Amazon-Future Group: More Reasons Call to Question the Delhi HC Division Bench Ruling

[Velpula Audityaa is an Advocate practicing before the Madras High Court and trial courts in Chennai. The author is thankful to Nirmal Prasad (Advocate, Delhi High Court) for his inputs on this post]

In an earlier post, a Delhi High Court division bench’s order dated 5 January 2022 in staying the arbitral proceedings between Amazon and the Future Group before a SIAC tribunal, was rightly criticized on the grounds of the court exceeding its jurisdiction under Article 227 of the Constitution, uncalled for interference with the arbitral tribunal’s autonomy, and why the facts did not justify interference at that stage. In this post, the author puts forth more reasons why the division bench went wrong in staying the arbitral proceedings and acted in complete contravention of judicial restraint required to be exhibited in arbitration proceedings.

Factual Position

Since the earlier post lucidly explained the facts leading up to the dispute, the present post only deals with certain factual portions prior to the order. On 17 December 2021, in pursuance of an application filed by Future Coupons Private Limited (“FCPL”), the Competition Commission of India (“CCI”) passed an order under sections 43A, 44 and 45 of the Competition Act 2002, imposing a monetary penalty on Amazon and keeping in abeyance the approval granted by the CCI to the transaction between Amazon and FCPL until the CCI examined the transaction afresh.

Much prior to this order, on 13 October 2021, both Amazon and the Future Group agreed before the arbitral tribunal to hear and examine expert witnesses between 5 January 2022 and 8 January 2022. Thereafter, on 23 December 2021, the Future Group preferred termination applications before the arbitral tribunal relying on the CCI order keeping the transaction in abeyance. After 25 December 2021, the Future Group requested the tribunal to hear and decide the termination application prior to hearing the expert witnesses since, if the arbitral proceedings stood terminated by the CCI’s order, the question of hearing the expert witnesses would not arise.

In this regard, a bunch of procedural orders came to be passed by the arbitral tribunal wherein, by order dated 29 December 2021, the tribunal rejected the Future Group’s request to hear the termination applications prior to hearing expert witnesses, since (a) extensive preparations were already made for the expert witnesses’ hearings scheduled in January 2022; (b) uncertainty as to whether the CCI order was appealable and whether that could form the basis of terminating the arbitral proceedings; (c) strength of the legal teams of the parties ensured that there was no reason to adjourn the hearings; (d) being an issue of case management, the Tribunal had complete discretion as to when to hear the termination applications. Thereafter, by order and email dated 30 December 2021 and 31 December 2021, the tribunal clarified that it only expressed a preliminary view, and stated that it would give adequate time for both the parties to address the tribunal on the implications of the CCI order over the arbitral proceedings. Later, it was also clarified that the termination application was scheduled to be heard immediately thereafter, i.e., on 08 January 2022.

Impugning these procedural orders, the Future Group preferred Article 227 petitions before the Delhi High Court, wherein by an order dated 04 January 2022, a single judge dismissed the same. On appeal, the very next day, in a brief and perplexing order, a division bench of the Court granted the Future Group an ad-interim stay over the arbitral proceedings, prima facie agreeing with the view that the CCI’s order keeping the transaction in abeyance rendered the agreement between the parties unenforceable, and hence, the arbitral tribunal ought to have taken up the termination application under section 32(2)(c) of the Arbitration and Conciliation Act 1996 (“A&C Act”) on priority prior to recording of evidence.

Analysis

Section 32(2)(c) of the A&C Act gives an arbitral tribunal the power to terminate proceedings where the tribunal finds that the continuation of proceedings has, for any other reason (other than due to withdrawal of claim; or parties’ agreement on terminating proceedings), become unnecessary or impossible. The Future Group’s argument was that the arbitration itself did not survive due to the CCI order and, hence, there was no need for the tribunal to hear further evidence in this regard. Therefore, the key issues which the Court would have had to examine prior to grant of stay would have been – (a) whether any ‘irreparable loss’ would be caused to the party if the evidence of the experts was completed prior to deciding the termination application; and (b) whether arbitral proceedings could be terminated based on an appealable order, i.e., an order which has not attained finality.

But before that, the issue of the maintainability of the appeals ought to be addressed.

Maintainability of appeals

The proceedings before the division bench have been registered as Letters Patent Appeals (LPAs 6 & 7 of 2022). The first issue that arises is: whether an intra-court appeal (LPA) is maintainable against a court exercising jurisdiction under Article 227. As held by the Supreme Court in Jogendrasinhji Vijay Singhji v. State of Gujarat and the Delhi High Court in South Delhi Municipal Corporation v. Bharat Bhushan Jain and a host of other judgments, intra-court appeals or Letters Patent Appeals are not maintainable against orders passed by a court exercising jurisdiction under Article 227. The same is also evident from a mere reading of Clause 10 of the Letters Patent (Lahore), applicable to the Delhi High Court, which excludes intra-court appeals against orders passed under revisional or supervisory jurisdiction, which includes Article 227 petitions. Therefore, the Court was not competent to even entertain the appeals, let alone grant a stay over the arbitration proceedings. However, to proceed with the analysis, it would be necessary to assume that the intra-court appeals are, somehow, maintainable.

Irreparable Loss & Finality of Order

From the contentions raised before the division bench, it was not the Future Group’s position that any prejudice or irreparable loss would be caused to it by hearing the experts before the termination application. Instead, it was argued that the termination application required immediate adjudication since: (a) the CCI order went to the root of the matterand the agreement containing the arbitration clause did not survive due to the CCI’s order and, hence, neither did the arbitration; (b) one day was not sufficient time to hear the termination application; (c) the tribunal consistently violated the principle of equal opportunity; (d) the tribunal’s observation required further pleadings to be filed pertaining to the experts; and (e) some of the lawyers representing the Future Group tested positive for Covid-19. The issue was argued more as one of ‘priority’, and not ‘prejudice’.

Section 53B of the Competition Act 2002 provides 60 days to prefer an appeal before the National Company Law Appellate Tribunal (“NCLAT”) against an order of the CCI. Even if the Supreme Court’s order extending limitationwere to be ignored, Amazon had time until 15 February 2022 to prefer an appeal against the CCI order. While the division bench’s order came to be passed on 5 January 2022, information from the website of the NCLAT suggests that an appeal against the CCI order came to be filed on 9 January 2022, which is well within the statutory period of 60 days.

During the course of proceedings, courts and tribunals provide time to parties, where appropriate, to approach a ‘higher forum’ for grant of stay. For instance, in the context of execution proceedings, this is statutorily envisioned under Order 21 Rule 26 of the Code of Civil Procedure 1908 (“CPC”) which allows the judgment-debtor to apply to the executing court to adjourn the matter for a ‘reasonable time’ to get a stay from an appellate forum. Moreover, it is common knowledge that the NCLAT has, in the past, stayed the operation of orders passed by the CCI while hearing an appeal. Further, from both the orders, it is evident that the Future Group was not able to make out any issue of irreparable loss or prejudice. Therefore, the Court ought not to have interfered with the arbitration proceedings before the NCLAT at least prima facie applied its mind to the case at hand.

It can also be seen that the A&C Act itself provides for this contingency. Being an India-seated arbitration, section 34 of the A&C Act applies to the present proceedings, which contains the procedure for setting aside an arbitral award. Sub-section (2) states that the enforcement of an arbitral award may be refused by the court if it finds that the award is contrary to public policy in India [section 34(2)(b)(ii)]; or if the agreement is not valid under the law to which the parties have subjected it to [section 34(2)(a)(ii)]. In fact, section 34(4) gives power to the court, on a request by a party, to remand the arbitration proceedings back to the tribunal for taking appropriate action to eliminate the grounds for setting aside the arbitral award.

In the present case, there are two scenarios that could have occurred: (a) termination application is decided (and dismissed) and appeal proceedings are still pending; or (b) termination application is pending and CCI order has attained finality (due to exhaustion of statutory appeals). In situation (a), if the arbitral tribunal were to proceed with the arbitral proceedings and pass an award favouring Amazon, it would be open to the Future Group to apply under section 34 and section 36(2) to the court to prevent the enforcement of the award, and / or thereafter, if required, had the proceedings remanded back to the tribunal under section 34(4). In the unlikely event of situation (b), it would be open to the arbitral tribunal to proceed with the arbitration (or not) based on the outcome in the appeals before the NCLAT and then the Supreme Court. Therefore, since the A&C Act itself provides for adequate safeguards in this regard, it was not appropriate for the Delhi High Court to have stayed the proceedings.

Conclusion

There is no doubt that the present decision, despite being interim in nature, strays India further away from being recognized as a pro-arbitration jurisdiction. As stated earlier, the facts of the case and the statutory framework of the A&C Act provided no scope for judicial interference.

Since the appeal before the NCLAT is due to be heard shortly, it remains to be seen whether the NCLAT stays the operation of the CCI order. An issue to be decided is – even if the NCLAT does not stay the CCI order, whether that by itself allows the tribunal to terminate the arbitration despite the CCI order not attaining finality. As evident from the tribunal’s procedural order dated 30 December 2021, this issue was to be decided by the tribunal (‘implications of the CCI order over the arbitration proceedings’) while adjudicating the termination application. However, it appears that the division bench might decide this issue if it holds an intra-court appeal to be maintainable in the present case, rendering this yet another situation where courts have seized matters from arbitral tribunals which they were perfectly competent to handle. The present division bench proceeding has the potential to result in either one of two discomfiting outcomes – if dismissed (either on maintainability or otherwise), depicting the premature overenthusiasm of the Court in interfering with an arbitral tribunal’s autonomy; or if allowed, a complete convolution of jurisprudence where courts’ superintendence powers stand extended to even matters of mere case management.

Velpula Audityaa

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