ED scrutinizes Amazon-Future Retail deal for FEMA violations

ED scrutinizes Amazon-Future Retail deal for FEMA violations

Last month, the Delhi High Court held that Amazon seemed to have circuitously obtained control over Future Retail sans the government's approval

New Delhi: The Enforcement Directorate (ED) has initiated investigation against Amazon.com Inc. a month after the Delhi High Court passed adversarial remarks against the Seattle, US-based e-commerce firm into whether it violated the Foreign Exchange Management Act, 1999 (FEMA) in its deal with Future Retail Ltd.

The Delhi High Court while passing judgment on Amazon's petition against Mukesh Ambani-led Reliance Industries Ltd.'s acquisition of Kishore Biyani-led Future Retail last month noted that Amazon seemed to have circuitously obtained control over the owner of Big Bazaar sans the government's approval.

The Delhi High Court noted that Amazon did this with the help of three agreements which appeared to be in violation of the FEMA. Dealing with forex contraventions, the Foreign Exchange Management Act, 1999, is mainly regarded as civil in nature. Amazon's attempt to control Future Retail through a fusion of agreements it has with an unlisted unit of the Indian company appeared violative of the FDI rules of FEMA, the Delhi High Court had ruled. However, Amazon's right to make representations against the Future Group-Reliance Retail deal to statutory authorities was upheld by the court.

Last month, the clauses of the three agreements - Future Retail's shareholder's agreement with FCPL (FRL SHA), FCPL's shareholder's agreement with Amazon (FCPL SHA) and FCPL's share subscription agreement with Amazon (FCPL SSA) - had been analyzed by the Delhi High Court. Read together, the agreements on the face of it lapse from a protective to a controlling right favoring Amazon, the court held.

With reference to the FDI policy for multi-brand retail which allows up to 51 per cent foreign investment under the government route, the court said: "Besides creating protective rights, the conflation of the three agreements showed that it transgressed to to control over Future Retail, which would require government approvals and, in its absence, will be contrary to FEMA-FDI rules."

Arbitration had been initiated by Amazon to stop the Reliance-Future deal; it had secured an emergency award temporarily pausing the deal. In the filing, Future Retail said that the court held that the emergency award has jurisdiction. The Kishore Biyani-led company on 23 December hailed the judgment, and said that its Board had approved a Rs 24,713 crore deal to sell assets to Reliance Retail has been held by the court as "valid in law". The entire legal basis of the emergency arbitration award that Amazon secured to stop the Rs 24,713 crore deal "stands vitiated", it added.

Last year, the federal agency had informed the High Court that it was already probing Amazon for alleged violation of foreign exchange law. The agency told the Delhi High Court this in response to a public interest litigation (PIL) seeking an investigation into Amazon and Flipkart for alleged violation of foreign exchange law.

Last year, the agency's counsel had informed the Delhi High Court that the "department has already registered and initiated investigation under the provisions of FEMA against the two companies to ascertain whether they have been contravening any provisions of FEMA or contravening any rule, regulations, notification, direction or order issued in exercise of the powers under FEMA...."