Business India ×

Published on: Nov. 3, 2020, 1:10 a.m.
Amazon headwinds blow across Future-Reliance deal
  • The deal gives Reliance Retail access to close to 1,800 stores of Future Group companies including Big Bazaar: Photo: Sanjay Borade

By Sarosh Bana. Executive Editor, Business India

There is a storm brewing between Jeff Bezos’s Amazon, Inc on one side and Kishore Biyani’s Future Retail Ltd (FRL) and Mukesh Ambani’s Reliance Retail Ventures Ltd (RRVL) on the other, with Amazon securing an interim order from Singapore International Arbitration Centre (SIAC) restraining FRL and RRVL from proceeding with their Rs24,713 crore assets acquisition deal.

Biyani’s company, however, specified it was not a party to the agreement under which Amazon had invoked the arbitration proceedings. Reliance Retail too indicated that it intended to enforce its rights and complete the transaction in terms of the scheme and agreement with Future group ‘without any delay’.

In a regulatory filing dated 26 October, FRL informed the Bombay Stock Exchange, with a copy marked to Singapore Exchange Securities Trading Ltd, that SIAC had communicated to it an interim order of the Emergency Arbitrator ‘in the arbitration proceedings under shareholders’ agreement between Amazon, Future Coupons Pvt Ltd and the promoter group’. 

In the media release that FRL enclosed alongside, the company noted that it was examining the communication and the order, while being legally advised that actions taken by FRL and its board, which are ‘in full compliance of the relevant agreements and eminently in the interest of all stakeholders’, cannot be held back in arbitration proceedings initiated under an agreement to which FRL is not a party. 

‘As per the advice received by FRL, all relevant agreements are governed by Indian law and provisions of Indian Arbitration Act for all intents and purposes and this matter raises several fundamental jurisdictional issues which go to the root of the matter,’ the media release pointed out. ‘Accordingly, this order will have to be tested under the provisions of Indian Arbitration Act in an appropriate forum.’ It added that in any enforcement proceedings, FRL would take appropriate steps to ensure that the proposed transaction will proceed unhindered without any delay.

In a separate statement issued a day earlier, RRVL, which is the retail arm of Reliance Industries Ltd (RIL), maintained: ‘RRVL has entered into the transaction for acquisition of assets and business of Future Retail Ltd under proper legal advice and the rights and obligations are fully enforceable under Indian Law.’

  • Biyani: ‘in full compliance of agreements’

    Biyani: ‘in full compliance of agreements’

Challenging Amazon

On 29 August, as businesses were reeling under the impact of Covid-19, Reliance had announced the acquisition of Future Group’s retail and wholesale, and logistics and warehousing businesses on a slump sale basis for a lumpsum aggregate consideration of Rs24,713 crore. The landmark move would add to RIL’s fast expanding retail business and position it as a challenger to the e-commerce titan, Amazon. The deal gained RRVL access to close to 1,800 stores of Future Group companies Big Bazaar, FBB, Easyday Club, Central, and Foodhall spread across 420 cities in India. The acquisition was finalised as part of a scheme in which Future Group was merging its retail companies into Future Enterprises Ltd (FEL).

“Pleased to provide a home to the renowned formats and brands of Future Group, as well as preserve its business ecosystem, which have played an important role in the evolution of modern retail in India,” beamed Isha Ambani, Director of the $57 billion Reliance Retail that itself has 12,000 stores across the country. “We hope to continue the growth momentum of the retail industry with our unique model of active collaboration with small merchants and kiranas, as well as large consumer brands.”

If in event the Future Group decides against waiting for the Arbitral Tribunal, it can approach any Indian High Court to contest the applicability and enforceability of the interim directions. It was Singapore’s Emergency Arbitrator and former Attorney General, V.K. Rajah, who ruled against Future Group entities’ proceeding with the deal with RRVL to monetise the retail business. 

Amazon contended before SIAC that the asset sale violated a contractual agreement it had signed with the Future Group in August 2019 that gave it the option to take a significant stake in FRL. The agreement was for a 49 per cent stake of undisclosed value by Amazon in Future Coupons, and consequently an initial indirect 3.58 per cent holding in Future Retail, which is 7.3 per cent owned by Future Coupons. According to Amazon, the agreement grants it the option to buy all or part of Future Coupons’ shareholding in Future Retail over the next three to 10 years, and also gives it the right of first refusal should Future Retail founder Kishore Biyani or his family decide to further trim their stake in the company, which includes both direct and indirect holding through entities such as Future Coupons.

  • Ambani: ‘we will enforce our rights’; Photo: Palashranjan Bhaumick

    Ambani: ‘we will enforce our rights’; Photo: Palashranjan Bhaumick

Amazon is competing in the Indian market with Ambani’s RRVL and the other American retail giant Walmart, which holds an 82.3 per cent stake in Flipkart that has been valued at $23.5 billion. It is thereby expanding its operations both online and offline, having picked up stakes in Kay Raheja Corporation Group’s Shopper’s Stop and Aditya Birla Retail’s More Supermarkets. Its deal with Future enables Amazon, which has already announced a $ five billion investment in the Indian market, to consolidate its position in the offline retail stores segment.

Supreme Court lawyer Amber Rana, who is Founder Partner of AM Rana LLP and also a well-known podcaster for his legal podcast, KnowYourKanoon, indicates that Section 2 (1) of the Indian Arbitration & Conciliation Act, 1996, defines an arbitral tribunal as a sole arbitrator or a panel of arbitrators, but not as someone who provides interim relief. The emergency arbitrator hence cannot exercise the powers of a tribunal, and can act only as an arbitrator with conclusive powers if the concerned parties so consent. In this instance, this does not seem to be the case and hence arises the question of enforceability.

 Not enforceable

“In the absence of any such precedent in India, there have been few matters where courts have acknowledged the interim relief of the emergency arbitrator’s,” says Rana. “There is no express mechanism to enforce the interim relief of the emergency arbitrator, and one option before the party that has won the relief is to approach a High Court to pray for the award of similar remedy under Section 9 of the Arbitration & Conciliation Act, 1996.” 

According to him, Singapore has been the favoured seat of arbitration in cases of disputes, because of its long experience as a commercial hub, its element of neutrality in the rule of law, its timely conclusion of matters, and its ability to maintain international standards in the conduct of such matters. “India has come up with its own arbitration centre, the prominent one being in Mumbai, but overall, it is still nascent, though growing rapidly in terms of experience,” mentions Rana. 

  • Bezos: expanding both online and offline

    Bezos: expanding both online and offline

“Besides, interim orders issued by an emergency arbitrator pertain only to the parties to the dispute and do not affect a third party,” he remarks. “For an order to have an effect on a third party, the side that is awarded such a relief needs to file an application that specifies that third party.” As Reliance Retail is reportedly not a party to the arbitration proceedings, he infers that it is not bound by such an interim order.

Indeed, even if Future Group Entities demonstrate that they as a group are not party to these proceedings and can act independently, such an order will also not apply to them. They may thus proceed with the contested transaction as this order would not have any applicability. 

Amazon undoubtedly has the locus standi to initiate arbitration proceedings owing to its contractual agreement with the Future Group that inhibits the latter from entering into agreements with a list of businesses, which would possibly include Reliance. “Thus, on the basis of media reports, it can be inferred that there is a 50 per cent chance of efficacy in the implementation of the order, while enforceability may be sceptical,” notes Rana. 

Future and Reliance realise that while an emergency arbitrator’s direction may be complied with from a moral or ethical standpoint, it is legally not enforceable and they can proceed with their transaction without let or hindrance, while Future may consider an appeal when the arbitral panel is finally constituted.

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