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Future Retail guilty of financial irregularities, says Amazon

US e-commerce giant Amazon has written to the independent directors of Future Retail Limited (FRL), including Gagan Singh, Ravindra Dhariwal and Jacob Mathew, and its audit committee, providing data and alleging that there have been significant financial irregularities to the prejudice of public shareholders, banks, creditors, and third-party suppliers. Amazon has said this warrants a thorough and independent examination of all relevant facts and related-party transactions, including of past financial years, by an independent agency.

Separately, Amazon has written to Securities and Exchange Board of India Chairman Ajay Tyagi, seeking the withdrawal of the regulator’s conditional approval granted to FRL related to the merger deal between the Future group and Reliance. The letter has also been sent to top officials of the stock exchanges.

Amazon’s letter to the FRL independent directors, dated November 24, which Business Standard has accessed, states: “Given the nature of disclosure and findings, a careful and detailed examination must be made by statutory authorities/regulators/enforcement agencies also to enquire and investigate into the financial statements, and records, including related-party transactions and discussions in board, and audit committee meetings, in the interest of public shareholders, banks, creditors, and third party suppliers.”

Amazon is fighting a legal battle with FRL to stop the Kishore Biyani-led retailer’s $3.4 billion deal with Reliance Industries Limited (RIL).

“A bare perusal of FRL’s publicly available financial statements, including the latest financials for FY 2020-202… discloses, on a prima facie basis, prejudice may have been caused to the public shareholders, banks, creditors, and third party suppliers of FRL,” Amazon said in the letter.

It said that similar concerns had also been discussed at the meeting of the audit committee of FRL held on March 23, 2020. The committee had observed that there was a sudden increase in debt from February 2020 to March 23, 2020.

“The Committee members expressed grave concern regarding the deteriorating financial position, in spite of various equity and debt fund mobilisations concluded in December ’19 and March ’20 quarter and a detailed explanation of all significant transactions undertaken by the Company was sought by the Committee members,” the letter said.

Amazon said that FRL has consistently entered into “Significant Related Party Transactions” with various Future Group entities, including with Future Enterprises Limited, Future Supply Chain Solutions Limited, Future Consumer Limited, Future Corporate Resources Private Limited, Future Lifestyle Fashions Limited and others. Some of these related parties depend predominantly on FRL for their business.

“Amazon is bringing these facts to the attention of the Independent Directors so that such Directors, consistent with their statutory and fiduciary obligations, can evaluate and investigate these issues… in the interests of public shareholders, creditors, bankers and third party suppliers of FRL,” the letter said.

It added that FRL and several related parties were in the process of implementing a composite scheme of arrangement. This among other things, will result in the dissolution of FRL, and the permanent divestiture of its business, it said.

Before the composite scheme of arrangement is permitted to proceed any further, these issues should be thoroughly examined by an independent agency so that the public stakeholders of FRL and other companies understand the real financial position of FRL, Amazon said.

During the four financial years preceding FY 2019-2020, Amazon said FRL generated significant cash flows from operations (before working capital changes) to fund normal capital expenditure and working capital requirements. The balance sheet of FRL as on March 31, 2019 reflected a robust financial position amidst a positive growth outlook for organised retail in India.

In FY 2019-2020, FRL raised debt and equity capital of approximately Rs 8000 crore and was able to generate additional buffer cash of approximately Rs 1900 crore by delaying payments to creditors.


  • FRL consistently entered into significant related-party transactions with various Future Group entities, some of which depend predominantly on FRL for their business
  • FRL generated a cash buffer by delaying payments to third-party creditors, possibly to pay related parties first

In the same financial year, FRL raised a substantial debt of nearly Rs 6000 crore, on account of which its net debt grew from approximately Rs 2,554 crore to approximately Rs 8,762 crore in just a year. Amazon pointed out that FRL’s debt equity ratio grew from 0.6 to to 2.01 within a year.

It also alleged that FRL seems to have generated a cash buffer by delaying payments to third party creditors. This may have been done with a view to make payments to related parties in preference to repayment of monies due to third party creditors/vendors.

“A review of the financial statements of FRL demonstrates that the funds raised in FY 2019-2020 were used chiefly towards extraordinary outflows. This included payments towards security deposits, advances to suppliers and purchase of store infrastructure from related parties,” it alleged. “All of this occurred during the onset of the Covid-19 pandemic in India which resulted in imposition of nationwide lockdown restrictions, and that too, at a time, where most, if not all, businesses were conserving cash.”

Amazon said that it will endeavour to provide further materials to assist the independent directors and statutory authorities in their investigation.

In Aug 2019, Amazon acquired a 49 per cent stake in Future Coupons, the promoter entity of Future Retail, for about Rs 1,500 crore. According to sources, Future Group founder Kishore Biyani met the chairperson of the Competition Commission of India (CCI) to explain the structure of the deal between Future and Amazon in November 2019. The deal was sanctioned post the meeting. Business Standard News

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