10 things we learned about Future Retail’s POV in its M&A spat with Amazon

Representative image live bse live nse live Volume Todays L/H More × Citing breach of contract by the Future Group, which inked a deal to sell its retail assets to rival Mukesh Ambani’s Reliance Industries for Rs 24,7130000000 , ecommerce giant Amazon had moved the Singapore International Arbitration Centre. To be sure, an arbitration is an alternate, private dispute resolution process outside the courts wherein one or more nominees decide on the dispute via an “arbitral award”. Last month, an emergency arbitrator granted interim relief to the Jeff Bezos-led company and put the mega deal on hold. But Reliance Industries and the Future Group believe the deal was struck as per applicable Indian laws and are seeking an early closure of formalities. But relying on the emergency arbitrators order, Amazon has knocked the doors of market regulator Sebi and both the key bourses, NSE and BSE asking them not to approve the transaction. Future Group has indicated the serious financial difficulties faced by the firm due to COVID-19 to the authorities and believes any delay in deal approvals could have an impact on its shareholders, lenders, vendors, suppliers and employees. In response to the latest salvo from Amazon, which according to Future Retail, “painted a picture that public shareholders of FRL are being misled”, the retail firm hit back saying “ it’s is a bit rich for such an argument to be made from someone who is not even a shareholder in Future Retail”. That’s not all, the firm shared a detailed rebuttal on the impact of the emergency arbitrator’s order, the contentions of Amazon and the road ahead. Here is the Future Retail argument broken down in ten points Q) Is the order by the emergency arbitrator applicable in India and binding on Future Retail? According to Future Retail, an emergency arbitrator is not recognized under domestic law and has no legal status. Consequently, an order from such an authority which has no jurisdiction in the case is invalid under Indian law. In the present case, the relevant law is the Indian Arbitration and Conciliation Act, 1996. Q) Then why did Future Retail participate in the arbitration proceedings? Future Retail says it participated solely for the limited purpose of informing the emergency arbitrator about its legal position. Q) Why is Amazon insisting that it has an interest in and rights against Future Retail? The US firm believes that two separate shareholder agreement(s), one between Amazon and FRL’s promoters (to which FRL is not a party) and another between FRL and its promoter (to which Amazon is not a party) constitute one single integrated transaction and that by such a composite transaction Amazon has an interest in and rights against FRL. Q) Ok, but why does Future Retail disagree with this contention by Amazon which the US firm urged before the emergency arbitrator? Future Retail believes if that was indeed the case, then when both agreements were executed, there would have been a change of control in FRL in favour of Amazon, and when change of control happens, then an open offer to FRL’s public shareholders is mandatory under Sebi norms. Such an open offer did not happen and thus FRL’s believes in the absence of an open offer, there was no intent by Amazon to consider both agreements as a single integrated transaction at that point of time. Q) Is Future Retail a party to the arbitration agreement relied upon by Amazon? No, according to the company. Instead, it maintains that parties to the arbitration agreement are Amazon and various promoters of Future Retail. and “ at the best”, Amazon’s claims are a contractual dispute between Amazon and the promoters of Future Retail, the firm believes. Q) Ok. So if that’s the Future Retail stance, then how is this significant from the point of view of the exchanges and Sebi? As part of statutory requirements, a nod or NOC is required from BSE, NSE and Sebi who will review the deal. A green signal is required from these bodies for the deal and the related scheme of arrangement to be filed before the National Company Law Tribunal as part of due process. Amazon is relying on the emergency arbitrator order and has reportedly urged the bourses and the regulator not to approve the Future Retail-Reliance Retail deal. Q) Hmm ... so what is the Future Retail defence? “A contractual dispute between the promoters of FRL and Amazon cannot restrict or interfere with the authority of SEBI and the stock exchanges to approve the Scheme involving the listed entity.” Q) Is any argument of Future Retail still pending determination at the arbitration forum? Yes, and a fundamental one at that! It’s objections to the proceedings on the matter of jurisdiction ( refer to answer 1) are still pending determination with the SIAC ( Singapore International Arbitration Centre) registrar. The emergency arbitration order was passed under SIAC rules. Q) What’s the Plan B for Amazon? As an alternative to its claim and injunctive reliefs against the scheme, Amazon has sought for damages amounting to Rs 1,4310000000 along with interest being the amount invested by Amazon into Future Coupons Private Limited Q) Phew! That’s a lot to digest! But the moot question is what’s the legal status of the Future Retail-Reliance Retail deal? Future Retail believes that “there would not be any change in status of the proposed scheme until the Interim Order passed by the Emergency Arbitrator of SIAC is executed by the Indian court of appropriate jurisdiction. “Essentially, Future Group believes a domestic court needs to intervene to alter the status of the transaction. Legal experts believe one of the options available before Amazon is to file a plea under section 9 of the Indian Arbitration and Conciliation Act at the relevant high court to enforce the emergency arbitrator’s order in India.