The Reliance-Future Deal and Arbitrations in India – Explained, pointwise

Introduction

Future Retail has recently missed the payment of dues it owes to the banks which it had intended to pay by selling its assets to Reliance. Reliance’s offer to buy the assets of Future (Future-Reliance deal) expires in March 2022 which may impact Future’s ability to repay the debt. The delay in the execution of the deal has been caused by objection to the deal raised by Amazon and the matter has been under litigation since October 2020. This ordinary commercial dispute between Amazon and Future Retail has highlighted the quality of legal and regulatory protection investors receive in India. Further, it also highlights the lack of enforcement of arbitration in India.

About the issues in the Future-Reliance deal and Amazon’s stake in it

Future retail [Future Retail Ltd (FRL) is the country’s second-largest retailer with 1500 stores. Future retail, in a $3.4 billion deal, agreed to sell its retail business to Reliance retail in 2020. Under this deal, FRL was to sell its retail, wholesale, logistics and warehousing business to Reliance.

In 2019, Amazon had acquired a stake in Future Coupons in an agreement. According to Amazon, under this agreement, it has the first right of refusal in any stake sale in Future Retail and Future Retail’s assets could not be transferred without Amazon’s consent. Amazon also invested INR 1,431 crore in Future Retail.

Under the Amazon-Future deal, both parties had agreed to refer their disputes to Singapore International Arbitration Centre (SIAC). Hence, Amazon approached SIAC to appoint an emergency arbitrator to get urgent interim relief.

What are the legal challenges in enforcing the SIAC arbitration award in India on the Future-Reliance deal?

SIAC emergency arbitrator had ruled in Amazon’s favour. It had put the Future-Reliance deal on hold. Currently, under Indian law, there is no mechanism for the enforcement of the orders of the Emergency Arbitrator. However, a party can move the Indian High Court under Arbitration & Conciliation Act, 1996 to get similar reliefs as granted by the Emergency Arbitrator.

Amazon had requested Delhi HC for enforcement of the Singapore arbitration award, which was accepted by Delhi HC. This single judge ruling was later stayed by the division bench of Delhi HC, after which Amazon approached the Supreme Court.

The Supreme Court also upheld the interim award of the Emergency Arbitrator of the SIAC.

What is the significance of the SC order on the Future Reliance deal and Arbitration in India?

First, the SC dismissed FRL’s argument that the “Emergency Arbitrator is not an arbitral tribunal” under the Arbitration and Conciliation Act of 1996. The Supreme court held that the award falls within the ambit of the Arbitration and Conciliation Act (Section 17) and is enforceable.

The court held that though the institution of emergency arbitration is not explicitly covered in the Arbitration Act 1996, but its provisions are broad enough to include Emergency Arbitrator. In fact, they help in decongesting the Judiciary.

Second, the Supreme Court also pointed out the recommendation of the High-Level Committee under the chairmanship of Justice B N Srikrishna which had been constituted by the Government of India to review the institutionalisation of the arbitration mechanism in India.

The committee had noted that international practice is in favour of enforcing emergency awards (Singapore, Hong Kong and the United Kingdom all permit enforcement of emergency awards). So the committee had recommended to enforce the emergency awards in all arbitral proceedings.

Third, The court recognised the “Doctrine of Party autonomy” between parties. The court held that in arbitration, both parties agreed upon the principles and platform for conflict resolution. Hence, the court held that upon receiving an adverse award, the party cannot wriggle out of responsibility.

What is the mechanism of arbitration in India?

Arbitration in India is regulated by the Arbitration and Conciliation Act, 1996. The Act has been amended in 2015, 2019 and 2021.

The Act is based on the 1985 UNCITRAL (The United Nations Commission on International Trade Law) Model Law on International Commercial Arbitration and the UNCITRAL Arbitration Rules 1976.

Salient features of the Arbitration and Conciliation Act

According to the 2015 amendment, 1. The provisions of the Act apply to international commercial arbitrations even if the place of arbitration is outside India, 2. The Court must refer the parties to arbitration unless it thinks that a valid arbitration agreement does not exist, 3. Permit parties to choose to conduct arbitration proceedings in a fast track manner.

The 2019 amendment, established the Arbitration Council of India (ACI) for the purpose of grading of arbitral institutions and accreditation of arbitrators, etc.

The 2021 amendments include,

Qualifications of Arbitrators: It does away with the qualifications of the arbitrators under the 8th Schedule of the Arbitration and Conciliation Act, 1996 which specified certain conditions.

Unconditional Stay on Awards: If the Award is being given on the basis of a fraudulent agreement or corruption, then the court can grant an unconditional stay as long as an appeal under Section 34 of the arbitration law is pending. This Section 36 of the Arbitration Act has been amended retrospectively from October 23, 2015.

What are the advantages of promoting Arbitration in India?

1. Arbitration minimizes the court intervention and reduces pendency in courts, 2. It helps bring down the costs of dispute settlement, 3. It encourages foreign investments and boosts investor confidence, 4. It fixes timelines for expeditious disposal, thereby ensuring the right to timely justice.

What are the challenges associated with Arbitration in India?

India already performs poorly when it comes to the enforcement of international contracts and agreements. The recent amendments can further hamper the spirit of the Make in India campaign and deteriorate India’s rankings in the Ease of Doing Business Index.

Retrospective application of Amendment may open floodgates of litigation. This will create legislative challenges, hence the resolution of commercial disputes could take a longer duration from now onwards.

The vast discretion of the arbitral tribunals led to an over-indulgence in the tribunals by some parties. This was observed by the Supreme Court in Tarapore and Company v. Cochin Shipyard Ltd case 1984. The Supreme Court had remarked that an honest man dreads arbitration more than lawsuits.

Arbitration proceedings have become more complex with time. Arbitrators have strived to simplify the proceedings by limiting the pleadings, insisting on written arguments, reducing the number of sittings, etc. But the parties and their lawyers habitually derail the proceedings by filing extensive and superfluous motions, interrogatories, resulting in unending oral and written submissions.

What should be done to facilitate arbitration in India?

India can improve the arbitration by implementing the recommendation of B N Srikrishna Committee. The recommendations include 1. Set up an autonomous body, styled the Arbitration Promotion Council of India (APCI), having representatives from all stakeholders for grading arbitral institutions in India, 2. Creating a special Arbitration Bench to deal with commercial disputes, in the domain of the Courts, 3. National Litigation Policy (NLP) must promote arbitration in government contracts, 4. Designate Legal and Treaties Division of the Ministry of External Affairs to deal with all Bilateral Investment Treaty (BIT) arbitrations, 5. Create an Inter-Ministerial Committee (IMC) constituting officials from Ministries of Finance, Commerce, External Affairs and Law to facilitate BIT Arbitrations.

The future-Reliance deal is a grim reminder of the status of Arbitrations in India. Hence, the government has to implement these reforms to facilitate India as an international hub of arbitration and a Centre of robust Alternative Dispute Resolution (ADR) mechanism catering to international and domestic arbitration, at par with international standards.

Source: Mint