Tuesday, March 28, 2023
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Future Retail-Amazon saga indicates a collapse of corporate governance

Move to carry out sale of the entire Future Retail undertaking through a series of inter-connected transactions will set a dangerous precedent and could hurt public interest.

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In the past few decades, corporate governance has evolved significantly in India, with the government delivering landmark legislations such as the Companies Act, 2013. However, despite having one of the most comprehensive and robust corporate governance frameworks, India has been watching umpteen instances of poor governance in boardrooms. Since the wave of liberalisation in 1991, corporate governance has time and again become a sore point for foreign investors in India.

The recent past has seen the downfall of leading corporate giants like IL&FS, DHFL, Jet Airways, Moser Baer Power and YES Bank, which were at one point of time considered pinnacles for corporate standards. A compromised adherence to legal frameworks and a laid-back approach for corporate governance is responsible for this fall from grace. Another case, highlighting a lack of adherence to law has arisen in the recent Future-Amazon tussle.

In 2019, Future Group and Amazon entered into long-term business agreements. The agreements, among other stipulations, provided Amazon the right to step in and nominate lenders or financial institutions to avoid disposal of Future Retail shares held by the promoter group. It provided Amazon the Right to First Refusal, and a non-compete clause — barring Future’s dealings with potential competitors of Amazon.

Problem with Future Group

What is coming out subsequently is a host of non-compliances and misleading propaganda by Future Retail Limited (FRL) which are in gross violation of the Securities and Exchange Board of India (SEBI) Act and Listing Obligations and Disclosure Requirements. What is even more pertinent to note is the conduct of FRL board; its actions don’t seem to be in accordance to the best interests of its public shareholders.

The move to carry out the sale of the entire undertaking of FRL through a series of inter-connected transactions involving related parties will set a dangerous precedent and could pave the way for many more wrong transactions that could hurt public interests. Companies wanting to bypass SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”) by selling assets to a related party at a non-transparent price and not allowing exit to public shareholders, in my view, is the greatest misdeed towards the public and is an attempt to take undue advantage of the law in the largest democracy in the world.

The fallout from Covid-19 restrictions has cost Future Group nearly Rs 7,000 crore in three to four months. The pandemic took a toll on the group’s financial position, which had already been struggling from piling debt and resolution demands by lenders. As a way out, Future Group explored the possibility of reigning in investments to help pare its debt. As Future started negotiations with potential investors, it should have explored options as to what is legally right, and to not venture beyond the scope of legality, FRL should have avoided dealing with an unrestricted entity. Instead, it should have sought a buy-in from stakeholders like Amazon and Blackstone.

Hence, in August when Reliance announced its plan to acquire Future Group, Amazon approached the Singapore International Arbitration Centre (SIAC) with a plea to restrain the sale for the time being. This again was in accordance with the contract between the entities. SIAC passed an interim order in favour of Amazon. The arbitrator, a former attorney general of Singapore, saw merit in Amazon’s plea and stated in its 25 October 2020 order that the law expects businesspersons to honour their contractual commitments.

Disservice to investors

Not agreeing to abide by the verdict of the emergency arbitrator and moving the issue to the Delhi High Court has potentially dampened the spirits of  investors. This, in my view, was the second biggest disservice to the nation in terms of attracting investments. To put things in an inaccurate/different perspective, FRL publicly stated that “SEBI continues to process our application submitted through the stock exchanges”. Yet again, this is in direct violation of the Interim Award issued by the emergency arbitrator.

A company impacted by the pandemic and seeking to bring in fresh capital has to look at innovative ways to do the same, but resorting to unethical methods and trying to legally justify the same will not hold good for the Indian economy.

A contractual clause offered Amazon both — a right of first refusal and a non-compete clause. The fact that it isn’t being enforced can deter other companies from wanting to invest in Indian companies in the future. The fickle mindedness of this action could cause serious repercussions to India’s ambitions to become a global manufacturing hub and attract more foreign investment.

The question which we need to ask ourselves is: are we willing to let non-adherence to corporate standards overpower the image of India in the world economy or should SEBI intervene and ensure compliance of ethical standards?

(K. Narasimhan is a senior advocate at the Madras High Court)

Also read: Why is Amazon fighting with Mukesh Ambani and Kishore Biyani? 6 questions & answers


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  1. Dude, you are either a sellout or you have no concept of Bigger Picture.

    Answer this
    What would investors prefer: Future Group Sale gets cancelled and the company goes bankrupt due to piling debt and the creditors are left unpaid
    It merges with Reliance and prospers towards a better future expanding sales, repaying all its debt and increasing profits.

    Besides this, as evident from employee led movements against Big Tech (including Amazon) in western countries it is clear that employees also have an equally important stake as investors, so do the creditors. So what a company does should take into account that as well.

    This smells like a paid article. The Print keeps on appealing for subscriptions. Perhaps they have started taking money to swing public opinion.

  2. By far one of the stupidest articles I’ve come across, not surprising at al. The Print needs to start working towards a Better internship intake programme

  3. I find no argument put up in the article above that talks about corporate governance violations.
    Even I am not clear if the author wants to talk about foreign Investors sentiments.
    May be the author wants to argue about the contractual obligations.
    But sorry to say, author fails to put accross any of the three facets convensingly.
    Amazon has no direct stake in furture retail. Their investment is in future coupon.

  4. In the entire article i fail to find how F retail is in violation of corporate governance?
    If the author of the article is taking of ethical aspect or the foreign investor sentiment, thats a different issue all together.
    Further, Amazon did not have direct stage in future retail. They have their investment in future coupon. It is correct on their part to indirectly seek control of a company without making any investment.

  5. How can Amazon demand full rights by pat by just 1400 crores for an entity which would have been worth atleast 50 times more.

    Even now why Amazon doesn’t better Reliance offer? If it cannot match/come up with better offer then it will be deemed as it has abdicated its right if refusal.

    Also, Amazon cannot invest or having controlling stake in multi brand retail. So it’s deal is null and void ( void ab initio)

  6. Biyanis of future are have been fleecing everybody since they started their business.How many times they have unlocked value,sliced off divisions,sold shares and what not. They entered into agreement with Reliance and intended to cheat Amazon. But how Mukesh Ambani fellfor it.Theyshouldhave asked to see agreement with Amazon before giving single paise.

  7. Lol…not sure what you mean by saying Amazon was aware of the deal and approached SIAC months later…so what ? Amazon had a right to first refusal and non-compete clause with the Future group and that’s the main point in this article which is already widely known but Indian corporates are well known for not adhering to contracts and trying to weasel their way out of contracts once signed.

  8. Your article is a decently biased one and bought propaganda is evident.

    The time line you so conveniently mention is incorrect. Amazon was aware of reliance/ frl deal and approached SIAC months later.

    Amazon’s conduct in deviously misleading SEBI is quite opaque in your article.

    It’s ok. I Guess given the pandemic your newspaper has to raise funding from somewhere too 🙂

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