Amazon vs Reliance for supremacy over retail market

Amazon blocks RIL's bid to purchase Retail 

chain of Future Group

Recent events and the urge to dominate the retail market in India has led to 2 mega companies (Amazon & RIL) locking horns in a fierce legal battle . In the core of the legal  battle lies a business deal between RIL and Future Group. 

Before we look into Amazon vs RIL legal battle and its implications first lets look what the deal(RIL-Future group) is ;  why the deal is so important for both RIL and future group what would the deal imply for Indian Retail Market..

THE DEAL (RIL-future group deal)

• The deal was that Reliance Retail Ventures Ltd (RRVL) a subsidiary of Reliance Industries Ltd (RIL) would acquire the retail & warehousing business and the logistics & warehousing business from the Future Group. 
•  Reliance Retail would because of this deal get access to around 1,800 stores across Future  Group's Big Bazaar, FBB,  Easyday , Central , Food hall which are spread in over 420 cities.

Why Future Group is selling its stake?

• Credit rating agency ICRA(Independent Credit Rating Agency) had recently said that debt of Future Group's 6 listed firms increased to Rs 12,778 Crores as of September 2019.
•  Future Group tried avoiding a loan default for many months . In January, the company  raised $500 million through dollar bonds.
•  It also cut its fixed costs across corporate overheads, operations, people costs & marketing costs.
•  It also shut down 177 small format stores .
•  In addition, Kishore Biyani (Founder of Future Group) sold 49% stake in Future Coupons for Rs  1500 Crores to Amazon & samara.
•  Earlier they sold the 'Pantaloons' retail chain to Aditya Birla group in 2012. 

Kishore Biyani, Future Group CEO said "As a result of this reorganization and transaction, Future Group will achieve a holistic solution to  the challenges that have been caused by COVID19 & the macro economic environment. This transaction takes into account the interest of all its stakeholders including lenders, shareholders, creditors, suppliers & employees giving continuity to all its businesses".

Benefits to Reliance

•  The transaction with the Future Group will bolster Reliance Retail, which is already nation's largest retailer in terms of number of stores.
•  This Deal  will also help fulfill Ambani's ambitions in the retail and e-commerce sector.
•  It will also help Reliance in reducing dependence of revenue on its traditional businesses of petrochemicals and oil refining.

Now lets look at the various deals (in table below) that Reliance has struck since the beginning of the Lockdown. It would be only fair to say RIL made best use of the lockdown, so much so that RIL became net debt free 8 months ahead of the target [RIL raised more than ₹1,68,818 crores in just 58 days through ₹1,15,693.95 crores collected from investors in Jio and another ₹53,124.20 crores from rights issue].

   

Date	Investor	Deal value(in Crores)	Stake
15th July	Google	33,737	7.7%
12th July	Qualcomm	730	0.15%
3rd July	Intel	1,894.5	0.39%
18th June	PIF	11,367	2.32%
13th June	L catterton	1,894.5	0.39%
13th June	TPG	4,546.8	0.93%
7th  June	ADIA	5,683.5	1.16%
5th June	Silver Lake	4,547	0.93%
22nd May	KKR	11,367	2.32%
17th May	General Atlantic	6,598	1.34%
8th May	Vista	11,367	2.32%
3rd May	Silver Lake	5,656	1.15%
22nd April	Facebook	43,574	9.99%

What Flipkart & Amazon are doing?

•  1 day before Google-Jio announcement Flipkart announced that it was raising $1.2 billion from existing shareholders led by its parent company Walmart.
•  Amazon , meanwhile has made 2 capital infusions of a total $640 million into its India operation this year.

Amazon gets Interim Relief

A tribunal under the Singapore International Arbitration Centre (SIAC) on 25th October 2020, restrained Future Group & Reliance Industries Limited (RIL) from proceeding with a ₹24,713 crores deal signed in august 2020, where Future Retail was to sell its retail chain to Reliance Retail .

The emergency order (interim relief) by the Singapore International Arbitration Centre (SIAC) came in response to a plea from global e-commerce giant Amazon. The point to be noted is that the SIAC interim order is valid for 90 days only, so a final order is expected before this deadline expires.

Last year , Amazon acquired a 49% stake in Future coupons, a group  entity owned by Future Group's retail business. The  deal gave Amazon a 3.58% stake in Future Retail (₹1500 crores deal).

Based on the deal, Amazon cites that Future group has breached the terms of deal where they were to get first right over any further sale of stake in Future Group. 

The Reliance Industries Limited & Future Group deal is anyway pending with the competition regulatory body- Competition commission of India(CCI). The plea from Amazon is seen as a move to further slowdown the completion of the deal and even an attempt to possibly derail the same.

CLAIMS MADE BY AMAZON

Amazon claims that as per contract between the e-commerce major & Future Group, the latter cannot sell any shares to Reliance or any other competitor. 

It has raised objections to Future coupons not seeking approval from it, when the US based company(Amazon) had the first right for any stake sale that Future Retail might initiate.

Once a dispute is referred to arbitration pursuant to the agreement between the parties, the process of appointment of the arbitral tribunal takes place.

Typically, in case of a 3 member tribunal both  the parties appoint 1 member each to the tribunal while the 3rd member is jointly appointed by the 2 nominees or, if they(nominees) fail to agree then appointed by SIAC(Singapore International Arbitration Centre). This process takes time to be complete. So, if Amazon would have waited for setting up of Arbitral tribunal then by that time the deal between Future Group and RIL would have been completed & Amazon would conceded Indian retail market domination to RIL.

However, under the rules of SIAC, parties can move SIAC to appoint an emergency arbitrator to get urgent interim relief, even as the process of appointment of main tribunal is underway.

Accordingly, pursuant to Amazon's request, an emergency Arbitrator was appointed by SIAC, who  after hearing the parties passed the emergency award. 

How the award will be enforced? 

Currently under Indian law, there is no express mechanism for enforcement  of the  orders of the emergency Arbitrator .

Typically, the parties voluntarily comply with the Emergency Award.

However, if the parties don't comply with the order voluntarily, then the party which has won the emergency award, in this case Amazon can move the High Court in India under section 9 of the Arbitration & conciliation Act,1996 to  get similar reliefs as granted by the Emergency Arbitrator. 

There is no automatic enforcement/validity of International arbitration judgement in India, it has to be implemented  through Indian courts, in case the judgement is not voluntarily complied with. 

Can Future Group challenge the award in India?

In India, Interim award can be challenged under Section 37(2)(b) of the Arbitration & Consideration Act ,only for award given by Arbitration seated in India. Therefore, Interim relief given by SIAC cannot be challenged in India as SIAC is a arbitration seated in Singapore.

If for instance , Future group doesn't voluntarily comply with the interim order of SIAC then Amazon can take the matter to one of the High courts of India.

Future Group may either apply before the Emergency arbitrator(under SIAC) itself showing cause why the order should be vacated or modified OR await the constitution of the arbitral tribunal & then apply before main tribunal.

CONCLUSION

Amazon like any other company would do in such a situation , is not ready to let RIL dominate entire retail market of India. But most of the experts of the matter suggest that Amazon will only be able to delay the deal between Future Group and RIL , they cannot stop it .

Even if Amazon is only able to buy time for themselves by delaying the Future Group & RIL deal, it would be smart move even then.

Final outcome whether this deal concludes or not will only be known after arbitral tribunal under SIAC gives its final order, which might take considerable amount of time.