This article aims at providing a brief background on the hotly contested matter between Future Group the prominent Indian retail business group and Amazon.com NV Investment Holdings LLC pertaining to the takeover of Future Group's retail chain by Reliance Retail which culminated in their fight reaching up to the Delhi High Court for some issues which are discussed herein, discussing the factual matrix of the dispute, the insights from the orders of the Hon'ble Delhi Court and the author's take on the same.
Factual Background of the Dispute:
The board of directors of Future Retail Ltd ("FRL") on 02nd January, 2021 gave in-principal approval to the conversion of already allotted equity warrants to a promoter group entity, Future Coupons Private Limited ("FCPL"). Once completed, FCPL would own 7.5% of FRL. A total of 3.96 Million warrants were to be issued to FCPL by FRL out of which FRL on 02nd January, 2021 approved conversion of 2.48 million warrants to the same number of FRL shares. Issued at a price of Rs 505 per warrant, the deal effectively meant FRL would get Rs 2,000 crore from FCPL against the 3.96 million warrants.
On assurances from the promoters of Future Retail Group and FCPL that the retails assets of FRL would be protected, US tech giant Amazon made huge investments in Future Retail Group as and by way of obtaining 49% stake in Future Coupons Pvt. Ltd., which was made possible only after obtaining a hard-earned approval from Competition Commission of India ("CCI"). Due to the said deal, Amazon.com NV Investment Holding, a direct subsidiary of Amazon.com Inc, would get voting rights of both FRL & FCPL as well as non-voting share of FCPL, in addition to a right of first refusal in case of a sale of FRL's assets to a restricted entity.
Subsequently, in breach of their assurances, the Future Group decided to sell their retail division to Reliance Retail [Mukesh Dhirubhai Ambani Group ('MDA')], which naturally garnered a vehement opposition by Amazon, who filed emergency arbitration proceedings in view of the said dispute with Future Group. Amazon's major grievance was that it was denied the Rights of First Refusal for the deal, which, according to their Share-Subscription Agreement ("SSA") was a legal right of Amazon and consequently, a legal obligation of the Future Group.
Hence, in October last year, the Emergency Arbitrator constituted under the Singapore International Arbitration Centre Rules, passed an interim award in favour of Amazon, wherein he directed Future Retail to put on hold its transaction with Reliance Retail/MDA, which was a "Restricted Entity" under the agreement between Amazon and Future Group
Subsequently, Amazon.com NV Investment Holdings LLC approached the Delhi High Court and sought the recognition and enforcement of the emergency arbitrator's order under section 17(2) of the Arbitration and Conciliation Act, 1996 on the ground that it invested Rs. 1,431 crore in FCPL on clear understanding that FRL would be the sole vehicle for its retail business and its retail assets would not be alienated without its consent and even more so, to a Restricted Entity such as, and in this case, Reliance Retail.
The single judge of the Hon'ble Delhi high Court, Her Ladyship the Hon'ble Justice Midha heard the arguments and reserved its judgment last month. In the interim, it passed a status-quo order which put on hold the transaction between Reliance Retail and Future Group.
This interim order was assailed in an appeal before a division bench of the Hon'ble Delhi High Court headed by Chief Justice DN Patel which vacated the interim order of status quo.
The appeal against the said order of the Division Bench is currently pending before the Hon'ble Supreme Court. Last month, the apex court directed the National Company Law Tribunal to continue hearing the case but not give a final nod till further orders.
Insights from the Delhi High Court Order dated 18.03.2021:
A Single Bench of the Hon'ble Delhi High Court on 18th march, 2021, in a significant win for Amazon.com Inc., upheld the Emergency Arbitrator's award and also imposed a cost to the tune of INR Twenty (20) Lakhs on Future Retail and observed that Future Retail, Future Coupons, Kishore Biyani & Ors. violated the Emergency Award and have issued a notice to them asking them to remain present in person on the next hearing before the Hon'ble High Court in addition to show cause as to why they should not be detained in a civil prison.
Subsequently, in the latest development to the case, on 22nd March, a Division Bench of the Hon'ble Delhi High Court stayed the abovementioned order in an appeal filed by Future Coupons Pvt. against the order of Justice JR Midha.
Albeit being given the color of an Amazon-Future war, is truly a battle between Amazon and Reliance for market dominance in the retail and e-commerce sector of the behemoth Indian market, wherein Reliance has one advantage to influence market patters that Amazon doesn't: 410 telecom customers. There are a lot of moving pieces which will eventually decide the winner in this fierce competition between the two giants, the two most important ones being:
Bound by a web of new rules for e-commerce players that stops them from selling products from subsidiaries on their own platforms beyond a certain threshold, Amazon's investment in the group is aimed at bypassing the roadblocks. The indirect approach in acquiring equity stake in one of its rival entities is designed to make sure it can continue to sell products from Future group on its e-commerce platform.
We are of the view that the said deal clearly led to Amazon having protective rights (though not controlling rights) in FRL and the same would be rendered infructuous by the sale of FRL retail division to Reliance. the decision while furthering the doctrine of Group of Companies from a technical legal point of view will also be a big impetus to the garnishing the Foreign Direct Investment ("FDI") in our country. This decision is bound to provide a huge impetus to the confidence of the foreign investors for investing in India and extending their support to Indian Companies, which was extremely bleak up till now owing to the stringent eye of the CCI. The Indian Law in relation to FDI generally used to make sure that there are sufficient roadblocks for foreign investors in India, keeping them at bay and avoiding their massive entries into the humungous Indian markets.
Such a healthy and pro FDI decision is bound to ultimately benefit the end consumers of the country since it would lead to a tough competition to the home companies in India which would result in more and better options by the competitors thereby increasing quality options for the citizens of our country across various sectors.
The final outcome of the dispute and the fate of Amazon as well as Reliance Retail's heavy investment in the Future Group, is a tale only time will tell. However, one thing which can be said for sure is that this dispute will hold the field on the concept of emergency arbitrators, their awards and their enforceability thereof. The final verdict by the Apex Court of India will either crystallize or destroy the faith that foreign investors will place in the Indian e-commerce ecosystem from hereon.