The implications of Supreme Court’s ruling on Amazon vs Reliance

Mukesh Ambani-owned Reliance Retail’s bid to acquire Future Retail Ltd, its supermarket chain Big Bazaar and sister companies – Brand Factory, Home Town, Central, eZone – bumped on a speed breaker when a two-judge bench Supreme Court on Friday ruled in favour of Amazon.

The apex court said that arbitration restraining Future Group’s deal with Reliance Industries was valid and enforceable under Indian laws. This meant Ambani’s planned $3.4 billion purchase to acquire a $1 trillion local market was hit. This ruling came a week after the SC  had reserved its judgment in the case about the ruling by a Singapore tribunal restraining Future from going ahead with its merger with Reliance.

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On Friday, a two-judge bench of Supreme Court ruled that an emergency order by a Singapore arbitrator last year, which stopped Reliance from proceeding with the deal, is legally binding. Amazon had approached the arbitration court, and the parties will now have to wait for the deliberations of that body before a final decision.

What is the case? What does the verdict mean?

Kishore Biyani-led Future Group, which has been facing pressure from its lenders to manage debt, last year, agreed to a buyout in the hands of Reliance. According to the deal, Future’s all sister companies would be acquired by the Ambani-led company. 

However, as soon as the deal was announced, Jeff Bezos’ Amazon objected to it. Amazon, in 2019, had signed a deal with Future Retail, acquiring a 49% stake in Future Coupons. This gave the Seattle-based company an indirect 3.58% hold in Future Retail. As per Amazon, its condition does not allow Future Group to sell its assets to a list of companies which includes Reliance Industries. Thus, the American giant claims that the deal between Reliance and Future is invalid.

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The deal was challenged in Singapore International Arbitration Centre (SIAC), where the verdict favoured Amazon. However, Reliance and Future refused to comply. Amazon approached SEBI and the matter has gradually reached the Supreme Court. The SC said has said that SIAC’s ruling will be applicable in India.

Reliance’s shares dropped 2.6%  after the ruling, the biggest intraday decline in two weeks. Future Retail plunged by its daily limit of 10%, the most in more than four months.

“The court verdict puts a speed breaker on Reliance’s retail dominance in India. It balances the competition with the larger American players, and gives Amazon a much-needed presence in physical retail,” Devangshu Dutta, founder and chief executive officer of the Delhi-based retail consultancy, Third Eyesight said, as per Bloomberg.