SC Seeks Response From Future Retail In Plea By Amazon

KEY TAKEAWAYS

• Amazon and Future Retail had entered into an agreement signed by both parties in August, 2019. Amazon had agreed to buy 49 per cent of one of Future's unlisted firms -- Future Coupons Ltd -- with the right to buy into flagship Future Retail after a period of three to ten years.
• In August 2020, Future Retail Ltd. reached an agreement to sell its retail, wholesale, logistics and warehousing units to Reliance Retail Ventures Ltd (RRVL) -- which operates the retail business of RIL -- for Rs 24,713 crore.
• Amazon found the subsequent agreement to be in breach of their contract, and moved the Delhi High Court to that effect, seeking enforcement of the interim order of the Emergency Arbitrator (EA) at the Singapore International Arbitration Centre (SIAC) that had restrained FRL from going ahead with the deal with Reliance.
• The Supreme Court on Monday restrained the National Company Law Tribunal (NCLT) from approving the ₹24,713-crore deal between Kishore Biyani’s Future Retail Ltd (FRL) and Reliance Industries Ltd (RIL), aftercom Inc. filed a plea before the Apex Court.
• Future Retail will have to file its reply in 3 weeks, while Amazon will get two weeks to file its counter reply. The case is likely to be listed for hearing before the top court in the last week of March. 

INTRODUCTION

Future Retail Ltd. is a leading retailer in India that operates in multiple formats, both in value and in lifestyle segments of the consumer market in India. In order to expand its market, it entered into a deal with Amazon, a leading E-commerce giant in August 2019, in which Amazon had bought 49% shares in one of Future’s unlisted firms, with the right to buy flagship under the Future Retail Ltd. in a few years.

Post the breakout of the Covid19 pandemic, Future Retail went into a severe cash crunch and to reverse the loss it entered into a deal with Reliance Industries has agreed to buy Future Group's retail business across apparel, lifestyle and grocery segment, a deal that will help the Mukesh Ambani oil-to-media firm control more than a third of India’s organised retail market.

In the light of these two contracts, Future Retail is stuck in the midst of a feud between two of the richest and most influential entities functioning in the world. 

FURTHER DETAILS

Consequent to the lockdown imposed due to the breakout of the global pandemic, Covid19, Future Retail suffered a huge cash crunch its credit rating saw a default. It then underwent an agreement with Reliance India Ltd. which agreed to have an acquisition with the Future Group whereby it would acquire the assets and liabilities of the organisation.

The acquisition including Reliance taking over all debts, liabilities, retail stores and a minority stake in its consumer business, with an investment of about Rs. 27,513 crore, involves merger of five Future Group's listed entities including Future Retail, Future Lifestyle and Future Consumer - into Future Enterprises (FEL), which currently houses the group’s retail back-end infrastructure. This acquisition is subject to SEBI, CCI, NCLT, shareholders, creditors and other requisite approvals.

Amazon considered the subsequent agreement with Reliance India Ltd. to be in breach with their contract and considered Emergency Arbitrator at the Singapore International Arbitration Centre (SIAC) that had restrained FRL from going ahead with the deal with Reliance. In the interim arbitration award, a single-judge bench of V K Rajah barred Future Retail from taking any step to dispose of or encumber its assets or issuing any securities to secure any funding from a restricted party.

Future Retail Ltd. opined that the order passed by the SIAC was not enforceable and binding, and any move to enforce it would be resisted by the company in full fervour. In the interim arbitration award, a single-judge bench of V K Rajah barred Future Retail from taking any step to dispose of or encumber its assets or issuing any securities to secure any funding from a restricted party. "FRL is advised that an Emergency Arbitrator has no legal status under Part I of the Indian Arbitration and Conciliation Act, 1996 and therefore, the proceedings before an Emergency Arbitrator are void and coram non-judice," the Kishore Biyani-led company said.

In February, 2021, Amazon Inc. approached the Mumbai bench of the National Company Law Tribunal and informed the Tribunal of the Special Leave Petition filed by them in front of the Supreme Court against an order passed by the Delhi High Court dated February 8, 2021 in this matter. The NCLT has reserved the order over the scheme of arrangement that entails the consolidation of Future Group's retail and wholesale business and transferring it to Reliance Industries in the Rs 24,713 crore deal.

On Monday, the Supreme Court agreed the NCLT should not “sanction” the deal until it has heard the case, which is scheduled for March.

BACKGROUND

Amazon had reportedly struck a deal with Future Retail back in the year 2019. Amazon says that as per the principal terms of the contract they had agreed to buy out 49% share of one of Future Retail's unlisted firms Future Coupons Ltd. and most importantly Amazon had reserved the exclusive right to buy Future group's flagship Future Retail after a period of three to ten years. Clearly, going by Amazon's versions Future Retail was contractually bound to offer their captioned asset first to Amazon upon their exercise of the 'right of first offeree'.

In 2020 news media was started being flooded with reports of Future Retail's purported agreement with Reliance Retail Ventures Limited to sell out its asset portfolios to Reliance, which of course included the assets under contract between Future Retail & Amazon.

Amazon was obviously miffed about this progress. They had formally objected to Future Retail's plan to sell its assets to Reliance. Amazon alleged that Future Retail violated the terms of the contract subsisiting with Amazon. Future Retail dismissed the allegation of Amazon, berated Amazon's objections as their high-handedness and unauthorized interference.

Amazon moved Singapore seat of Arbitration to put a reign in the course of the Future Reliance deal. Eventually, Amazon got a favourable order from arbitrator. Later Honourable Delhi High Court refused to put a stay on the purported Future-Reliance deal.

Amazon says the 2019 deal, in which it invested nearly $200 million in a Future unit, had clauses saying the Indian group could not sell its retail assets to anyone on a "restricted persons" list, which included Reliance. Kishore Biyani, the leader of the Future Group denied such allegation and pointed that Jeff Bezos led Amazon Inc. is behaving like a “dog in the manger” in connection to the instant legal battle.

THE CURRENT SCENARIO

The Future Group – Reliance merger had sought and been granted approval by the Competition Commission of India and the Securities and Exchanges Board of India (SEBI). The merger is awaiting a nod from the National Company Law Tribunal which has been barred from sanctioning the merger as of now by the Apex Court.

The NCLT can carry on with the other aspects of the matter as scheduled, only the judgement pertaining to the ‘merger’ portion of the case is to be reserved until further intimation by the Supreme Court.

The Supreme Court has provided with 3 weeks to Future Retail Ltd. to file its reply in lieu of the case, whilst a time period of 2 weeks has been allotted to Amazon to file its counter- reply.

The matter is expected to be presented in front of the Apex Court by the last week of March.

CONCLUSION

Amazon's investment in Future Group came with contractual rights that include a right of first refusal and a non-compete-like pact. Also, the deal came with the right to buy into their flagship, Future Retail, after a period of between 3 and 10 years.

On August 29, 2020, the Future group announced sale of its retail, wholesale and logistic etc to Reliance Retail Ventures Limited, the retail arm of the Reliance Industries (RIL).

The stakes are particularly high for Amazon, which believes India is a big growth market after shutting its online store in China last year.