NEW DELHI — India’s Supreme Court on Friday ruled in favor of Amazon’s bid to block a multibillion-dollar deal that would give the country’s richest man control over an Indian supermarket chain, in a boost to the American retailing giant’s ambitions toward India’s nearly $900 billion retail market.
Amazon is embroiled in a bitter, politically fraught clash with Reliance Industries, one of the biggest and most powerful companies in India. It essentially pits two of the world’s richest people against each other: Reliance Chairman Mukesh Ambani, a business tycoon known for his affinity for Prime Minister Narendra Modi, and Jeff Bezos, the chairman of Amazon who for many personifies the overwhelming wealth and power of the technology industry.
Both Amazon and Reliance Industries want a piece of India’s fast-growing technology and e-commerce market, which is worth billions of dollars. At the heart of the dispute is Future Group, which owns supermarkets, snack shops and fashion outlets in some of India’s biggest cities. The company’s brick-and-mortar footprint is a prize for any company that wants to sell India’s middle-class consumers everything from smartphones to vegetables.
With its ruling on Friday, legal experts said, the Supreme Court gave foreign businesses support for their ventures in India, where the government has limited foreign investment in a number of industries.
The court said that an interim decision by an arbitrator in Singapore, which effectively put on hold a $3.4 billion sale of Future Group to Reliance Industries, was valid and enforceable in India.
The judgment is a rare win for foreign businesses in a country that has routinely made attempts to stall their growth and keep them from becoming dominant players in one of the world’s last frontiers for expansion.
India’s economic growth has weakened in recent years, and the harsh toll of the coronavirus outbreak has hit the country’s middle class hard. Still, businesses see huge potential in its talented work force and the aspirations of 1.4 billion people.
“Most importantly, it builds the confidence of foreign businesses that their interests will be protected in India, no matter what,” said Salman Waris, a lawyer and partner at TechLegis in New Delhi who specializes in international technology law.
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On Friday, Amazon said in a statement that the company welcomed the Supreme Court’s verdict. “We hope that this will hasten a resolution of this dispute with Future Group,” it said.
Tushar Pania, a Reliance spokesman, did not immediately respond to requests for comment.
Within India’s legal circles, the judgment was seen as another sign of the independence of the country’s judiciary, which has been criticized in the past for eroding free speech.
India’s judiciary has long been seen as a pillar in the country’s vast but often unruly democracy. It has recently made a series of progressive rulings, including granting bail to activists arrested under stringent anti-sedition and terrorism laws, striking down a ban on consensual gay sex and upholding the right to privacy.
The battle between Amazon and Reliance Industries is far from over.
Future Group said in a stock exchange filing on Friday that the company “intends to pursue all available avenues to conclude the deal” with Reliance. Future Group could appeal the Singapore arbitration court’s decision or file a review petition with India’s Supreme Court. Lawyers are reviewing the best course of action, said Swetank Jain, a spokesman for the company.
Amazon still faces a government antitrust watchdog’s inquiry into the deal with a unit of Future Group. Late last month, the Competition Commission of India issued a show-cause notice to Amazon, accusing the company of not being upfront about its interest in Future Retail when the agency signed off on the deal in 2019. (Amazon, a dominant force in e-commerce and other areas and holder of an enormous trove of customer data, is a target of antitrust scrutiny in the United States and Europe as well.)
The agency’s chairman, Ashok Kumar Gupta, did not immediately respond to requests for comment.
Future Group’s supermarkets and other shops could serve as a base for building or expanding an e-commerce empire in India, a potentially lucrative prize. India’s online market is expected to be worth $85.5 billion by 2025, according to Forrester Research. Facebook, Walmart and others are also investing heavily in the country.
Sanjeev Kumar, a New Delhi-based analyst at Forrester Research, said that Amazon’s push to enter India’s nascent retail market for groceries is aimed at fighting Flipkart, which is controlled by Walmart, another American retail giant. The country’s retail market for groceries is expected to be worth $10 billion by 2025, he said.
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“How much can you grow selling smartphones online?” he said. “The reason you have so many players fighting for grocery is because it’s not a basket that just contains grocery. You’re selling toothpastes, personal care items.”
Future Group offers access to 1,800 brick-and-mortar stores across India. The company’s prospects dimmed after it loaded up on debt. It struck a deal with Amazon, which invested $200 million in the company in a way that didn’t cross Indian laws against foreign investment. The arrangement included first rights to buy Future Group’s retail assets, if India’s stringent rules on foreign direct investment were to change and allow it.
But with its stores shuttered because of government coronavirus lockdowns last year and retail sales plummeting, Future Group desperately needed another cash infusion to stay afloat. Amazon wasn’t able to help, so Future Group turned to Reliance, and last August, a deal was struck. Amazon took its complaints to the arbitrator in Singapore shortly after.
The decision marks the latest win for foreign business interests in India, where global companies often complain about red tape and regulations that favor homegrown businesses. On Thursday, Indian lawmakers scrapped retrospective taxation, which had given the government the authority to impose capital gains tax wherever corporate ownership changed hands overseas when the companies involved held business assets in India.
Retrospective taxation and the country’s history of refusing to accept arbitration awards had damaged India’s image among foreign investors. The government has acknowledged that such foreign investment is critical to India’s post-pandemic economic recovery.
“Government doesn’t want to tangle with protracted litigation any further,” said Kanchan Gupta, an adviser to India’s information ministry, “and the idea is that this bill will help restore trust in the minds of foreign investors.”
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