Companies

Reliance Retail deal: Amazon’s objection a breach of FDI rules, Future tells HC

Forum Gandhi Mumbai | Updated on November 08, 2020

Seeks ₹100-cr damages from e-comm major

Future Retail has told the Delhi High Court that if Amazon’s objections to the deal with Reliance Retail are upheld, then it would tantamount to violation of existing foreign direct investment rules and also the takeover code. In a plea filed on Friday, Future Retail has also sought ₹100-crore damages from Amazon for interfering with the Reliance deal.

According to the submission made by Future, accessed by BusinessLine, three separate agreements were entered into in 2019. On August 22, 2019, Amazon entered into a shareholders agreement (FCPL SHA) and a share purchase agreement (FCPL SSA) with Future Coupons Ltd.

Then on October 12, 2019, Future Coupons (FCPL) and Future Retail (FRL) got into an agreement stating that FCPL acquired 7.30 per cent of the share capital of FRL through the purchase and conversion of share warrants. Amazon has claimed that all three agreements are integrated transactions, and therefore, a share sale by Future Retail to Reliance Retail should have its approval.

Also read: Future Retail files lawsuit against Amazon

However, Future has argued that Amazon’s stand would render the agreements violative of the Foreign Exchange Management (Non-debt Instruments) Rules 2019 and the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

“On the contrary, it is evident that Amazon was consciously not made a party to the FRL SHA and FRL was consciously not made a party to the FCPL SHA and FCPL SSA. This was to ensure that the agreement did not violate the FEMA FDI Rules under which any investment made by Amazon in FRL (a company engaged in the “multi brand retail” sector) would have required prior government approval,” Future said in its court filing.

Future also said that Amazon’s stand contradicts its own submission to the CCCI for taking approval for the 2019 agreement. “It is clear from the representation and admissions made by Amazon to the CCI that FCLP SHA and FRL SHA do not constitute an integrated transaction...The rights acquired by Amazon will be “exclusively governed by the terms of the [FCPL SHA]”. Clearly, therefore, the rights acquired by Amazon are not governed by the FRL SHA, as Amazon now contends,” Future Retail said.

Linking of pacts

The linking of the three agreements is the key to the dispute because under the agreement between Amazon and Future Coupons, it is stated that no transfer of the Retail Assets of FRL could be affected by FCPL and the pPromoters without the permission of Amazon. Future Retail, however, has taken a view that it was not a party to this agreement.

On this issue of whether Amazon had named Reliance Industries as one of the entities to whom shares of Future could not be sold, Future Retail said that while it received a letter from Future Coupons, this letter was not issued under the FCPL SHA. “The letter was not signed by Amazon and was instead only signed by the parties to the FRL SHA. There is nothing in the letter which even remotely suggests that the list of Restricted Entities communicated by FCPL to FRL was being done under the FCPL SHA,” Future Retail said.

Future Retail added that it has been informed by Reliance that “informal discussions were held between representatives of Reliance and Amazon in which Reliance informed Amazon that it was acquiring the assets of FRL, and that the representatives of Amazon did not object in principle to any such transaction but merely sought an assurance that some supply agreements in place would be honoured by Reliance”.

Future said that if Amazon could not directly control FRL in the manner of exercising the rights recognised in conferred upon the promoters under the FRL SHA, it cannot as a matter of law seek to do so indirectly by exercising the same rights through the promoters.

Published on November 08, 2020

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