In the Jeff Bezos vs Mukesh Ambani battle royale for the Indian retail market, which is now also evolving into a ‘videshi vs swadeshi’ battle, corporate observers are raising questions. Eight absolutely unknown facts are emerging in the battle of Bezos vs Ambani.
1. Has Jeff Bezos of Amazon disclosed all Amazon-Future agreements to Future Retail Ltd (FRL) shareholders?
To this, corporate observers say no. Bezos has invested 49 percent in Future Coupons Ltd (FCL), an FRL developer. 51 per cent of FCL is held by Kishore Biyani, a resident of India. FCL, in turn, has a 9.82% stake in FRL. It appears that FCL is controlled by Biyani with its 51 percent stake. This is a requirement of the Indian FDI Regulations. Bezos cannot directly have even one share in FRL. At first glance, it appears to be complying with FDI regulations. But the reality is different.
In a two-tier structure, Bezos has taken control of FRL, which is prohibited by FDI regulations:
(i) Level 1 is a shareholder agreement between FRL, FCL and other FRL promoters � in terms of this agreement, without the consent of FCL, FRL may not transfer its assets or business to any third party and its board of directors or you can even consider such a proposal.
(ii) Level 2 is a shareholders agreement between FCL, Amazon and other FRL promoters. In terms of this agreement, Bezos has taken over FCL’s rights under the FRL shareholders agreement.
(iii) Therefore, Bezos effectively controls FRL.
The Future Retail shareholders agreement and the Future Coupons shareholders agreement have never been disclosed to any Indian regulator.
If disclosed:
(i) SEBI will find that Bezos has taken control of FRL and will force it to make an open offer at a price of Rs 500 per share.
(ii) ED will find that Bezos has invested in and taken control of a multi-brand retail company without government approval and misled the government of India.
2. Has FRL modified your articles?
Amazon’s rights in FCL were held as part of the amendment to the FCL Articles.
The articles of the LRF have not been modified. This is because if the amendment had been proposed to shareholders revealing that Amazon will exercise FCL’s rights under the FRL shareholders agreement, public shareholders would never have approved it.
3. Amazon could not have invested in FRL through the FDI path under the FDI Policy. So how do you have enforceable rights against FRL?
To do this, Amazon has gone through the tangled (and convoluted) structure above; FRL is dedicated to multi-brand retail (MBRT); Foreign Direct Investment (FDI), up to 51 percent, in MBRT is only allowed with prior permission from the government, which will also be subject to truthful conditions including sourcing of materials within India and management control etc. .
Amazon wants to control the multi-brand retail space, but without the legal snags; therefore, in a convoluted way, he went ahead with the muddy illegal structure; If the veil is pierced and the structure of the transaction studied in detail, it will be considered illegal, corporate observers said.
The fact that Amazon obtained an interim order from the Emergency Arbitrator requiring the public company FRL not to proceed with the plan, despite having no direct stake in FRL, shows that contractual rights are nothing more than “control “, in violation of the SEBI and FDI Regulations. Bezos is known to have followed a similar investment structure when investing in More Retail; where it invested Rs 4,200 crore;
For FDI violations, the consequence is that in addition to reversing transactions, Bezos is exposed to a fine of up to three times the investment: ~ Rs 5,630 crore x 3 times = Rs 16,890 crore, the sources said. For the violation of the SEBI Procurement Regulations, in addition to the penalty, they can also be prosecuted.
4. How, as a foreign company, did Amazon assert control over FRL and its Board of Directors? What about FRL shareholders?
The claim shows that Amazon has violated FDI and SEBI regulations. If Amazon asserts control, you need to make an open offer.
5. Amazon is asserting control over FRL. Does it violate FDI policy?
Yes.
6. Have all agreements been communicated to regulators: SEBI, ED, etc.?
No, the transaction details are selectively provided in a confusing way. The Directorate of Enforcement, SEBI, the Ministry of Business Affairs and other authorities, etc., should direct Amazon to disclose the agreements and details of the actual agreements and begin the investigation.
7. What is the crux of SIAC’s provisional order?
It records that all of Amazon’s investment was for its direct interests in FRL.
8. Is Mukesh Ambani a competitor of Bezos?
Bezos cannot conduct multi-brand retail sales in India. You can only e-commerce in the Indian market. However, your Amazon refers to the Ambani Trust as its competitor. Reliance can be Amazon’s competitor only if the latter is allowed to perform MBRT.
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