Future Group-Amazon Feud: The King’s Knights Have Awoken at Last
The fabled knights of the round table from the twelfth century who were exemplars of valour in the court of King Arthur seem to be inspiring the suited gentry in the board room of a fast-sinking twenty-first century corporation!
 
When has corporate India gyrated to the gladiatorial gimmicks of mistaken gumption of a set of board members who have taken up the cudgels for a corporate entity, they believe has been duped by a deviously designed investment purportedly falling foul of the law of the land?
 
The facts are tortuous and in debate before competent forums like the courts of the country and an arbitration panel overseas.
 
This article will be falling woefully short should it attempt to enter the serried spate of sensational claims and counter-claims between the parties involved in the dispute. Much is in the public domain and allegedly there is more waiting to be surfaced.
 
The intriguing side-show is what has triggered this brief discussion.
 
The independent directors of Future Retail Ltd (FRL) are the heroes under the spotlight and their presumptuous petitioning to the regulators of the land on an alleged fraud or suppression of material details by Amazon, the investor, in a connected company in the Future group, is the script!
 
It is inescapable to narrate a slip of the background for a fuller appreciation of the matter. 
 
What Just Happened
Amazon, seeking to get a toehold in the burgeoning arena of multi-brand retail, made an investment in Future Coupons Ltd (FCL), picking up 49% of the stakes therein. The terms of the investment and the conditionalities attached thereto do not seem to be available in the public domain.
 
Future Coupons Ltd funnelled the money into Future Retail Ltd, listed in the stock exchanges, which is into the restricted domain of multi-brand retail—where foreign investment has many conditions to satisfy. 
 
Both the investments by Amazon in FCL and the follow on by FCL in FRL have been subjected to scrutiny by the Competition Commission of India (CCI). 
 
Well within a year of this materialising, Future Group agreed to sell out its business to another large group engaged in retail and Amazon sought to thwart it, which is currently keeping many lawyers and courts busy!
 
As matters stood such, an unusual initiative by the independent directors of FRL to raise cain with a petition to the CCI for revocation of the approval granted alleging that Amazon had violated the restrictions on foreign investment in retail, suddenly lit up the skies which had gone dull after the Diwali celebrations! 
 
The said complaint has reportedly drawn reference to an internal correspondence within Amazon betraying its real intent.
 
Independent directors by construct have little to do with day-to-day management and essentially oversee if the governance in the organisation is accommodative of all stakeholders’ interests and especially the non-promoter group of investors. 
 
The passivity of independent directors in regular corporate actions and functioning is almost given and the occasions when their presence has been adversely noticed is when major frauds erupted in the companies.
 
Fingers are seldom pointed at independent directors for any failure in corporate action where no mala fides are involved but, nevertheless may fall short of the required diligence by the operating management. 
 
A poor investment decision or a faulty choice of an option to do business is rarely laid at the doors of the independent directors. But that is not to imply that independent directors should be indifferent in major corporate initiatives. Their presence should be felt in an impactful manner and a questioning attitude is very essential.
 
The audit committee that predominantly consists of independent directors has to exercise extra vigilance when legal compliances are rife. They have the liberty to independently consult experts like lawyers when complicated business issues come for consideration. 
 
Hence, the question arises about how the same set of independent directors who have currently raised the issue with the regulator appraised the investment proposal, which was effected between 23 April 2019 and 19 May 2020, culminating in Amazon going to bed with Future group. 
 
The scope of the narration in the two orders of the CCI issued to FCL and Amazon gives an inkling that the impact of the investment by Amazon which finally extended to all facets of the Future group’s operations did not miss any one’s attention, least of all the regulator. 
 
But given the caveat in the beginning that this article shall not spy into the basic dispute between the parties, the point is raised only to drive home the fact that the case was a high-profile one involving multiple regulatory interfaces and the independent directors and the board of FRL should have been on guard in the first instance on appraising the case from all aspects.
 
It is necessary to mention that the annual reports of 2018-2019 and 2019-2020 which are relevant to the issue on hand has no whisper about Amazon’s investment in the Future group. Though as stated in the background, Amazon invested into FCL which in turn, put the money in FRL, and no direct investment came into FRL from Amazon.
 
The investment made by FCL into FRL through the route of warrants has been staidly explained in the language of accountants with little insights into the origin of the investment. 
 
It is facile to put forth the façade of FCL being an independent entity in the promoter group and FRL being unconcerned with its source of money to make the investment and thereby justifying the non-disclosure of the Amazon transaction.
 
The sequence of the events and the explicit mention in the CCI orders sanctioning that the investment has a good capture of the implications of a giant like Amazon entering the fray through this process. 
 
It defies logic that the company and the board would have remained ignorant of the bigger picture and would not have sought sufficient legal advice on the entire matter.
 
No aspect of the regulatory rigour and the political aversion to let foreign play in retail is new. It is only fair to ask of the independent directors whether the level of angst now displayed in raising the issue was in evidence in challenging and debating the issue when the initial proposal surfaced in the board!  
 
Here is a set of questions for independent directors of FCL and FRL
The independent directors need to explain many aspects in the interest of addressing the curiosity triggered by their unprecedented action. 
 
First, how much were they informed by the promoters on the handshake with Amazon? 
 
Second, assuming that they were duly informed, what enquiry and discussions were held on the matter in the board meetings and the nature of clarifications/advice sought from lawyers and consultants. 
 
Third, why did they maintain complete silence in reporting to the shareholders the larger transaction taking place in the group and the consequent investment by FCL in the company? 
 
Fourth, with FRL being the flagship entity in the group, could the promoters have concluded a major tie-up with a critical global player completely on their own with no involvement of the board of FRL? Did the directors seek details on why Amazon and not another retail player was taken as a partner? Whether alternative ideas were explored?
 
Fifth, one of the independent directors has resigned with effect from 1 June 2021. The annual report has little information on this. Given the proceedings, there is an inevitability in seeing some link to the events, though the opaqueness in the resignation process usually makes it difficult to get to the underlying facts in such cases.
 
Sixth, the most important one, about how they felt compelled to write to the regulator bypassing the management team, and the promoter himself serves as the chairman.
 
Seventh, whether their action to write was approved by the board, or the company or they have acted unilaterally on their own. 
 
Finally, and most importantly, the independent directors should explain why the market-cap of the company has fallen by a whopping 90.63% over a three-year period when their key competitors, who  operate in identical market conditions have delivered a market cap growth of 247.35%, 269.36%, 76.96% at the higher end and – 26.71 at the low end. The one-year record is equally dismal and not worth troubling the readers with! 
 
Should not the independent directors who feel so concerned about an issue already in contention before many courts and regulators, not demonstrate a modicum of like earnestness in taking up on behalf of the common investor about the consistent value destruction!
 
If, as complained, Amazon had suppressed information in its application to CCI on entering the joint venture with FCL, it is FCL’s board that should be concerned and seek revocation of the CCI order issued for Amazon’s investment into its company. The live link is missing for FRL to question when it has apparently not recognised at any stage the Amazon transaction.
 
The action of the independent directors raises questions on the propriety of their conduct in many aspects of the governance than meriting an appreciation for something unknown hitherto!
 
Cowboys in the corporate board room don’t make for an elegant sight!
 
Are they being directed by some higher force or voice?
 
(The author is a CA and CS and retired as a partner at EY, Chennai heading tax and regulatory advice.)
Comments
nitinjain97
2 weeks ago
Readers of this article can now underst and very well that how amazon had spent about 9K Cr on Legal Fees. Lol.
gogu5431
2 weeks ago
Amazon , KB, Independent Dirs all knew and planned to bypass FDI laws. Thats a very simple fact. So let no one claim of their innocence. KB in support with RIL ( assuming some personal gain) thought they could take Amazon for a ride by handing Indian courts which now they r finding It difficult. And what about RIL, the main masterplan made by them I guess. Ril knew very well of this relationship of Amazon and KB , how can RIL deal with an unethicall business ? It does nt matter to RIL as they r hell bent in getting FG for their own ends. So boss each one of these characters be it FG, Amazon or RIL have demonstrated their intentions clearly and are the public so naive to believe that things are hapenning for saving thousands of employess jobs, bank loans , creditors or shareholders..lol..
anandabhinaviitb
2 weeks ago
What a bullsit article is this. They pointed the Future group only not even asked single logical question to Amazon. As you know covid has severely affected jobs and business. Have you ever asked to amazon, how will protect the future group? This article are purely biased one. Now I am observing several article came to point out the future retail, but don't have view similar question to amazon. Seriously world indeed need of ethics and moral value in every field including journalism.
sivakumar_go
Replied to anandabhinaviitb comment 2 weeks ago
It’s Amazon who lent the money to Future first and not Reliance which you should know. They had a binding agreement which both the parties were signatories. Having enjoyed the bed with Amazon, Kishore ditched Amazon and thought Reliance would be a better partner in bed and entered into an agreement with RIL without divorcing the first partner.I am wondering why Amazon should be questioned since they are the affected party who made the initial investment in FG first. It’s a bullshit argument which did not hold water in the court of protecting employment and business. Kishore Biyani is a habitual borrower and defaulter since he borrowed indiscriminately from all available sources which he failed to honour. It’s obvious FG is the wronged party that is why all fingers are pointing towards them. So it is Kishore who is lacking ethics and moral values and not the author.

advocatevijaykulkarni
2 weeks ago
Sir, good article.
Can you ask similar questions to Amazon? What document Amazon has produced in which court and where is their offer to save FRL? Yes, Amazon asked FRL that, they are willing to support FRL before J.Midha before Del HC, but mere words will save company? Let Amazon make a clear statement in court and offer their financial assistance to FRL. I promise you that, we both can run a campaign for Amazon and we can save FRL, and we can make efforts to say goodbye to Reliance. But how FRL is surviving sir? I request you to help indian company and save it by a balanced Article. Since you are excellent in drafting you must be equally good in talking. Can we have a zoom meeting/ conference? With Reliance,Amazon and FRL team and some shareholders? I am ready. Kindly revert to me on my email [email protected] thank you for a gr8 Article.
sivakumar_go
2 weeks ago
These so called independent directors have lost all their credibility to act as independent directors. Future group has plenty of companies under its fold and money flows freely among the companies which are inter related. There are also many employees acting as Directors in other companies board. Amazon should be blamed for investing huge money in such a dubious group. FG not only created a financial mess but also landed themselves in a legal mess
patilrbs
2 weeks ago
Outstanding article showing other side of claims made by independent directors. I am a layman, and hence, does not even remotely qualify to write a comment on such a fantastic and quality article written by luminary. However, I am tempted to make certain comments and my only strength is innocence of a layman :
We all live in real world and in real world, “Independent Director” is more like a theoretical term used in classical manner to show that there is someone to protect the interest of small investors; the reality may be different. There is also endless list of premier agencies established by government like: CCI, SEBI, BSE, NSE and so on….. to protect the interest of small investors. Going by the provisions, small investors will get a false sense of feeling that there are so many guardians to safeguard his or her interest and hard earned money. However, it appears there is a disconnect between all such premier agencies and interest of small investors.
This triangular dispute, Amazon-Future-Reliance is something like a dispute between two super specialists, one Indian and one American fighting for treatment of poor patient who is insured and who is on death bed. The super specialists are definitely fighting because of their own interest. The poor patient on death bed means Employees of Future Group, Small Ttraders and Small Investors. One may add Public Sector banks to this list. The patient is very critical.
It appears all agencies are following wait and watch philosophy and not keen to intervene. However, technically they wanted to show that they are in control of situation, and hence, issuing notice here and there periodically. The poor patient is hoping that sooner than later one of these premier agencies will come to his rescue and save him.
The complaint is with CCI since March 2020, close to nine months. In today’s age, nine months is a too long period to keep issues affecting livelihood of so many people pending, considering the legal expertise at disposal of premier agencies. By this time CCI would have spared some time and said either Amazon is right or claim of independent directors / traders is right. CCI would have allowed one of the super specialist to treat the patient or treat patient jointly. However, going by reputation and financial power of both the specialists, agencies doesn’t want to take the position. Death of the patient ( Employees of Future Group, small Traders and Small Investors) may not be so relevant as long as game is played in classical manner and all agencies are politically correct.
Supposedly even if we assume for a moment that the independent directors erred knowingly or unknowingly at earlier stage by not acting as a whistle blower; even if we assume their action today may not be with noble intent; however the intent of message they are giving is loud and clear i.e. patient is dying and need a treatment. It should be treated as a request to all premier agencies to take a call either way and allow one of the super specialist to treat the patient. It should not be priority to question the intent of Independent Directors. It is not so important who is saying, when he is saying and why he is saying but it is important what he is saying. It is for battery of premier agencies to decide whether what Independent Directors are saying makes any sense. The premier agencies should decide whether the foreign specialist can say that he will not allow Indian specialist to treat the patient and whether Indian specialist can say foreign specialist cannot treat the patient.
As if so many Indian agencies are not adequate to keep issue dragging for years without making decision, there is another international agency SIAC. This agency answers on question at a time, once in six to eight months. It has nothing to do with patient. However, its decision is binding on patient. Its one order once in six months ensures the issue is dragged for another year.
Just like billions of Indians, I am firm believer in god. When nothing is working, we have a strong belief that in the end god will save us. Indian judiciary is like a god and I am sure god will save the patient.

Prof RB Patil
sivakumar_go
Replied to patilrbs comment 2 weeks ago
Why bring God here. He is not a party to the crime and how do you expect the God to save one of the two thieves. Indian judiciary alone can not decide this case since the agreement has a clause for International arbitration whose outcome is binding on both the parties.
patilrbs
Replied to sivakumar_go comment 2 weeks ago
I did not say anything about interest of any of the two parties, that is not my purpose. However, what I said was about the interest of thousands of employees of Future Group, thousands of small traders who have supplied material to Future Group and waiting for their payment, small shareholders and lastly public sector banks who have lended money to Future Group. If public sector banks fail to recover money, it is loss of taxpayers money.
Any way I respect your opinion.
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