The story of Reliance vs Amazon, India's biggest retail purchase and an ugly fight
Have you heard of the Reliance-Future Group-Amazon cases that have been going on for the last 2 years? Well, Amazon and Reliance have been trying to control Big Bazaar, and some contract violations and lack of laws have caused a mess.
Here is the entire story.
Reliance has been trying to expand its existence into each and every sector of India, be it old or new, successfully, and has grown from strength to strength by disrupting existing paradigms. On the one hand, it's being backed by strong international (like Facebook & Google) and national investors; while on the other, it has been supporting growth and employment, while also causing aatank within its competitors. For eg:
- Reliance Jio caused competitors like Vodafone and Idea to merge
- Its technology arm plans to be the first in India to dive into 5G technology, 5G devices and solar energy.
- Reliance Retail is strongly competing with Amazon and Dmart, and has plans to disrupt the same and continue the previous track record.
The story is about Reliance's plans to expand its retail business which would stop Amazon in its tracks. (Grab your porpcorn, this is going to end up interesting.)
RELIANCE BUYS 'THE' BIG BAZAAR (2020)
In 2020, Reliance acquired Future Group's entire business, popularly known as as Big Bazaar, for about Rs 24,700 odd crore. Why? Reliance did not have its own adequate stores all around India, whereas Future Group had around 1,800 Big Bazaar stores all across India. This purchase would give Reliance straight access to locals all across India and help them capitalise on the years of efforts by Big Bazaar.
This would also enable Reliance to compete well with Radhakrishna Damani's Dmart, which also has strong penetration in India.
#FutureGroup #RelianceRetail1️⃣ Reliance Retail buys Future Group's businesses for ₹24,713 crore2️⃣ Reliance Retail will now have access to close to 1,800 stores across Future Group's Big Bazaar, FBB, Easyday, Central, Foodhall formats, which are spread in over 420 cities. pic.twitter.com/AJhG76Z7cQ
— Vaishali Jaiswal (@Vaishalijais24) August 30, 2020
TWIST 1
In 2019, Amazon had entered into an agreement with the Future Group by which it acquired 2 kinds of stakes:
- A 49% stake in Future Coupons Pvt Ltd, a subsidiary company of the Future Group, and
- A 3% stake in the Future Retail Group.
As per the Terms and Conditions of this deal, Amazon would have the first right to buy Future Group in future. And Future Group could not sell its assets in future to a list of companies that were Amazon's competitors. This list included Reliance Industries. This deal was approved by Indian authorities including the Competition Commission of India (CCI).
Now, as per this agreement, the 2020 deal between Reliance and Future Group stands to be invalid. But here's what happened.
Therefore, Amazon challenged this Reliance-Future Group Deal and opted to fight this case in the Singapore International Arbitration Centre (SIAC), instead of Indian court systems, which was as per the Future Group-Amazon dispute clause in the agreement.
Bully @amazon threatens India Inc: Accept Singapore International Arbitration Centre (SIAC) order stopping RIL-Future deal or Indian business will face “international repercussions”. RIL-Future should dismiss this neo-colonial threat with contempt @JeffBezos pic.twitter.com/yoXzwlYyCS
— Minhaz Merchant (@MinhazMerchant) October 30, 2020
(Arbitration is an out-of-court settlement which is not as costly and takes less time, which is why businesses usually go for arbitrations over court cases.)
The international order by SIAC ruled in favour of Amazon.
TWIST 2 (November 2020-January 2021)
When the SIAC order was passed, there were no laws in India to enforce international arbitration orders.
This caused Amazon to urge Indian Authorities like SEBI and Competition Commission of India (CCI) to not approve the Reliance-Future Group deal. But Reliance and Future Group both were against this international order since international orders were not applicable in India and were not enforceable in India, and hence not binding on them.
Amazon had one option - to use a section from the Arbitration and Reconciliation Act to appeal to the High Court and the Supreme Court. Future Group, meanwhile, appealed to CCI and SEBI to stop Amazon from interfering in its agreement with Reliance.
The CCI approved Reliance Retail’s deal with Future Group on November 20, 2020, despite Amazon’s protest. (Remember CCI had approved the Amazon-Future Group deal earlier?)
In December 2020, a single-judge bench observed that the August 2020 board resolution of Future Retail, approving the deal with Reliance was not invalid or void as claimed by Amazon. It also mentioned that Amazon’s representations to statutory authorities and regulators was “based on incorrect assertions”.
In January 2021, SEBI also cleared the Reliance-Future Retail deal, causing Amazon to move the High Court to enforce the international ruling. This petition also asked for detention of Kishore Biyani and other directors of Future Group, besides attachment of their assets. A Supreme Court bench now had to find out if the international order was applicable in India or not.
The Future Group defended itself saying that Amazon’s deal was not with Future Retail but with Future Coupons, therefore Future Retail was not bound by the arbitration. Also, India’s Arbitration Act did not recognise international mechanism.
The SEBI and the Stock Exchanges gave a conditional approval to the Future-Reliance deal. Having approvals from CCI, SEBI and the Stock Exchange, the Future Group approached the National Company Law Tribunal for holding its shareholders meeting to approve the scheme of amalgamation with Reliance.
The High Court ruled in favour of the Singapore International Order, stopping the Reliance - Future Group merger in its tracks.
This was challenged by the Future Group and overturned by the High Court Division Bench and the Reliance -Future deal was back on track again. HOW & WHY?
TWIST 4 (August 2021-October 2021)
In August 2021, the two-judge Supreme Court bench of Justice Rohinton and BR Gavai ruled that International Arbitration Orders are applicable in India, thus binding the Future Group to SIAC’s emergency award.
The single-judge Delhi HC enforced its order after receiving SC's order, giving Future Group 4 weeks to obtain a stay order from SC. Else, it would attach Biyani's properties.
Fortunately, in September 2021, Biyani's appeal was held and SC provided a stay order. It also prohibited an adverse directive against Reliance-Future deal and attaching Biyani's assets. The direction that mentioned that no authority in India would give its final approval to any scheme facilitating the Future-Reliance deal for the next four weeks.
Meanwhile, Future pleaded to SIAC to remove its interim stay order on its deal with Reliance.
TWIST 5
The SIAC rejected Future Group's appeal saying that the Future Retail Group was a part of the arbitration between Amazon and Future Coupons Ltd.
TWIST 6
Future Retail appealed to the Delhi High Court for a stay on SIAC’s adverse order and to proceed with the shareholders’ meeting to sell its assets to Reliance. In October 2021, the HC accepted to hear it, but declined to stay SIAC’s interim order or pass any other interim order. Future Group then moved the Supreme Court in November 2021, to meet the shareholders as SIAC’s order would lead to irreparable harm if the Reliance-Future deal would not go through.
Amazon also appealed to the SC to stop any measures that would allow the Reliance-Future Group to go ahead. The SC would now hold a second round of determination.
Meanwhile, in December 2021, the CCI suspended its first nod to Amazon’s 2019 investment in Future Coupons.
The approval given by CCI in 2019 for the acquisition of Future Group deal to be in abeyance till Amazon files a fresh FORM II within 60 days from today. @BigBazaar @amazonIN @CCI_India @akgupta_cci pic.twitter.com/uSd64mtaZA
— Bar & Bench (@barandbench) December 17, 2021
The CCI held that Amazon had misled the Commission through false statements and material omissions, that the combination of Amazon and Future Group were in the interest of Amazon. But Amazon had not disclosed details of the shareholder agreement at the time of acquisition. Also, Amazon's purpose of acquiring strategic rights in the Future Group was to have a “foot in the door” in Indian retail, because international investments were not allowed and this was just a way to get a new consumer base.
CCI put its prior approval in abeyance and gave Amazon 60 days to clarify, post which the Commission would “examine the combination afresh”. Amazon was also imposed a penalty of Rs 200 crore for suppressing material facts at the time of seeking CCI’s nod.
Amazon then appealed to the National Company Law Tribunal to stop the order by CCI.
And thus continues the battle for the Future Group.