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Photo: Bloomberg
Photo: Bloomberg

Amazon versus Future: Let arbitration prevail

It’s a highly complex case and Indian regulators should abide by what global arbitrators decide. Foreign investors must not get the impression that they’re treated unfairly in India

As the Amazon-versus-Future case goes in for final arbitration in Singapore, Future’s founder and chief Kishore Biyani has sought to explain his 2020 asset-sale deal worth $3.4 billion with Mukesh Ambani’s Reliance by suggesting that Amazon rebuffed a closer alliance in India’s retail sector. By Biyani’s claim, Future asked Amazon several times for financial support needed to tide over last year’s covid lockdown. In his view, this could have been done via a debt takeover under the terms of their 2019 equity pact, by which the US e-com major bought 49% of Future Coupons Ltd (and a set of rights), but since such help did not materialize, his retail group had no option but to go with Reliance. In response, Amazon has contended that its assessment of options was upstaged last August by Future’s switch of partners in violation of their earlier agreement—the allegation on which it dragged Biyani’s business to court.

A couple of issues would need adjudication, both to do with the 2019 accord between the disputants. The primary one, at the core of the dispute, will involve a close look at that document to determine if Future Coupons, a wholesaler with a minor-but-weighty stake in the retailer Future Retail Ltd, denied Amazon a contract-assured veto on selling the retail venture’s assets. The secondary issue is whether the handle that the American company had on Future’s retail business flouted India’s policy on foreign direct investment (FDI). As reports suggest, this power was obtained through special rights awarded by Future Retail to Future Coupons that were later passed on to Amazon. If this is interpreted as ‘control’ by a foreign investor, a question that was raised by Delhi’s high court, then it would have required a clearance from the government. Since it was not sought, doubts have been raised over the validity of the arrangement between Future and Amazon. While our law demands such an okay in case a foreign player takes a majority stake in an Indian multi-brand retailer, it is not clear if the same should apply to indirect forms of leverage over a local business. Given our maze of retail rules, such intricate arrangements are no surprise. Yet, the spirit of our FDI policy would seem to have been violated. Whether the same can be said of the letter of our law, however, is for arbitrators to examine.

Whatever perspective they may have, Indian regulators should wait for an arbitration ruling before they do anything that clears Future’s 2020 deal with Reliance. The Competition Commission of India has already granted its approval to a potential merger of the two retail businesses, but this was because its role was limited to judging the market impact of a prospective scenario, should the two domestic retailers join forces. If this was not projected to result in unfair dominance of the sector, as it reportedly found, it was simply a matter of information, with no consequences for the corporate structures of the three entities involved. In contrast, the okay given by BSE to the same deal was too premature to justify. Amazon’s objection to it was indeed valid. Our stock market regulator must restrain any equity recast until this case is fully settled. This is vital to India’s reputation as a country that upholds contracts between domestic and overseas businesses. No foreign investor should be left with an impression to the contrary, for it would hurt our economic interests.

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