Amazon wins one round against Reliance in battle over Future Retail

SNAP ANALYSIS
Amazon wins one round against Reliance in battle over Future Retail
A worker sorts delivery packages in a van outside an Amazon facility in Ahmedabad. The war of one up-manship in India’s retail sector has gone past the first round with India’s Supreme Court making a ruling in favour of Amazon, on the slump sale of Future Retail assets, over Reliance. Courtesy: Reuters

India’s apex court has upheld the interim stay order on the Reliance Retail-Future deal granted by an Emergency Arbitrator in Singapore. This gives Bezos the bragging rights for now. But questions over Ambani’s purchase of the Big Bazaar empire still have to be decided on merits. The Supreme Court order will have no impact on that issue.

This round has gone to Amazon founder Jeff Bezos in his battle with Asia’s richest man Mukesh Ambani for supremacy over India’s retail market.

On August 6, India’s Supreme Court ruled that the Singapore International Arbitration Centre (SIAC) interim award of an interim stay on the slump sale of Future Retail assets to Reliance Retail was valid.

This order cannot, however, be termed a decisive win for Bezos, as is being reported by sections of the media, because of two reasons. First, it does not deal with the merits of the Amazon’s case against the Reliance Retail-Future Retail deal; it merely upholds the validity of the interim stay granted by SIAC.

Secondly, the SIAC had, by its interim order in October last year, only halted the transaction subject to a final verdict to be passed by a three-member panel it had set up. That verdict, which will be decided on the merits of the case, is still pending.

This order cannot, however, be termed a decisive win for Bezos, as is being reported by sections of the media, because of two reasons. First, it does not deal with the merits of the Amazon’s case against the Reliance Retail-Future Retail deal; it merely upholds the validity of the interim stay granted by SIAC.

So, legally speaking, this case still has a long way to go before either side can claim victory.

Amazon wants Future Retail’s deal with Reliance Retail blocked on the grounds that it holds the right of first refusal to any sale of the former’s assets. This argument is based on its per cent stake in Future Coupons, a promoter company that holds a 9.83 per cent stake in Future Retail.

It was to enforce this right that Amazon dragged Future Retail to SIAC. The Supreme Court’s verdict is important because it settles the question of enforceability of an award by an Emergency Arbitrator (EA) in a foreign jurisdiction. The term EA does not appear anywhere in the Indian Arbitration and Conciliation Act.

A file photo of the Supreme Court of India, in New Delhi. Amazon wants Future Retail’s deal with Reliance Retail blocked on the grounds that it holds the right of first refusal to any sale of the former’s assets.
A file photo of the Supreme Court of India, in New Delhi. Amazon wants Future Retail’s deal with Reliance Retail blocked on the grounds that it holds the right of first refusal to any sale of the former’s assets.Courtesy: ANI

The points before the Supreme Court

“We will decide whether EA award falls under Section 17 (1) (which deals with interim award by arbitral tribunal) of the Arbitration and Conciliation Act. And if yes, then whether it can be enforced under Section 17 (2) (of the Act),” the Supreme Court had said.

Section 17 (1) of the Act says: “Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject-matter of the dispute.”

Section 17 (2) says the tribunal may order the parties to the dispute to provide appropriate security to safeguard any interim order it passes.

Future Retail’s plea against the interim award of the EA was based on the argument that

(a) There is no notion of an EA under Indian law, and

(b) Future Retail does not have any agreement with Amazon. In effect, it was arguing that Future Coupons’ pact with the US retailer could not be imposed upon it

Amazon’s counsel argued that: “For the purposes of this Act, the arbitral tribunal does not only imply a three-member tribunal, an EA would also be included. And merely because the word 'emergency' is not there (in the Act), does he cease to be an arbitrator under the Act?”

The Supreme Court upheld this argument, but as mentioned above, its order was not based on the merits of the case.

Amazon’s counsel argued that: “For the purposes of this Act, the arbitral tribunal does not only imply a three-member tribunal, an EA would also be included. And merely because the word 'emergency' is not there (in the Act), does he cease to be an arbitrator under the Act?” The SC upheld this argument, but its order was not based on the merits of the case.
This legal scrape between Bezos and Ambani is not just about the Future Retail’s assets. Victory can open the gates to dominating the only billion-plus consumer market that is open to Western retailers like Amazon and Walmart for business.
This legal scrape between Bezos and Ambani is not just about the Future Retail’s assets. Victory can open the gates to dominating the only billion-plus consumer market that is open to Western retailers like Amazon and Walmart for business.Courtesy: Reuters

Why the battle is important for Bezos, Ambani

This battle is important for both Bezos and Ambani as the victor will get a better stab at dominating India’s retail market. The US company has emerged as India’s largest online retailer but it is still miles behind Reliance Retail, which has both brick-and-mortar stores as well as an online presence. At last count, the company, which clocked sales of $22 billion last year, had 12,700 stores across formats, making it by far India’s largest retailer.

The prize of winning this battle is not just Future Retail. Victory can open the gates to dominating the only billion-plus market that is open for business. The e-commerce segment, which was at a relatively modest $30 billion in 2019, is expected to grow exponentially to $200 billion by 2024. That is the market both Bezos and Ambani are hoping to dominate.

The $3.2-billion Reliance Retail-Future deal would have given Ambani access to an additional 1,800 stores across trusted and established brands like Big Bazaar, FBB, Easyday, Central, Foodhall formats. These stores are located in 420 cities and towns across India. It will take years of effort and much more than $3.2 billion to replicate this chain from scratch.

The prize of winning this battle is not just Future Retail’s assets. Victory can open the gates to dominating the only billion-plus consumer market that is open to Western retailers like Amazon and Walmart for business . According to estimates, the e-commerce segment, which was at a relatively modest $30 billion (out of a total retail market of more than $850 billion) in 2019, is expected to grow exponentially to $200 billion by 2024.

That is the market both Bezos and Ambani are hoping to dominate. The Supreme Court order of August 6 is, therefore, just another step towards that final goal.

The attention will now shift to the next moves of Ambani, Bezos and Future Retail on this corporate chessboard.

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