Friends, you all must be reading in the newspaper regarding the issues that is being happening with Future Retail, Amazon, and Reliance Retail. The matter is shuttling between Delhi High Court (HC), Supreme Court (SC), and arbitrator based in Singapore. Let us see what is this issue about:
Kishore Biyani, who emerged as an uncrowned king of retail after setting up India’s first supermarket retail store chain, Big Bazaar (the flagship brand of Future Retail) in 2001. Future Retail went on to set up more than 4000 retail stores across the country. In 2019 the company came under huge economic stress, and the Debt was around Rs 12,700 in 2019.
That time Biyani inked a deal with Amazon to sell 49% of its unlisted entity, Future Coupons, for more than 1500 Cr. The long term business agreements gave Amazon the right to buy Flagship Future Retail after a period between three and 10 years. Such options are typically in regulatory area-allowing foreign entities the opportunity to hold stakes in sectors in which they would not normally be allowed to invest under the rules. For instance, in this case, foreign direct investment in multi-brand retail is barred. The deal also provided Amazon the Right to the first refusal and a not compete clause-barring Future’s dealings with the potential competitors of Amazon. In 2019, the Competition Commission of India (CCI) also approved Amazon’s proposed acquisition.
From March 2020, Future’s sales crashed due to Covid, by 75% from normal levels, adding enormous pressure on working capital flows. Reliance entered the fray in May-June 2020. Biyani entered a deal with Reliance Retail, the wholly owned subsidiary of Reliance Industries in August 2020. The new Rs 24,713 Crdeal envisaged Future selling its retail, wholesale, logistics, and warehousing units to Reliance Retail. The acquisition covered Future Retail, Future Lifestyle, and Future Consumer. Biyani retained manufacturing and distribution of consumer products, Future group’s partnership in insurance with Generali, and its textile partnership with NTC.
Aggrieved by the Future-Reliance deal, Amazon approached the Singapore International Arbitration Centre (SIAC) in October 2020 filing an emergency arbitration case. Alleging violation of non-compete clause and right-of –first-refusal pact it had signed with the Future group, Amazon asked SIAC to restrain Future group from selling its assets to Reliance. SIAC put the Future-Reliance deal on hold, and held that deal could not go through until it finally decides the matter.
The Future group approached Delhi High Court against Amazon, imploring to restrain Amazon from writing to SEBI, CCI, and other regulators about SIAC’s order. Future contended this amounted to interfering with its agreement with Reliance. While the proceedings were going on in HC, CCI approved Reliance Retail’s deal with Future on 20th November 2020 despite Amazon’s protest.
The single judge HC bench passed an order against Amazon, which led to Amazon moving the division bench in Delhi HC in January 2021. In the meantime SEBI also cleared the Reliance-Future Retail deal, prompting Amazon to move the HC for enforcement of the SIAC ruling. Future Group defended its position that Amazon’s deal was not with Future Retail but with Future Coupons. On 2nd February 2021, the HC affirmed the validity of SIAC’s emergency award and ordered the status quo. Future challenged this order before division bench immediately on next day. On 9th February 2021, the division bench stayed the single-judge order, giving a go -ahead to the future-Reliance deal. The single judge detailed order which came on 18th March 2021, not only upheld SIAC’s order but also directing attachment of properties of Biyani and the other directors of Future.
The matter even went to SC, who on 6th August 2021 ruled that Future Group is bound by SIAC’s emergency award, and that it is enforceable under the Indian Arbitration law. On 9th September 2021, the SC took up Future’s appeal against the single judge order and restrained the Delhi HC from passing any adverse directive against Future’s deal with Reliance or on attaching the assets of Future Group. The Chief Justice of India directed that no statutory authority in the country should give its final approval to any scheme facilitating the Future-Reliance deal for the next four weeks.
The application by Future to lift the interim stay on its deal with Reliance was rejected by SIAC. After that SIAC set down the arbitration case for detailed hearing and final judgment. Future again approached the Delhi HC to stay on SIAC’s order. After the HC’s refusal to stay SIAC’s order, Future moved the SC, the appeal contended that SIAC’s order would lead to grave and irreparable harm if Future was not able to proceed with the disputed transaction.
Matters took a surprising twist on 17th December 2021, when CCI, suspended its nod to Amazon’s 2019 investment in Future Coupons, potentially blocking Amazon’s attempt to block the sale of Future Retail to Reliance. CCI found that Amazon had not disclosed details of shareholder agreement at the time of acquisition and its purpose was to acquire strategic rights over Future Retail and to have a “ foot in the door” in Indian retail. CCI puts its prior approval to the combination in abeyance, giving Amazon 60 days to give notice for the combination, post which CCI would ‘examine the combination fresh”
On this order of CCI Future approached SIAC’s Delhi seated tribunal, asking for termination of the arbitration proceedings on the ground that the very foundation of Amazon’s case was removed after suspension of approval by the CCI. SIAC refused any interim order and decided to go ahead with the hearing of the main arbitration case.. Meanwhile, Amazon on 8th January 2022 filed an appeal before the National Company Law Appellate Tribunal (NCLAT) against the CCI order suspending an approval to its 2019 deal with Future.
In February 2022, Reliance Retail took over the operations of at least 300 stores of Future and offered jobs to its employees after Future failed to make lease payments to landlords. According to the Future Group firm, Reliance has terminated the leases and forcefully taken over control of hundreds of its stores. Yesterday Future group said in the SC that they will act to reverse the store takeover by Reliance.
This issue is getting complicated, on the face of it looks like Amazon wanted to have a backdoor entry in the Indian Retail business, but their move got snowballed into legal tangles. My feeling is as Biyani was in bad shape and Amazon was in no mood to invest further because of legal issues, so that may be the reason Reliance was approached, and Reliance group jumped as it will give their retail business a big boost.
Let us wait and watch for future developments in this case.
Waiting for your views on this blog.
Anil Malik
Mumbai, India
17th March 2022.