Is the Reliance-Future Group deal dead?

In today's Finshots, we talk about the Supreme Court ruling that might scuttle Reliance Retail's acquisition of Future Group's retail business

The Story

On August 29th, 2020, Reliance Retail announced that it had acquired Future Group’s retail business across the apparel, lifestyle and grocery segment. They said they were paying close to ₹25,000 crores in exchange for some of the most iconic retail brands of our time — Big Bazaar, Nilgiris, fbb, Easyday, Central, and Brand Factory.

But just when everybody thought the deal was about to be consummated, Amazon intervened. They were livid that Future Group was selling a sizeable part of its retail business to Reliance without their explicit consent.

And they had a point. A year earlier, Amazon had invested close to ₹1400 crores in Future Coupons. This company in turn held a small stake (~9%) in Future Retail. And while that may not have been problematic in itself, Amazon only made the deal because it gave them special rights to assets held by Future Retail Limited. For instance, based on the shareholder agreement, Future Group could not sell the likes of Big Bazaar and Nilgiris to some “restricted persons” including Reliance.

And yet, here they were.

So immediately, Amazon decided to approach the Emergency Arbitrator at Singapore International Arbitration Centre (SIAC). And the Emergency Arbitrator ruled in favor of Amazon. They offered the Internet giant interim relief and explicitly forbade Future Group from completing the transaction. But despite the ruling, Future Group simply chose to push through nonetheless. They contended that this whole Emergency Arbitration was alien to Indian law. And eventually, the matter was brought in front of the Supreme Court.

Now bear in mind, the Supreme Court wasn’t looking at the validity of the transaction itself. They were simply trying to figure out if the award from the Emergency Arbitration ought to be nullified. And after some deliberation, they didn’t feel it was necessary.

Why? you ask.

Well many reasons. For starters, they found that the Emergency Arbitration was conducted within the confines of the law. But more importantly, they also believed that it served a very important purpose. Both Future Group and Amazon signed the shareholder's agreement only after consenting to arbitrate at the Singapore International Arbitration Centre if a dispute ever rose. So they were making a conscious choice here. If it weren’t for this, people and institutions would routinely approach courts and overburden an already stressed justice system. Imagine how the courts would look if arbitration of this kind didn’t exist.

Yeah, it wouldn't be pretty. So you can see where the judge is coming from here.

And then there was also the principle of estoppel.

Think of it this way. As we already noted — Both Future Group and Amazon signed the shareholder’s agreement only after consenting to arbitrate at a specific forum. And considering they were fully aware of the implications here, they can’t really turn around and say that they wouldn't be bound by the agreement when it's not convenient.

All in all, the judges sided with Amazon and held that the Emergency Award would stand. Meaning the transaction between Future Group and Reliance Retail can’t go through just yet.

And we say “just yet” because the emergency award was a stop-gap solution. It was an interim relief awarded only to stop the transaction. Now both parties will have to argue the merits of their case. Amazon will contest that Future Group violated terms within the agreement and Future Group will argue otherwise. But if the Singapore International Arbitration Centre does rule in favour of Amazon once again, experts believe it would likely mean the end of the Future-Reliance deal.

Until then...

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