TaxTMI 
TaxTMI 
2020 (12) TMI 1319
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....Ambar Bhushan and Mr.Vinay Tripathi, 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, Dr.Abhishek Manu Singhvi, Sr.Advocate with Mr.Avishkar Singhvi, Ms.Madhavi Khanna, Mr.K.R.Sasiprabhu and Mr.Aditya Swarup, Advocates ORDER 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 Reliance) with the following prayers: (a) Restrain by a....
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....ircumstance 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 challeng....
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....he 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 Amazo....
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....sons 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; ....
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.... 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 ....
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.... formats operated by FRL (which is an integral part of the business conducted by 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 FCP....
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....he 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, 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 unlawfu....
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....udice would be caused to FRL and no prejudice would be caused to Amazon by the interim relief for the reason, 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 t....
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....rs of FRL cannot be bound by FCPL's Article of 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 wa....
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...., 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....
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....n 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....
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....ent 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 t....
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.... the FCPL SHA under the 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 ....
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.... learned Senior counsel on behalf of 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 w....
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....Acquisition of Shares and Takeovers) Regulations, 2011. 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 29th 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 tran....
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....ged 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. Ther....
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....umar v. Surinder Kumar. 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 pla....
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....ontention that these arbitration centres deal with foreign seated arbitration and not arbitration governed under the A&C Act is 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 presc....
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....s evident that FRL's grievance stems from the outcome of the proceeding before the Emergency Arbitrator 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 Eme....
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....ion before the CCI, it is stated that Amazon's position in the arbitration 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 Compa....
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....gations by citing alleged breaches of foreign exchange laws. 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 F....
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....relies upon the decisions 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....
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....pect 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 'un....
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....ed or is acted upon as a foundation for a right, even at the stage of execution or in collateral proceedings. 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....
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....red 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 an....
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....vant 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,- (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....
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....- (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; (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 o....
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....opy 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 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 ....
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....f 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 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 ....
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....tion 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, b....
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....PL 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, ....
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.... 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. 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 t....
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....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 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 an....
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....nal 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 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 arbi....
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....ency 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 interpretation of a provision in the A&C Act. 8.21 In the decision reported as 2020 SCC OnLine 65....
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....e 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. Clarify....
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.... 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 ....
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....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....
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.... 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....
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....e 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 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 ....
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....nd 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: "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 ....
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....ormed 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: "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 t....
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....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....
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.... 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 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 ....
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....ts 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 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 Ama....
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....t 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: "(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 outsid....
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....ent 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. (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....
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....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 pe....
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....om 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....
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.... 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 a....
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....rer 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 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 wit....
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.... 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 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 pleadin....
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....stor 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 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....
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....all 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....
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....RL 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,....
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....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 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 ....
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....d 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 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 obt....
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.... (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 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....
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.... 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 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, ....
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....ima-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." 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 praesent....
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....saction 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 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 th....
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.... 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 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 economi....
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....lawful 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 ba....
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....almer (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....
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....manent 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 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 bar....
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....n 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 (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 who....
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....onable 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. 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....
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....ot 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 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 w....