In August 2020, Future Group made a deal worth ₹24,713 crores with Reliance to sell Future’s retail business. Amazon, however, recently issued a legal notice to Future Group which states that its deal with Reliance was a breach of contract. How is suddenly Amazon into the picture and what contract did it have with Kishore Biyani’s Future Group? Let’s find out.
Crux of the Matter
With an outstanding debt of ~₹13,000 crores, Future Group was debt-laden and the Covid-19 crisis increased the problems for Future Group. So in August, it sold its Retail business for ₹24,713 crores to Reliance Retail.
Amazon sent a legal notice to Future Group for violating its “contractual rights” in the deal made with Reliance.
Why Is Amazon Objecting?
It all started with Amazon buying a 49% stake in Future Coupons Ltd, which contributes 7.3% stake in Future Retail Group, in 2019. This translates to Amazon holding ~5% stake in Future Retail. As a part of the deal, Amazon had the right to buy (a call option) all or part of shareholding in Future Retail after a period between 3 and 10 years of the deal.
The deal also included “a restricted list” of companies – mostly competitors with the name of Reliance explicitly mentioned – that Future was not supposed to sell the business to without making an offer to Amazon. Amazon says Future Group did not inform Amazon of the deal in progress. Amazon has taken the matter to Singapore International Arbitration Centre for resolution.
What Future Group Has To Say?
Future Group says it had reached out to Amazon while it was facing issues due to lockdown, but it kept delaying without any concrete commitments. One of Future’s close associates said Amazon was kept in the loop while the Reliance deal was in progress.
Future Group also says that it has not violated any agreement as the deal with Reliance does not involve any sale of ‘stake’ but involves only the sale of Future Group’s ‘assets’. Amazon says this deal is deliberately structured to oust Amazon.
The Reliance-Future Group deal involves combining 5 listed entities of Future Group into 1, and transferring the ‘retail assets’ to Reliance – this structure obviates the need for a stake sale.
Views Of Legal Experts
Experts also say that Amazon cannot challenge the deal as it involves only listed entities, whereas it has sent a notice to and had an agreement with Future Coupons, which is an unlisted firm.
Moreover, as per Future-Amazon agreement, Amazon’s rights to buy promoters’ stake only comes into effect after 2022. This right is also based on the condition that FDI rules regarding investment in retail firms change in India. Currently, India does not allow E-commerce companies to own stake in entities that sell on their platforms – here Future Group sells products on Amazon.
- Pantaloons is one of the major clothing retail outlets in India with over 350 stores in 160 cities. Pantaloons was previously controlled by the Future Group, and was taken over by Aditya Birla in 2012-13.
- Alternative dispute resolution typically denotes a wide range of dispute resolution processes and techniques that act as a means for disagreeing parties to come to an agreement with the help of a third party. Alternative dispute resolution (ADR) is generally classified into at least four types: negotiation, mediation, collaborative law, and arbitration.
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