Amazon's arbitration proceedings against Future Group may start from Nov

The arbitration proceedings between Amazon and retail conglomerate Future Group in Singapore are expected to start from November and could go on for at least 9-12 months, according to sources. This follows a dispute over the Future’s sale of its retail and wholesale businesses to Reliance Industries Ltd (RIL). Amazon has sent intimation notices (alleging Future’s compliance issue) to various parties including Singapore International Arbitration Centre (SIAC), Future Group and its investors and shareholders, according to sources. Amazon is enforcing contractual obligations through its notice to the Future Group for entering into a deal with Reliance, citing its non-compete agreement with the Kishore Biyani-led chain.

“The intimation notice has gone to SIAC. The arbitration process has not started yet. It requires representation from various parties including Amazon, Future and its investors. That panel has not been finalised yet,” said an industry source. “What is interesting is how Future is going to explain to BSE about the compliance issue related to the contract it has with Amazon,”the source said.
 

Amazon on Friday revealed that retail conglomerate Future Group did not seek permission from the American e-commerce giant for striking a deal with Reliance Industries Ltd (RIL).
 

“We wish to clarify that the Future Group did not seek the required consent for the transaction in question nor was any such consent given by Amazon,” said an Amazon spokesperson, in response to a query sent on Friday.
 

Amazon has served a legal notice on the Future Group for entering into a deal with Reliance Industries (RIL), citing its non-compete agreement with Future. "We have initiated steps to enforce our contractual rights,” said another Amazon spokesperson.
 

On August 29 this year, Reliance Retail Ventures Limited (RRVL) announced a deal to acquire the entire retail, wholesale, logistics and warehousing businesses of the Future Group on a going concern basis for Rs 24,713 crore. The deal is awaiting regulatory approvals.
 

The issue is that Amazon was not informed about it.  “The Amazon-Future contract has a provision for arbitration, but nobody had imagined that it would be needed,” said an industry executive.
 

Last year in August, the Seattle-based company bought a 49 per cent stake in one of Future's unlisted firms, entity Future Coupons for Rs 1,430 crore. Future Coupons owns a 7.3 per cent stake in Future Retail. The deal consisted of a few conditions including ‘non-compete clause’ and ‘Right of first refusal’ (ROFR) clause, which meant Future could not sell its shares without the prior approval from Amazon. The ROFR gave Amazon the right to be the first to invest in Future Retail if Future decided to sell its shares. But there is another clause which mentioned that Future could also not sell its assets without Amazon’s prior approval. “There is also a non-compete clause due to which Future Group could not do the deal with certain specific competing parties without first speaking to Amazon,” said an industry executive with direct knowledge about the deal between Amazon and Future.
 

According to sources, last year in December, the Future promoter family (Biyanis) started looking at raising capital for expansion. As part of that process, they had taken personal loans and pledged their own shares as collateral for that. In March this year, the Covid-19 pandemic impacted the Future business as a lot of their stores are inside the malls.
 

In April this year, due to the pressure to pay back the loans, the promoters (Biyanis) started the conversation with multiple investors including Samara Capital, PremjiInvest and even Amazon to raise capital, according to the sources. “At the heart of Future Group is Future Retail which is the cash cow for the company and most investors were interested to invest in it,” said a person. Though Amazon had an option to invest in Future Retail after three years (by 2022) based on the government approval related to foreign direct investment (FDI), it was helping Future to connect with other investors to raise the money.
 

The challenge for Biyanis was that if someone bought only Future Retail, it would have been difficult for Future to monetise other companies. In June this year, according to the sources, this led the Future Group to start conversations with Reliance.

“From July, Future stopped engaging with other potential investors and Reliance offered them a way out to monetise all the businesses,” said the person. All listed Future Group entities would first merge into Future Enterprises and later the merged entity would sell its businesses to RIL.
 

According to the sources, for the last few months now, Amazon has been making multiple attempts to reach out to the Future Group without any success as there was no response. “Even now Future is not talking to Amazon about this issue,” said a person.
 

Only 7 per cent of the $1.2-trillion retail market is online, and players including Amazon, Flipkart and Reliance's JioMart are competing with each other and aggressively eyeing the remaining 93 per cent, according to analysts.