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In blow to RIL-Future deal, SC backs arbitration order

On 29 August last year, debt-laden Future Group announced the sale of its retail and wholesale assets to RIL’s subsidiaries, prompting Amazon to move SIAC (Photo: Pradeep Gaur/Mint)Premium
On 29 August last year, debt-laden Future Group announced the sale of its retail and wholesale assets to RIL’s subsidiaries, prompting Amazon to move SIAC (Photo: Pradeep Gaur/Mint)

The Supreme Court on Friday upheld a Singapore emergency arbitrator’s order blocking Mukesh Ambani’s Reliance Industries Ltd’s acquisition of Future Group’s assets, in a setback for India’s richest man eyeing a bigger slice of India’s retail market

The Supreme Court on Friday upheld a Singapore emergency arbitrator’s order blocking Mukesh Ambani’s Reliance Industries Ltd’s acquisition of Future Group’s assets, in a setback for India’s richest man eyeing a bigger slice of India’s retail market.

A Supreme Court bench of Justices Rohinton Fali Nariman and B.R. Gavai ruled that the 25 October 2020 order by the Singapore International Arbitration Centre (SIAC) is enforceable under Section 17(2) of India’s Arbitration Act, handing a win to multinational e-commerce giant Amazon.com Inc., which had challenged the 24,713-crore transaction.

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“A party cannot be heard to say, after it participates in an emergency award proceeding, having agreed to institutional rules made in that regard, that thereafter it will not be bound by an emergency arbitrator’s ruling," said the bench.

In its 103-page judgement, the top court noted that “it cannot lie in the mouth of a party to ignore an emergency arbitrator’s award by stating that it is a nullity when such party (Future Group) expressly agrees to the binding nature of such award from the date it is made and further undertakes to carry out the said interim order immediately and without delay."

On 29 August last year, debt-laden Future Group announced the sale of its retail and wholesale assets to RIL’s subsidiaries, prompting Amazon to move SIAC on the grounds that its investment agreement with Future Coupons Pvt. Ltd, a Biyani firm, bars Future Retail Ltd from selling its assets to RIL. An SIAC emergency order blocked the sale, triggering a legal battle in India between Amazon and Future regarding the enforceability of the order. Since then, the Singapore tribunal has heard both parties, and a final order is expected in the next two weeks.

In March, Justice J.R. Midha of the Delhi high court upheld the emergency award, restraining Future Group from taking any step to complete the deal. This was subsequently stayed by a division bench of the same high court, prompting Amazon to file a special leave petition before the Supreme Court.

An Amazon spokesperson said: “We welcome the verdict of the hon’ble Supreme Court of India upholding the emergency arbitrator’s award. We hope that this will hasten a resolution of this dispute with Future Group."

Future Retail said it will continue its legal fight. “Future Retail is advised that it has remedies available in law, which it will exercise. The judgement addresses two limited points related to the enforceability of the emergency arbitrator’s order and not the merits of the disputes. FRL intends to pursue all available avenues to conclude the deal to protect the interests of its stakeholders and workforce," it added.

“The Supreme Court recognizing and upholding the emergency arbitrator and the verdict is a great sign for the Indian judiciary. This verdict will enable better ease of doing business ranking and help India attract investment," said K. Narasimhan, a senior advocate at the Madras high court.

The favourable SC judgement may prompt Amazon to extend a helping hand yet again to the struggling Future Group, two people with direct knowledge of the matter said on condition of anonymity.

“If Future loses at SIAC, Amazon may once again offer Future Group funding support by bringing in large investors to pump money into debt-laden Future Group. If Amazon loses, Future can go ahead with the deal with RIL," one of the two people said.

If Future Group wishes to pursue the Reliance deal, it still has some options left, the two people said.

Future Group can file a review petition against the SC order to get a favourable judgement, overturning Friday’s decision.

If Future Group loses at SIAC, too, it can file a fresh appeal before the Delhi high court and, subsequently, at the Supreme Court, in which Future Group may get a favourable judgement and go ahead with the RIL deal.

Future Group has so far only appealed the validity and enforceability of the emergency arbitrator’s order, but not the content of the order, the people cited above said, adding that the group is free to file an appeal against the SIAC emergency order.

“If SIAC, too, rules in favour of Amazon, the e-commerce activities of Amazon will get a further boost because, in the offline space, Future still has the largest presence, and that’s why serving online customers with daily household products in the middle-class segment, especially in tier II and tier III locations, will be easier and faster for Amazon. This will ensure a level-playing field between Amazon and Reliance Retail," said the first person, adding that RIL may need to think of new ways to expand its retail reach.

The Future deal would have given Reliance access to close to 1,700 stores across grocery — both small and large format, fashion and footwear retail.

The deal has gained more significance in the pandemic-hit world as companies compete to expand both digital as well as omnichannel capabilities. This is especially true as retailers look at shorter delivery timelines. As a result, proximity to shoppers built through a dense cluster of small stores is seen as an attractive asset for retailers, something that will give Reliance an edge if it gains control of Future’s retail brands, including Big Bazaar, Foodhall, Easyday and Nilgiris.

Meanwhile, competition in India’s retail market is getting more intense, with Walmart Inc’s Flipkart unit, Tata group, Amazon and Reliance making aggressive investments.

An analyst tracking the retail sector said that Reliance is far too invested in the deal to exit now. “If you see, Big Bazaar stores were empty earlier. Now, supplies have improved; stores are doing better. Obviously, someone has been putting in the effort and money," he said.

Suneera Tandon contributed to the story.

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