FRL Ind. Directors Accuse Amazon of FEMA, FDI Breach Strategic Rights

Independent directors of Future Retail Ltd (FRL) have accused Amazon of violating India’s foreign exchange and foreign direct investment (FDI) rules.

In a letter to the Competition Commission of India (CCI) chairman Ashok Kumar Gupta on Sunday, the independent directors also alleged that the US ecommerce giant “concealed” facts and made “misrepresentation” and “false representations” while seeking CCI approval for its 2019 investment into Future Retail’s promotor company.

“Amazon has usurped the rights of share-holders of FRL without holding even a single share in FRL,” it alleged, citing a Singapore arbitration panel’s recent decision to make Future Retail a party to the case over an agreement between Amazon and the Kishore Biyani-led Future Group.

Amazon had in October 2020 won an interim stay from an emergency arbitrator in Singapore on Future Group’s about Rs. 25,000-crores sale of its retail assets to Reliance Industries (RIL) after accusing it of violating contracts.

In their letter, the independent directors of future Retail claimed that Amazon’s representations in courts and the arbitral tribunal’s decision making FRL party to the arbitration process meant that “Amazon has significant strategic rights over FRL superior to all the shareholders of FRL, superior to the right of lender and creditors of FRL,”.

“The above, combined with the fact that the promoters of FRL are contractually bound to vote as per the directions of Amazon, clearly means Amazon and the promoters of FRL are ‘persons acting in concert’ in exercising control over FRL,” it said.

This, the board members said, would trigger an obligation on Amazon to make an open offer to acquire 26% of FRL’s share from the public shareholders.

“Amazon’s acquisition of these strategic rights will be in violation of FEMA (Foreign Exchange Management Act) and FDI rules since any acquisition of shares or rights as a shareholder by a foreign entity in FRL (multi-brand retail company) requires prior approval of government,” they said in the letter.

ET has seen a copy of the letter, which was also sent to stock exchanges, Prime Minister Narendra Modi, finance minister Nirmala Sitharaman, and Securities and Exchanges Board of India (Sebi) chairman Ajay Tyagi.

Both Amazon and Future Group did not respond to ET queries as of press time Sunday.

The directors alleged that Amazon had concealed some facts while seeking CCI approval for its investment into Future Coupons. Otherwise, CCI would have referred the case to Sebi, the Department of Economic Affairs (DEA) and the Enforcement Directorate (ED) to check if the investment was in compliance with Indian laws, the letter said.

“Had the above references been made by the commission, Sebi would have responded that the transaction triggers an open offer by Amazon, which if not done will make the transaction illegal,” it said. “DEA and ED would have responded that Amazon, being a foreign entity, would require prior approval of central government before effecting the transaction, without such approval, the transaction would have been illegal and invalid.”

The letter alleged that Amazon concealed a shareholder agreement between promoter firm Future Coupons Pvt Ltd and the flagship FRL “as one of the interconnected steps/transaction in the combination.” It also accused the US company of hiding from the CCI the rights resting with Amazon that they said were “strategic in nature” by virtue of its shareholder agreement with FCPL.

Legal experts said the directors may be too late to highlight these concerns as CCI had cleared Amazon’s investment in future Coupon deal in November 2019.

“The permission has already been granted long ago by CCI,” said Ashish K Singh, managing partner of law firm Capstone Legal. If any person is aggrieved by the decision, he or she could file an appeal before the National Company Law Appellate Tribunal (NCLAT), he said.

“Moreover, these facts were available to the independent directors even when the matter was under consideration by CCI,” Singh said.

“Therefore delay in bringing forward these facts is also required to be explained.”

The independent directors in their letter also claimed Amazon’s Rs 1,431 crores investment in the promoter company in 2019 was undertaken “for the purpose of obtaining the strategic rights in FRL”. Amazon had invested the amount to acquire a 49% stake in FCPL that owned about 9% of the listed entity FRL. S-ET

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