Explained: The Multi layered Legal Tussle between Future Group- Reliance and Amazon.
The to and for legal battle between the American giant Amazon and Indian retail master, Future Group have witnessed several challenges and decisions by judicial and quasi-judicial authorities in India involving interference from the international arbitration body the Singapore International Arbitration Centre since 2019. Here’s a quick overview of the position till date.
Future Retail has 1,800 retail stores across 400-plus cities and towns across India. Amazon eyeing the opportunity of massive advantage in consumer experience took advantage of huge economic stress being faced by the Future Group and stroke a deal where the Managing Director of Future Group, Mr. Kishore Biyani agreed to sell 49% of its unlisted entity, Future Coupons, for more than ₹1,500 crore.
As a result, the long-term business agreements handed to Amazon the right to buy into flagship Future Retail after a period between three and 10 years, by exercising a “call” option. This stipulation authorized Amazon to exercise the option of acquiring all or part of Future Coupon’s stake in Future Retail within 3-10 years of the agreement.
The deal also provided Amazon the Right to First Refusal, and a non-compete clause — barring Future’s dealings with potential competitors of Amazon, which included Reliance, Walmart, Google, SoftBank, Alibaba, Naspers, eBay, Target, Paytm, Zomato, Swiggy, among others. It also prohibited Future from selling a stake to anyone engaged in online or offline retail in food, non-food and retail.
On the other hand, for Reliance, a deal with Future Retail would have established it firmly as India’s largest retailer with a presence in smaller cities and towns almost overnight.
The Covid-induced lockdown in 2020 worsened Future’s position in the market and by April 2020, Future Retail’s sales declined by about 75% from normal levels. As a result, Reliance entered the fray in May-June 2020 and positioned itself as a serious suitor for Future Retail. Biyani entered a deal with Reliance Retail, the wholly-owned subsidiary of Reliance Industries, in August 2020. The new ₹24,713 crore deal envisaged Future selling its retail, wholesale, logistics and warehousing units to Reliance.
Amazon obtains Emergency Order from the Singapore International Arbitration Centre (SIAC):
Aggrieved by the Future-Reliance deal (which effectively ended its hopes of having any stake in Future Retail), Amazon approached the Singapore International Arbitration Centre (SIAC) in October 2020 filing an emergency arbitration case. Alleging violation of a non-compete clause and a right-of-first-refusal pact it had signed with the Future Group, Amazon asked SIAC to restrain Future Group from selling its assets to Reliance.
SIAC, in its order on October 25, 2020, passed a favorable order for Amazon and granted the interim relief and issued a restraining order against Future, putting the Future-Reliance deal on hold till the matter gets decided finally.
Amazon quickly utilized the said order from SIAC to prevent SEBI, CCI and stock exchanges against the Future-Reliance deal, which was awaiting Sebi’s approval .
The Delhi High Court Chronology:
- Future Group approached the Delhi high court against Amazon seeking restrain against Amazon from writing to Sebi, CCI, and other regulators about SIAC’s order. Future contended this amounted to interfering with its agreement with Reliance.
- During pendency of the aforesaid petition before the Delhi high Court, the Competition Commission of India, CCI approved Reliance Retail’s deal with Future on November 20, 2020 despite Amazon’s protest.
- A single-judge bench, in December 2020, declined to grant Future Retail’s plea to restrain Amazon from writing to the statutory authorities and regulators about the arbitral award. However, the judge made some prima facie observations — that the August 2020 board resolution of Future Retail, approving the deal with Reliance was not invalid or void as claimed by Amazon, and that Amazon’s representations to statutory authorities and regulators was “based on incorrect assertions”.
- Amazon challenged the aforesaid observations before the division bench in the Delhi HC in January 2021, demanding reversal of the order.
- Meanwhile, on January 20, 2021, Sebi also cleared the Reliance-Future Retail deal.
- Amazon thereafter without wasting a minute, moved the Delhi High Court for enforcement of the emergency award by SIAC. This petition also asked for detention of Kishore Biyani and other directors of Future Group, besides attachment of their assets.
- Future Group defended its position by that Amazon’s deal was not with Future Retail but with Future Coupons, and that therefore, Future Retail was not bound by the arbitration. Second, that India’s Arbitration Act did not recognize the mechanism of emergency arbitration awards.
- In the meantime, the Future-Reliance deal received conditional approval from Sebi and the stock exchanges. Following approval from CCI and no objection from Sebi, Future approached NCLT, Mumbai, on January 26, 2021 seeking the tribunal’s approval to hold its shareholders meeting on the scheme of amalgamation with Reliance.
- On February 2, 2021, the high court affirmed the validity of the SIAC’s emergency award and ordered status quo, halting the Future- Reliance deal.
- Future challenged this order before a division bench of the high court the very next day. On February 9, 2021, the division bench stayed the single-judge order, giving a go ahead to the Future-Reliance deal. The division bench held that Future Retail had no agreement with Amazon and therefore, the latter had “prima facie” no reason to stall the deal. It added different agreements have been signed between the three disputing entities — FRL, Amazon and Future Coupons Private Limited (FCPL) and hence, the doctrine of “group of companies” cannot be invoked.
The Supreme Court on validity of Emergency Orders in Indian Scenario:
- Amazon challenged the aforesaid order by the division bench of the Delhi High Court asserting that SIAC’s Emergency Arbitrator (EA) order was an enforceable and valid order.
- Admitting Amazon’s appeal, the Supreme Court on February 22, 2021, restrained NCLT from finally approving any amalgamation scheme (with Reliance) proposed by Future as it set about to examine the validity of the SIAC’s emergency order.
- Meanwhile, the single-judge of Delhi HC, which had in February passed a short interim order, delivered a detailed order on March 18, not only upholding SIAC’s order but also directing for attachment of properties of Biyani and other director of the Future Group. The single-judge bench also issued show-cause notice to Biyani and other directors as to why they should not be sent to prison, as sought by Amazon in its enforcement application. This order, was however, stayed by the Division Bench of the High Court.
- This order was again reported to the Supreme Court by Amazon which which asked all other courts to hold their hand until it delivered a final ruling of the SIAC’s interim order on stopping Future’s deal with Reliance.
- On August 6, 2021, the SC bench, headed by justice Rohinton F Nariman, ruled that the Future Group is bound by the SIAC’s emergency award and that it was enforceable under the Indian arbitration law.
Future takes the matter to Supreme Court again.
- Future challenged the March 18 order of the single judge, Delhi High Court afresh, in the apex court.
- Meanwhile, the single judge in Delhi High Court took up enforcement proceedings on August 17 and gave Future four weeks to obtain a stay order from the Supreme Court, failing which, it said, the coercive order on attachment of properties of the Biyanis shall revive.
- On September 9, 2021, the Supreme Court took up Future’s appeal against the single judge order and restrained the Delhi High Court from passing any adverse directive against Future’s deal with Reliance or on attaching the assets of Future’s chairman and directors.
- While staying the enforcement proceedings before the high court, a bench, headed by Chief Justice of India NV Ramana, also directed that no statutory authority in the country should give its final approval to any scheme facilitating the Future-Reliance deal for the next four weeks.
No relief for Future at SIAC:
- The SIAC rejected Future’s application to lift the interim stay on Future-Reliance deal.
- Future Retail contended that it should be excluded from arbitration proceedings because it is not a party to the dispute between its promoter Future Coupons Pvt Ltd and Amazon.
- The tribunal however, upheld its emergency arbitration ruling and set down the arbitration case for a detailed hearing and final judgment.
Challenge to the SIAC’s order:
- Future Retail moved the Delhi high court against the aforesaid order of the SIAC, seeking a stay on SIAC’s adverse order as well as for a nod to proceed with shareholders’ and creditors meeting for its proposed asset sale to Reliance. However, no relief was granted to Future.
- After the high court’s refusal to stay SIAC’s order, Future moved the Supreme Court on November 8, 2021, seeking permission for a meeting of its shareholders and creditors. The appeal contended that SIAC’s order would lead to grave and irreparable harm if Future was not able to proceed with the disputed transaction.
- On the other hand, Amazon, too, filed a fresh application before the Supreme Court for restraining all authorities, including NCLT, from allowing any measure that may facilitate the Future-Reliance deal till the matter is finally decided by the top court.
- On November 11, 2021, the Supreme Court took up Future’s fresh petition along with Amazon’s plea, and suggested all parties hold their hand until the final determination of the dispute by the court in the second round.
An interesting and far reaching finding by the Competition Commission of India:
- In a big blow to Amazon’s stakes, on December 17, 2021, CCI suspended its nod to Amazon’s 2019 investment in Future Coupons, entertaining a plea by the Future Group, CCI held that Amazon had misled the commission to believe, through false statements and material omissions, that the combination and its purpose were the interest of Amazon in the business of Future Coupons.
- CCI found that Amazon had concealed the details of the shareholder agreement at the time of acquisition and its purpose was to acquire strategic rights over Future Retail. With this, CCI proceeded to put its prior approval to the Amazon- Future Coupons investment venture in abeyance, giving Amazon 60 days to give notice for the combination, post which the Commission would “examine the combination afresh.” Amazon was also imposed a penalty of ₹200 crore for suppressing material facts at the time of seeking CCI’s nod.
- Obtaining an edge over the matter, Future, quickly approached SIAC asking for termination of the arbitration proceedings on the ground that the Amazon’s case had become infructuous on account of suspension of the approval by CCI. SIAC, however, decided to go ahead with the evidence of special witness and held that the new application by Future would be taken up thereafter.
- Future immediately approached Delhi High Court, seeking a stay of the arguments in the main arbitration case before SIAC until its application on terminating the arbitration altogether was not decided.
- While a single-judge bench of HC on January 4 declined to suspend the ongoing arbitration proceedings, a division bench of the HC stayed till February 1 the proceedings before SIAC by an interim order on January 5.
- Meanwhile, Amazon on January 8 filed an appeal before the National Company Law Appellate Tribunal against the CCI order suspending an approval to its 2019 deal with Future.
Hence, the present legal scuffle involving the top business houses in the market will have far reaching impact on the economic as well legal world. As far as the future of Arbitration in India is concerned, it is awaited that whether the said scenario will bring promising or bleak changes in the Arbitration field.