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Towards the last week of February, the Amazon top brass in India were troubled by some rapid changes in the Future group story. By early March 2022, Amazon realized it was outmaneuvered by the speed of Reliance and Amazon sought settlement, which did not work.
The battle for retail supremacy between Amazon and Reliance was dragging for too long. Amazon had objected to the merger of Future group into Reliance Retail as the Future group was obliged to give first right of refusal to Amazon. This had to led to Amazon approaching the SIAC, which gave a favorable view in favor of Amazon. As the legal battle continued, Reliance had its Plan-B in place to start taking over the stores of Future group. This was done in a way that would not infringe the court order. Over the last 2 years, since the Future group got into a financial crunch, it had been struggling to pay lease rentals. That is when landlords had insisted that the lease agreements be executed by Reliance Retail instead of Future group. That effectively meant that Reliance had leased all the stores and sub-let these stores to Future group. In addition, most of the inventory at all the Future group stores was also being supplied by Reliance JioMart. With defaults rising, the only option was to take control of the stores as compensation for rentals. That is how Reliance managed a deal.
Clearly, Amazon is not giving up. With limited legal options in front of them, Amazon has now written to RBI to ask the banks to declare their loans to the Future group companies as NPAs. This would put pressure on the banks as that part of the deal is still not clear. Future group has been crying hoarse about this takeover, but it would be naïve to even believe that Future group did not know about this possibility. Of course, RRVL has been playing the cards close to their chest so not much is known about the status of the merger deal and the loans by banks. Amazon may have to give up on its FRL dreams while Future group may face some real tough questions.
One can argue that Reliance was fully justified in what they did as it was their money involved. That is correct. But this raises some serious questions about the enforcement of agreements in India, the sanctity of legal contracts and court orders as well as the loopholes in the legal and judicial system. This has been one of the big factors that has stopped many global players from making a big bet on India. Legal contracts are still too loose and enforcement can be dubious, as we just saw in the Future group case. For Indian policymakers, the key to big global investments in India is a solid law enforcement mechanism. That is still the major missing link in the India story!