The buyout deal between Kishore Biyani-led Future Group and Mukesh Ambani-led Reliance Industries is pending before the country's apex court. The Future Group had in August 2020 entered into an agreement with Reliance Retail, a subsidiary of Reliance Industries, to sell its retail, wholesale, logistics and warehousing business for nearly Rs 26,000 crore.
As a part of the deal, Future Retail is supposed to sell its supermarket chain Big Bazaar and sister chain of retail outlets like Brand Factory, Home Town, Central, eZone and others to Reliance Retail.
Future Group said that it is facing immense pressure from its lenders to manage the debt. The lenders include State Bank of India. The lockdown only added stress to the company's financial health. In a bid to manage this debt, the Future Group signed this deal with Reliance. Prior to signing this deal, the Future Group had been wooing several businesses.
Back in August 2019, the Future Retail had signed another deal with Amazon. As a part of this deal, Amazon had acquired 49 per cent stake in Future Coupons -- a promoter group entity of Future Retail. Future Coupons holds 7.3 per cent stake in the Future Retail. This means that Amazon holds 3.58 per cent indirectly in Future Retail. It was also granted a call option to be exercisable between the third and tenth years. The call option allows Amazon to acquire Future Coupons' shareholding in Future Retail as per the law.
At the time of the deal, according to Amazon, it had set a condition for Future Group not to sell its assets to a list of companies which included Mukesh Ambani's Reliance Industries. Going by this contention, the deal between Reliance and Future is invalid.
Amazon then challenged this deal and initiated an arbitration process at Singapore International Arbitration Centre (SIAC). Amazon argued that Biyani's asset sale to Reliance Retail is a breach of a 2019 agreement between Amazon and Future. The SIAC ruled in favour of Amazon and put the Reliance-Future deal on hold.
However, Future and Reliance refused to comply to the order. Notably, there is no mechanism available in India that enforces international arbitration's order.
Amazon then approached the SEBI not to approve the Reliance-Future deal and pressed for Reliance and Future to comply with the order. In the Arbitration and Conciliation Act, 1996, there is clause for enforcement of an interim order passed in a foreign seated arbitration. The matter is currently pending before the Delhi High Court.
Reliance Retail wants to acquire the retail business of Future Group which will make it one of the biggest competitors to Amazon, DMart and Flipkart (owned by Walmart) in India. Future Retail operates more than 1,500 stores across 400 cities in the country.
According to Future Group’s argument, if the deal with Reliance is not approved, the company will have no option but to bring down the shutters and this will directly affect employment of more than 29,000 people.