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Opinion

Fix Responsibility For Amazon-Future Retail Deal Failure, Loss To PSU Banks’ Credibility

Strangely, Competition Commission of India, contrary to observations of Emergency Arbitrator from SIAC, on the specious grounds that Amazon had purportedly misrepresented its case to it, decided to put its approval in abeyance to the 2019 deal between Amazon and FCPL.

Amazon Sues Enforcement Directorate, Seeks Dropping Of Future Deal Probe (Image: PTI)
Amazon and Future have been locked in a bitter legal tussle since October 2020. (Image: PTI)

New Delhi: Future Retail Ltd (FRL), the Kishore Biyani-started retail behemoth, which owns the Big Bazaar chain of retail stores, has a debt of around Rs 12,000 crores on its books. Much of this debt is owed to public sector banks. However, the Biyani family doesn’t seem to have the resources to honour the debt and the only way for the banks to recoup some of the outstanding money is if FRL finds a buyer.

However, after some highly suspicious and questionable moves and counter-moves, the FRL saga, which also involves international e-tailer Amazon and Indian industry major Reliance Ltd, remains unfinished, while the Indian public, which, directly or indirectly has a stake in the PSU banks, remains clueless about the fate of its direct or indirect investment in FRL via bank loans.

Incidentally, the one fact that should have provided more clarity and helped settle the issue has been lost in translation: both FCPL and FRL have the BIyani family members as major stakeholders and hence the question of whether one hand (FRL) knew what the other (FCPL) was doing with Amazon is moot.

In August 2019, Amazon acquired a 49 percent stake in Future Coupons Pvt Ltd (FCPL) for a sum of Rs 1,431 crore. FCPL, for the record, also backed by the Biyani family, is one of the promoters of the listed FRL. Amazon’s investment was to be transmitted to FRL.

Possibly aware of the manner in which some unscrupulous elements conduct business in India, Amazon insisted on and got certain clauses included in its agreement with FCPL, which included, among others, that in case FCPL decided to sell its stake at a later date, Amazon would have a call option to acquire it and that FCPL, and FRL would not sell or alienate any of its assets, including those of Big Bazaar, to any other company, including Reliance.

Despite the agreement, in August 2020, FRL decided to sell the Big Bazaar assets to Reliance Retail, a subsidiary of RIL, for a valuation of between Rs 24,000 crore and Rs 27,000 crore.

As expected, Amazon took exception to FRL’s move, invoking the arbitration clause, with the Singapore International Arbitration Centre’s (SIAC) being appointed the agency under whose rules the same would proceed.

Within months, in October 2020, an emergency arbitrator passed an award in favour of Amazon and ordered that no sale of assets by FRL to Reliance could take place.

FRL went to court to challenge the emergency award, with the Supreme Court finally ruling on August 6, 2021 that the SIAC emergency award was valid and enforceable under the Indian Arbitration and Conciliation Act.

The same month, the arbitration tribunal set up under SIAC rules, gave an award in favour of Amazon, holding that FRL was bound by the arbitration agreement and hence could not demand that the stay on sale of assets to Reliance should be lifted.

Strangely, Competition Commission of India, contrary to observations of Emergency Arbitrator from SIAC, on the specious grounds that Amazon had purportedly misrepresented its case to it, decided to put its approval in abeyance to the 2019 deal  between Amazon and FCPL

This move was bound to raise several questions, especially since there is a clear case for an argument to be made that Future Group was in breach of the principle of contesting legal cases with clean hands.

On February 1, 2021, another bench of the Supreme Court, this one headed by Chief Justice of India NV Ramana, ordered a single judge of the Delhi High Court to “reconsider the issues and pass appropriate orders on its own merits, uninfluenced by any observation made herein“.

Thereafter, in what could be termed yet another strange twist to the saga, in April, Reliance walked out of its deal with Future Group, pointing to the fact that majority of the secured creditors, including PSU banks, had rejected its offer. On their part, the banks indicated that they weren’t sure Reliance would take over Rs 12,000 crore debt on FRL’s books. 

That almost all the Big Bazaar outlets had shut shop in the meantime should have come as a wake-up call for the secured investors. But, they maintained a stoic silence, almost as if they wanted their debt to remain unpaid.

Not to be left behind, the National Company Law Tribunal too decided that it should join the fun, ordering Amazon to pay a fine of Rs 200 crore for having allegedly concealed information when it sought approval for its deal with FRL in 2019.

The Bank of India, one of the several secured creditors, had moved the NCLT, seeking initiation of insolvency proceedings against FRL.

Nobody, including, surprisingly, the NCLT or the banks, have asked if, now that Reliance has decided it wants nothing to do with FRL, Amazon was ready to pay the banks their debt back and still take over the debt-ridden company.

Shouldn’t responsibility be fixed as to who really benefitted from the entire game of oneupmanship and who, if anybody, scuttled the original deal between FCPL(FRL) and Amazon?

By when, if it is ever done, will the RBI conduct a forensic audit of the FRL’s books and its actions, as sought by Amazon to verify allegations, including by Amazon, that the deal went kaput due to alleged irregularity and collusion between FRL and its lenders.

Who is going to be held responsible for the loss – unless a miracle happens – that the tax-payers of this country, who are the real stakeholders of PSU banks, don’t witness yet another mega loss due to a company, which had a ready and willing buyer, going bust?

Most importantly, after the manner in which a company like Amazon was seemingly dealt a raw deal, including by our so-called independent institutions like CCI and NCLT, what kind of messaging are we as an investment-destination sending to the world’s big companies?

Who will want to invest if the regulatory mechanism can be twisted to suit somebody’s agenda or stall a bonafide sale of a company?

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