Future Retail Ltd. has asked the Delhi High Court to direct Amazon.com Inc. to stop meddling in the approval process for its deal with Reliance Retail Ventures Ltd.
“Please don’t allow this American giant to kill Future Group only to further its illegitimate interest to make sure that Reliance does not get its hands in. That’s its game plan—if I can’t get it, let Reliance not get it too,” Senior Advocate Harish Salve said while arguing for Future Retail in a court hearing held via video conference.
Amazon, that invested in Future Coupons Pvt. Ltd, a promoter company of Future Retail Ltd., has won an temporary stay on the Future Group - Reliance Retail deal. This was an interim order passed by the Emergency Arbitrator at the Singapore International Arbitration Centre. The two Future companies have moved Delhi High Court seeking to stop Amazon from blocking their deal with Reliance.
“Amazon is showing a dog in the manger attitude, ” argued Senior Advocate Abhishek Manu Singhvi for Reliance Retail. At the time of seeking CCI’s approval, he pointed out, Amazon had said it has invested only in Future Coupons. “Now it’s telling SEBI that the investment was a single integrated transaction,” he said. “Even an acrobat will blush on Amazon’s stand and the court should nip this mischief in the bud.”
Arguing on behalf of Amazon, Senior Advocate Gopal Subramanium said the company’s 2019 investment in Future Coupons neither violates the FDI policy for multi-brand retail nor the market regulator’s Takeover Code regulations. “It’s the same plaintiff (Future Retail) who walked with me to the Competition Commission of India for approvals, and now it’s saying my investment is illegal.”
Here are the key arguments that took place before the high court on Monday.
Amazon’s Assertions Are ‘Misleading’, Says Harish Salve for Future Retail
- Future Group’s promoters—the Biyanis—were in conversation with Reliance Retail as early as June 2020 and Amazon was aware of it. It’s a falsehood to claim that Amazon wasn’t aware of the deal until September.
- There were even informal conversations between Reliance and Amazon. Reliance wouldn’t have entered into such a big transaction without sounding off Amazon.
- Now, Amazon is writing to statutory bodies—SEBI, stock exchanges etc.—to withhold clearance. It’s saying that the Emergency Arbitrator’s interim award is binding on Future Retail. This is misleading since Future Retail wasn’t even party to the arbitration agreement under which the interim award has been passed.
Amazon is playing a game—it hasn’t come to an Indian court for enforcement because it knows the case will go belly up. They’re trying to interfere [with the statutory approvals for the deal with Reliance].”Senior Advocate Harish Salve
- The scheme of arrangement, transaction with Reliance Retail is time sensitive. If banks aren’t paid according to the timeline, then the transaction will be dead.
- Concept of Emergency Arbitrator is not recognised under Indian arbitration law.
- Since an Arbitral Tribunal hasn’t been constituted as yet, only remedy for Future Retail is to file for unlawful interference.
If Amazon’s assertion that Future Retail-Future Coupons agreement has to be dovetailed into its agreement with Future Coupons is upheld, it’ll be a violation of FDI policy for multi-brand retail.Senior Advocate Harish Salve
- Future Retail has no contractual obligations or rights vis-à-vis Amazon and vice versa. “If it did, it would be in violation of the FDI policy.”
- Future Retail’s fate cannot be decided by an arbitrator since it’s not party to agreements with Amazon. Non-signatories to an arbitration agreement cannot be made party to the proceedings.
- The precedent set out by the Supreme Court in Chloro Controls that non-signatory group companies can be made party to arbitration proceedings is not applicable here. Chloro Controls i.e group companies concept cannot be applied to bypass Indian public policy.
- Let them sue the Biyanis and claim damages. Biyanis have their defences.
- Future Retail—a listed entity—which has public shareholders cannot get dragged in this arbitration.
Agreement With Amazon Isn’t A Guilty Contract, Mukul Rohatgi Says
Under the 2019 shareholders’ agreement, Amazon was granted a call option allowing it to acquire all or part of the promoters’ shareholding in Future Retail, which could be exercised between the third and tenth years in certain circumstances subject to applicable law. Rohatgi argued that-
- Call option was granted to Amazon in anticipation of a situation if FDI policy for multi-brand retail is relaxed by the Indian government. “It wasn’t a guilty contract.”
- Emergency Arbitrator’s interim award has not been tested in any judicial forum. It’s a complete nullity because the agreement under which it’s been granted clearly says three things—it’s a domestic arbitration, Indian substantive law to apply, seat/venue will be Delhi. And Supreme Court has held that where there is a seat, that place will have exclusive jurisdiction.
- The arbitration clause said “choice of jurisdiction shall not prevent either party from seeking injunctive relief in any appropriate jurisdiction”, and that for arbitration, SIAC Rules will apply. Amazon will rely on this to justify why they went to Singapore. But as per the agreement, the substantive law is Indian arbitration law which doesn’t recognise Emergency Arbitration.
- So how do you marry the two? Only way to read this is that procedure (timelines, manner of recording evidence, cross examination etc) should be as per SIAC Rules but the substantive law would be Indian.
- High Court should ignore this interim award and decide whether Amazon has any right to tinker with Future Retail’s transaction with Reliance.
Amazon’s Investment Not Illegal, Subramanium Says
- There are three agreements that came on the heels of each other—Future Retail’s shareholders’ agreement with Future Coupons, Future Coupons’ shareholders’ agreement with Amazon and the Share Subscription Agreement. All these agreements were closely interlinked.
- Future Retail’s SHA specified that Future Coupons and its shareholders have agreed not to transfer or encumber their securities in FRL except where mutual written consent has been granted by Future Coupons and its existing shareholders.
Both shareholder agreements had identical restrictions to say retail assets shall not be transferred, encumbered, disposed of in favour of a restricted person. This list, as per the SHAs, can only be amended if prior written consent is given by Amazon. No such written consent has been given.Senior Advocate Gopal Subramanium
- Agree on the jurisdiction of Indian law and seat of arbitration being New Delhi but the application of SIAC Rules has been admitted to by all parties. SIAC Rules are thus embedded in the arbitration agreement.
- SIAC Rules say that the Emergency Arbitrator’s order is final, binding and recourse cannot be taken. That’s because it is interim in nature.
- Future Coupons holds 9.82% in Future Retail. ‘If I'm at 49% in FCPL, what would be the effective investment in FRL? Half of it’.
- FEMA Non-debt Instruments Rules allows an FPI investor to acquire less than 10% in multi-brand retail. “So, where’s the violation of FDI policy?”
I (Amazon) have “no control” over Future Retail; the plaintiff is imputing illegality. It’s the same plaintiff who walked with me to the Competition Commission, and now it’s saying my investment is illegal.Senior Advocate Gopal Subramanium
- There’s no control as per the Takeover Code- no right to appoint majority directors, say in day-to-day management etc. “I have restrictive protective rights which have been upheld by the apex court in the ArcelorMittal judgment as investor protection rights.”
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