The independent directors of Future Retail Ltd (FRL) have fired a major broadside in their battle with Amazon by writing to the Competition Commission of India (CCI) seeking a revocation of the approval that it granted in November 2019 that enabled Amazon to pick up a 49 per cent stake in Future Coupons Pvt Ltd (FCPL).
FCPL, which is classified as a promoter entity, holds close to 9.82 per cent stake in Future Retail, thereby giving the US retail giant an indirect stake of over 3.50 per cent in the latter.
The indirect stake in FRL forms the basis on which Amazon has tried to scuttle FRL’s bid to sell its retail business to the Reliance group under a Rs 24,713-crore deal struck in August 2020 — exactly a year after the FCPL-Amazon transaction.
In a six page letter written to CCI chairman Ashok Kumar Gupta, on behalf of the independent directors, Ravindra Dhariwal alleged that Amazon concealed facts, made misrepresentations and false representations to the commission when it sought the approval for the transaction.
The independent directors of FRL have charged Amazon of acquiring “strategic, material and special rights over
FRL” in violation of laws and procedures in the country — and use that weapon to further its evil design to make FRL bankrupt by blocking the deal with the Reliance group, forcing banks to write off loans worth Rs 30,000 crore that they had extended to FRL, rendering insolvent 6,000 small and medium businesses that have dealings with Future Retail, and turning 50,000 employees jobless.
Incidentally, the CCI while issuing its order approving the Amazon-FCPL transaction on November 28, 2019, had said the approval “shall stand revoked if, at any time, the information provided by the Acquirer (Amazon) is found to be incorrect. This approval should not be construed as immunity in any manner from subsequent proceedings before the Commission for violations of other provisions of the Act’’.
The Future group is seeking to use that conditional approval to torpedo the Amazon-FCPL deal itself as the battle between the two sides starts to escalate.
The Singapore tribunal recently gave its final arbitration order in favour of Amazon, which the US giant intends to enforce in Indian courts.
Amazon’s pernicious strategy was designed to kill competition in the burgeoning e-commerce retail segment, the FRL independent directors said in their letter.
False representations
Under the terms of the deal struck in August 2019,
Amazon had acquired a 49 per cent stake in Future Coupons for Rs 1,431 crore and an indirect 2.52 per cent holding in Future Retail — and cleverly side-stepped questions from the Commission over the rationale for obtaining rights over FRL.
On August 12, 2019, entities from the Future group that included FRL, FCPL and certain promoter companies entered into a shareholders’ agreement (SHA).
Under this agreement, FRL was required to obtain the prior consent of FCPL for certain key matters including disposal of its retail business and assets to any third party and particularly to certain restricted persons including the Reliance group.
The FRL directors claimed in that letter that in response to a pointed question from the Competition Commission over whether the FRL rights were economic or strategic, Amazon had replied that the investment in Future Coupons was made because of its “unique business model and gift and loyalty cards business” and the rights over Future Retail “were only investment protection rights” and were intended to add “credibility to its financial position in the short term”.
The directors said Amazon had specifically replied that the rights over FRL “would not be exercised by Amazon directly and would be exercised by FCPL as a shareholder of FRL to protect the investment made in FCPL by Amazon and Kishore Biyani”.
They added that the Commission’s approval for Amazon’s investment in FCPL was granted on the basis of these representations.
However, Amazon went on to assert its rights over FRL and obtained an arbitral award from the Singapore tribunal in an effort to block the sale of the company’s retail assets to the Reliance group.
The letter also said as a result of the false representations, Amazon achieved three objectives: it acquired control over Future Retail without having to come out with an open offer under Sebi regulations; it violated FDI laws in the country by seeking to adopt a “twin-entity investment structure”, and also bypassed restrictions under Press Note 2 that effectively barred the sale of FRL products on its e-commerce platform.
The letter said that if the CCI had referred the issue to the department of economic affairs (DEA) and the Enforcement Directorate (ED), “the authorities would have become aware of this modus operandi of Amazon and would not have allowed the (FCPL) transaction to proceed”.
The independent director said that if this had been disclosed, the CCI would have referred the matter to Sebi to check whether the transaction is in compliance with its laws and regulations.
They maintained that Amazon has significant strategic rights over FRL which were “superior to shareholders, lenders and creditors of FRL”.
They added that since the promoters of FRL were contractually bound to vote as per the directions of Amazon, it clearly shows that the latter and the promoters of FRL are “persons acting in concert” while exercising control over FRL. This, they claimed, would make it obligatory for Amazon to make an open offer to the public shareholders of FRL to acquire a 26 per cent of FRL.
“Amazon’s acquisition of thThe company plans to become debt free from the first quarter of next fiscal.
ese strategic rights will be in violation of Fema FDI Rules since any acquisition of shares or rights as a shareholder by a foreign entity in FRL (multi-brand retail company) requires prior approval of government,” the letter added.
