As Reliance takes over Future Retail stores, is Amazon fighting a losing battle?

Billionaire Mukesh Ambani’s Reliance Industries Ltd (RIL) has begun the process of taking over the beleaguered retail chain Future Retail and its sister concern Future Lifestyle, which will now reportedly be rebranded as Reliance stores.

As a first step, Reliance has begun onboarding almost 30,000 Future Group employees on its payrolls. Moreover, it also has to deal with the process of paying off outstanding rents to landlords, some of whom have not been paid for close to two years. 

In 2020, the debt-laden Future group had decided to sell its retail, logistics and warehousing businesses to Reliance for just under Rs25,000 crore. This deal had been negotiated under a resolution framework proposed by the Reserve Bank of India in 2019, to tackle India’s burgeoning bad loan mess. 

Following this, US-based e-commerce major Amazon initiated litigation in October 2020, which is still ongoing. 

So, what is the status of the legal case?

Over the last 18 months, this case has become a legal quagmire. 

The Delhi High Court is hearing four cases in the legal battle between Kishore Biyani-led Future Group and Amazon while the National Company Law Appellate Tribunal (NCLAT) is also hearing the US ecommerce firm's case challenging a Competition Commission of India (CCI) order which cancelled its 2019 deal with Future Coupons.  

In January, the Delhi High Court had halted arbitration proceedings between Amazon and Future Retail in Singapore. 

But why is Amazon even opposed to the Future-Reliance deal?

Amazon has long argued that Future violated the terms of its 2019 deal in deciding to sell retail assets to Reliance. The US e-commerce giant has cited clauses in its 2019 investment agreement with the Future group to try and block the deal with Reliance, which is also Amazon’s rival in the online e-commerce market in India. 

But the CCI suspended the 2019 deal last month, citing suppression of information by Amazon while seeking clearances. Future then argued there was no legal basis for the arbitration between the two sides to continue in Singapore.

A two-judge bench led by Chief Justice D.N. Patel of the Delhi High Court agreed with Future's arguments, putting the arbitration proceedings on hold. If the proceedings are not halted, Justice Patel said this would cause an "irreparable loss" to Future. "We hereby stay further proceedings of arbitral tribunal till next date of hearing," said Patel.

The long-running dispute was being heard by a Singapore arbitration panel, but the so-called "seat of the arbitration" is New Delhi, meaning proceedings are governed by Indian law.

When were the landlords who own Future group’s retail outlets, last paid?

A news report in Business Standard says that in 2020 landlords had begun to terminate the lease agreements with Future Group and several landlords approached Reliance Industries. The lease for those stores was signed with the Mukesh Ambani-run company and then sub-leased to Future Group. The debt-ridden retail chain has over 1,700 stores across various brands, which include Big Bazaar, fbb, and Central.

In a stock exchange filing, Future Retail said it received termination notices for a significant number of stores due to huge outstanding dues, and it would no longer have access to such store premises. “The company is scaling down its operations which will help us in reducing losses in the coming months. The company is proposing to expand its online and home delivery business, to increase its reach to the customers,” it said.

How will the Future Group employees be brought on board?

News reports say Reliance will onboard 30,000 employees to its manpower and staffing arm called Reliance SMSL.

Meanwhile, Future has suspended its online and offline operations, as the takeover takes shape. 

What about distributors’ dues?

Over the last several months, distributors who have been supplying material to Future stores, have been billing Reliance, according to news reports.

But what about the loan payments the Future group had been defaulting on?

Indeed, as a Business Standard report notes, in January, Future Retail missed repaying its lenders Rs 3,494.56 crore on December 31, 2021 and had sought a 30-day extension to pay its debt but it wasn’t able to do so. The account of the company has already been classified as a non-performing asset, Future Group said in an exchange filing.  

The filing also said: “The company has been finding it difficult to finance the working capital needs. Increasing losses at store level is a grave concern and is a vicious cycle where larger operations are leading to higher losses.” Future Retail said it has made a loss of Rs 4,445 crore in the last four quarters.