• Sheryl Arunraj

Amazon Vs. Future Group

A battle to shake the retail world.

Future Group, the stronghold to retail expansion in India, has been embroiled in a long-winded legal battle with Amazon since 2020. Take a look how the top players in the retail market of India got into this mess.

The deadly deal with Amazon

Future Group, one of the largest players in the Indian retail market has over 1500 retail stores. In 2019, it was drowning in debt - precisely Rs. 12,778 crore. The only solution to present itself at the time was by selling 49% of Future coupons, an unlisted entity owned by the group to Amazon for Rs. 1500 crore, in order to pull itself out of this financial blunder.


The agreement provided Amazon with around 5% stake in Future group’s flagship listed entity - Future Retail Limited.

Indirectly, this also came with the right to buy into around 25% of this entity, if the government lifted its restrictions on foreign ownership of multi-brand retailers, such as the Future Group, the right to first refusal and a non-competence clause that forbids the group to transact with any of the 15 companies mentioned in the contract without Amazon’s consent, including Reliance.

Future group’s stock value skyrocketed by 20% after this deal and Amazon stepped closer to expanding its retail presence in India. This deal proved to be extremely consequential, not only for Amazon and Future group, but also for Amazon’s long-standing adversary - Reliance, which had just lost a significant opportunity at becoming THE most universally powerful name in the retail sphere.


Future’s only shot at salvation

Even after the group’s deal with Amazon, not everything was smooth sailing. The existing debts kept snowballing and the pandemic-induced lockdowns clobbered their business, and the man behind it - Biyani, Founder and CEO of Future Group.


Biyani, who pledged his shares to investors at Rs.400 apiece, was sinking swiftly as his company’s market value dropped by almost 70%, bringing down the value of his shares to Rs.100. By mid-2020, Future group was snowed under debt, higher than their entire company’s market value.


Future group soon approached Amazon with a plea to resurrect them, but even after extensive discussions, Amazon did not unwaveringly commit.

The saving graces of Reliance at the time became Future’s only chance at survival, and to enlist this lifeline, Future group craftily hatched a plan to circumvent the non-competence clause they signed with Amazon.


In August last year, they consolidated 5 of their listed companies and 14 others into a newly forged group named ‘Future enterprises Ltd’ and was negotiating a deal with Reliance.


This included Future’s companies that operated in the spheres of retail, wholesale, logistics, and warehousing. Reliance was going to acquire the assets of 11 of these companies for a grand sum of approximately Rs. 25,000 crores. This promising deal doubled the stock price of Reliance Retail Ltd, supplementing Reliance’s already mammoth retail arm with a 29% increase in revenue.

But Amazon was not going to readily capitulate and let its rival obtain everything it has dreamed of now for a long time.

The scathing legal muddle

As ET reports, one of the clauses in the agreement signed by the companies asserted that in the case of a dispute, the rules of the Singapore International Arbitration Court need to be followed. When Amazon got wind of the deal, it promptly took Future Group to battle it out legally at the SIAC. What followed was a year-long meandering tussle that swelled to include the Supreme Court of India and the Competition Commission of India as well. The SIAC issued an injunction to Future Retail Ltd (FRL) and Reliance obstructing their deal in favour of Amazon, but the two companies did not heed this, citing ‘jurisdictional issues’.


Future retail then moved the case to the Delhi HC, which condemned Amazon’s interference with the Reliance - Future deal and approved FRL’s resolution to sell particular assets to Reliance. In a huge blow to Amazon’s contention toward the deal, the CCI, in accord with the HC of Delhi, approved the Reliance retail- FRL deal. The single-judge bench of Delhi HC ruled in favor of the Torturous Interference claim that Future group raised.


In 2021, things got more heated. The SIAC constituted a bench to give the final verdict on the matter while the US juggernaut simultaneously filed a plea to Delhi HC asking it to recognize the SIAC’s emergency arbitration authority and halt Future retail deal.

The 1 person bench set up to hear the case ruled in favour of Amazon but when Future Retail contended the verdict, it was overturned. Amazon then appealed to move the case to the SC, and both companies were heard by the National Company Law Tribunal in the same month. While matters swayed back and forth, the board of FRL restructured its secured financial debt and formulated a plan to move ahead with the Reliance deal.

Soon enough, the SC held the SIAC as a valid authority to adjudicate on the matter. At this point, Reliance and FRL cannot move ahead with their deal. Meanwhile, the CCI imposed a Rs.200 crore penalty on Amazon and suspended the approval of its 2019 agreement with Future group and gave the company a period of 60 days to appear in court with complete and true information about the deal.

As the winding legal conundrum continued, Future Group became a defaulter to its loans borrowed from 17 lenders. Discussions in between kept momentum with the former offering a Rs. 7 crore bailout. Unfortunately for Future group, this deal was turned down, stating that ‘the amount offered was meagre and nowhere near the offer made by Reliance’. The Supreme Court has given Future Group & Amazon 2 weeks time to sort out their financial predicament


However, Reliance has been proceeding with its takeover of FRL’s retail stores unencumbered by Amazon’s continuous trials to bulldoze the deal, sparking off a PR battle where Amazon released a statement plastering the deal as ‘fraudulent’ and FRL responding that ‘the takeover of outlets was ‘forceful’ and non-consensual’.


Through all these complications, the scramble for control over India’s commanding retail scene is still unfinished business. What do you think will happen next?

 

~ Sheryl Arunraj


Sources

- The Economic Times

- Quartz India

- Bloomberg

- Forbes

- Bar & Bench