The Delhi High Court on Monday dismissed a plea of Future Retail Ltd (FRL) to restrain Amazon from interfering with its Rs 24,713cr deal with Reliance.

In an 132-page order, Justice Mukta Gupta declined the grant of an interim injunction as sought by the Kishore Biyani company. Justice Gupta further said the statutory authorities or regulators can take a decision (whether to approve the transaction) in accordance with the law.

However, the judge said, the board resolution of FRL on August 29 for the sale of its business to Reliance is valid and is in accordance with statutory provisions or the articles of association of FRL.

The matter had gone on to the Singapore International Arbitration Centre (SIAC), which on October 25 passed an interim order in favour of Amazon barring FRL from taking any step to dispose of or encumber its assets or issuing any securities to secure any funding from a restricted party.

During the proceedings at the Delhi high court, FRL had claimed the order from the emergency arbitrator (EA) is without jurisdiction and a nullity as the EA lacked legal status under Part I of the Arbitration and Conciliation Act, 1996 (A&C Act) and the parties even by consent could not have conferred jurisdiction on the EA as it was “coram non judice” (not before a judge).

However, Justice Gupta held the order given by EA is valid. “The EA prima facie is not a coram non judice and the consequential EA order not invalid,” the order said.

The Delhi High Court also observed that the shareholder agreements between Amazon and the Future group show that the latter has acquired control rights over FRL and that in the absence of government approvals, this is contrary to Fema and FDI rules.

In its plea, FRL has sought an interim restraint on Amazon from interfering with the transaction or taking any steps that would come in the way of the deal, pending consideration before the regulators and statutory authorities.

“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,’’ Justice Gupta said in the order.

According to Gupta, the trinity of the principles for the grant of interim injunction — prima facie case, irreparable loss and balance of convenience are required to be tested.

Future claims win

The Future group, however, claimed that Monday’s verdict actually went in its favour.

The court said that it was “prima facie of the opinion” that the conflation of the three agreements — the two shareholder agreements at Future Retail and Future Coupons Pvt Ltd (FCPL) and the share subscription agreement at FCPL — had not only created protective rights in favour of Amazon for its investments but also transgressed to “control” over FRL, which required government approval. Since this had not been obtained, Amazon’s agreements with the Future group ran contrary to the FDI rules under the Foreign Exchange Management Act, the court added.

This is an argument that Amazon had tried hard to rebut with its counsel arguing that FCPL had only a 9.82 per cent shareholding in Future Retail and the investment in Future Coupons had given Amazon only an indirect 2.58 per cent stake in Future Retail.

Further, Amazon’s investment in FCPL did not violate the Foreign Exchange laws as the government permitted foreign investment up to 51 per cent under the government route in entities engaged in multi-brand retail trading. Moreover, foreign investment up to 100 per cent is permitted under the automatic route in FCPL, which is engaged in “cash and carry wholesale trading/wholesale trading”.

The court, however, did not buy Amazon’s argument.

Significantly, the court also said that by asserting that the Future Retail board resolution of August 29 this year (which ratified the deal with the Reliance group) was void, 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.”

The court went on to add that FRL had “been able to make out a prima facie case of tortious interference by Amazon” by seeking to block the transaction.