The Supreme Court (SC) August 6, 2021 order upholding the Singapore arbitrator’s verdict lock, stock and barrel is not only a setback to Reliance Retail and the Future group, but is going to perpetuate the dog-in-the-manger farce being enacted by Amazon to a ridiculous extent---Future group and its promoter Kishore Biyani’s assets will be frozen even as Amazon takes its sweet time till October 2029 to take a call on whether to buyout Future Retail or not. Can a business remain paralyzed that long?
At its wit’s end, the Future group is back before the SC this time with a special leave petition (SLP)-- a prayer to at least lift the freeze order passed by the arbitrator and upheld by the SC.
Kishore Biyani's blunders
In 2019, Kishore Biyani of the Future Group committed the blunder of allowing his hands to be tied behind his back by the American e-commerce giant Amazon-- when he unthinkingly and greedily agreed to barter away his business rights by granting Amazon a leisurely 10-year call option to buy Future Retail out. Remember, an option confers a right but does not cast an obligation on its buyer. So much so, there is no guarantee Amazon will buy out Future.
The very next year he compounded his mistake by brazenly entering into an agreement with Reliance Retail for a $3.4 billion seamless merger deal. This was done despite the call option that forbade him from selling or obliterating his retail business. The clause in the non-compete agreement forbids Biyani from selling out to Reliance, in particular.
Amazon's dog-in-manger attitude
If Kishore Biyani is guilty of huge naiveté---granting Amazon an unimaginable long rope in the form of a call option spanning ten years starting from the third year to the 10th year---Amazon is guilty of playing dog-in-the-manger to the hilt. For a pittance, i.e. Rs 1500 crore for a 49 percent stake in Future Coupons, the holding company of Future Retail, it has helped itself to an overarching one-sided agreement---for 10 years you need not bestir and during this time you will not allow others, particularly Reliance, to bestir.
The sellout was complete when Biyani agreed to international arbitration where more often than not Indian companies lose out. Flush with the SC imprimatur for the Singapore arbitrator’s interim award stopping the Reliance-Future merger deal in its tracks, Amazon can afford to smirk and take the next step----freeze all the assets of the Future group as well as Kishore Biyani’s personal properties, so that he and his Group do not hobnob with anyone else, particularly Reliance Retail. And in the meanwhile it will continue to play dog-in-the-manger. Touché!
Granted Biyani conferred the ridiculously long 10-year call option to Amazon with his eyes wide open, but the honorable Supreme Court, it is respectfully submitted, must have struck down the 10-year call option on the ground that it is unconscionable---you would not bestir nor allow others to bestir---especially given the fact that insolvency of Future Retail is staring the nation and its banks in the face. Insolvency will hit the banks.
Future Retail's bleak future
The cash-strapped group companies jointly owe around Rs 19,000 crore to banks, besides Rs 6,000 crore dues to vendors. FRL alone owes Rs 6,278 crore debt to 28 banks, including State Bank of India, Union Bank, Bank of India, Bank of Baroda, Axis Bank, and IDBI Bank, among others.
The freezing of assets would be the final nail in Futures’ coffin. It will paralyze its business, besides contagiously affecting the Indian banking system. It would also frustrate the National Company Law Tribunal (NCLT) should it launch proceedings under the Insolvency and Bankruptcy Code (IBC). Normally, the dice is heavily stacked against the SLP applicants, but one hopes the SC does complete justice invoking Article 142 of the Constitution considering the peculiar features of the case.
The Singapore arbitrator, among other things, slapped a penalty on Future Group for daring to sidestep the bar imposed by the non-compete agreement and 10-year call option in favor of Amazon. The penalty is uniquely altruistic---pay Rs 20 lakh to Prime Minister’s National Relief Fund. That would be a poetic justice because Biyani, through his monumental blunder, has endangered the nation and its banks.
(The writer is a senior columnist and tweets @smurlidharan1)
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