The spat between two of the world’s richest men, Mukesh Ambani and Jeff Bezos, to dominate India’s retail market, which is estimated to be worth $1 trillion, is testing the patience of foreign investors with flip-flopping court rulings.
This week saw new developments in US-based eCommerce giant Amazon’s legal battle to block Mr. Ambani’s Reliance Industries from acquiring Future Group’s retail’s assets, in what would be the country’s largest retail sector deal. Last week, a single judge at a high court in the Indian capital of New Delhi restrained Future Group firms from selling their assets. Recently, a set of judges at the court reversed that decision. Amazon can appeal the latest ruling in the country’s Supreme Court.
Foreign arbitration in India
The keenly watched case may give an idea to future investors on whether emergency decisions by foreign arbitrators are valid in India. Foreign arbitration addresses any case or potential dispute between parties, usually located in two different countries, and is the most common form of alternative dispute resolution (ADR). It provides a binding solution to the dispute by way of an arbitral ‘award’.
Amazon had petitioned Indian courts with an order from an emergency arbitration court in Singapore that barred Future Retail from making a deal with Reliance.
The ongoing case could also help overseas investors judge the validity of agreements in India, which the international financial institution World Bank has ranked among the bottom 15 percent of countries in terms of enforcing contracts, worse than countries like Venezuela, Syria and Senegal.
“Not giving effect to a foreign arbitration award undermines India’s already floundering reputation as a good place to invest and do business in,” said experts. “Speedy enforcement of contracts and foreign arbitration rulings are important for overseas investors when assessing the attractiveness of an investment destination,” they said.
Spokespeople at Reliance Industries, Amazon’s local unit and Future Group haven’t shared their comments on the latest ruling. Future Retail’s lawyers have argued in court that the deal is their only chance to avoid bankruptcy and save jobs.
The rulings in Amazon’s case come after two big foreign arbitration awards against India. In September, an international arbitration tribunal said India acted unfairly in a $3 billion tax dispute with telecommunications company Vodafone and in another ruling ordered India to return $1.2 billion to UK-based Cairn Energy for a similar failure.
It’s common for companies investing in India to opt for foreign arbitrations as the judicial process in the country can take years. After an overseas arbitrator makes a decision, companies can seek its enforcement via an Indian court if the opposing side doesn’t comply.
Background of the case
In the Amazon-Future Group case, in October 2020 a Singapore emergency arbitration tribunal ordered the Future Group to halt the sale to Reliance. Amazon cited a partnership agreement with a Future Group firm for a customer loyalty promotion that restricted the group from selling assets to Mukesh Ambani’s company and allowed arbitration in Singapore to settle disputes.
Future Retail has argued in court that the pact with another group firm doesn’t bind it and Singapore’s emergency arbitration order wasn’t enforceable in India. That prompted Amazon to petition the Delhi High Court to ensure compliance.
Last week, a high court judge halted the deal and said he was of the initial view that the order from the emergency arbitration court in Singapore is valid and can be enforced in India. On an appeal by Future, a two-judge panel allowed the deal, saying Future Retail wasn’t a party to the agreement between Amazon and Future Coupons. A detailed hearing of the case will be held from February 26, the judges said.