Indian business magnate Mukesh Ambani is known for obliterating its competitors in Indian telecommunication sectors by selling free voice calls and 2 USD data plans (1). After four years, he deploys a similar tactic with cutthroat pricing to get an edge in India’s rapidly expanding and competitive e-commerce space (2).
At present, India is observing the peak of its biggest festive shopping season amid Diwali, and the tycoon’s retail websites, including JioMart (3), are elbowing their way into the sector long dominated by Amazon (4) and Walmart owned Flipkart (5).
Ambani’s web portals offer dreadnought discounts of 50% on popular confections and holiday staples to fructify competition. At the same time, his Reliance Digital site sells flagship Samsung smartphones at a cheaper rate than his rivals, with as much as 40% rebates (6).
The push has come as the sprawling conglomerate, Reliance Industries Ltd, is flushed with cash. After securing baffling 20 billion USD for its technology venture (7), he focuses on increasing funds for its retail arm, which has already bagged more than 6 billion USD as an investment in recent weeks from KKR & Co. and Silver Lake (8). Ambai, India’s biggest brick and mortar retailer, is ambitious to pit the two US giants, who have invested heavily in India.
Making a deal with Future Group, Reliance would broaden its extensive reach across the country and make it more attractive to potential investors. It would also help the Indian giant extend its lead over its competitors (9). However, the deal has led to an intense battle over Future Group between the world’s richest man Jeff Bezos, and Asia’s richest man, Mukesh Ambani.
Amazon’s Arbitral Tribunal
On October 26, 2020, Amazon moved with an immediate arbitral tribunal at the Singapore International Arbitration Centre. It directed Kishore Biyani’s Future Group to deal with Reliance Retail Limited on hold for now (10).
Amazon had written to BSE and SEBI to hold the decision and sent a legal notice to Future Coupons over the group’s 24,713 Crore INR deal with Reliance. Amazon claimed that it was denied the Rights of First Refusal for the deal (11).
Amazon is firm that Future Group is violating the agreement by making a deal with its rival Reliance. On the contrary, Future Group stated that it had not sold any stake in the company, and the deal is merely about selling its assets, and hence, there is no violation of any contract’s terms (12).
It further added that Future Retail Ltd. has legal advice that the firm and its board members’ moves are in full compliance with the relevant agreements. The arbitration proceedings are under a deal where FRL is not a party. Hence it can’t hold back the interests of all stakeholders.
On November 7, Future Retail informed the bourses that it is seeking relief (13). It contended that the ecommerce giant is misusing the interim order passed by an emergency arbitrator, appointed by the SIAC, the Singapore International Arbitration Centre.
“Fraud” by Future Group
Amazon is fighting hard to block Future Group from selling its asset to its rival, Reliance Industries Ltd. It has also accused Future Retail of hiding key facts from shareholders while pursuing the transaction.
“FRL’s disclosure presents a selective and misleading picture. Such disclosure is against the public interest and misleads public shareholders, making up about 70% of FRL’s shareholding, and perpetuates a fraud for the Biyanis alone benefits.”
– Amazon’s Letter to Sebi on October 3, 2020
Amazon, while complaining to SEBI, alleged that the FRL board has gravely breached fiduciary duties and stated that it is prejudicial to FRL, its public shareholders, and entail several Sebi Act breaches and regulator’s disclosure requirement.
The letter further alleged that FRL has no regard for its “solemn contractual commitments and binding orders passed by an internationally recognized and reputed arbitral institute, i.e., SIAC, despite presenting its case at length before the EA, Emergency Arbitrator.
“In the event, FRL and Biyanis led promoters to pursue the impugned transaction, including seeking approval from SEBI, their acts would be in direct contravention of the interim award passed by the EA, and Sebi should, therefore, not approved the impugned transaction.”
– Reads Amazon letter.
The Legal Tussle Continues
The Kishore Biyani led Future Group has moved to Delhi High Court to seek relief from Amazon’s stay order from a Singapore arbitrator.
The hearing on Tuesday, which lasted the whole day, included comments from Future Retail, Future Group, and Amazon’s legal representatives.
The Delhi Court had also sought a response from Amazon on Future Retail’s plea. Notably, the group alleged that the ecommerce giant led by Jeff Bezos is interfering in its deal with Reliance Retail based on a Singapore arbitrator’s interim order.
Justice Mukta Gupta (14) has issued summons to Future Coupons Pvt Ltd, or FCPL, Amazon, and Reliance Retail Ltd, RRL on the Future Retail Limited. He had asked them to file their written statements within 30 days.
Future’s lawyers claim that “Amazon knew about the deal between Future Group and Reliance.”
Harish Salve (15), a Future Retail representative, stated that Amazon had made several falsehoods at the court proceedings. One of them includes claiming that it didn’t know about the deal between two entities until September 2020. He added that Future Retail had hit badly due to the pandemic and has begun negotiating with Reliance since June 2020, and Amazon knew about it.
It is crucial to highlight that in its letter to SEBI, Amazon had claimed that the Future had hidden the facts from the giant (16).
Salve argued that Amazon could not descend on the transaction between Future Retail and Reliance. And if there is a dispute, the e-commerce giant will have to refer to resolution.
“FRL is a listed entity. Before Amazon invested in FCPL, it wanted to ensure that Biyani had control over FRL. If banks sold Biyani’s shares, an outsider would have come in. Amazon cannot say that they will become parties to this. They cannot come in only because there is a concept of group companies.”
– Bar & Bench, a Legal Reporting Platform (17).
Salve argued that Amazon’s relief is against Future Coupons; hence it can be their arbitration, but it can’t go against Future Retail. As reported by Bar & Bench, he said that Amazon couldn’t interfere with the Future Group deal; they can come to NCLT as a stakeholder if they want to.
The lawyer also added that FDI is not allowed in India’s multi-brand retail, and Amazon can’t get a green flag with FDI violations. Salve ended his court argument by stating, “Please don’t let this American giant kill Future.” (18)
Amazon’s Opportunistic Submission
According to a Senior Advocate, Abhishek Manu Singhvi, appearing for another Future Group party, Amazon has made opportunistic opposite submissions to CCI and SEBI.
“The court is dealing with a concept which is alien to Indian Law. Emergency Arbitration doesn’t exist in India.”
– Abhishek Manu Singhvi, Senior Advocate (19).
He further argued that for the case, the seat in Delhi. As under Singapore Rules, emergency Arbitration is pre-arbitration and temporary. It is auto terminated once the arbitral panel takes over.
Meanwhile, Subramanium, Senior advocate representing Amazon, stated that the giant is an investor, and Law gives it protection rights. Emergency Arbitrator prima facie concludes that there was no inhibition on FCPL investment, and there was no FDI violation. However, would they still say there was no binding if they had succeeded before the emergency Arbitrator?
Prominently, both Future Group and Reliance stated that the deal is per Indian laws and wants to close it without any further delay.
Contracts Between Amazon and Future Group
Amazon made two contracts to solidify its position in the retail business of Future Group, Future Retail, a listed firm after it agreed to invest 15 billion INR or 200 million USD in a 49% stake in Future Coupons, an owner-controlled financial entity of Future Group, the retail conglomerate.
One of the agreements was shareholders contract with Futur Group owners, including the Biyani family and Future Coupons. The other contract was similar between Future Retail and its owners.
In the former, Amazon included a call option to purchase all or part of the owner’s equity stake in Future Retail between 2022 and 2029. The contract also prevented owners from transferring their shares to competitors, including Reliance Industries. It also gave Amazon the right to refuse any transfer of the Group owners’ Future Retail shares.
The second contract gave Future Coupons the first refusal rights on the licensing or transfer of Future Retail’s assets and amendments to Retail’s association articles. With Amazon’s robust 49% stake in Future Coupons, the contracts aimed to give the US firm an indirect veto against Future Group’s owner’s unexpected decisions to transfer Future Retail assets or shares.
Despite these clauses, Future Group agreed in August 2020 with Retail Retail, a retail and e-commerce arm of Mukesh Ambani led Reliance Industries Ltd. According to the deal, Reliance would acquire Future Group’s wholesale, retail, warehouse, and logistics businesses for 247 billion INR (20).
Why Future Group and Reliance So Confident?
Future Group and Reliance are very confident that they have no breached the contract with Amazon, and the answer to it is in the details.
As per the deal between Future and Reliance, Future Retail would merge with four other companies and create a new entity named Future Enterprises. This new company would then sell its wholesale, retail, warehouse, and logistics businesses as a going concern without transferring equity shares. Such a transaction, where a business is going concerned that includes assets, employees, and liabilities is transferred without equity transactions, is common in India and called “slump sale.”
The intragroup merger would erase Future Retail and transfer shares and assets restricted to Amazon and future contracts. Technically speaking, slump sale allows Future Group to avoid breaching the contract that restricts the Future Retail shares transfer as there would be no equity shares to transfer.
Since the contracts’ exact details are not disclosed, the explanation may fall short in covering more laudable points of the action. Nevertheless, Future Group and Reliance Group have taken advantage of technicalities to leverage any legal battle with Amazon.
According to Taeko Suzuki (21), a Japanese lawyer representing companies for disputes in India, Indian business people have a very creative way to look at their contracts. Hence, firms need to construct and write contracts very carefully and take all possible accountabilities that can arise from such creative interpretations.
No wonder all foreign investors, including venture capitals and startup stakeholders, pay close attention to the Future Vs. Amazon case, especially, whether the court would stick to their wordings or the contract spirit.
The Legal Complexities
According to Samudra Sarangi, Partner, Litigation and Dispute Resolution Practice, in law firm Panag & Babu, Amazon asks Future Retail for specific performance. It implies that both parties should perform as written in the contract.
However, if one figure out of much money Amazon would lose if the other party breaks the contract, its chances of getting the enforcement of the interim award done on the ground of specific performance become little.
“When you want the deal to be injected, you need to meet the threshold of specific performance. If Reliance can show this is the quantifiable loss that can occur to Amazon, there is no injunction question if they go ahead with the transaction. Reliance can always say they can fight it out in court, and whatever the arbitrator decides, they can pay the damage. But suppose Amazon shows that the loss is not compensable in money and that has no monetary remedy. In that case, they have a stronger case in terms of injunctions.”
– Samudra Sarangi, Partner, Panag & Babu (22).
Meanwhile, suppose there is a non-compete clause in the contract signed between Future Coupon and Amazon, and the latter tries to push the non-compete argument. In that case, it could further mud Amazon chances to get an interim injunction against the Future and Reliance deal. Moreover, according to the legal experts, nine out of 10 times, the non-compete argument falls flat in India’s courts.
There are certain clauses in the Amazon and Future Retail agreement that states that the Future cannot deal with certain firms, including companies of Mukesh Ambani. According to Souvik Ganguly, Managing Partner at Acuity Law (23), such restrictive covenants need to be considered in competition law’s applicable provisions. And if such a covenant has an appreciable adverse effect on completion, India may not enforce them.
Public Policy Contravention
Indian companies use one weapon against foreign arbitration order’s enforcement is that of public policy contravention. A non-compete agreement can easily go against Amazon, as it may see it as anti-competition. Hence, a contravention of the public policy.
The moment it would lead to foreign arbitration’s enforceability, most companies say that it is not in compliance with the public policy. There are wide loopholes to play with as soon as one goes into the public policy angle. Since there is no clear definition, there are many playgrounds open for creativity and legal experimentation.
However, Indian courts have become more conservative when refusing to enforce foreign arbitration on the public policy contravention basis. The spaces to challenge the award are limited and Indian courts would not typically interfere with a foreign award. Nowadays, it has become rare for Indian courts to deny enforcement of foreign arbitration tribunal awards based on public policy.
Amazon Accuse Future Group of Insider Trading
On Wednesday, Amazon stated that all parties had agreed to arbitration before the SIAC and the arbitral award is legal and valid. It was in response to a plea by Future Retail, led by Kishore Biyani. The court will hear arguments by Future Retail on Thursday while Amazon concluded its submission today.
Gopal Subramanium (24), Amazon’s counsel senior advocate, explained the arbitral award of the SIAC validity and added that the petition of Future Retail is not maintainable.
“After finding a prima facie case, he passed the directions. The arbitrator found no violation of FDI rules. Even without an emergency award, my client could go to the statutory authorities. Why was there the need for an emergency award? We wanted to go by the letter of the arbitration agreement. To call something nullity, there’s some illegality. But here notice is given to the other party. They agreed to the proceedings.”
– Gopal Subramanium, Senior Advocate of Amazon (25).
He also referred to rules of International Arbitration Centres of Delhi, Mumbai, Madras and stated that they all have provisions for emergency relief.
Subramanium further added that merely because it is not for their advantage, it does not become illegal. Future Group is seeking everything in the contradiction of the award. Future Retail was well aware that it needs Amazon’s consent in retail assets sale, particularly to a restricted individual.
Harish Salve, Senior Advocate, appearing for Future Retail, objected to Amazon’s communication with regulatory bodies. He added that the Emergency arbitrator’s award is persuasive and not binding. They are writing for SEBI and CCI that the award is binding (26).
He further pressed an ad-interim injunction against Amazon to stop the giant from writing to statutory bodies and alleged that it interfered with a lawful transaction. Amazon wants FRL to be in breach of contract RIL, but they can’t come and stop their transaction.
Conclusion: Online-Offline Integration of Retail Market
According to several experts, the country’s evolving retail sector would see more online and offline integration, where Reliance is currently working aggressively. It would give Reliance an upper hand since its physical retail presence would give it more ammunition to penetrate Indian towns and cities.
While online retail is expanding exponentially in the country, experts believe that physical retail is also important in the Indian market, where rural areas are yet to peak in internet penetration.
It is one of the key reasons why the Future deal has become a contention bone for Amazon and Reliance. At the moment, Reliance has the upper hand when it comes to physical retail, while Amazon and Walmart owned Flipkart dominates the online space. However, Reliance may not take long to turn tables if it keeps acquiring local retail brands, ultimately helping Reliance expand its offerings via Jiomart.
It remains to see whether Indian courts and regulators would side with Amazon or Future Group. Meanwhile, we would also see whether Amazon would dig deep into its pocket to take against Reliance or decide to strike a deal with the conglomerate led by Mukesh Ambani to consolidate its business in India.