New Delhi, Nov 2 (IANS) Mumbai-based Future Retail shareholder Beruz Feramorz Pouredehi has punctured Jeff Bezos-owned Amazons invocations to Indian regulatory authorities as illegal and has asked SEBI chairman Ajay Tyagi to step in and protect the 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 is a shareholder of Future Retail Ltd (FRL), a listed company whose shares are traded on the BSE and the NSE, with Client ID 12028900 & IN 301225 DPID 01487824 & 10106303. FRL is part of the Future group of companies.
He wrote in the letter that he is sure that SEBI’s attention has been drawn to the recent developments in relation to the affairs of FRL.
Recounting the recent developments, the board of FRL, consisting of majority of independent directors of FRL and other listed companies of the Future group, has considered, approved and recommended to the shareholders and creditors of these listed companies, a scheme of arrangement under Sections 230-232 of the Companies Act, 2013 (Scheme) under which all the five listed companies will merge into Future Enterprises Limited (FEL), and the retail and logistics businesses of the companies will be sold to Reliance Retail Ventures Limited (RRVL) and its subsidiary. The scheme document shows that the consideration is about Rs 25,000 crore.
FEL will continue with manufacturing and supply of FMCG goods. FEL will also supply goods to RRVL. Shareholders of all the listed companies will be issued shares of FEL. RRVL will also invest and acquire about 13 per cent equity of FEL.
FEL, FRL and other Future group companies have filed the scheme with the stock exchanges. The scheme is being evaluated for approval by SEBI and the stock exchanges.
The shareholder wrote that from public disclosures, it is apparent that in December 2019, Amazon USA had invested about Rs 1,500 crore in Future Coupons Private Limited (FCL), a promoter company of FRL, to acquire 49 per cent equity stake.
The balance 51 per cent is held by Kishore Biyani’s entities. FCL, by this shareholding pattern apparently, is controlled by Biyani. “Some disclosures were made by FRL at that time (it turns out now that they were not complete disclosures),” he wrote.
“Amazon now through a convoluted structure and series of agreements claims the following,” he wrote.
“Amazon has control rights over the listed company FRL (though they are not a shareholder of FRL). Amazon as a foreign company is not even entitled to purchase any shares and become shareholder of FRL under the FDI laws of India,” he wrote.
Amazon states that the FRL board constituted in compliance with SEBI regulations (with majority independent directors) is barred and prevented from even considering and approving a scheme of arrangement and disposal of its business and assets, even if the board considers this to be in the best interest of the shareholders.
“Legal and factual Position: (i) In terms of Companies Act, the board of any listed company cannot be subject to and cannot subject itself to any condition that prevents it from discharging its fiduciary responsibilities; (ii) Further, as per disclosures, FRL does not seem to have entered into any agreement with Amazon; (iii) No amendment to Articles of Association of FRL has ever been brought before the shareholders of FRL for approval to give Amazon any such rights; (iv) Even if such rights have been given to Amazon in the Articles, the same is capable of being amended by the shareholders by voting in accordance with the provisions of the Articles of Association and Companies Act – which in this case is 3/4th of the members present and voting; (v) Even a direct shareholder of FRL cannot have such rights,” he wrote.
Amazon has the right to prevent the sale of business of FRL to Reliance because Reliance is Amazon’s competitor.
“Legal and factual position: (i) Same comments as in (1) above. Even a direct shareholder of FRL cannot have such rights. Amazon cannot or could not have been given such rights; (ii) This does not seem logical. Amazon, under the current FEMA Regulations and Rules is not entitled to acquire control and run the business of FRL. Then, how can Reliance be competitor to Amazon,” the Future Retail shareholder wrote in the complaint.
Amazon further seems to claim that it, through its agreement, has bound the promoter shareholders (who were at one point of time holding 50 per cent of FRL) and directors (Biyani and his entities) that they cannot vote on their FRL shares in favor of any resolution which proposes to sell assets or business of FRL or any reorganisation of FRL.
“Legal and factual position: (i) Even a direct shareholder of FRL cannot have such rights; (ii) If Amazon has such rights, then very clearly Amazon has taken control of FRL,” the letter said.
Amazon has initiated arbitration proceedings in Singapore against the promoter companies and FRL. “Legal Position: When FRL has no agreement with Amazon, how can Amazon file proceedings against FRL? There is no jurisdiction,” he wrote in the letter.
Amazon has asserted its control rights over the FRL board and FRL. The emergency arbitrator has given an interim order — (1) Confirming that Amazon indeed has the control rights specified in (d) above over FRL.
(2) Injuncting FRL to take any steps to proceed further with the Scheme.
Amazon has: (i) Told SEBI that SEBI and stock exchanges are bound by the order of the arbitrator; and (ii) Asked SEBI to stop processing the approval of the scheme filed by FRL and other listed companies and comply with the injunction given by the arbitrator.
FRL has informed its shareholders that it is not bound by the order of the arbitrator.
In his letter, Pouredehi said he is inviting SEBI’s attention to FRL’s disclosure dated August 12, 2019, under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
It states that FRL had entered into a shareholders agreement dated 12.08.2019 with FCL (FRL SHA), Future Corporate Resources Private Limited (FCRPL), Kishore Biyani and other persons forming part of the promoter group of FRL (referred to as ‘existing shareholders’).
The purpose of entering into the agreement was stated to be to “record certain rights and obligations of Future Coupons Limited and existing shareholders with respect to the company and to record the inter-se mutual rights and obligations” of FCL and the existing shareholders.
The disclosure noted that FCL held warrants in the company, which, if exercised, would convert into 7.3 per cent equity share capital in the company and stated that “in this connection, the following special rights” had been incorporated in the FRL SHA concluded between the concerned parties.
FCL would have the right to appoint an observer on the board of directors of FRL. The existing shareholders cannot transfer or create any further encumbrance on any securities held by them in FRL except as provided for under the FRL SHA.
(3) FCL would have a pre-emptive right in any further issuance of share capital in order to maintain its pro-rata shareholding in FRL.
(4) FRL would be required to take the prior approval of FCL on certain matters such as transfer or license of all or substantially all of the assets of the company, or material assets, transfer of assets above a certain threshold to a related party, amendment of articles of association in conflict with the terms of the FRL SHA or any issuance of share capital in contravention of the FRL SHA.
“The above is fine as long as FCL is controlled by Biyani, since in any event Biyani and his entities control FRL. It is pertinent to note that the provisions of FRL SHA have not been incorporated in the Articles of Association of FRL. That is, the provisions and the effect of the FRL SHA to which the Company- FRL was bound, were never brought before the shareholders of FRL for approval.
“As you may see later, the rights of FCL in this FRL SHA have been handed over to Amazon in the Amazon FCL SHA. This was never informed to nor brought to the attention of FRL Public Shareholders. (Please see in (b) below how the disclosure regarding Amazon FCL SHA conceals true facts and makes mis-statements. It never discloses that FCL’s rights in FRL have been handed over to Amazon),” the shareholder wrote.
“It is for the Public Shareholders to decide who will control the company. If such control rights have been given to Amazon, then and in such a case, SEBI Takeover Regulations require that Amazon should make an open offer,” he said.
As per the disclosure made by FRL on August 22, 2019, FRL had been informed that the promoter group persons had entered into a share subscription agreement and a shareholders’ agreement with Amazon.Com NV Investment Holdings LLC, USA (Amazon FCL SHA).
It was stated that: “Pursuant to these agreements, Amazon has agreed to make an equity investment in Future Coupons Limited for acquiring a 49 per cent stake comprising both voting and non-voting shares.
As part of the agreement, Amazon has been granted a call option. This call option allows Amazon to acquire all or part of the promoters’ shareholding in Future Retail Limited, and is exercisable between the 3rd and 10th year, in certain circumstances, subject to applicable law.
The promoters have also agreed to certain share transfer restrictions on their shares in the company for the same tenure, including restrictions to not transfer shares to specified persons, a right of first offer in favor of Amazon, all of which are subject to mutually agreed exceptions (such as liquidity allowances and affiliate transfers).
The Amended Articles of Association of FCL as amended at an extra-ordinary general meeting of FCL held on December 26, 2019. This brings out that:
(1) Amazon was conferred an irrevocable Power of Attorney to act on behalf of FCL and bind FCL by its actions, thereby granting Amazon control of the day-to-day affairs and all actions of the company.
(2) With respect to various matters specified in the Amazon FCL SHA, decisions in the shareholders’ meetings could only be taken if Amazon’s representative formed part of the quorum and voted in favor of the proposal.
“The FRL SHA and Amazon FCL SHA have never been made public. Complete details of these agreements and any other secret agreements entered into in this regard by Amazon have never been disclosed to the FRL shareholders. The devious designs are apparent. Amazon did not want the regulators in the country to be aware that they have clandestinely taken control of FRL,” the shareholder said.