After many twists and turns, including prolonged legal battles up to the Supreme Court (SC) and international arbitration proceedings, Reliance Industries Ltd (RIL) has called off the deal with Future Retail Ltd (FRL) after FRL’s secured creditors voted against the scheme. Earlier this month, Amazon and FRL had informed the SC that they wish to appear before the Singapore International Arbitration Centre in connection with the pending adjudication of arbitration proceedings before it. However, the main question is: What happens to the alleged takeover of FRL's shops and assets by Reliance? While Amazon alleges asset transfer, Future Retail had told the SC that nothing has been transferred and, as rents for the shops were not paid for over two years, the landlords terminated the leases.
In a regulatory filing RIL says, "The Future group companies comprising FRL and other listed companies involved in the scheme have intimated the results of the voting on the scheme of arrangement by their shareholders and creditors at their respective meetings. As per these results, the shareholders and unsecured creditors of FRL have voted in favour of the scheme. But the secured creditors of FRL have voted against the scheme. In view thereof, the subject scheme of arrangement cannot be implemented."
Last week, Future Retail filed the voting results and scrutiniser report of a meeting of secured creditors held on 21 April 2022. The meeting was convened as per order passed by the National Company Law Tribunal (NCLT), Mumbai bench. During the voting, 69.29% voted against the resolution, while 30.71% voted in favour of the resolution to consider and approve the composite scheme of arrangement between FRL and Reliance.
The scheme of arrangement was for the transfer of retail and wholesale business and the logistics and warehousing business of Future group to Reliance Retail Ventures Ltd (RRVL), a subsidiary of the company, and Reliance Retail and Fashion Lifestyle Ltd (RRFLL), a wholly-owned subsidiary of RRVL, for Rs24,371 crore.
The deal was opposed by Amazon and intense legal battles have been waged ever since the deal was announced.
In 2019, 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 funnelled the money into Future Retail, listed on 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).
In January this year, independent directors of Kishore Biyani-led Future Retail reportedly accepted the transaction with billionaire Mukesh Ambani-led Reliance Retail Ventures. These directors have told Amazon.com NV Investment Holdings that its offer to provide Rs3,500-crore funding was 'a game of smoke and mirrors’.
Citing a letter written by FRL on 25 January 2022, the report from Business Standard
says, “It (Reliance’s offer) helps FRL to meet almost all FRL’s liabilities and in the process helps protect the investment of small shareholders and jobs of over 25,000 employees.”
“If you were serious about providing funding to the extent of Rs3,500 crore within the timeline (in order to repay banks and avoid non-performing asset -NPA classification), we would have been happy to engage with you. But it is now clear that your letters were just a game of smoke and mirrors, just to serve your purpose of gaining all the media attention and create media headlines that ‘Amazon is prepared to help’,” the letter says.
According to the report, Future Retail has also sent the letter to the directorate of enforcement (ED), Securities and Exchange Board of India (SEBI) (the then) chairman Ajay Tyagi, and CCI chairman Ashok K Gupta.
In the previous hearing, senior advocate Harish Salve, representing FRL, told the SC that nobody wants to do business with it today as Section 7 of the Insolvency and Bankruptcy Code (IBC) may come any day, and the company owes landlords thousands of crores in rentals. "As Amazon could not get Future Retail, it destroyed the company."
Mr Salve submitted that Reliance entered into agreement with the landlords and Future Retail owes Rs3,000 crore in rentals. He added that once this goes into Section 7 of IBC, all this will come to an end, and no one wants to do business with it.
Amazon, for Rs1,400 crore, destroyed his client's company, the senior counsel says. "They could not get Future Retail, they destroyed Future Retail," he said, adding that Big Bazaar is gone and also all the assets.
"All my accounts are frozen, nobody wants to touch us…Future Retail cash flow further deteriorated, after states imposed lockdown.... Hanging by a thread," Mr Salve had told the apex court.
Senior advocate Gopal Subramanium, representing Amazon, contended that as far as resumption of arbitration is concerned, it appears both parties have found common ground and they are interested in resumption.
However, he vehemently objected to the sudden handover of Future Retail assets. Citing a prayer in Amazon's application, Mr Subramanium opposed the alienation of Future Retail assets and added "Can't be a magical switch... Future Retail shops should continue to remain with it; operated by FRL until matter is resolved by an arbitral tribunal."
Amazon, in an application, had raised the issue of Future Retail's shops and assets being taken over by Reliance, besides resumption of arbitration over FRL's merger deal with Reliance Retail.
Future Retail had been subleasing store space from Reliance group. In a regulatory filing on 9 March 2022, FRL had stated that 342 of its large stores and 493 of smaller outlets — constituting 55% to 65% of retail revenue — received termination notices of sub-leases from Reliance entities.
So while RIL may have called off its deal with the Future group, Amazon and FRL are likely to continue their legal battles.