The Future-Reliance Deal Controversy: A Complete Overview

In August 2020, Reliance Industries Limited (RIL), India's largest private sector company, announced that it had entered into an agreement to acquire the retail, wholesale, logistics, and warehousing businesses of Future Group for a sum of Rs. 24,713 crore (US$3.4 billion). The deal was expected to strengthen Reliance's position in the retail sector, while providing a lifeline to Future Group, which was struggling with debt and the economic fallout of the COVID-19 pandemic.

However, the deal soon ran into trouble when Amazon, the US-based e-commerce giant, claimed that it had a right of first refusal (ROFR) in a 2019 agreement it had signed with Future Coupons, a promoter entity of Future Group. According to Amazon, the agreement gave it the right to acquire a stake in Future Retail, the flagship company of Future Group, in certain circumstances. Amazon claimed that the sale of Future Retail to Reliance violated its ROFR, and it sought to block the deal.

The Future-Reliance deal has since become embroiled in a legal battle between Amazon and Future Group, with each side making its case in court. Here is a complete overview of the controversy:

The Background

In 2019, Future Coupons, which owns a 7.3% stake in Future Retail, entered into a share subscription agreement with Amazon. Under the agreement, Amazon was granted an option to acquire all or part of Future Coupons' stake in Future Retail between the third and tenth year of the agreement, subject to certain conditions. The conditions included a requirement that Future Retail not be sold to certain specified parties, including Reliance.

In August 2020, Future Group announced that it had agreed to sell its retail, wholesale, logistics, and warehousing businesses to Reliance for Rs. 24,713 crore. The deal was seen as a lifeline for Future Group, which was struggling with debt and the economic fallout of the COVID-19 pandemic. However, Amazon claimed that the sale violated its ROFR in the 2019 agreement with Future Coupons.

The Legal Battle

Amazon filed a complaint with the Singapore International Arbitration Centre (SIAC), seeking to block the Future-Reliance deal. The SIAC ruled in favor of Amazon, stating that Future Group had breached its agreement with Amazon by entering into the deal with Reliance. The SIAC also ordered Future Group to put the deal on hold.

Future Group challenged the SIAC's ruling in the Delhi High Court, arguing that the SIAC's jurisdiction was limited to the dispute between Future Coupons and Amazon, and did not extend to the dispute between Future Retail and Amazon. Future Group also argued that the SIAC's order violated Indian law, as it sought to interfere with a domestic arbitration.

The Delhi High Court rejected Future Group's arguments and upheld the SIAC's ruling. The court ordered Future Group to put the deal on hold and to appear before the SIAC to resolve the dispute with Amazon. Future Group appealed the decision to the Supreme Court, which granted a stay on the Delhi High Court's order.

The Future Group-RIL deal was approved by the Competition Commission of India (CCI) in November 2020, subject to certain conditions. However, the deal could not proceed until the legal dispute with Amazon was resolved.

In March 2021, the Supreme Court ruled that the Singapore arbitration order was enforceable in India. The court ordered Future Group to put the deal on hold and to pay damages to Amazon. The court also lifted the stay on the Delhi High Court's order.

The Implications

The Future-Reliance deal controversy has raised several important issues, both legal and commercial. Here are some of the important implications of the controversy:

1. The role of contractual agreements: The dispute between Amazon and Future Group highlights the importance of clear and well-drafted contractual agreements in business transactions. The ROFR clause in the 2019 agreement between Future Coupons and Amazon was crucial in determining the validity of the Future-Reliance deal.
2. The enforceability of arbitration awards: The controversy has also raised questions about the enforceability of arbitration awards in India. The Supreme Court's ruling that the Singapore arbitration order was enforceable in India has been seen as a positive development for arbitration in India.
3. The impact on competition: The Future-Reliance deal would have created a strong player in the retail sector, with the potential to dominate the market. The legal dispute with Amazon has delayed the deal and prevented the consolidation of the retail sector.
4. The impact on Future Group: Future Group was facing financial difficulties before the deal with Reliance, and the legal battle with Amazon has only added to its problems. The uncertainty surrounding the deal has also affected the company's stock price and investor sentiment.
5. The impact on Reliance: The delay in the completion of the Future-Reliance deal has been a setback for Reliance's plans to expand its presence in the retail sector. However, the company has continued to pursue other acquisitions and partnerships in the sector

Conclusion

The Future-Reliance deal controversy has raised several important issues related to contractual agreements, arbitration, competition, and the financial health of companies. The legal battle between Amazon and Future Group has highlighted the need for clear and well-drafted contracts, as well as a strong and efficient dispute resolution mechanism. The impact of the controversy on the retail sector and the companies involved is likely to be felt for some time to come.

Article Compiled by:-

Mayank Garg

(LegalMantra.net Team)

+91 9582627751

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including newspapers, Journals, Bare Acts, Case Material. Charted Secretary etc.