Mumbai-based Future Retail shareholder Beruz Feramorz Pouredehi has asked SEBI to immediately direct Amazon to make an open offer in Future Retail Limited (FRL). He said in a letter to SEBI Chairman Ajay Tyagi to direct Amazon to make an open offer in accordance with SEBI Takeover Regulations. The open offer should have been made in 2019, when Amazon acquired control. The open offer price at a minimum should be the price paid by Amazon to acquire the shares of FRL, he said.
Pouredehi has punctured Jeff Bezos-owned Amazon's invocations to Indian regulatory authorities as illegal and has asked Tyagi to step in and protect minority shareholders like him. The complaint expands on the recent contentions by traders' body CAIT that Amazon's incursions in the country are similar to the East India Company. IANS has reviewed a copy of the complaint and its point-wise counter to Amazon's contentions thus far.
Pouredehi said the veil of secrecy has now been lifted in the background of the legal proceedings that Amazon has initiated against FRL and the promoter group of Future Group.
As per media reports, Amazon first issued a legal notice to FRL in which it asserted that it had various pre-emptive rights that had been breached by the Board of FRL and its promoters.
It also appears that Amazon has contended that its investment in FCL was for the stated purpose of investing in and controlling FRL and that the FRL SHA and Amazon FCL SHA were one single integrated transaction to take over the affairs of FRL.
The nature of the rights asserted by Amazon bring out the true nature and content of the rights that were conferred on Amazon under the Amazon FCL Agreement. These include:
(1) The right to prevent FCL and FRL from entering into any commercial arrangement/understanding or selling assets to various competitors of Amazon in the retail sector such as the Reliance Industries Group of companies headed by Mukesh Ambani
(2) Control over the exercise of voting rights held by FCL
(3) Control over the manner in which the Board Members nominated by FCL would exercise their votes in Board Meetings
(4) The right to prevent FCL from parting with the retail assets of FRL
(5) Right to first refusal to Amazon over any shares being sold by the Promoters of FCL
He also pointed out that media reports bring out that Amazon filed arbitration proceedings in Singapore to enforce these rights that it is claiming against FRL. The arbitrator has by an order directed FRL to stop proceeding with the Scheme and stop the proposed transactions with Reliance Group.
While the judgment rendered by the arbitrator is not in the public domain, the contents of the same have been reported in various media outlets, which have reportedly been provided copies of the Award.
Media reports also state that Amazon has written to the SEBI to not consent to the scheme. Amazon, not being a shareholder of FRL, has no rights whatsoever in the scheme.
The letter said that the interim order of the arbitrator is based on the documents submitted by Amazon and parties to the arbitration.
The arbitrator on the basis of these documents and agreements between the parties has held that FRL a listed company is prevented from proceeding with a scheme of arrangement approved by its Board. The order seeks to restrict the shareholders of FRL from voting on the scheme.
"This unambiguously establishes that Amazon has total and unbridled control over the management and affairs of FRL," the shareholder said in the letter.
The letter by the Future Retail shareholder said that SEBI as a regulator would be aware that investment was made by Amazon in FCL.
"But, crucial documents have been withheld from SEBI. Misstatements were made in the disclosures and SEBI was not aware of the provisions of FRL SHA and Amazon FCL SHA," he said.
Now that all the documents and agreements have been produced before the arbitrator, he has come to a firm conclusion that Amazon has control rights over FRL to the extent that it can prevent the Board of Directors of a listed company - FRL - from discharging their fiduciary duties as directors and preventing the shareholders from voting on a scheme recommended to them by the Board.
It is also pertinent that sometime in February 2019, the Board of FRL took the approval of its shareholders to issue equity warrants to FCL. Thereafter, it also appears that the CCI granted approval for the issue of equity warrants of FRL to FCL.
At that time, the shareholders of FRL were given to understand that the equity warrants were being issued as a further investment by the existing promoters in FRL. No disclosure was made of the intention of Amazon to invest in and take control of FRL.
Pouredehi said that it is clear that "Amazon has acquired control of FRL, a listed company, without making an open offer in violation of SEBI Takeover Regulations".
Regulation 4 of the Takeover Regulations provides that no acquirer shall acquire, directly or indirectly, control over a target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company.
Regulation 5 provides that for the purposes of Regulation 4, acquisition of voting rights in, or control over, any company "that would enable any person or persons acting in concert with him to exercise or direct the exercise of such percentage of voting rights in, or control over, a target company, the acquisition of which would otherwise attract the obligation to make a public announcement of an open offer for acquiring the shares… shall be considered as an indirect acquisition of shares or voting rights in, or control over the target company".
The term "control" is defined in Regulation 2(e) as follows:
"'Control' includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner..."
"The interim order of the arbitrator establishes clearly that Amazon has acquired control over management and policy decisions of FRL through agreements and hence has squarely violated SEBI Takeover Regulations," the shareholder said.
"Amazon by acquiring control over the management and affairs of FRL, a multi-brand retail company, without government approval has violated FEMA and FEMA FDI Regulations and Rules," he added.
"It also appears that Amazon has been using such devious practices to invest in other companies in India. Media reports indicate that through a series of convoluted transactions Amazon invested in and took over control of another company More Retail Limited," he said.
He pointed out that FRL and future group have incurred huge losses due to the Covid-19 pandemic. The listed companies are on the verge of bankruptcy. The companies have defaulted on its debt servicing, suppliers have not been paid their dues.
In these circumstances, the Board of the companies, including FRL, has taken a decision to sell the retail business of the company to Reliance group for a consideration of about Rs 25,000 crore.
In the Board's opinion, this is in the interest of all stakeholders - shareholders, lenders and creditors and employees.
Pouredehi said in the letter it is clear that if FRL and other companies do not complete this scheme of arrangement, public sector banks have to write-off thousands of crores of public money, investment of lakhs of shareholders will be reduced to zero, tens of thousands of employees will lose jobs and thousands of individuals, small and micro businesses that rely on FRL will lose their livelihoods.
"This scheme at least offers some hope to the investors such as the undersigned that we would be able to recoup some part of our investment in FRL. However, in the drama that is playing out in full media glare, Amazon has tried to stall this scheme," he added.
He said that Amazon under the current FEMA and FDI Rules and Regulations is not entitled to acquire shares of or any control of management and affairs of FRL.
"Then what is Amazon trying to do? Amazon is playing a spoil sport by stalling a scheme which is in the interest of all public shareholders by asserting illegal and hence void contractual rights," he added.
"There are no prizes for guessing that Amazon will neither care for nor protect the interests of small shareholders. Amazon cannot and is not entitled to present any revival plan for the company under the extant laws. Amazon's interest and shareholders' interests are not aligned. Small shareholders like me have nowhere to go except SEBI," he said.
SEBI is mandated under the SEBI Act in terms of Section 11 to protect the interests of investors and to punish the violators of any of the SEBI Regulations.
"The above facts clearly bring out that Amazon has acquired control of FRL, without making an open offer in flagrant violation of SEBI Takeover Regulations. The order of Arbitrator establishes this without any doubt whatsoever," the shareholder said.
He has asked SEBI to immediately direct Amazon, FRL and FCL to produce all records, documents, letters, emails leading to investment in FCL by Amazon, the Amazon FCL SHA, FRL SHA and any other secret and hitherto undisclosed agreements and understandings in this regard.
"It is prayed that SEBI should immediately approve the scheme submitted by Future group companies. Every day of delay will only erode the value of the business and the consideration it will receive on such sale, thus affecting the small shareholders of all the listed companies. SEBI will be well aware that a foreign emergency arbitrator has no jurisdiction over SEBI to direct SEBI to stop processing the approvals. Accordingly, SEBI should continue to process the scheme application and give its approval immediately," he added.
Further, SEBI as a responsible regulator should send all the documents, papers, records and agreements collected by it from Amazon and Future group pertaining to this takeover of FRL by Amazon to the Enforcement Directorate, since Amazon has violated the FEMA Act and Regulations and are liable to be punished under FEMA.
"Time is of the essence. Any delay would not only affect the scheme and lakhs of shareholders, creditors and employees, but also embolden Amazon," he added.
It has been observed from media reports that Amazon is issuing statements to the effect that any interference in its rights in FRL by the government would lead to a perception that India is not an investor friendly country, he said.
"This cliched practice is used much too often. It belittles the strength of our institutions and suggests that investors are not required to comply with law, which in this case, is meant to protect the interests of lakhs of retail investors, employees and businesses. When a multinational flagrantly violates the laws of this country, it must not be absolved merely because it is a multinational and investing money in the country. As a nation, we must attract investors but also show that our laws are strong enough to be implemented. I am certain the SEBI would not pay heed to any such tricks of Amazon," the Future Retail shareholder said.
"I pray that SEBI should not remain a mute spectator to the developments described above, which have caused grave financial loss to common shareholders such as myself who have invested their hard-earned money in FRL and have been put to substantial financial loss on account of the manner in which Amazon is exercising its control over FRL to advance its own competitive interests at the cost of the small retail investors", he said.
"I respectfully call upon you Sir, to rise SEBI from its stupor and take urgent action necessary to protect the thousands of shareholders of FRL who are facing the prospect of seeing their entire investments in FRL reduced to NIL and also penalise Amazon, which has shown total disregard for the sanctity of the Indian equity markets and the interests of the common shareholder such as myself. A strong message must go out to multi-nationals that India has a strong regulatory system capable of taking timely and strict action to protect markets and investors, which message must be run out loud and clear by SEBI in this case," he added.
"I therefore beseech you to treat this letter as a complaint and immediately initiate the desperately needed remedial action as above," the letter said.a