Future Retail Will Go Into Liquidation if Reliance Deal Fails Amid Amazon Bid to Thwart Agreement

Amazon won an injunction from a Singapore arbitrator to halt Future Retail's deal to sell assets to Reliance.

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Future Retail Will Go Into Liquidation if Reliance Deal Fails Amid Amazon Bid to Thwart Agreement

The deal was aimed at protecting the interests of all stakeholders through a large infusion of funds

Highlights
  • Future's retail unit has more than 1,500 outlets
  • Shares in Reliance and Future Retail fell on Monday
  • Future Retail to shut down if transaction with Reliance don't go through

India's Future Retail will go into liquidation if its deal to sell assets to Reliance fails, the group told a Singapore arbitrator while arguing against Amazon's bid to scupper the deal, a legal order seen by Reuters showed.

Amazon on Sunday won an injunction from a Singapore arbitrator to halt Future Retail's deal to sell assets to Reliance. Amazon alleged Future Retail had breached certain contract provisions it entered into last year in a separate deal with the US firm.

The dispute centres around Future Retail's decision in August to sell its retail, wholesale, logistics and some other businesses to Reliance for $3.38 billion (roughly Rs. 24,900 crores), including debt.

Amazon argues that a 2019 deal it had with a Future unit had clauses saying the Indian group couldn't sell its retail assets to anyone on a "restricted persons" list including any firms from Reliance chief Mukesh Ambani's group. The deal specified any disputes would be arbitrated under Singapore International Arbitration Centre rules.

Shares in Reliance and Future Retail fell on Monday. Both companies reacted to the arbitrator's decision by saying they want to complete the deal "without any delay", setting the stage for a showdown between Reliance and Amazon, each led by one of the world's richest men.

A 130-page order by the arbitrator reveals how Jeff Bezos-led Amazon argued that Future breached agreements which barred it from selling retail assets to entities including Reliance, whose boss Ambani is Asia's richest man. It also shows the level of concern at Future if the deal breaks.

Future's retail unit, which has more than 1,500 outlets, will need to pack up if the transaction with Reliance doesn't go through, hitting the livelihoods of thousands of employees and workers at its vendor firms, the Indian group argued before the arbitrator, according to the order which is not public.

Legal obligations

"If the disputed transaction falls through, Future Retail will go into liquidation. That will mean that the livelihoods of more than 29,000 employees of Future Retail will be lost," the Indian group's representatives told the arbitrator V.K. Rajah, a former attorney general of Singapore.

The COVID-19 pandemic has hit many Indian businesses, especially in the retail sector, and the Future Retail-Reliance deal was aimed at protecting the interests of all stakeholders through a large infusion of funds and the acquisition of liabilities, Future argued at the tribunal.

But Rajah ruled that "economic hardship alone is not a legal ground for disregarding legal obligations".

Amazon, Future Retail and Reliance didn't respond to a request for comment.

Amazon welcomed the arbitrator's decision in a previous statement. Future Retail has said it would take appropriate steps to ensure its deal proceeds unhindered, while Reliance said it will complete the transaction.

Amazon, which counts India as a key growth market where it has invested $6.5 billion (roughly Rs. 48,080 crores), has already been bogged down by antitrust probes and strict foreign investment rules.

The latest tussle puts Amazon at odds not just with Future Retail but also Ambani and his Reliance group which is fast expanding its e-commerce business, and threatening the dominance of Amazon and Walmart's Flipkart in that space.

Two sources familiar with the matter said the injunction was not automatically enforceable in India and that the order would have to be ratified by an Indian court.

Any subsequent legal order in India to halt the deal would allow Amazon to negotiate with Reliance, Future and banks on the other side, said Murali Neelakantan, a corporate lawyer at Indian law firm Amicus which is not involved in the case.

"If Amazon doesn't get an injunction against the deal proceeding in India, they will probably just get damages even if they win the final arbitration," Neelakantan said.

© Thomson Reuters 2020


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