2020 (12) TMI 1319 - HC - Companies Law

Maintainability of suit - Emergency Arbitrator lacks legal status under Part I of the A C Act and thus coram non judice - conflation of the FRL SHA, FCPL SHA and FCPL SSA, Amazon seeks to exercise 'Control' on FRL which is forbidden under the FEMA FDI Rules - tortious interference is made out by FRL or not - Whether the present suit is prima facie maintainable? - HELD THAT - Challenge of FRL to the EA order is not on merits and no declaration for the EA order being invalid or illegal on merits is sought from this Court. Case of the FRL is that since Amazon is trying to enforce and act upon the EA order before the Statutory Authority/Regulators and as the Emergency Arbitrator is a coram non-judice, this Court can go into the validity of the same to the extent asserted in the present suit. In the present suit, the cause of action pleaded by FRL is the tortuous interference by Amazon in its lawful transaction and to determine the ingredients of the said cause of action, i.e. whether use of 'unlawful means' is being resorted by Amazon, this Court is required to return a finding - this Court is of the considered opinion that prima facie the present suit cannot be held to be not maintainable on the two grounds urged by Amazon, that is, that the EA order cannot be challenged in the present proceedings and secondly, that the grounds urged by FRL before this Court have already been urged and considered by the Emergency Arbitrator. Whether the Emergency Arbitrator lacks legal status under Part I of the A C Act and thus coram non judice? - HELD THAT - It is now well settled that party autonomy is the backbone of arbitration. The courts in India have given due importance to the concept of party autonomy, and have further given full effect to the choice of the parties with respect to all three laws involved in an arbitration agreement, subject to the public policy of India and the mandatory provisions of the A C Act - 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. The Indian law of arbitration allows the parties to choose a procedural law different from the proper law, and this Court finds that there is nothing in the A C Act that prohibits the contracting parties from obtaining emergency relief from an emergency arbitrator. An arbitrator s authority to act is implied from the agreement to arbitrate itself, and the same cannot be restricted to mean that the parties agreed to arbitrate before an arbitral tribunal only and not an Emergency Arbitrator. This court arrives at the conclusion that Firstly, the parties in an international commercial arbitration seated in India can by agreement derogate from the provisions of Section 9 of the A C Act; Secondly, in such a case where parties have expressly chosen a curial law which is different from the law governing the arbitration, the court would look at the curial law for conduct of the arbitration to the extent that the same is not contrary to the public policy or the mandatory requirements of the law of the country in which arbitration is held; Thirdly, inasmuch as Section 9 of the A C Act along with Sections 27, 37(1)(a) and 37(2) are derogable by virtue of the proviso to Section 2(2) in an International arbitration seated in India upon an agreement between the parties, it cannot be held that the provision of Emergency Arbitration under the SIAC rules are, per se, contrary to any mandatory provisions of the A C Act. Hence the Emergency Arbitrator prima facie is not a coram non judice and the consequential EA order not invalid on this count. Whether the Resolution dated 29th August, 2020 of FRL is void or contrary to any statutory provision? - HELD THAT - Case of FRL is that its Board Resolution dated 29th August, 2020 does not violate any provision of the FRL's Article of Association or any provision of law and that the same is in compliance with the fiduciary duty owed by FRL to its stakeholder, which averments have not been seriously disputed by Amazon except contending that the Board Resolution dated 29th August, 2020 is in breach of FCPL SHA and FRL SHA. The resolution being in breach of the FRL SHA and FCPL SHA is distinct from the resolution being void or contrary to any statutory provision or contrary to the Articles of Association of FRL. To claim that the Board Resolution of FRL dated 29th August, 2020 is void, Amazon also contends that consent of FCPL as required under the FRL SHA has not been taken in this regard. However, FRL has placed on record the letter dated 29th August, 2020, signed on behalf of both FRL and FCPL wherein FCPL has granted its approval for the transaction between FRL and Reliance. During the course of arguments, learned counsel for FRL contested the letter dated 29th August, 2020 claiming that the same is not accompanied by a statement of truth based on affidavit, however, 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. 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 by conflation of the FRL SHA, FCPL SHA and FCPL SSA, Amazon seeks to exercise 'Control' on FRL which is forbidden under the FEMA FDI Rules? - HELD THAT - A conflated reading of the Clause-4.1 (iv) of the FCPL SHA and Clause-4.1 of the FRL SHA would show that vide the FCPL SHA a control was created even on the voting rights of the promoters of FCPL in relation to their decisions as shareholders of FRL so as to enable the approval of any and every resolution necessary or desirable to give effect to FCPL SHA and FRL SHA and likewise to ensure that no resolution of FRL is passed which is not in accordance with the FCPL SHA and/or FRL SHA. Even Clause-4.1 of the FRL SHA correspondingly provides for an obligation on every person representing as a shareholder of FRL, to exercise any power to vote or cause the power to vote to be exercised at any meeting of the shareholders so as to enable the approval of any and every resolution necessary or desirable to give full effect to the FRL SHA and to ensure that no resolution which is not in accordance with FRL SHA is passed. The rights granted to Amazon by conflation of the two Shareholders Agreements are prima facie disproportionate to the actual shareholding of Amazon and by camouflaging of words, the extensive rights held by Amazon by the provisions of the inter se agreements set out above, cannot be masked as mere protective rights so as to fall beyond the test of control - this Court is prima facie of the opinion that the conflation of the three agreements i.e. FRL SHA, FCPL SHA and FCPL SSA besides creating protective rights in favour of Amazon for its investments also transgress to 'control' over FRL requiring government approvals and in the absence thereof are contrary to FEMA FDI Rules. Whether prima facie a case for tortious interference is made out by FRL? - HELD THAT - 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 - thus, existence of a contract, interference wherein is alleged is a sine qua non for the tort of inducement. Contention on behalf of Amazon is that no such contract between FRL and Reliance has been placed on record hence FRL's suit for tortious interference is not maintainable. The two fold submission of Amazon in this regard is that firstly, the resolution of FRL dated 29th August, 2020 is void and secondly FCPL has not granted its consent which was required by FRL before proceeding with the transaction and in any case the said document has not seen the light of the day. Whether FRL is entitled to an interim injunction? - HELD THAT - The trinity of the principles for grant of interim injunction i.e. prima facie case, irreparable loss and balance of convenience are required to be tested in terms of principles as noted above. Since this Court has held that prima facie the representation of Amazon based on the plea that the resolution dated 29th August, 2020 of FRL is void and that on conflation of the FCPL SHA and FRL SHA, the 'control' that is sought to be asserted by Amazon on FRL is not permitted under the FEMA FDI Rules, without the governmental approvals, this Court finds that FRL has made out a prima facie case in its favour for grant of interim injunction. However, the main tests in the present case are in respect of balance of convenience and irreparable loss . Even if a prima facie case is made out by FRL, the balance of convenience lies both in favour of FRL and Amazon. It would be a matter of trial after parties have led their evidence or if decided by any other competent forum to determine whether the representation of Amazon that the transaction between FRL and Reliance being in breach of the FCPL SHA and FRL SHA would outweigh the plea of FRL in the present suit. Further in case Amazon is not permitted to represent its case before the statutory authorities/Regulators, it will suffer an irreparable loss as Amazon also claims to have created preemptive rights in its favour in case the Indian law permitted in future. Further there may not be irreparable loss to FRL for the reason even if Amazon makes a representation based on incorrect facts thereby using unlawful means, it will be for the statutory authorities/Regulators to apply their mind to the facts and legal issues therein and come to the right conclusion. There is yet another aspect as to why no interim injunction can be granted in the present application for the reason both FRL and Amazon have already made their representations and counter representations to the statutory authorities/regulators and now it is for the Statutory Authorities/Regulators to take a decision thereon. Therefore, this Court finds that no case for grant of interim injunction is made out in favour of the FRL and against Amazon. The present application is disposed off, declining the grant of interim injunction as prayed for by FRL, however, the Statutory Authorities/Regulators are directed to take the decision on the applications/objections in accordance with the law.

Summary

Issues Involved:

1. Maintainability of the present suit.
2. Legal status of the Emergency Arbitrator under Part I of the Arbitration and Conciliation Act (A&C Act).
3. Validity of the Resolution dated 29th August, 2020 of FRL.
4. Whether Amazon's conflation of the FRL SHA, FCPL SHA, and FCPL SSA amounts to 'Control' over FRL, violating FEMA FDI Rules.
5. Prima facie case of tortious interference by Amazon.
6. Entitlement of FRL to interim injunction.

Issue-wise Detailed Analysis:

I. Maintainability of the present suit:

The objections to maintainability were twofold: (1) the arbitration proceedings had already commenced, and (2) the EA order cannot be collaterally challenged. The court held that the suit is maintainable as it is based on a distinct cause of action—tortious interference by Amazon in FRL's lawful transaction with Reliance. The court emphasized that the present suit is not challenging the EA order on merits but the legal status of the Emergency Arbitrator. The court cited precedents indicating that a decree passed by a court without jurisdiction can be challenged even in collateral proceedings. Thus, the court found the suit maintainable.

II. Legal status of the Emergency Arbitrator under Part I of the A&C Act:

The court examined whether the Emergency Arbitrator lacked legal status under Part I of the A&C Act. It was noted that the arbitration agreement between FCPL and Amazon was governed by Indian law but conducted under SIAC Rules. The court held that party autonomy allows choosing procedural rules different from the proper law, provided they do not conflict with public policy or mandatory provisions of the A&C Act. The court found that the SIAC Rules, including provisions for an Emergency Arbitrator, are not contrary to the mandatory provisions of the A&C Act. Thus, the Emergency Arbitrator is not coram non judice, and the EA order is not invalid on this count.

III. Validity of the Resolution dated 29th August, 2020 of FRL:

The court considered whether the resolution was void or contrary to statutory provisions. It was noted that the resolution was passed in the context of FRL's financial distress due to the COVID-19 pandemic and the fiduciary duty of FRL's directors. The court found no material indicating that the resolution was void or contrary to any statutory provision or the Articles of Association of FRL. The court also noted that FCPL had granted its consent for the transaction with Reliance. Hence, the resolution was prima facie valid.

IV. Whether Amazon's conflation of the FRL SHA, FCPL SHA, and FCPL SSA amounts to 'Control' over FRL, violating FEMA FDI Rules:

The court analyzed the clauses of the FCPL SHA and FRL SHA to determine if Amazon's rights amounted to control over FRL. It was noted that the agreements created extensive rights for Amazon, which went beyond mere protective rights and amounted to control over FRL. The court held that such control required government approvals under FEMA FDI Rules, which were not obtained. Therefore, the conflation of the agreements by Amazon was prima facie contrary to FEMA FDI Rules.

V. Prima facie case of tortious interference by Amazon:

The court applied the four tests for tortious interference: (1) use of unlawful means, (2) interference with a third party's actions, (3) intent to cause loss, and (4) damages. The court found that Amazon's representations to statutory authorities based on incorrect assertions about the resolution and control over FRL amounted to unlawful means. Thus, FRL made a prima facie case of tortious interference.

VI. Entitlement of FRL to interim injunction:

The court considered the principles of prima facie case, irreparable loss, and balance of convenience. While FRL made a prima facie case, the balance of convenience and irreparable loss factors were not in its favor. The court noted that both FRL and Amazon had already made representations to statutory authorities, and it was for the authorities to decide. Therefore, the court declined to grant an interim injunction but directed the authorities to decide the applications/objections in accordance with the law.

Conclusion:

The application for interim injunction by FRL was disposed of, with the court declining to grant the injunction and directing statutory authorities to decide on the applications/objections in accordance with the law.