Decoding the multilayered Amazon-Future-Reliance legal drama
At stake is control over India’s retail business estimated to reach $ 1.3 trillion by 2025 , setting off a spate of legal wrangles between Amazon and the Future Group.
New Delhi: US-e-commerce giant Amazon and India’s Reliance Industries have been locked in a fierce battle for the future -- almost literally.
At stake is control over India’s retail business estimated to reach $ 1.3 trillion by 2025 , setting off a spate of legal wrangles between Amazon and the Future Group. The see-saw legal battle between Amazon and Future have witnessed several challenges and decisions by judicial and quasi-judicial authorities in India since 2019.
What is at stake?
Future Retail has 1,800 retail stores across 400-plus cities and towns across India. Amazon, which intended to deliver products in select cities within two hours of a customer ordering them, looked at Future’s stores as intrinsic to its plan. Any alliance between Future and Amazon would have given the latter a massive advantage in consumer experience.
Similarly, for Reliance, a deal with Future Retail would have established it firmly as India’s largest retailer with a presence in smaller cities and towns almost overnight, also helping the Mukesh Ambani-led company in last-mile access for its eCommerce delivery to small towns. The deal with Future Retail would have also given Reliance the leadership position in the online and offline retail segments
How did the tussle begin?
Kisore Biyani, who emerged as an uncrowned king of retail after setting up India’s first hypermarket retail store chain, Big Bazaar, in 2001, was under huge economic stress by 2019. Debts were piling up for the Future Group and it was at ₹12,778 crore in 2019. India’s leading credit rating agency ICRA also placed a negative rating on the Future Group.
Pushed against the wall, Biyani inked a deal with Amazon to sell 49% of its unlisted entity, Future Coupons, for more than ₹1,500 crore. The long-term business agreements handed to Amazon the right to buy into flagship Future Retail after a period between three and 10 years, by exercising a “call” option. This stipulation authorised Amazon to exercise the option of acquiring all or part of Future Coupon’s stake in Future Retail within 3-10 years of the agreement. Such options are typically in a regulatory grey area -- allowing foreign entities the opportunity to hold stakes in sectors in which they wouldn’t normally be allowed to 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 First Refusal, and a non-compete clause — barring Future’s dealings with potential competitors of Amazon, which included Reliance, Walmart, Google, SoftBank, Alibaba, Naspers, eBay, Target, Paytm, Zomato, Swiggy, among others. It also prohibited Future from selling a stake to anyone engaged in online or offline retail in food, non-food and retail.
In November 2019, the Competition Commission of India (CCI) also approved Amazon’s proposed acquisition.
The Covid-induced lockdown in 2020 worsened Future’s position in the market and by April 2020, Future Retail’s sales declined by about 75% from normal levels, adding enormous pressure on working capital flows.
With the outlook looking grim for Biyani , Reliance entered the fray in May-June 2020 and positioned itself as a serious suitor for Future Retail. Biyani entered a deal with Reliance Retail, the wholly-owned subsidiary of Reliance Industries, in August 2020. The new ₹24,713 crore deal envisaged Future selling its retail, wholesale, logistics and warehousing units to Reliance.
The acquisition covered Future Retail, Future Lifestyle and Future Consumer. Biyani retained manufacturing and distribution of consumer and fashion products, Future Group’s partnership in insurance with Generali and its textile partnership with NTC.
Amazon fires first salvo
Aggrieved by the Future-Reliance deal (which effectively ended its hopes of having any stake in Future Retail), Amazon approached the Singapore International Arbitration Centre (SIAC) in October 2020 filing an emergency arbitration case. Alleging violation of a non-compete clause and a 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, in its order on October 25, 2020, found favour with Amazon’s plea for the interim relief and issued a restraining order against Future, putting the Future-Reliance deal on hold. SIAC held that the deal could not go through until it finally decides the matter.
Armed with the SIAC ruling, Amazon wasted no time in writing to Sebi, CCI and stock exchanges against the Future-Reliance deal, which was awaiting Sebi’s approval .
The Delhi high court
Future Group went to the Delhi high court against Amazon, imploring the court to restrain the US-based e-commerce major 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 arguments before the single-judge bench of the Delhi high court proceeded, CCI approved Reliance Retail’s deal with Future on November 20, 2020 despite Amazon’s protest.
A single-judge bench, in December 2020, declined to grant Future Retail’s plea to restrain Amazon from writing to the statutory authorities and regulators about the arbitral award. However, the judge made some prima facie observations -- that the August 2020 board resolution of Future Retail, approving the deal with Reliance was not invalid or void as claimed by Amazon, and that Amazon’s representations to statutory authorities and regulators was “based on incorrect assertions”.
These observations by the single judge led to Amazon moving the division bench in the Delhi HC in January 2021, demanding reversal of the order.
Meanwhile, on January 20, 2021, Sebi also cleared the Reliance-Future Retail deal, prompting Amazon to move the high court for enforcement of the SIAC ruling. This petition also asked for detention of Kishore Biyani and other directors of Future Group, besides attachment of their assets.
Future Group defended its position by that Amazon’s deal was not with Future Retail but with Future Coupons, and that therefore, Future Retail was not bound by the arbitration. Second, that India’s Arbitration Act did not recognise the mechanism of emergency arbitration awards.
In the meantime, the Future-Reliance deal received conditional approval from Sebi and the stock exchanges. Following approval from CCI and no objection from Sebi, Future approached NCLT, Mumbai, on January 26, 2021 seeking the tribunal’s approval to hold its shareholders meeting on the scheme of amalgamation with Reliance.
On February 2, 2021, the high court affirmed the validity of the SIAC’s emergency award and ordered status quo, throwing g a spanner in the Future-Reliance deal.
Future challenged this order before a division bench of the high court the very next day. On February 9, 2021, the division bench stayed the single-judge order, giving a go ahead to the Future-Reliance deal. The division bench held that Future Retail had no agreement with Amazon and therefore, the latter had “prima facie” no reason to stall the deal. It added different agreements have been signed between the three disputing entities — FRL, Amazon and Future Coupons Private Limited (FCPL) and hence, the doctrine of “group of companies” cannot be invoked.
The Supreme Court
Amazon moved the top court against the order of the HC division bench, questioning the maintainability of Future’s petition before the Delhi high court. Asserting that SIAC’s Emergency Arbitrator (EA) order was an enforceable and valid order, its petition also termed the HC division bench order of revoking the single judge’s decision of February 2 on blocking the deal “illegal and arbitrary”.
Admitting Amazon’s appeal, the Supreme Court on February 22, 2021, restrained NCLT from finally approving any amalgamation scheme (with Reliance) proposed by Future as it set about to examine the validity of the SIAC’s emergency order.
Meanwhile, the single-judge of Delhi HC, which had in February passed a short interim order, delivered a detailed order on March 18, not only upholding SIAC’s order but also directing for attachment of properties of Biyani and other director of the Future Group. The single-judge bench also issued show-cause notice to Biyani and other directors as to why they should not be sent to prison, as sought by Amazon in its enforcement application.
This order was taken to a division bench in HC by Future, which managed to secure a stay from the larger bench yet again. Amazon subsequently took this stay order to the Supreme Court, which asked all other courts to hold their hand until it delivered a final ruling of the SIAC’s interim order on stopping Future’s deal with Reliance.
On August 6, 2021, the SC bench, headed by justice Rohinton F Nariman, ruled that the Future Group is bound by the SIAC’s emergency award and that it was enforceable under the Indian arbitration law. It further held that the appeals filed by Future against a single-judge bench before the division bench of the Delhi HC.
Future then challenged the March 18 order of the single judge afresh, in the apex court.
Meanwhile, the single judge in Delhi high court took up enforcement proceedings on August 17 and gave Future four weeks to obtain a stay order from the Supreme Court, failing which, it said, the coercive order on attachment of properties of the Biyanis shall revive.
On September 9, 2021, the Supreme Court took up Future’s appeal against the single judge order and restrained the Delhi high court from passing any adverse directive against Future’s deal with Reliance or on attaching the assets of Future’s chairman and directors.
While staying the enforcement proceedings before the high court, a bench, headed by Chief Justice of India NV Ramana, also 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 bench noted that the interim order was being passed with the consent of both Future and Amazon to strike a balance between their competing interests. Fixing the case for the next hearing after four weeks, the top court also took note that Future’s plea was also pending before SIAC for vacating its interim stay.
Another setback for Future at SIAC:
The application by Future to lift the interim stay on its ₹24,713-crore deal with Reliance was rejected by SIAC on October 21, 2021. Significantly, SIAC further held that Future Retail was also a party to the ongoing arbitration between Amazon and Future Coupons in the dispute over the sale of its assets to Reliance Retail. Future Retail contended that it should be excluded from arbitration proceedings because it is not a party to the dispute between its promoter Future Coupons Pvt Ltd and Amazon. The tribunal declared that orders set out in the EA Award were correctly granted and that Future has not demonstrated that circumstances have materially changed to justify any change to the EA Award.
After the dismissal of Future’s application, SIAC set down the arbitration case for a detailed hearing and final judgment.
Back to courts:
Future Retail moved the Delhi high court yet again seeking a stay on SIAC’s adverse order as well as for a nod to proceed with shareholders’ and creditors meeting for its proposed asset sale to Reliance. The high court on October 29 issued notice on Future’s petition fixing the case for a hearing on a later date but declined to stay SIAC’s interim order in the meantime or pass any other interim order.
After the high court’s refusal to stay SIAC’s order, Future moved the Supreme Court on November 8, 2021, seeking permission for a meeting of its shareholders and creditors. 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.
Amazon, too, filed a fresh application in the top court for restraining all authorities, including NCLT, from allowing any measure that may facilitate the Future-Reliance deal till the matter is finally decided by the top court.
On November 11, 2021, the Supreme Court took up Future’s fresh petition along with Amazon’s plea, and suggested all parties hold their hand until the final determination of the dispute by the court in the second round.
The latest twist:
Matters took a surprising twist on December 17 when CCI, India’s anti-trust regulator, suspended its nod to Amazon’s 2019 investment in Future Coupons, potentially denting the e-commerce giant’s attempts to block the sale of Future Retail to Reliance. Entertaining a plea by the Future Group, CCI held that Amazon had misled the commission to believe, through false statements and material omissions, that the combination and its purpose were the interest of Amazon in the business of Future Coupons.
CCI found that Amazon had not disclosed details of the 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 put its prior approval to the combination in abeyance, giving Amazon 60 days to give notice for the combination, post which the Commission would “examine the combination afresh.” Amazon was also imposed a penalty of ₹200 crore for suppressing material facts at the time of seeking CCI’s nod.
CCI’s order came as a shot in the arm for Future, which went to 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 the approval by the anti-trust regulator. SIAC, however, decided to go ahead with hearing the main arbitration case, whose itinerary had already been fixed. It said that the new application by Future would be heard after the arguments in the main case.
This prompted Future to move the Delhi high court, seeking a stay of the arguments in the main arbitration case before SIAC until its application on terminating the arbitration altogether was not decided. While a single-judge bench of HC on January 4 declined to suspend the ongoing arbitration proceedings, a division bench of the HC stayed till February 1 the proceedings before SIAC by an interim order on January 5.
Meanwhile, Amazon on January 8 filed an appeal before the National Company Law Appellate Tribunal against the CCI order suspending an approval to its 2019 deal with Future. NCLAT is expected to hear Amazon’s appeal later this week.
And so, with a spectrum of proceedings still pending before the Supreme Court, Delhi high court, NCLT, NCLAT, CCI and SIAC, the battle between Reliance and Amazon rages on.