The Delhi high court on Monday permitted Future Retail Ltd (FRL) to proceed with the sale of its assets to a unit of Reliance Industries Ltd (RIL) while allowing Amazon.com Inc. to approach appropriate forums to oppose the transaction.
In its ruling, a single-judge bench of the Delhi high court said the ₹24,713-crore transaction between Future group and Reliance Retail Ventures Ltd did not violate any statutory legal provisions, and both parties were free to seek approval for the deal from regulators.
The ruling, which can be challenged in a higher court, shifts the spotlight to the Securities and Exchange Board of India (Sebi) and the ministry of corporate affairs where Amazon is challenging the deal. The Competition Commission of India, the third regulator, cleared the transaction in November.
Amazon and Reliance are vying for dominance in India, where the retail market is estimated to touch $1.3 trillion by 2025. Future Retail’s assets can give Reliance Retail an edge as it tries to expand its market share in the physical and online retail business. The high-stakes battle between Amazon and Reliance has caught the debt-laden Future group in the middle. The Kishore Biyani-led group decided to sell its retail and wholesale assets to RIL after it ran into a cash crunch following lockdown in March.
The sale riled Amazon.com, which claimed that its agreement to buy a 49% stake in Future Coupons Ltd, an unlisted firm of the Future group, in August 2019 gave it the right to acquire a stake in the group flagship in future. Amazon also said its investment agreement barred Future Retail from transferring its assets to any company, including RIL, without Amazon’s consent.
Biyani approached the Delhi high court in November seeking relief against an interim order of the Singapore International Arbitration Centre with regard to the deal with Reliance.
The Future group firm contended that Amazon was misusing the interim order passed by an emergency arbitrator of the tribunal on 25 October. The interim award barred Future Retail from taking “any step to dispose of or encumber its assets or issuing any securities” to secure any funding from a restricted party.
On Monday, the high court said the rights granted to Amazon in the two shareholders’ agreements (with Future Coupons and Future Retail) are prima facie disproportionate to the actual shareholding of Amazon and by “camouflaging of words” the extensive rights held by Amazon cannot be masked as mere protective rights so as to fall beyond the test of “control”.
The court further said Amazon was not only safeguarding its investments by creating protective rights but also creating pre-emptive rights in anticipation of a change in Indian law to permit Amazon to raise its shareholding in Future Retail. The court declined to grant Future Retail’s plea for an interim injunction to stop Amazon from approaching regulators, stating that Amazon can approach competent authorities such as Sebi and CCI.
Mint reported on 4 November that lenders to Future group signed inter-creditor agreements, paving the way for a potential restructuring of the group’s stressed loans, citing two people in the know.