Launching a direct attack on Kishore Biyani, Amazon has alleged financial irregularities by Future Retail Ltd (FRL) including inflated payments to Biyani-controlled group entities and suspicious related-party transactions.

In a letter to the independent directors and the audit committee of Future Retail, Amazon said, “A bare perusal of FRL’s publicly available financial statements, including the latest financials for the financial year (FY) 2020-21 as reflected in the corresponding annual report (and also available on FRL’s website), discloses, on a prima facie basis, prejudice may have been caused to the public shareholders, banks, creditors and third party suppliers of FRL.”

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Extraordinary outflows

The letter says that of the funds raised in FY2019-20, about ₹6,000 crore, were used chiefly towards extraordinary outflows. This included payments towards security deposits, advances to suppliers and purchase of store infrastructure from related parties. “Surprisingly, however, during FY2019-20, FRL paid significantly higher security deposits (which increased by approximately 125 per cent from FY 2018-2019 to FY2019-20), and continued around the same level in FY2020-21, i.e., even during the Covid period. This is despite the number of stores reducing (by approximately 10 per cent) from 1,511 to 1,350 and then further to 1,308 stores over successive financial years,” Amazon said in the 20-page letter, seen by BusinessLine .

“The aforesaid data demonstrate a compelling reason to investigate and understand the commercial rationale, if any, for the substantial increase in security deposits in a year where business expansion was curtailed and FRL was facing the threat of business continuity because of ongoing Covid-19 pandemic. This coupled with the fact that the deposits seem to arise out of related party leases, there is a genuine apprehension that in the guise of deposits, significant amounts may have been diverted from FRL to other related parties,” it added.

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The American e-commerce giant said it appears that FRL and Biyani’s holding company, Future Enterprises Ltd (FEL), had entered into multiple significant related-party transactions over the years. “Transactions worth almost ₹7,000 crore were undertaken between FRL and FEL in one financial year. These significant related-party transactions between FRL and FEL seem to be followed by yet another transaction between these two entities in FY2020-21 where FRL has purchased goods and services from FEL for ₹682 crore, at a time when FRL claims to be under significant financial stress due to Covid-19 pandemic,” Amazon said.

Highlighting preferential treatment to group companies, Amazon said that FRL also generated a cash buffer by delaying payments to third-party creditors. But related-party dues seem to have been settled to the extent of 94 per cent of purchases during FY 2019-20, while only 59 per cent of dues of other creditors were settled.

“We are marking a copy of this letter to the independent directors of FEL, with a view to bringing these issues to their attention such that appropriate investigations, including all related party transactions in the previous years and remedial steps can be initiated by them, to safeguard the interests of public stakeholders, bankers and suppliers of FEL,” Amazon said.

Baseless, malicious: Future

Terming Amazon's allegations as baseless and malicious, a Future Retail spokesperson said: “Amazon is not a shareholder or a creditor of FRL and has no locus to address the letter. Amazon's letter is nothing but an after-thought and a counterblast to the show-cause notice by Competition Commission of India against Amazon in pursuance of the complaint by Future Coupons Pvt Ltd (FCPL) seeking withdrawal of the CCI’s approval for Amazon’s investment into FCPL.”