Accusing Amazon for indulging in various serious contraventions of FDI Policy of the Government and Foreign Exchange Management Act (FEMA) and not seeking mandatory approval of the Government for conducting Multi-Brand Retail activities in India, the Confederation of All India Traders (CAIT) today in a communication sent to Union Commerce & Industry Minister Piyush Goyal demanded immediate strict action against Amazon for its brazen violation of rule of the law and also demanded imposition of maximum penalty on Amazon and other necessary actions under different rules to make Amazon realise that compliance with the law both in letter & spirit is the basic fundamental for operating business in India. The CAIT has also sent similar communication to Union Finance Minister Mrs. Nirmala Sitharaman, Enforcement Directorate, Governor Reserve Bank of India and SEBI seeking proceedings against Amazon and under respective Act & rules vested in their Authority.
CAIT Secretary General Praveen Khandelwal while addressing a Press Conference at New Delhi today said that 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, 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, investment of about Rs. 1,430 crore in Future Coupons Private Limited – but actually a controlling investment in Future Retail Limited (a multi-brand retail company). All the above investments are in violation of FEMA Rules and Regulations and calls upon the Government to take immediate action.
B.C.Bhartia, CAIT National President said it is a fundamental principle of law that what is prohibited to be done directly cannot be done indirectly but by throwing the law and the rules aside, Amazon puts in place structures to carry out prohibited multi-brand retail activities in India by operating in a veil of secrecy and crucial documents are never disclosed. In nutshell, it can be called as an attempt of Amazon to deceive the Government and other subsequent Authorities for accomplishing its ulterior motives which would certainly be aimed to kill small businesses of India.
Both Bhartia & Khandelwal said that the traders of India are heavily impacted by the prevalence and business of destroying their businesses by Conglomerates like Amazon which have a track record of destroying indigeneous businesses in the markets where they operate and are facing several investigations and probes in various Countries and even punished several times for their unfair model of business. It is the fight between future group and Amazon, skeletons have tumbled out of the cupboard and details of violations in each of the above-mentioned investments by Amazon came to knowledge to speak about a well-calculated move of Amazon in a very clandestine manner to control retail trade of India by entering into Multi-Brand Retail without taking mandatory approval of the Government.
Bhartia & Khandelwal said that to understand the foul play of Amazon, we have to go into the details of Amazon acquiring a sizable share in a deal held recently between Future Group & Amazon. Amazon in a deal with Future Retail acquired 49% share of Future Coupens (P) Ltd (FCL) which is the controlling authority of Future Retail Limited (FRL) and is a listed Company and has over 1600 Retail Stores across the Country On 12th August 2019, both FCL & FRL executed a shareholder agreement which conferred certain ” special rights” to FCL including prior approval of FCL for any important material decision and restricting the promoters to take any material decision. The rationale of the Agreement became apparent on 22nd August 2019 when FRL disclosed to the Stock Exchange about its agreement with Amazon pursuant to which Amazon would purchase 49% share of FCL Particularly, it was not disclosed that all rights of FCL were handed over to Amazon by virtue of Amazon-FCL Agreement. Thus, surreptitiously Amazon acquired control over FRL. This fact that the right of FCL in the FRL has been handed over to Amazon is not known to any regulator in India especially the ED and SEBI.
They further said that Amazon was not a shareholder in FRL Therefore, the sole purpose of such a restriction was to ensure that Amazon has control over FRL In furtherance of this object, FCL amended its Articles of Association to incorporate provisions of the FCL-Amazon agreement to ensure that Amazon-FCL agreement should prevail upon anything which is contrary to Articles of FCL. The agreement conferred Amazon an irrevocable power of attorney to act on behalf of FCL & bind FCL by its actions thereby giving a full control to Amazon. Any decision of FCL in shareholder’s meeting is valid if the Amazon representative formed part of the quorum. Rights conferred to Amazon are deemed to be part of the Articles of Association of FCL.
The above powers vested Amazon to acquire control of FRL as well because of the fact that control over affairs of FRL was transferred from Kishor Biyani entities to FCL facilitating key control rights over FRL to Amazon. The same pattern was applied by Amazon in taking over More Retails Limited,(MRL) a Company of Aditya Birla Group which was bought by one Witzig Advisory Services (P) Ltd in 2018 and Amazon invested in Wizig as a result of certain internal arrangements, it effectively controls MRL.
It is a deliberate blatant and flagrant violation of FDI policy and FEMA Act by Amazon which remain undetected or unchecked by the Government and speaks of the sinister design of Amazon to adopt an illegal route to conduct business activities under Multi Brand Retail with a sole aim to kill small businesses of India.
Bhartia & Khandelwal said that not even a shareholder in FRL, Amazon is claiming contractual right over FRL, acquired control over business & affairs of FRL without making the requisite disclosures, in flagrant violation of FEMA, Amazon indirectly invested in and is in control of FRL which is a Multi Brand retail Company. Amazon is a “repeat offender” and having expertise in circumventing the law will enable it to dominate Multi Brand retail which will surely spell doom for small businesses in India. Various reports available in the public domain spell out the fact that under Arbitration proceedings at Singapore, Amazon has asserted that it has pumped funds into FRL and promoters of which have granted numerous all pervasive and wide rights to Amazon covering management and policy-making decisions of FRL.
The investment of Amazon in FRL (through FCL) is a violation of Section 13 of FEMA, 1999 Act. It also violates Explanation (d) to Rule 23 of FEMA, violates the entry route prescribed under Schedule-I of FEMA, not in compliance with Clause 15.4 of Schedule-I. It also grossly violates conditions prescribed under Press Note No.2 of FDI policy. Such violation of FEMA by Amazon is a proven case to attract the imposition of penalty specified in Section 13 of FEMA Act namely monetary penalty up to three times the sum involved in the contravention which means Amazon is liable for a monetary penalty of Rs.1,20,000 crore. Additionally, the Enforcement Directorate may direct that” any currency, security or other money or property in respect of which the contravention has taken place” shall be confiscated to the Central Government. Finally, the interim award passed by the Singapore Arbitrator has reportedly established that even on Amazon’s own admission, its entire investment is towards its specific controlling rights in FRL
Bhartia & Khandelwal demanded both Commerce Minister Piyush Goyal and Finance Minister Nirmala Sitharaman took immediate action on this issue to restore confidence of the trader’s in-laws & rules of the Government. It has also demanded RBI, SEBI and Enforcement Directorate to initiate proceedings against Amazon under relevant Act and Rules. CAIT will not be allowed any Conglomerate to kill small businesses of India and if the need arises, we will not hesitate to go on Streets or move to Court of law to meet the end of justice-said Bhartia & Khandelwal.