Reliance - Future Retail: Amazon Wins Interim Order To Stall Deal
Kishore Biyani’s Future Group has been directed to put its transaction with Mukesh Ambani’s Reliance Retail Ltd. on hold for now. The arbitral tribunal at the Singapore International Arbitration Centre passed this interim direction after Amazon.com Inc. initiated legal proceedings against Future Group earlier this month.
‘We welcome the award of the Emergency Arbitrator. We are grateful for the order which grants all the reliefs that were sought. We remain committed to an expeditious conclusion of the arbitration process,’ Amazon spokesperson told BloombergQuint.
Future Retail Ltd. responded to this development on Monday morning saying the order of the Emergency Arbitrator will have to be tested under the provisions of Indian Arbitration Act in an appropriate forum. It said that Future Retail is not a party to the agreement under which Amazon has invoked arbitration proceedings.
“As per the advice received by FRL, all relevant agreements are governed by Indian Law and provisions of Indian Arbitration Act for all intents and purposes and this matter raises several fundamental jurisdictional issues which go to the root of the matter.”
“Future Retail has been legally advised that actions taken by the FRL / its board, which are in full compliance of the relevant agreements and eminently in the interest of all stakeholders cannot be held back in arbitration proceedings initiated under an agreement to which FRL is not a party,” the company said in a stock exchange notification.
Caught between the two - Reliance Retail Ventures Ltd. - has also echoed a similar stance.
The transaction to acquire assets and business of Future Retail Ltd. “under proper legal advice and the rights and obligations are fully enforceable under Indian law”. RRVL intends to enforce its rights and complete the transaction in terms of the scheme and agreement with Future group without any delay.”
The deal’s progress will now hinge on the complex legal issue of whether an interim international arbitral order is enforceable in India.
Amazon Vs Future Group
Earlier this month, Amazon had alleged that the Rs 27,513-crore deal between Reliance Retail and Future Group violates its contractual rights.
Last year, Amazon.com NV Investment Holdings had invested in Future Group by acquiring a 49% stake in Future Coupons Ltd. —a promoter entity of Future Retail Ltd. As per the shareholders’ agreement, Amazon was granted a call option allowing it to acquire all or part of the promoters’ shareholding in Future Retail, which could be exercised between the third and tenth years in certain circumstances subject to applicable law.
At that time, Future Coupons and Future Retail had also entered into a shareholders’ agreement which gave the former certain rights over the latter, according to exchange filings.
The shareholders’ agreement stated that Future Retail will require prior approval from Future Coupons on certain matters. These include:
- Transfer or license of all or substantially all of the assets of Future Retail or material assets.
- Transfer of assets above a certain threshold to a related party.
- Amendment of articles of association in conflict with the terms of the shareholders’ agreement.
Anand Desai, managing partner at DSK Legal had told BloombergQuint earlier that usually, when an investor has a call option exercisable at a future date, the shareholders’ agreement has detailed clauses saying in the meanwhile, those shares can’t be sold to someone else, and may also state that if you sell to anyone else, it’ll be subject to my rights to call the shares from them at the price specified in the agreement.
So, this prior contractual agreement can interfere with a subsequent sale to another party, he had pointed out.
(Updated to include the response by Future Retail Ltd.)