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Friday, December 04, 2020

Explained: What is the tussle between Future Group and Amazon and what happens next

After Future’s agreement with Reliance, Amazon said the deal was a violation of a non-compete clause and a right-of-first-refusal pact it had signed with the Future Group.

Written by Aashish Aryan , Edited by Explained Desk | New Delhi | Updated: November 2, 2020 7:05:57 pm
In August this year, Biyani’s Future Group entered into an agreement with Reliance Retail, a subsidiary of the umbrella Reliance Industries Limited (RIL) group, to sell its retail, wholesale, logistics and warehousing

Kishore Biyani-led Future Retail’s Rs 24,713 crore deal to sell its retail, wholesale, logistics and warehousing units to Mukesh Ambani’s Reliance Retail and Fashionstyle, has run into legal trouble with global e-commerce giant Amazon claiming its “contractual rights” have been violated.

What is the Future-Reliance deal?

In August this year, Biyani’s Future Group entered into an agreement with Reliance Retail, a subsidiary of the umbrella Reliance Industries Limited (RIL) group, to sell its retail, wholesale, logistics and warehousing to the latter.

As a part of the deal, Future Retail will sell its supermarket chain Big Bazaar, premium food supply unit Foodhall and fashion and clothes supermart Brand Factory’s retail as well as wholesale units to Reliance Retail.

The Future group was under immense pressure from its lenders, led by the State Bank of India, to manage its debt, and the deal in seen as a bid by the group to cut down on the same. Before the August sale to Reliance, Biyani had been wooing several business groups to sell shares in several companies of Future Group in an attempt to cut down on the debt, but had not seen much success.

Following the nationwide lockdown in March, to contain the spread of Covid-19, the retail business of Future Group had come under more stress. Sales in many of its premium food sales arm Foodhall and Brand Factory had come to a near halt in the lockdown, which lasted more than two months.

Why is Amazon objecting to the Future-Reliance deal?

Last year, Biyani’s Future Retail had signed another deal with global e-commerce giant Amazon. As part of the deal, Amazon had acquired 49 per cent stake in Future Coupons, the promoter firm of Future Retail in a deal worth nearly Rs 2,000 crore.

While Future Retail would be able to place its products on Amazon’s online market place, the two had also agreed that the Future Retails products would also be a part of Amazon’s new plan, which intended to deliver products in select cities within two hours of a customer ordering them. Future Retails has more than 1,500 stores pan India.

The deal had also given Amazon a ‘call’ option, which enabled it to exercise the option of acquiring all or part of Future Coupon’s promoter, Future Retail’s shareholding in the company, within 3-10 years of the agreement.

After Future’s agreement with Reliance, Amazon said the deal was a violation of a non-compete clause and a right-of-first-refusal pact it had signed with the Future Group. The deal also required Future Group to inform Amazon before entering into any sale agreement with third parties. On its part, the Future Group has said that it had not sold any stake in the company, and was merely selling its assets and had therefore not violated any terms of the contract.

Along these lines, Amazon also sent a letter to the Securities and Exchange Board of India (SEBI), the Bombay Stock Exchange and the National Stock Exchange (NSE) asking them not to approve the Future-Reliance deal as there was an interim stay order on the same.

Asking the agencies to take note of the stay order, Amazon is learnt to have said that if the deal went ahead, it would show companies across the world that orders by reputed tribunals such as the Singapore International Arbitration Centre (SIAC) were not respected in India.

What does Future have to say about Amazon’s contentions?

Biyani-led Future Group has always maintained that it has done no wrong as far as the deal with Amazon is concerned. The company has also asserted that its deal with Reliance Retail will go forward as planned and according to the scheduled.

In an update to the stock exchanges on Sunday, Future Retail, while reiterating these things, also said that the contentions raised by Amazon were “entire misconceived”. The company in fact went on to say that it was a “bit rich” for Amazon to make the argument that Future Retail was misleading its shareholders, given the fact that it is not even a shareholder of the company.

“Evidently, Amazon’s letter is motivated by other considerations,” Future Retail alleged in the update it sent to exchanges.

What is next in the Future Retail-Amazon-Reliance Retail saga?

Having obtained an interim stay from the SIAC, Amazon has won the first round on this sparring. But the fight is far from over. While Future believes that it has done no wrong, it has nonetheless set aside Rs 1,000 crore in an escrow account to factor in all present and future liabilities in its arbitration tussle with global e-commerce major Amazon.

The company is also planning to move the Delhi High Court seeking an express approval from Indian courts to go ahead with the deal, since it believes that the interim order passed by the emergency arbitrator of the SIAC holds no value under Indian laws.

If Future-Reliance decide to go ahead with the deal inspite of the interim order, it is likely to push Amazon to move the arbitration tribunal in Singapore once again to seek an final stay on the issue until the matter is heard and disposed off by it.

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