Tussle With Future Retail: Amazon Asks For Over Rs 1,400 Crore In Damages
Future Retail Ltd. has proposed a scheme of arrangement between 20 group entities and Reliance Retail Ventures Ltd. and Reliance Retail and Fashion Lifestyle Ltd.
BSE and NSE ought not to take cognizance of Amazon’s letter or the Emergency Arbitrator’s order, the company has said in an exchange notification.
As part of the information sought by the exchanges, Future Retail has disclosed that Amazon has asked for Rs 1,431 crores plus interest as damages, being the amount invested by it into Future Coupons Pvt. Ltd.
An Emergency Arbitrator, constituted under the SIAC Rules, has directed Kishore Biyani’s Future Group to put its transaction with Mukesh Ambani’s Reliance Retail on hold for now. The interim order also directed Future Retail to not file for any regulatory approvals. The arbitral tribunal at the Singapore International Arbitration Centre passed this interim direction after Amazon.com Inc. initiated legal proceedings against Future Group last month.
Future Retail has maintained that the interim award is not binding on it since it’s not party to the contractual agreement under which legal proceedings have been initiated by Amazon.
On Sunday, the company sought approval from the stock exchanges for the scheme on the following grounds:
Interim Award Has No Legal Status
Emergency Arbitrator has no legal status under Part I of the Indian Arbitration and Conciliation Act 1996 and therefore, the proceedings before an “Emergency Arbitrator” are void and coram non‐judice. The order having been passed by an authority without jurisdiction is a nullity under Indian law, Future Retail has said.
“FRL’s participation in the proceedings before the Emergency Arbitrator was expressly without prejudice to its jurisdictional objection and under protest. FRL only participated for the limited purpose of apprising the Emergency Arbitrator of the above factual and legal position.”
FRL Not A Party To Agreements
Future Retail has objected to the Emergency Arbitrator’s acceptance of Amazon’s argument saying it’s entirely misconceived.
It has stated that the Emergency Arbitrator accepted Amazon’s contention that two separate shareholder agreements, 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.
If this position is accepted, then in 2019 when these agreements were executed, there would’ve been a change in control of Future Retail in favour of Amazon, requiring it to make an open offer under Takeover Regulations.
“No such open offer was made, thereby suggesting that there was no intent of Amazon to consider the two Agreements as a single integrated transaction at that point of time.”
This issue was raised before the Emergency Arbitrator, Future Retail has said. It appears to have been overlooked by stating that ‘Amazon has not attempted to assert control over FRL without appreciating that once the two agreements are conflated in law the protective, special and material rights granted thereunder would constitute a conferral of “control” in favour of Amazon.’
Given that the interim order is premised on violation of SEBI Regulations, it cannot and ought not to be accorded any sanctity by SEBI, NSE and BSE, Future Retail has stated.
Scheme To Have Supremacy Over Contractual Rights
Future Retail has said that BSE and NSE shouldn’t take cognizance of Amazon’s letter or the Emergency Arbitrator’s order since:
- FRL has complied with all the requirements of obtaining the requisite approval from Future Coupons, as was required in the Shareholders Agreement executed by FRL with its promoters.
- The company is undergoing serious financial difficulties, particularly in light of the unprecedented impact of the COVID pandemic.
- The proposed scheme is the only way, it can come out of the situation and is in the best interest of all stakeholders, that includes shareholders, financial institutions, vendors and suppliers, and more importantly employees.
- Any delay in the implementation of scheme will cause irreparable losses to all stakeholders.
- Scheme is as per company law provisions, which is a self‐contained code by itself providing the right to any company to proceed for a scheme of arrangement, with conditions, that may include alteration of rights and obligations of all shareholders, and thus the scheme will hold supremacy over contractual obligations, if any at all.
- Board’s approval for the scheme is consistent with the Articles of Association of FRL and remain valid and subsisting.
Amazon’s Assertions A “Bit Rich”
Future Retail has pointed to Amazon’s letter which has ‘painted a picture that public shareholders of FRL are being misled.’
“It is a bit rich for such an argument to be made from someone who is not even a shareholder in FRL. Evidently, Amazon’s letter is motivated by other considerations.”
SEBI regulations are very clear in terms of the information that needs to be disclosed when a listed company approves a scheme of arrangement, and FRL has complied with all SEBI requirements, it has stated.
At best, Future Retail has stated, this is a contractual dispute between Amazon and the promoters of FRL, for which arbitration proceedings have been initiated. And so, SEBI and the stock exchanges should consider the scheme pf arrangement independently on its merits.
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, the company has said.
Amazon declined to comment on Future Retail’s assertions.
(Updated to include Amazon’s response)