On Monday, 26 October, Future Retail Ltd (FRL) – the company behind major consumer retailers like Big Bazaar, Easyday and WH Smith – announced that the Rs 24,713 crore deal for acquisition of its assets by Reliance Retail Ventures Ltd (RRVL) would “proceed unhindered without any delay.”
RRVL, which is a subsidiary of Mukesh Ambani’s flagship Reliance Industries Ltd (RIL) also insisted that it fully intended to complete the transaction without any delay, and that they were confident the deal was legally sound.
Why is this news?
That’s because on Sunday, 25 October, global e-commerce giant Amazon obtained an emergency order from the Singapore International Arbitration Centre (SIAC) restraining the Future Group (of which FRL is a part) from proceeding with their deal with Reliance.
But if Amazon obtained this order restraining the sale, how are Future Retail and Reliance saying the deal will proceed? How did Amazon get a say in the matter in the first place? And what will happen now?
Here’s everything you need to know about this new Retail Wars saga.
Amazon vs Reliance: Why Are They at War Over Future Retail Deal?
1. Episode 1 - Amazon's Deal With Future Group
The reason for Amazon’s entry into the fray is a deal it made with the Future Group back in August 2019. Jeff Bezos’ company purchased a 49 percent stake in an unlisted company in the group called Future Coupons through this deal, for a round Rs 1,400 crores.
Now Future Coupons is the promoter entity for Future Retail Ltd (FRL), and owns 7.3 percent of FRL. Amazon had now, therefore, indirectly acquired a 3.6 percent stake in FRL.
Though this stake is a small one, the deal included a ‘call option’ for Amazon, which gave it a first right of refusal to purchase a stake in FRL, if it is decided to consider selling any shares in it. According to multiple news reports, the right could be exercised three years from the deal, up till 10 years from the deal.
Expand2. Episode 2 - Future Retail's Deal With Reliance
COVID-19 has proved to be a major crisis for the Future Group, with CEO Kishore Biyani saying on 14 October that the group lost Rs 7,000 crore in revenue in just the first 3-4 months of the pandemic, thanks to all their stores being shut.
"We did too many acquisitions in the last six-seven years... I thought there was no other answer but to exit," Biyani said at a retail convention. The group looked at various ways to cut its losses, eventually settling on a restructuring of its companies like FRL, Future Lifestyle Fashions, and Future Market Networks into one single entity.
In addition to this, the retail, wholesail and logistics business of the Future Group, including the assets of FRL, would be sold to Reliance Retail Ventures Ltd (RRVL) for Rs 24,713 crore. The manufacturing business (think own-brand goods you can get at Big Bazaar like Tasty Treat or Fresh) of the group, and fashion sourcing ventures, are not being sold under the deal, which grants RRVL a 13.14 percent stake in the new Future Group entity.
This deal was announced in August 2019, and at the time, it was reported that Amazon’s shareholding in Future Coupons would continue.
Expand3. Episode 3 - Amazon Invokes Arbitration
Earlier this month, Amazon announced that it was invoking the arbitration clause in their agreement with the Future Group (for their stake in Future Coupons) to challenge the deal between FRL and RRVL.
Although arbitration is meant to be a quicker form of dispute resolution than regular litigation, even expedited proceedings would take some time, and so it was necessary for Amazon to find a way to get some sort of interim injunction to prevent the deal from going through in the meanwhile.
Amazon could not approach the Indian courts immediately for this injunction, because their agreement with Future Coupons had an arbitration clause – which said that any dispute between the parties would need to be resolved through arbitration at the Singapore International Arbitration Court (SIAC), rather than the courts.
However, on 25 October, Amazon were able to obtain an interim order from an ‘Emergency Arbitrator’ – a mechanism under SIAC’s Rules for urgent relief, that can’t wait till the actual arbitration tribunal is set up to hear the full case. Under this interim order, the Emergency Arbitrator held that the deal between FRL and RRVL should not go forward till the main arbitration proceedings were completed.
Expand4. Episode 4 - Future Retail and Reliance Reject Emergency Arbitrator's Order
And now we are back full circle, to FRL and RRVL’s statements about how the deal will proceed. Both companies have made all the relevant regulatory disclosures about the interim order from the Emergency Arbitrator (including to the Bombay Stock Exchange), but neither believes that they are bound by the order, or that there are any grounds for Amazon to interfere in their deal.
“RRVL intends to enforce its rights and complete the transaction in terms of the scheme and agreement with Future group without any delay,” the Reliance entity said in its statement.
FRL said it expected to continue with the deal “unhindered” and that the Emergency Arbitrator’s order would have to be tested in terms of jurisdiction and legality. “The company is examining the communication and the order. It may be noted that the company is not a party to the agreement under which Amazon has invoked arbitration proceedings,” it said in its statement.
FRL’s main argument against Amazon’s arbitration proceedings is this latter point, that FRL itself was not party to the agreement between Amazon and Future Coupons, which included the arbitration clause – so how can it be bound by any arbitration proceedings?
What makes Amazon’s position less than ideal is that even if FRL were to be considered party to the deal, the orders of an Emergency Arbitrator at the SIAC, are not enforceable in India. The law which governs arbitration in India (including enforcement of awards of arbitrators outside India) – the Arbitration and Conciliation Act 1996 – does not recognise interim orders of an Emergency Arbitrator.
As a result, if the FRL-RRVL deal were to be concluded tomorrow, Amazon would not be able to use the Emergency Arbitrator’s order as a basis to go to court in India against the deal.
Expand5. Episodes 5 - What Happens Now?
Although the order of the Emergency Arbitrator is not enforceable on its own, if FRL and RRVL refuse to voluntarily comply with it (as they have basically confirmed), then Amazon can try to approach one of the high courts in India to try and get an interim relief measure under the Arbitration and Conciliation Act to the same effect.
Ashish Kabra, head of International Dispute Resolution at law firm Nishith Desai Associates in Singapore, told The Indian Express that there have been some cases in the past where high courts have passed such orders providing for similar relief to that given by an Emergency Arbitrator. The Bombay and Delhi high courts have considered these emergency orders to have persuasive value, for instance, but this is not set in stone.
In fact, in this particular case, getting any interim relief may be even less straightforward than normal. There are a number of complications to this whole situation, thanks to the nature of the deal between Amazon and Future Coupons, including:
- Will FRL be considered bound by the arbitration agreement at all, given it was not party to Amazon’s deal?
- Even if the arbitration agreement applied to FRL, have Amazon’s rights under the deal actually been infringed? According to many reports at the time, the right of first refusal kicks in 3 years after the deal was entered into, but this time period has not yet elapsed.
- Furthermore, the deal is reported to have given Amazon rights over any sale of shares in FRL – but what has taken place here between FRL and RRVL is an asset sale, which is entirely different.
- At the same time, Amazon has argued that their deal with Future Coupon included a prohibition on sale of retail assets to those on a “restricted persons” list from day one, which reportedly included companies part of the Reliance group.
- Were Amazon really not given the chance to exercise their right of refusal (whether on shares or assets)? According to The News Minute, industry insiders were surprised that Amazon went to arbitration in the first place – because they had been contacted first for investment by the Future Group before going to Reliance.
These are no doubt going to be issues in the main arbitration proceedings going forward as well.
However, turns out, the next step for Amazon will be to approach a high court and seek interim relief, which will no doubt be contested by FRL and RRVL who want to get the deal over the line. The consequences for FRL if the deal were not to happen are particularly stark, with Reuters reporting that this could lead to liquidation, and a loss of jobs for more than 29,000 employees.
It should be noted that even if Amazon gets an interim relief measure from a high court, and end up winning the arbitration proceedings, the matter doesn’t exactly end right there. There are ways to challenge the enforcement of a foreign arbitral tribunal under the Arbitration and Conciliation Act, which FRL and RRVL may still feel they need to do.
It looks, therefore, like this is a saga that is set to continue for some time. What will be interesting to watch out for, in addition to everything else here, is how this will affect other aspects of the simmering retail war between Amazon, Reliance and Walmart-owned Flipkart.
For instance The Economic Times and Bloomberg have already reported that the proceedings are a shock because Amazon was planning to acquire a multi-billion dollar stake in Reliance’s retail operations.
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)
Expand
Episode 1 - Amazon's Deal With Future Group
The reason for Amazon’s entry into the fray is a deal it made with the Future Group back in August 2019. Jeff Bezos’ company purchased a 49 percent stake in an unlisted company in the group called Future Coupons through this deal, for a round Rs 1,400 crores.
Now Future Coupons is the promoter entity for Future Retail Ltd (FRL), and owns 7.3 percent of FRL. Amazon had now, therefore, indirectly acquired a 3.6 percent stake in FRL.
Though this stake is a small one, the deal included a ‘call option’ for Amazon, which gave it a first right of refusal to purchase a stake in FRL, if it is decided to consider selling any shares in it. According to multiple news reports, the right could be exercised three years from the deal, up till 10 years from the deal.
Episode 2 - Future Retail's Deal With Reliance
COVID-19 has proved to be a major crisis for the Future Group, with CEO Kishore Biyani saying on 14 October that the group lost Rs 7,000 crore in revenue in just the first 3-4 months of the pandemic, thanks to all their stores being shut.
"We did too many acquisitions in the last six-seven years... I thought there was no other answer but to exit," Biyani said at a retail convention. The group looked at various ways to cut its losses, eventually settling on a restructuring of its companies like FRL, Future Lifestyle Fashions, and Future Market Networks into one single entity.
In addition to this, the retail, wholesail and logistics business of the Future Group, including the assets of FRL, would be sold to Reliance Retail Ventures Ltd (RRVL) for Rs 24,713 crore. The manufacturing business (think own-brand goods you can get at Big Bazaar like Tasty Treat or Fresh) of the group, and fashion sourcing ventures, are not being sold under the deal, which grants RRVL a 13.14 percent stake in the new Future Group entity.
This deal was announced in August 2019, and at the time, it was reported that Amazon’s shareholding in Future Coupons would continue.
Episode 3 - Amazon Invokes Arbitration
Earlier this month, Amazon announced that it was invoking the arbitration clause in their agreement with the Future Group (for their stake in Future Coupons) to challenge the deal between FRL and RRVL.
Although arbitration is meant to be a quicker form of dispute resolution than regular litigation, even expedited proceedings would take some time, and so it was necessary for Amazon to find a way to get some sort of interim injunction to prevent the deal from going through in the meanwhile.
Amazon could not approach the Indian courts immediately for this injunction, because their agreement with Future Coupons had an arbitration clause – which said that any dispute between the parties would need to be resolved through arbitration at the Singapore International Arbitration Court (SIAC), rather than the courts.
However, on 25 October, Amazon were able to obtain an interim order from an ‘Emergency Arbitrator’ – a mechanism under SIAC’s Rules for urgent relief, that can’t wait till the actual arbitration tribunal is set up to hear the full case. Under this interim order, the Emergency Arbitrator held that the deal between FRL and RRVL should not go forward till the main arbitration proceedings were completed.
Episode 4 - Future Retail and Reliance Reject Emergency Arbitrator's Order
And now we are back full circle, to FRL and RRVL’s statements about how the deal will proceed. Both companies have made all the relevant regulatory disclosures about the interim order from the Emergency Arbitrator (including to the Bombay Stock Exchange), but neither believes that they are bound by the order, or that there are any grounds for Amazon to interfere in their deal.
“RRVL intends to enforce its rights and complete the transaction in terms of the scheme and agreement with Future group without any delay,” the Reliance entity said in its statement.
FRL said it expected to continue with the deal “unhindered” and that the Emergency Arbitrator’s order would have to be tested in terms of jurisdiction and legality. “The company is examining the communication and the order. It may be noted that the company is not a party to the agreement under which Amazon has invoked arbitration proceedings,” it said in its statement.
FRL’s main argument against Amazon’s arbitration proceedings is this latter point, that FRL itself was not party to the agreement between Amazon and Future Coupons, which included the arbitration clause – so how can it be bound by any arbitration proceedings?
What makes Amazon’s position less than ideal is that even if FRL were to be considered party to the deal, the orders of an Emergency Arbitrator at the SIAC, are not enforceable in India. The law which governs arbitration in India (including enforcement of awards of arbitrators outside India) – the Arbitration and Conciliation Act 1996 – does not recognise interim orders of an Emergency Arbitrator.
As a result, if the FRL-RRVL deal were to be concluded tomorrow, Amazon would not be able to use the Emergency Arbitrator’s order as a basis to go to court in India against the deal.
Episodes 5 - What Happens Now?
Although the order of the Emergency Arbitrator is not enforceable on its own, if FRL and RRVL refuse to voluntarily comply with it (as they have basically confirmed), then Amazon can try to approach one of the high courts in India to try and get an interim relief measure under the Arbitration and Conciliation Act to the same effect.
Ashish Kabra, head of International Dispute Resolution at law firm Nishith Desai Associates in Singapore, told The Indian Express that there have been some cases in the past where high courts have passed such orders providing for similar relief to that given by an Emergency Arbitrator. The Bombay and Delhi high courts have considered these emergency orders to have persuasive value, for instance, but this is not set in stone.
In fact, in this particular case, getting any interim relief may be even less straightforward than normal. There are a number of complications to this whole situation, thanks to the nature of the deal between Amazon and Future Coupons, including:
- Will FRL be considered bound by the arbitration agreement at all, given it was not party to Amazon’s deal?
- Even if the arbitration agreement applied to FRL, have Amazon’s rights under the deal actually been infringed? According to many reports at the time, the right of first refusal kicks in 3 years after the deal was entered into, but this time period has not yet elapsed.
- Furthermore, the deal is reported to have given Amazon rights over any sale of shares in FRL – but what has taken place here between FRL and RRVL is an asset sale, which is entirely different.
- At the same time, Amazon has argued that their deal with Future Coupon included a prohibition on sale of retail assets to those on a “restricted persons” list from day one, which reportedly included companies part of the Reliance group.
- Were Amazon really not given the chance to exercise their right of refusal (whether on shares or assets)? According to The News Minute, industry insiders were surprised that Amazon went to arbitration in the first place – because they had been contacted first for investment by the Future Group before going to Reliance.
These are no doubt going to be issues in the main arbitration proceedings going forward as well.
However, turns out, the next step for Amazon will be to approach a high court and seek interim relief, which will no doubt be contested by FRL and RRVL who want to get the deal over the line. The consequences for FRL if the deal were not to happen are particularly stark, with Reuters reporting that this could lead to liquidation, and a loss of jobs for more than 29,000 employees.
It should be noted that even if Amazon gets an interim relief measure from a high court, and end up winning the arbitration proceedings, the matter doesn’t exactly end right there. There are ways to challenge the enforcement of a foreign arbitral tribunal under the Arbitration and Conciliation Act, which FRL and RRVL may still feel they need to do.
It looks, therefore, like this is a saga that is set to continue for some time. What will be interesting to watch out for, in addition to everything else here, is how this will affect other aspects of the simmering retail war between Amazon, Reliance and Walmart-owned Flipkart.
For instance The Economic Times and Bloomberg have already reported that the proceedings are a shock because Amazon was planning to acquire a multi-billion dollar stake in Reliance’s retail operations.
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)