Future-RIL deal skating on thin ice, may even get derailed, say lawyers

They believe the best way forward is for Amazon and Future to negotiate with each other on how to ensure that Future group companies do not end up in bankruptcy courts

The Future-Amazon legal fracas over the American retail giant's right as a shareholder may not only delay the Rs 24,000 crore transaction but threatens to even derail it, say corporate lawyers. 

While both Future and Amazon are putting strong arguments in Delhi High Court against each other, corporate lawyers said the best way forward is to negotiate with each other on how to make sure that Future group companies do not end up in bankruptcy courts. "Amazon has made some strong arguments on shareholders’ rights. Once an agreement is signed, one of the partners cannot take unilateral decisions that would ultimately result in Amazon holding stake in shell companies," said RS Loona, managing partner of Alliance Law, a corporate law firm.

In 2019, Amazon had acquired a 49 per cent stake in Future Coupons (FCPL), the promoter entity of Future Retail, for about Rs 1,500 crore. But within months of signing the deal, Future started losing money and finally in August 2020, the Future group struck a deal to sell all its assets to RIL after merging all group companies into a single entity – Future Enterprises Ltd. 

Amazon then sent a legal notice to Future, alleging the retailer’s deal breached an agreement with the American e-commerce firm which gave it the right of first refusal (ROFR). Amazon moved the Singapore International Arbitration Centre (SIAC) claiming violation of contractual rights by the Future Group relating to sale of business to Reliance and the SIAC passed an order in favour of Amazon.

The matter is currently pending with a division bench of Delhi High Court after a single judge bench blocked the deal. 

Another lawyer said the fact that various Future group companies raised funds from multiple foreign investors while assuring them of good returns. "The Future group cannot merge all group companies while keeping a shell company for other shareholders. It will be difficult for the courts to clear the deal as shareholders’ rights are getting hampered due to the merger," said another lawyer. Besides the arguments that close to 25,000 jobs will be lost if RIL- Future does not go through sounds weak as the issue here is of shareholders rights which will impact future cases too," said another lawyer. "The future of the deal itself is under a cloud unless Amazon and Future group settle the issue." 

As the litigation went on in India and Singapore, the group’s liquidity position was severely impacted on account of lockdown measures which has hampered group companies’ ability to generate cash flows (see chart). The flagship, Future Retail has applied to the lenders for moratorium as per RBI package, for additional working capital limits and release of peak limits. Some banks have already released the additional working capital limits. The company has also applied to lenders for One Time Restructuring (OTR) facility under the RBI guidelines issued on August 6, 2020.