The ongoing tussle between Amazon and Future Group has reignited the debate over independence of Independent Directors and their commitment to work in the interests of the shareholders. The flurry of accusations made by independent directors of FRL against e-commerce major Amazon over alleged FEMA and FDI rule violations could be a shining case in point.
Amazon has been very clear about its objections to the Future-Reliance deal, which the e-commerce giant says, is in violation of its 2019 investment pact. The 49% stake in FCPL gives Amazon preventive rights in FRL, especially against any asset sale or alliance with 30 retail entities, including Reliance Industries Ltd. The accusations by Future Group that Amazon is trying to control FRL have also been trashed by the Singapore Independent Arbitrator Centre (SIAC).
Amazon letter to SEBI, govt seeking cancellation of Future-Reliance Deal
In a letter to SEBI Chief Ajay Tyagi, the corporate affairs secretary as well as NSE and BSE officials, Amazon has sought to withdraw any permission and consents granted to FRL related to the $3.4-billion merger deal with Reliance citing SIAC’s October 20 ruling.
The Plunge Daily is in possession of the confidential letter which also includes dispositive directions passed by the Arbitral Tribunal in the Partial Award on Jurisdiction. In its order, SIAC dismissed Future Retail Limited’s objections over its jurisdiction and also rejected the Indian group’s application to vacate the interim award of the emergency arbitrator dated 25 October 2020.
Key excerpts of the SIAC order
The key part of SIAC order says, the parties remain bound by the orders set out in [285(a)]-[285(d)] of the EA Award (last year’s ruling),
” –the Respondents (FRL) are injuncted from issuing securities of FRL or obtaining/securing any financing, directly or indirectly, from any Restricted Person that will be in any manner contrary to Section 13.3.1 of the FCPL SHA;
“…the Respondents are injuncted from taking any steps to complete the Disputed Transaction with entities that are part of the MDA Group.”
In the letter dated October 30, Amazon has called upon the recipients to compel FRL to comply with the dispositive directions contained in the Order on Vacation Application and the Order on Ad-Interim Relief and to file relevant disclosures/intimations to the stock exchanges apprising the shareholders and creditors of FRL of the operating injunction against FRL. “The continuation of the notices creates a false market in FRL securities and misleads the stakeholders,” said the letter.
The SIAC’s latest order means more trouble for FRL especially in view of the Supreme Court’s August verdict upholding the validity of its award in India.
FRL announced deal with RIL 2 months after signing term sheet with Samara
In June 2020, FRL signed a non-binding term sheet with Amazon-backed Samara Capital entailing a Rs 7000 crore investment. And yet, it took less than two months for the Kishore Biyani-led Group to announce its asset sale to Reliance Retail. Before this report came to light, Mr Biyani had said that he received no help from Amazon despite reaching out eight times to help tide over a dire financial situation, suggesting he had no choice but to conclude a deal with Reliance.
This term sheet could have saved scores of jobs and revived FRL’s Covid-hit business. Why the Independent Directors decided against the deal is a matter that needs to be investigated.
Interestingly, the Arbitration Tribunal of SIAC had fully considered submissions of Amazon and in their view the proceedings before the CCI were concerned with public policy issues, particularly on whether or not the transaction would cause an appreciable adverse effect on competition in the relevant market in India. Accordingly, the issues to be considered by the CCI, as well as the focus of the enquiry, would not have been the same as those before a court of law or an arbitral tribunal considering the contractual effect of the Agreements inter-partes.
Are FRL’s Independent Directors working in shareholder’s interest?
Considering the context of Amazon’s submissions before the CCI, and for the reasons so, the Tribunal considers that FRL has not established that Amazon has been speaking inconsistently before the CCI and in this arbitration. Dismissing FRL’s contentions, the Tribunal said “What Amazon has acquired in the present case are negative and protective rights. They do not amount to control.” The Independent Directors of FRL continue to make allegations of inconsistency and FEMA & FDI violations. This means, either they were unaware of the verdict passed by the authorities or they have, in fact, something to hide. Their allegations seem to be inconsistent with the verdicts of SIAC and the High Court of Delhi. It’s time they should act responsibly and guide the board in the right direction.