An Indian court on Wednesday ordered the initiation of insolvency process against Amazon’s estranged partner Future Retail in yet another setback for the American e-commerce group in the key overseas market.
The National Company Law Tribunal's verdict (PDF) on the petition filed by Bank of India will allow the creditors to find a new owner for Future Retail, which once ran India's second largest retail chain and attempted to sell most of its business to Reliance Industries for $3.4 billion. Amazon India, long stuck in the legal battle with Reliance and Future, had filed an intervention request to halt the insolvency proceedings.
Amazon India had alleged that the petition filed by the nationalized bank was of "fraudulent and malicious intention." It also accused Future Retail’s 26 creditors, including Bank of India, of colluding with the retail giant to deny its rights.
"After hearing both the parties and on perusal of material on record, we are of the view that the FA (Facility Agent, which is Bank of India) has been signed within the ambit of the RBI Circular by all the 26 Lenders and the question of FA being in violation of any injunctions does not arise as no sale of any assets has happened and seeking consent of Amazon under Clause 5.1.2 was not breached," the court said in its order.
The Wednesday ruling is yet another setback for Amazon, which acquired 49% stake in Future Retail's unit Future Coupons with an investment of over $187 million. Amazon has argued that Future Group violated its contract by doing a deal with Reliance and earlier approached the Singapore arbitrator to halt the deal between the Indian firms. The ensuing legal battle delayed the completion of the deal, during which Future Group’s debt piled up and earned a once-iconic Indian company a “non-performing asset” evaluation from lenders.
In April this year, Reliance Industries said it “cannot implement” its $3.4 billion deal to acquire core parts of retail chain Future Group after the latter’s secured creditors rejected the offer.
Reliance, which operates the nation's largest retail chain, is the only winner in the years-long battle, analysts say. As Amazon and Future fought in courts, Reliance began taking over several Future stores starting in February after brokering deals with landowners in a move that stunningly blindsided and outwitted the U.S. firm. Cash-strapped Future said in a filing that it could not pay rent at many outlets and was scaling down its operations.
Amazon, which has spent more than $6.5 billion in its India operations, is not amused. Earlier this year, it took out newspaper ads to accuse that Reliance and Future had indulged in fraudulent practices by “removing the substratum of the dispute.”
Brick and mortar shops continue to drive most of retail in India, one of the last great growth markets for American giants. As Amazon and its e-commerce Indian rival, Walmart's Flipkart, scramble to ink deals with physical retail in the South Asian market, Mukesh Ambani's Reliance Industries is increasingly expanding its own online e-commerce ambitions.