Bhuvana Iyer, Mumbai Uncensored, 10th January 2022
Amazon has moved the National Company Law Appellate Tribunal (NCLAT) challenging last month’s Competition Commission of India (CCI) order that suspended the regulatory approval for its 2019 deal with local retailer Future Group. The NCLAT is likely to hear the matter this week. Separately, Amazon also filed a Special Leave Petition (SLP) in the Supreme Court last weekend, against a Delhi High Court order on January 5 staying the arbitration proceedings initiated by it against Future Retail over the latter’s Rs 24,713 crore merger deal with Mukesh Ambani’s Reliance Retail.
The Competition Commission of India (CCI) last month suspended its approval of Amazon’s 2019 deal with Future, denting the U.S. e-commerce giant’s attempts to block the sale of Future’s retail assets to Indian market leader Reliance Industries. The anti-trust regulator had said an approval granted to the US e-commerce giant over two years earlier to acquire a 49% stake in Future Coupons (FCPL) would ‘stand in abeyance’, as the firm suppressed information while seeking clearance. The CCI also imposed a Rs 202 crore penalty on Amazon.
The CCI’s December 2021 order followed complaints filed by FPCL, Future Retail’s independent directors and the Confederation of All India Traders (CAIT) alleging Amazon, in its plea before CCI, had not disclosed the intent to indirectly control Future Retail, the parent firm of FCPL, via its 49% acquisition in FCPL.
On January 5, a day after receiving a set back from a single-judge bench of the Delhi High Court, Future Retail got a reprieve from the Court’s division bench, which stayed the arbitration proceedings initiated by Amazon before the Singapore Tribunal till February 1. Future Retail and Future Coupons had sought stay on the arbitration proceedings.
Background of the case:
Amazon NV Investment Holdings (“Amazon”) purchased a49 percent equity position in Future Coupons Limited (“Future Coupons”), which is a promoter group entity of Future Retail Limited (“Future Group”), in November 2019. The transaction was estimated to be worth Rs. 2000 crores. Future Coupons owned 7.3 percent of Future Retail, implying that Amazon would indirectly own 3.5 percent of the company as a result of the acquisition.
The transactions triggered three agreements:
1. Future Coupons’ shareholder’s agreement with Amazon (FCPL SHA)
2. FCPL’s shareholder’s agreement with Amazon (FCPL SHA)
3. FCPL’s share subscription agreement with Amazon (FCPL SSA)
Apart from the transactional component, Amazon had gained some credibility because of the ‘call option’ it was given. The ‘call’ granted Amazon the right to purchase all or a portion of the assets of marketing business Future Retail. According to reports, the arrangement also included a list of 30 businesses with whom the Future Group would not be able to do business, namely Reliance Retail, a Reliance Industries Limited affiliate. This was meant to be another special arrangement with Future Group, similar to the one Amazon signed with Shoppers Stop in 2017 when it bought a 5% interest for INR 180 crore.
The clause on Restricted Companies/Competing Businesses: One of the requirements was that Amazon would present a list of industrialists/businesses, and Future would not sell the interest to these entities without Amazon’s permission. The agreement prohibited 15 (fifteen) corporations from engaging in or purchasing holdings in Future Group’s retail assets, including Reliance Industries, Walmart, Alibaba, Softbank, Google, Naspers, eBay, Target, Paytm, Zomato, and Swiggy.
Call-option: Amazon was offered a call option to purchase all or part of Future Coupons’ stake in Future Retail, which may be exercised from the third year onward till the tenth year of the deal.
Reliance Industries Limited purchased Future Group’s retail and wholesale divisions, as well as the logistics and warehousing companies, as a going concern on a slump sale basis in August 2020 for a lump sum aggregate value of Rs. 24,713 crores. Future Retail, which holds Big Bazaar, FBB, Foodhall, Easyday, and Nilgiris, Future Lifestyle Fashion Limited, which operates Brand Factory, a fashion discount chain, and Future Consumer Limited were also bought as part of the agreement. Future Groups’ finance and insurance operations, on the other hand, were not included in the acquisition. Reliance’s investment in Future Group was primarily motivated by the need to grow its offline retail footprint and boost profitability through economies of scale.
Amazon claimed that the Future Group-Reliance acquisition was illegal because it violated an agreement reached between Amazon and Future Coupons in 2019. The deal, according to Amazon, disturbed with Amazon’s call right to purchase Future Coupons’ shareholding in Future Group, which could have been implemented between the third and tenth anniversary of the agreement, and it was also in violation of the competitive company clause in the agreement, which stated clearly Reliance as a restricted corporation for the reasons of the competing business clause.
The Singapore arbitrator decided in Amazon’s favour and issued an interim injunction, suspending the Future-Reliance deal for 90 (ninety) days but later being extended. India’s Arbitration and Conciliation Act, 1996 will serve a decisive part in this issue. The issue is that even if the Singapore-based arbitrator rules in Amazon’s favour, the ruling will not be legally binding in India. Amazon contacted the Competition Commission of India (CCI) and the Securities Exchange Board of India (“SEBI”) as a result of this. It also went to the Delhi High Court to have the arbitration order enforced and to stop the Future-Reliance deal, which the Delhi High Court upheld. Future Group then appealed to the Singapore arbitration to have Future Retail removed from the interim order.
