Bengaluru, NFAPost: Confederation of All India Traders (CIAT) has accused Amazon of indulging in serious conversations of FDI policy and Foreign Exchange Management Act. The trade body sharpened its attack on amazon for not seeking the government’s approval for conducting multi-brand retail activities in India.
“Documents available in the public domain show that Amazon has made an investment of about Rs 35,000 crore in Amazon India – a make-believe e-commerce marketplace platform, but in reality indirectly carrying multi-brand retail business,” CAIT Secretary General Praveen Khandelwal said in a press conference.
He alleged that wver the past few months, CIAT has been examining various public documents pertaining to the investments by Amazon and it has come to light that Amazon has been conducting its activities in blatant violation of Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“FEMA Rules”).
“Under the FEMA Rules, Foreign Direct Investment (“FDI”) in multi-brand retail is allowed only with prior approval of the Government of India and numerous conditions may be imposed on the entrant with respect to, inter alia, the sourcing and retailing of goods,” said CAIT Secretary General Praveen Khandelwal in a statement.
Amazon spokesperson denying the allegations said, “As a responsible investor and a long-term player in India, Amazon complies with FDI laws and seeks regulatory approvals including from the Competition Commission of India. Our investment in Future and all investments in India are in compliance with applicable regulations.”
Khandelwal also alleged that Amazon has investment “of about Rs 4,200 crore in More Retail Limited (a multi-brand retail company) – on the face of it looks like it is controlled by an Alternative Investment Fund (AIF) of Samara Capital, and investment of about Rs 1,430 crore in Future Coupons Private Limited – a controlling investment in Future Retail Limited (a multi-brand retail company)”.
The trader’s body claimed that all the above investments are in violation of FEMA Rules and Regulations, and urged the government to take immediate action.
Confederation of All India Traders (CAIT) penned to Commerce and Industry Minister Piyush Goyal and “demanded immediate strict action against Amazon for its brazen violation of rule of the law and also demanded imposition of maximum penalty”.
Khandelwal said he has called a meeting of trade leaders from across the country on Friday via video conferencing on the issue.
Traders may be compelled to take to the streets to agitate if no action is taken against Amazon immediately and CAIT will not shy away from approaching the courts if needed on the issue, he added.
The important facts and violations by Amazon are set out as under:
(i) Future Retail Limited (FRL) is a listed company and related to the Future Group. The Future Group has over 1600 stores in the country and runs and promotes various brands. In turn, the FRL and the Future Group also support thousands of traders and members of our organization by buying and contracting with them for various items in
the supply chain.
(ii) In July 2019, the promoters of FRL held over 50% of the equity shares of the company (on a fully diluted basis). One of the promoter entities of the Future Group is Future Coupons Private Limited (“FCL”).
(iii) On 12.08.2019, the promoter group, FCL and FRL entered into a shareholders agreement (FRL SHA), in terms of which FCL was conferred certain “special rights”, including a requirement of prior approval of FCL before any material decision could be taken on a wide range of matters pertaining to the assets of the company, its management and issuance of share capital. The promoter group were also restrained from unilaterally creating any further encumbrances on the securities held by them in FRL. As on the date of execution of this agreement, FCL only held warrants convertible
into approximately into 7.30% equity shares on the company (on a fully diluted basis) and was therefore not in a position to control FRL. The evident rationale for entering into the FRL SHA was therefore for the promoters to transfer their control over the affairs of FRL to FCL as a precursor to undertaking further transactions. The said FRL SHA is not
in public domain. However, FRL made a public disclosure dated 12.08.2019 to the Stock Exchanges with respect to the agreement. A copy of the said disclosure is annexed hereto as Annexure “1”.
(iv) The rationale of the FRL SHA became apparent on 22.08.2019, when FRL disclosed to the stock exchanges that FCL had entered into an agreement with Amazon (defined hereinbelow as the Amazon FCL SHA), pursuant to which Amazon would purchase up to 49% of FCL, with a call option to acquire all or part of the promoter shareholding of FCL within a specified period. Further, by way of the Amazon FCL SHA, the promoters agreed to restrictions on transfer of their shares in FRL (which was not a party to the Amazon FCL SHA), including restraint on transfer of the shares to specified persons and grant of a right of first offer to Amazon in respect of the shares. Particularly, what was not disclosed was that all the rights of FCL in the FRL SHA (as per (iii) above) was handed over to Amazon in the Amazon FCL SHA. Thus, surreptitiously, Amazon acquired control over FRL. This fact that the rights of FCL in the FRL SHA have been handed over to Amazon is not known to any regulator in India, especially the ED and SEBI. A copy of the disclosure dated 22.08.2019 made by FRL is annexed hereto as Annexure “2”.
(v) Amazon was not a shareholder in FRL. Therefore, it could not restrict the transfer of such shares of FRL. The sole purpose of such a restriction was to ensure that Amazon has control over FRL. No rights have been conferred on Amazon in the Articles of FRL.
(vi) Further to the above, FCL amended its Articles of Association to incorporate the provisions of the Amazon FCL SHA and ensure that the provisions of the Amazon FCL SHA would prevail over anything to the contrary in the Articles of FCL. Further to these amendments:
a. 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.
b. With respect to various matters specified in the FCL SHA, decisions in the shareholders’ meetings could only be taken if Amazon’s representative formed part of the quorum (and presumably, and voted in favour of the proposal), since
the power of attorney has already been obtained by Amazon from FCL.
c. The rights conferred on Amazon were deemed to be incorporated into and forming an integral part of the Articles of Association of FCL.
(vii) The amendments to the Articles of Association of FCL bring out that Amazon had acquired management control over the affairs of the FRL. The control of Amazon over the affairs of FRL is so absolute as given below:
A. The control over the affairs of FRL was transferred from other Kishore Biyani entities to FCL.
B. Thus, FCL has key control rights over FRL.
C. These key control rights were taken over by Amazon through FCL SHA.
D. Amazon took a power of attorney from FCL to exercise FCL rights over FRL.
E. Further, the voting on the shares of FRL, held by promoters (other than FCL) had to be exercised in the same manner as exercised by FCL (i.e. Amazon through power of attorney).
(viii) Furthermore and similarly, Amazon has indirectly invested in and taken over control of another entity, viz. More Retail Limited (“MRL”). MRL was earlier owned by the Aditya Birla Group and was bought by one Witzig Advisory Services Private Limited (“Witzig”) in 2018. Amazon has thereafter invested in Witzig and as a result of certain internal
arrangements, Amazon effectively controls MRL. Copies of documents in respect of such transactions are collectively annexed as Annexure “4”