Amazon, Future Retail deal under investigation by ED for FEMA violations

After the Delhi High Court passed adverse remarks against Amazon, the Enforcement Directorate (ED) has launched a probe against e-commerce firm to investigate whether it violated the Foreign Exchange Management Act, 1999, (FEMA) in its deal with Future Retail.

Last month, while passing its judgment on Amazon’s plea challenging the acquisition of Future Retail by Reliance Industries, the Delhi High Court had observed Amazon appeared to have indirectly obtained control over the Big Bazaar owner without the government approval. This, the Delhi High Court observed, was done with the help of three agreements by Amazon. It further remarked the said agreements appeared to be in violation of FEMA.

The Delhi High Court had ruled Amazon's attempt to control Future Retail through a conflation of agreements it has with an unlisted unit of the Indian company appeared to violating FEMA’s FDI rules. The court, however, had upheld Amazon’s right to make representations to statutory authorities against the Future Group-Reliance Retail deal.

The Delhi High Court had last month analysed the clauses of 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). Read together, the court held, the covenants prima facie transgress from a protective right to a controlling right in favour of Amazon.

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