
procured his object by the use of illegal means directed against
that third party."
11.8 The rationale of the tort was noted by Lord Hoffman in para 46 as
under:-
46. The rationale of the tort was described by Lord Lindley in
Quinn v Leathem [1901] AC 495, 534-535: ―a person's liberty
or right to deal with others is nugatory, unless they are at
liberty to deal with him if they choose to do so. Any interference
with their liberty to deal with him affects him. If such
interference is justifiable in point of law, he has no redress.
Again, if such interference is wrongful, the only person who can
sue in respect of it is, as a rule, the person immediately affected
by it; another who suffers by it has usually no redress; the
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damage to him is too remote, and it would be obviously
practically impossible and highly inconvenient to give legal
redress to all who suffer from such wrongs. But if the
interference is wrongful and is intended to damage a third
person, and he is damaged in fact - in other words, if he is
wrongfully and intentionally struck at through others, and is
thereby damnified - the whole aspect of the case is changed:
the wrong done to others reaches him, his rights are infringed
although indirectly, and damage to him is not remote or
unforeseen, but is the direct consequence of what has been
done.‖ (Emphasis Supplied)
11.9 FRL has cited paragraph 47 and 51 of OBG v. Allan (Supra). These
paragraphs form part of the opinion of Lord Hoffman, who wrote for the
majority in so far as the essence of the tort of unlawful interference and the
issue of unlawful means as an element of the tort of unlawful interference is
concerned. Paras 47 and 51 of the report read as under:
"47. The essence of the tort therefore appears to be (a) a
wrongful interference with the actions of a third party in which
the claimant has an economic interest and (b) an intention
thereby to cause loss to the claimant. The old cases of
interference with potential customers by threats of unlawful
acts clearly fell within this description. So, for the reasons I
have given, did GWK Ltd v Dunlop Rubber Co Ltd 42 TLR 376.
Recent cases in which the tort has been discussed have also
concerned wrongful threats or actions against employers with
the intention of causing loss to an employee, as in Rookes v
Barnard [1964] AC 1129, or another employer, as in J T
Stratford & Son Ltd v Lindley [1965] AC 269. In the former
case, the defendants conspired to threaten the employer that
unless the employee was dismissed, there would be an unlawful
strike. In the latter, the union committed the Lumley v Gye tort
of inducing breaches of the contracts of the employees of barge
hirers to prevent them from hiring the plaintiff's barges.
xx xx xx
51. Unlawful means therefore consists of acts intended to
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cause loss to the claimant by interfering with the freedom of a
third party in a way which is unlawful as against that third
party and which is intended to cause loss to the claimant. It
does not in my opinion include acts which may be unlawful
against a third party but which do not affect his freedom to deal
with the claimant."
11.10 In India, the ingredients of tortious unlawful interference were
succinctly laid down in the decision 2017 SCC Online Calcutta 14920
Lindsay International Vs. L.N. Mittal following the decision in OBG Limited
(supra) as under:
(i) use by the defendant of unlawful means.
(ii) interfering with the action of a third party in relation to the
claimant.
(iii) intention to cause loss to the complainant.
(iv) Damages.
11.11 In Lindsay International (supra) the Court also noted various
decisions from different jurisdictions abroad before laying down the
necessary ingredients for determining tortious unlawful interference as
under:
"73. The indeterminate ambit of ―unlawful means‖ thus
remains one of the principal causes of uncertainty as to the
potential scope of liability under this tort. The issue has been
the subject of some judicial deliberation in other common law
jurisdictions. In Scotland, in McLeod v. Rooney, Lord Glennie
concluded from an extensive review of the speeches in OBG
Ltd. v. Allan that ―the essential aspect [of the tort] is that the
loss is caused to the claimant through a third party on whom
the defender has unlawfully acted. That is the control
mechanism. The inquiry focuses on the nature of the disruption
caused as between the third party and the claimant rather than
on the directness of the causative link between the defender's
wrong and the claimant's loss.‖ ([2009] CSOH 158; 2010
S.L.T. 499 at 18)
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74. A party must be shown to have known that they were
inducing a breach of contract. It is not enough that a defendant
knows that he is procuring an act which, as a matter of law or
construction of the contract, is a breach, nor that he ought
reasonably to have known that it is a breach.
(See OBG v. Allan per Lord Hoffman at Paragraph 39; British
Industrial Plastics Ltd. v. Ferguson (1940) 1 All E.R. 479).
75. In East England Schools CIC (t/a
4MySchools) v. Palmer (2013) EWHC 4138 (QB); (2014)
I.R.L.R. 191, it was held that the second defendant knew that it
was likely that the first defendant was subject to some form of
restrictive covenant, but had failed to take reasonable steps to
make himself aware of the precise nature of those restrictions.
Further, the second defendant knew that his instructions could
well require the first defendant to act in breach (and in fact
they did). As such, the second defendant was liable for
procuring the first defendant's breach. (See Clerk & Lindsell on
Torts, 21st Edition)
76. In Quinn v. Leathem Lord Macnaghten (1901) A.C. 495 at
510) it is said that ―a violation of a legal right committed
knowingly is a cause of action, and... It is a violation of legal
right to interfere with contractual relations recognized by law if
there be no sufficient justification for the interference.‖
77. Interference with the performance of a contract is an
actionable wrong unless there be justification for interfering
with the legal right. This tort is committed when A either
persuades B to break his contract with C or by showing some
unlawful acts he indirectly prevents B to perform contract. The
origin of this tort is traced to Lumley v. Gye as mentioned
earlier.
78. The principles that emerged from the discussions made
above are that interference with the subsisting contract may
arise in three different ways. It is not restricted simply to
procuring a breach of contract but covers interference with the
performance of the contract as well, that is to say, preventing
or hindering one party from performing his contract even
though it may not be a breach of the contract. Direct
intervention by the persuasion whether by himself or his agents
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by words or other acts of communication if are intended to
influence to break the contract with C would constitute a cause
of action.
79. The second category consists of cases where the intervener
does some unlawful acts on the person or property of B which
disables him in performing his contract with C.
80. The third category covers cases where intervener persuades
the third party to do some unlawful acts which interferes in B's
due performance of his contract with C as was intended.
81. In Greig v. Insole, (1978) 3 All ER 449, five conditions have
laid down that are required to be fulfilled by the plaintiff in a
suit for interference with a subsisting contract. First, there must
be either (a) ‗direct' interference with performance of the
contract or (b) indirect interference with performance coupled
with the use of unlawful means. Secondly, the defendant must
be shown to have knowledge of the relevant contract; but it is
not necessary that he should have known its precise terms.
(Emerald Construction Co. Ltd. v. Lawthien, (1966) 1 WLR
691). Thirdly, he must be shown to have had the intent to
interfere with it. Fourthly, the plaintiff must show that he has
suffered special damage, that is, more than nominal damage.
Fifthly, so far as is necessary, the plaintiff must successfully
rebut any defence based on justification which the defendant
may put forward.
82. At this stage, however, the Court is only required to find out
if the necessary ingredients of such ―economic tort‖
constituting the cause of action are present in the plaint and not
to assess the evidentiary value of such averments."
11.12 In 1999 (50) DRJ 656 Pepsi Foods Ltd. Vs. Bharat Coca Cola
Holdings Pvt. Ltd., referred by Amazon though not relied during the course
of arguments, Pepsi Foods sought permanent injunction against Coca Cola
restraining it from making offers and inducement to their key employees
from time to time, to breach employment contract with Pepsi and join Coca
Cola This Court declining the interim injunction held that the matter
required evidence and that the inducement would curtail right to seek better
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employment and the freedom to change employment. It was held that an
injunction can be granted only for protecting rights of the plaintiff but
cannot be granted to limit the legal rights of the defendant.
11.13 In 2020 SCC Online Del 673 Inox Leisure Limited Vs. PVR Limited, a
Coordinate Bench of this Court was dealing with a case where Inox had
entered into a contract with property owners in Amritsar to develop a
multiplex. Inox contended that PVR, its competitor, induced the property
owner to break its contract with Inox and instead entered into a contract with
PVR for developing the multiplex. Thus, Inox sought permanent injunction
restraining the defendant from attempting to induce breach of contract. The
suit was dismissed at the stage of settling of issues, allowing the application
under Order VII Rule 11 CPC by holding that relief as claimed was barred
by law in view of Section 27 of the Indian Contract Act and the fundamental
right to carry on business. However, in appeal, although the impugned
judgment was not challenged on merits, the Division Bench of this Court
observed that an action for tortious interference is a matter of evidence and
trial is necessary.
11.14 Thus existence of a contract, interference wherein is alleged is a sine
qua non for the tort of inducement. Contention on behalf of Amazon is that
no such contract between FRL and Reliance has been placed on record
hence FRL's suit for tortious interference is not maintainable. The two fold
submission of Amazon in this regard is that firstly, the resolution of FRL
dated 29th August, 2020 is void and secondly FCPL has not granted its
consent which was required by FRL before proceeding with the transaction
and in any case the said document has not seen the light of the day.
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11.15 As noted in the preceding paragraphs, the resolution dated 29th
August, 2020 is neither void nor contrary to any statutory provisions.
Further, FRL has filed the document dated 29th August, 2020, signed by
FRL and FCPL showing that FCPL has consented to the transaction.
According to Amazon since the said document has not been filed
accompanied by statement of truth under Order VI Rule 15(a) of CPC the
said document cannot be looked into. As noted above in the initial
paragraphs of this judgment, parties at the ad-interim stage have advanced
arguments at length without filing written statements/counter affidavits and
to this procedure both parties agreed. Amazon has also filed number of
documents including various emails, transcripts of the proceedings recorded
before the Emergency Arbitrator beseeching this Court to consider the same
without even filing written statements or counter affidavits much less
statement of truth. Hence, this court is not declining to take on record the
document dated 29th August, 2020. Of course, it will be for the parties to
comply with the provisions of the Code of Civil Procedure, 1908 while
completing the pleadings in the suit and file necessary affidavits.
11.16 The Resolution dated 29th August, 2020 of FRL approving the
proposed transaction between FRL and Reliance satisfies the requirement of
a valid contract. Further the plea of Amazon that the Resolution is in breach
of the FRL SHA as no prior consent of FCPL is taken is negated by the
letter dated 29th August, 2020 from FRL to FCPL whereon consent of FCPL
is duly enclosed. The Resolution and the letter of FRL dated 29th August,
2020 clearly satisfy the first requirement of a subsisting contract,
interference wherein is alleged.
11.17 Thus applying the four tests as laid down in Lindsay International
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(supra) to the facts of the present case, it is evident that the second, third and
fourth test stand prima facie satisfied as Amazon has written letters to
various statutory authorities/Regulators asking them not to grant approval to
the transaction between FRL and Reliance, which would cause loss and
damages to both FRL and Reliance.
11.18 As regards the first test of "use of unlawful means" by Amazon, FRL
has relied on three grounds, reliance whereon by Amazon in its
representations to the statutory authorities/Regulators makes Amazon's
representation illegal. Firstly, that Amazon has illegally relied upon the EA
order which is invalid as the Emergency Arbitrator has no legal status in Part
I of the A&C Act; Secondly, that Amazon‟s characterization of the board
resolution of FRL dated 29th August, 2020 as a void board resolution is
wholly without any basis in law and illegal; and Thirdly, that Amazon has
made false assertions as to the legality of its rights by conflating the FCPL
SHA and FRL SHA, as the same amounts to violation of FEMA (FDI)
Rules.
11.19 In OBG Ltd. v. Allan (Supra), the House of Lords recognized that
although the ingredient of „unlawful means‟ is well established, there exists
controversy as to its scope. Various earlier decisions were discussed and the
broad and narrow scope of „unlawful means‟ was highlighted. Relevant
extract is set out hereunder:-
149. Although the need for ‗unlawful means' is well
established, the same cannot be said about the content of this
expression. There is some controversy about the scope of this
expression in this context.
150. One view is that this concept comprises, quite simply, all
acts which a person is not permitted to do. The distinction is
between ‗doing what you have a legal right to do and doing
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what you have no legal right to do': Lord Reid in Rookes v
Barnard [1964] AC 1129, 1168-1169. So understood, the
concept of ‗unlawful means' stretches far and wide. It covers
common law torts, statutory torts, crimes, breaches of contract,
breaches of trust and equitable obligations, breaches of
confidence, and so on.
151. Another view is that in this context ‗unlawful means'
comprise only civil wrongs. Thus in Allen v Flood itself Lord
Watson described illegal means as ‗means which in themselves
are in the nature of civil wrongs': [1898] AC 1, 97-98. A
variant on this view is even more restricted in its scope:
‗unlawful means' are limited to torts and breaches of contract.
(Emphasis Supplied)
11.20 Eventually, the House of Lords by majority agreed to the view taken
by Lord Hoffman, who opined that the scope of „unlawful means‟ should be
narrow as laid down in [1898] AC 1 Allen v Flood. It was in this background
that he defined „unlawful means‟ in Paragraph 51 of his opinion as noted
above.
11.21 Various examples of what was found „unlawful means‟ in this context
can be ascertained from the judicial decisions referred to in OBG (Supra).
Lord Hoffman illustrated the cases of [1908] 1 Ch 335 National
Phonograph Co Ltd v Edison-Bell Consolidated Phonograph Co Ltd, where
the defendant had fraudulently induced a third party to act to the plaintiff‟s
detriment. The fraud was „unlawful means‟ as it was actionable by the third
party if it had suffered any loss. The decision in [1990] 2 QB 479 Lonrho
plc v Fayed was also highlighted where the defendant had made fraudulent
representations to third parties with an intent to cause damage to the
Plaintiff, which would have been actionable by the third parties if they had
suffered loss.
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11.22 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. (supra). 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. (supra), that whether there is an unlawful interference or
not, can be finally determined only after the parties have lead evidence.
There is yet another test which has been laid down in some of the decisions
such as Balailal Mukherjee vs. Sea Traders, Pepsi Food Ltd. and Greig vs.
Insole (supra) that there should be no lawful justification of the defender in
interfering however, that is an issue which overlaps while determining the
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issue of balance of convenience and will be dealt in the subsequent
paragraphs.
Interim Injunction
12.1 Supreme Court in the decision reported as 1992 (1) SCC 719 Dalpat
Kumar &Anr. vs. Prahlad Singh &Ors. laying down the principles for grant
of injunction noted that the grant of injunction is a discretionary relief and
exercise thereof is subject to the Court satisfying that (1) there is a serious
disputed question to be tried in the suit and that on the facts before the court,
there is probability of his being entitled to the relief asked for by the
plaintiff/defendant; (2) the court's interference is necessary to protect the
party from the species of injury. In other words, irreparable injury or
damage would ensue before the legal right would be established at trial; and
(3) that the comparative hardship or mischief or inconvenience which is
likely to occur from withholding the injunction will be greater than that
would be likely to arise from granting it. It was held that therefore, the
burden is on the plaintiff by evidence aliunde by affidavit or otherwise that
there is "a prima facie case" in his favour which needs adjudication at the
trial. The existence of the prima facie right and infraction of the enjoyment
of his property or the right is a condition for the grant of temporary
injunction. However, satisfaction that there is a prima facie case by itself is
not sufficient to grant injunction. The Court further has to satisfy that non-
interference by the Court would result in "irreparable injury" to the party
seeking relief and that there is no other remedy available to the party except
one to grant injunction and he needs protection from the consequences of
apprehended injury or dispossession. Irreparable injury, however, does not
mean that there must be no physical possibility of repairing the injury, but
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means only that the injury must be a material one, namely one that cannot be
adequately compensated by way of damages. The third condition is that "the
balance of convenience" must be in favour of granting injunction. The Court
while granting or refusing to grant injunction should exercise sound judicial
discretion to find the amount of substantial mischief or injury which is likely
to be caused to the parties, if the injunction is refused and compare it with
that it is likely to be caused to the other side if the injunction is granted. If
on weighing competing possibilities or probabilities of likelihood of injury
and if the Court considers that pending the suit, the subject-matter should be
maintained in status quo, an injunction would be issued. Thus the Court has
to exercise its sound judicial discretion in granting or refusing the relief of
ad interim injunction pending the suit.
12.2 In the decision reported as 1995 (5) SCC 545 Gujarat Bottling
Co.Ltd. & Ors. vs. Coca Cola Co. & Ors. the Supreme Court reiterating the
principles for grant of interim injunction noted that the decision whether or
not to grant an interlocutory injunction has to be taken at a time when the
existence of the legal right assailed by the plaintiff and its alleged violation
are both contested and uncertain and remain uncertain till they are
established at the trial on evidence. Relief by way of interlocutory injunction
is granted to mitigate the risk of injustice to the plaintiff during the period
before that uncertainty could be resolved. The object of the interlocutory
injunction is to protect the plaintiff against injury by violation of his right
for which he could not be adequately compensated in damages recoverable
in the action if the uncertainty were resolved in his favour at the trial. The
need for such protection has, however, to be weighed against the
corresponding need of the defendant to be protected against injury resulting
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from his having been prevented from exercising his own legal rights for
which he could not be adequately compensated. The court must weigh one
need against another and determine where the "balance of convenience" lies.
[See: Wander Ltd. v. Antox India (P) Ltd. [1990 Supp SCC 727]. In order to
protect the defendant while granting an interlocutory injunction in his favour
the court can require the plaintiff to furnish an undertaking so that the
defendant can be adequately compensated if the uncertainty were resolved in
his favour at the trial.
12.3 Thus the trinity of the principles for grant of interim injunction i.e.
prima facie case, irreparable loss and balance of convenience are required to
be tested in terms of principles as noted above. 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
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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.
Conclusion
13. Consequently, the present application is disposed off, declining the
grant of interim injunction as prayed for by FRL, however, the Statutory
Authorities/Regulators are directed to take the decision on the
applications/objections in accordance with the law.
(MUKTA GUPTA)
JUDGE
DECEMBER 21, 2020
'vn/ga'
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