Supreme Court stops NCLT from giving go ahead to Future Retail – Reliance deal

The Supreme Court has stopped the National Company Law Tribunal (NCLT) from approving the Rs 24,713 crore Future Retail Limited (FRL) and Reliance Retail deal.

The top court issued an interim order, making it clear that the NCLT shall not sanction the scheme to pave way for the deal between the FRL and the Reliance even if the meetings of the creditors and the shareholders of the Future groups takes place.

Amazon Inc. in a plea, on 2 Feb 2021, against FRL and Reliance Industries’ retail stake sale deal worth Rs 25,000 crore approved by a Board Resolution of FRL last year, a Delhi High Court Single-Judge Bench headed by Justice JR Midha had granted interim relief to the American company directing all authorities and parties to maintain status quo on the deal until a detailed interim order on the case.

This was, however, stayed on 8 Feb, when an appeal was moved by FRL against the status quo order of Justic Midha. The Division Bench had noted that there was no reason to seek a status quo before the learned Single Judge and that statutory authorities like SEBI, CCI should not be restrained from proceeding in accordance with law. The e-commcerce giant had contended that the Division Bench order is illegal, and arbitrary apart from being without jurisdiction.

In its Special Leave Petition before the Supreme Court, the international company has asserted that the Division Bench of the High Court could not have heard a letters patent appeal from an order passed under Section 17(2) of the Arbitration Act. It has been contended that the Division Bench hastily passed the impugned order without waiting for the detailed order of the single-judge and without appreciating the “Group of Companies” doctrine.

Moreover, Amazon Inc. further argued that FRL has acted in complete disregard of the rule of law and procedure prescribed by law and that a collateral challenge to an Emergency Award cannot be permitted. However, the Division Bench opined that FRL was not a party to an arbitration agreement with Amazon and prima facie the “Group of Companies” doctrine could not be invoked. It further observed that there was no reason to seek a status quo order from the single judge.

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Pointing out the consequences of lifting the status quo, Amazon’s petition said, “The greater the progress made towards the completion of the impugned transaction, the harder it will be to unravel it. Over time, the interests of third parties may also become entwined with the transaction and be subsequently compromised.”

The bench observed that the order seems to have decided the appeal finally at the interim. The Court proposed to issue notice at the interim and stay the proceedings at NCLT Mumbai bench on the sanction of Future-Reliance scheme. The order in appeal before the Court had noted that statutory authorities should not be restrained from proceeding in accordance with law on Future-Reliance deal, while lifting the single judge’s status quo direction.