Explainer: Amazon's battle with Reliance for India retail supremacy

Future Enterprises

08/03/2022 07:01

By Aditya Kalra and Abhirup Roy
    NEW DELHI, March 8 (Reuters) - For more than a year,
Amazon.com Inc  AMZN.O  and India's Future Group have been
locked in a complex legal stand-off that has stalled Future's
$3.4 billion sale of assets to rival Reliance Industries
 RELI.NS , the country's biggest conglomerate.
    After trading barbs in courtrooms for months, Amazon and
Future unexpectedly agreed on March 3 to hold discussions to
resolve their dispute.  urn:newsml:reuters.com:*:nL1N2V60G8
    Here's what the dispute, seen as key to deciding who gets an
upper hand in one of the world's fastest-growing retail markets,
is all about and what led to the sudden change in tone. 
    
    WHAT TRIGGERED THE DISPUTE?
    In 2019, Amazon and Future, number two player in India
behind market leader Reliance, became business partners when the
U.S. company invested $200 million in a unit of the Indian
group. 
    That deal, Amazon argues, came with non-compete clauses that
prohibited Future from selling retail assets to certain rivals,
including Reliance, run by one of India's richest men, Mukesh
Ambani. The deal also included clauses for settlement of any
disputes under rules laid down by the Singapore International
Arbitration Centre.
    But in 2020, Future - hit hard by the COVID-19 pandemic -
decided to sell assets to Reliance. 
    Amazon then approached Singapore arbitrators and
successfully stopped the sale. Both parties have also challenged
each other with lawsuits in Indian courts, including the Supreme
Court, since the "seat of arbitration" remains in New Delhi and
Indian law governs the proceedings.

    WHAT DO AMAZON AND FUTURE SAY?
    Amazon argues various agreements signed in 2019 with Future
gave it special rights over Future's retail assets, some of
which it had also hoped to ultimately own should India's rules
for foreign investors be eased. The potential Future-Reliance
deal "destroys" the latter prospect, the U.S. company has said.
    Future denies any wrongdoing, saying Amazon is illegally
seeking to exert control on Future's retail business. Future
Retail  FRTL.NS  - the group's flagship retail arm - says it
faces liquidation and its more than 27,000 employees can become
jobless if the Reliance deal fails. 
    Both sides have deployed a battery of lawyers and top Indian
legal firms are involved in the high-profile matter. Two lawyers
who formerly occupied the position of Solicitor General of India
have played a key role in arguing for Amazon and Future.
    
    WHAT'S THE BIGGER PICTURE?
    At stake is whether Amazon can become a bigger force in a
$900 billion retail market, with 1.3 billion consumers, than
Reliance.
    Reliance has 1,100 supermarkets, while Future has around
1,500. Both are expanding fast into e-commerce, but the Future
deal will immediately boost the retail footprint of Reliance,
which has attracted marquee foreign investors in the business. 
    For its part, Amazon has invested $6.5 billion in India,
which it counts as a key growth market where it is a leading
e-commerce player. The Future partnership had already allowed
Amazon to boost its online portfolio of grocery deliveries by
integrating the Indian company's stores on its website.
    Keeping Future away from Reliance chimes with Amazon's
efforts to combat billionaire Ambani's growth plans. In one
confidential legal filing, Amazon said Reliance's consolidated
position with Future "will further restrict competition in the
Indian retail market".  urn:newsml:reuters.com:*:nL1N2SZ1TK
    
    HOW DID INDIA ANTITRUST AGENCY GET INVOLVED?
    Future last year complained to India's antitrust agency that
Amazon was making incorrect and contradictory submissions about
the intent of the 2019 deal.
    Amazon said it never concealed any information, but last
December the watchdog suspended its approval of the 2019 deal
with Future, saying there was "a deliberate design on the part
of Amazon to suppress the actual scope" of the deal and its
interest in Future's retail businesses.  urn:newsml:reuters.com:*:nL4N2T22QJ
    In a setback for the U.S. giant, an Indian court in January
halted the Singapore arbitration proceedings between the two
sides in light of the antitrust decision.  urn:newsml:reuters.com:*:nL1N2TL0PC
    
    WHY AMAZON EXTENDED AN OLIVE BRANCH
    In a sudden move on Feb. 25, Reliance, which had not played
a public role in the dispute, started executing a de facto
takeover of some 500 Future stores that represent the crown
jewels of its retail network.  urn:newsml:reuters.com:*:nL3N2V7251
    Reliance had assumed many of the leases held by
cash-strapped Future and has now moved to take over possession
citing missed rental payments.
    That spooked Amazon, sources say. On March 3, Amazon cited
takeover of shops and extended an olive branch during a Supreme
Court hearing, saying the "whirlpool" of litigation must end.
Future agreed to the talks, which are currently ongoing.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
'The shops are gone': How Reliance stunned Amazon in battle for
India's Future Retail    https://reut.rs/3HJCsbx
ANALYSIS-Battle of the billionaires – Bezos, Ambani gun for
India retail crown     https://reut.rs/2JcHaGd
FACTBOX-India retail - A nearly $900 billion market dominated by
mom-and-pop stores    https://reut.rs/2OYLmMV
 
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 (Reporting by Aditya Kalra in New Delhi and Abhirup Roy in
Mumbai; Editing by Kenneth Maxwell)
 ((aditya.kalra@tr.com; +91-11-49548021; Twitter @adityakalra;))