India’s Future Retail may face shutdown if Reliance deal fails

By Rahul Vaimal, Associate Editor
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The Indian firm Future Retail Ltd will have to consider liquidation if its $3.38 billion asset sale to Reliance Industries crashes, the group reportedly said while arguing against US-based eCommerce giant Amazon in a Singapore arbitrator.

Recently, a Singapore arbitration tribunal put a halt to the ongoing deal between Future Retail to sell its assets to the Ambani-owned Indian retail group, Reliance. Amazon has alleged that Future Group had broken its prevailing contract with the eCommerce firm which was formulated last year.

The dispute centers around Future Group’s decision made in August this year to sell its retail, wholesale, logistics and some other businesses to Reliance for $3.38 billion, including debt.

In 2019, Amazon acquired about 49 percent stake in promoter holding firm Future Coupons which indirectly owns a 5 percent stake in Future Retail Ltd and houses all food and grocery stores such as Big Bazaar and Easyday.

Currently, the American eCommerce giant argues that its 2019 deal with Future Group had clauses stating that the Indian group couldn’t sell its retail assets to anyone on a “restricted persons” list including any firms from Reliance chief Mukesh Ambani’s group. The contract mentioned that any disputes would be arbitrated under Singapore International Arbitration Centre rules.

Following the order that asked Future Group to put the deal on hold, shares in both Reliance and Future fell. The companies reacted to the arbitrator’s decision by stating that they want to complete the deal “without any delay”.

In an exchange notice, Kishore Biyani-owned Future Retail stated that “this order will have to be tested under the provisions of the Indian Arbitration Act in an appropriate forum. In any enforcement proceedings, Future Retail would take appropriate steps to ensure that the proposed transaction will proceed unhindered without any delay.”

Future group’s retail unit, which currently runs more than 1,500 outlets will have to wind up its business if their transaction with Reliance fails, which in turn will affect the livelihoods of thousands of employees and workers at its vendor firms.

Legal Obligations

“If the disputed transaction falls through, Future Retail Ltd will go into liquidation. That will mean that the livelihoods of more than 29,000 employees of FRL will be lost,” the Indian group’s representatives told the arbitrator V.K. Rajah, a former attorney general of Singapore.

The impact of the COVID-19 pandemic has trembled the economic sector globally and hit many Indian businesses as well, especially in the retail sector. The Future-Reliance deal was aimed at protecting the interests of all shareholders through a large infusion of funds and the acquisition of liabilities, the company argued at the tribunal.

But Mr. Rajah underlined that “economic hardship alone is not a legal ground for disregarding legal obligations.”

As per Amazon’s interpretation of the contract, the agreement said Amazon has the first right to buy entire holding in Future Retail between three and 10 years after the transaction and Future Retail is restricted from selling or transferring its assets to third parties without the consent of the US company from day one. Amazon claims this clause was breached.

Amazon welcomed the arbitrator’s decision while Future Retail stated that it would go ahead with appropriate measures to complete its deal proceeds with Reliance, unhindered.

Amazon, which counts India as a key growth market and invested $6.5 billion, has already been bogged down by antitrust probes and strict foreign investment rules. The latest fight puts the US firm at odds not just with Future Group, but also with Ambani and his Reliance group which is fast expanding its eCommerce business.

Sources familiar with the matter had said earlier that the injunction was not automatically enforceable in India and the order would have to be approved by an Indian court. The company added that, “while Future Retail has to abide by the award from a moral and ethical standpoint, legally, it is not enforceable unless Amazon goes to court and gets it converted into a legal order.”

Any subsequent legal order in India to halt the deal would allow Amazon to negotiate with Reliance, Future and banks on the other side, said Mr. Murali Neelakantan, a corporate lawyer at Indian law firm Amicus which is not involved in the case.