Contributed by Hammurabi & Solomon Partners
A case of the tail wagging the dog standing in between the devil & the deep sea
What does desperation do to an over-ambitious larger than life corporation who sees its India story slipping away ?
It obtains an emergency award from an emergency arbitrator under the SIAC rules against the India planned entry vehicle i.e. the Future Group, half expecting what would follow next.
In the process it swiftly attracts all the attention to itself exposing the ease with which a global multi-brand retail giant has submitted half-truths with regulators and government agencies in India over the past years regarding its multi-brand retail business structures in India in order to navigate through the legal processes and side step the law of the land to further its agenda.
Then finally it realises that it has tripped on the arbitration proceedings as well, having obtained an award from an emergency arbitrator which is otherwise neither envisaged under Indian law nor recognised or enforceable with ease under Indian law.
Being the largest online retail trading company in the world and keen to take that position in India as well, was Amazon not aware that India has been very cautious in allowing Foreign Direct Investment (FDI) in multi-brand retailing or that foreign investment in retail trading was not at all allowed and it is only during the last 7-8 years that the sector has been slowly opened up for foreign investment step by step.
Was Amazon not aware that Government of India had only allowed 51% foreign direct investment (“FDI”) in MBRT business subject to certain additional conditions when it went of the structure its entry strategy into the Indian retail space with its investment in Future Coupons Limited (“FCL”), engaged in the business of wholesale trading of goods and merchandise and marketing and distribution of corporate gifts cards, loyalty cards, and reward cards to corporate customers and which most incidentally also held certain convertible warrants in FRL, as at Aug 2019.
If indeed Amazon was aware and conscious of the laws of the land it was expected to comply with, did Amazon still go ahead to make investments in FCL with the real objective of taking control of Future Retail Limited (FRL), engaged in the business of multi-brand retail trade (MBRT) of food, grocery, fashion, apparel, general merchandise, home appliances, electronics, etc., through Big Bazaar, easyday, eZone and FoodHall branded stores.
The matter is now sub-judice and therefore let us turn to some of the key legalities involved :
Amazon is absent from FRL Shareholders’ agreement.
Amazon’s investment is limited to Future Coupons (FCPL).
At the time of investing in FCPL, Amazon had sought CCI approval, by claiming that its interests were limited to FCPL, and that it enjoyed no control over FRL.
Now, in its letter to SEBI, it seems to have done a U-Turn, claiming a single, integrated transaction in FCPL and FRL, creating rights in favour of Amazon.
The Arbitration Clause in question clearly provides that the seat of arbitration will be India.
It also provides that the arbitration will be governed by Indian law.
The Arbitration Act in India does not recognize a creature called an Emergency Arbitrator (EA).
Therefore, while the SIAC rules may provide for an EA, the rules will be subject to the governing law which does not account for such interim orders. In light of this, the EA’s interim orders are persuasive at best, and not binding.
Joining the EA proceedings by FRL “under protest”/without prejudice does not bind FRL to comply with its orders.
The arbitral tribunal is yet to be constituted and yet to decide on FRL’s objection on the grounds of jurisdiction.
The fact that Amazon has chosen not to move the courts for enforcement of the EA and instead has chosen to only use the EA as a basis for writing to regulators, for delaying regulatory approvals indicates its acknowledgment that the EA is not enforceable in India.
It is bid to claim control over FRL through FCL, Amazon has also tripped on SEBI regulation which require triggering of the provisions of the SEBI takeover code.
Amazon’s half-truths submitted to the Competition Commission of India and other government agencies and its misconceived letters to SEBI and other regulators shows the pay of misuse of due process and possible perjuries committed by Amazon across the term of its presence in India.
Amazon’s actions of being a mute spectator on various boards while Future Group suffered financial difficulties and then going for the kill to bring down a business having assets of about INR 30,000 crores, with over 50,000 employees, financial debt of about INR 18,000 crores and dues to its suppliers & vendors of about INR 7500 crores – also raises questions of conflict of interest and failure of fiduciary duties on the part of its nominee directors.
The desperation of Amazon in the face of its India dreams slipping away is apparent. Caught between the devil and the deep sea, it has chosen the embark on the twin misadventures of (i) attempting the tail to wag the dog on one hand and (ii) recklessly stepping on multiple legal mine-fields in India on the other hand.
Contributed by Hammurabi & Solomon Partners
The above article is authored by Dr. Manoj Kumar, Managing Partner.