In yet another escalation in the raging feud between Amazon and Future Retail, Amazon has written to Future Retail Ltd's (FRL) independent directors alleging financial irregularities including "Significant Related Party Transactions" with various Future Group entities.
In the letter, also copied to the union finance minister, Reserve Bank of India, Sebi, Competition Commission of India, Enforcement Directorate, among others, Amazon alleged that a bare perusal of FRL’s publicly available financial statements prima facie discloses “prejudice may have been caused to its public shareholders, banks, creditors, and third-party suppliers."
Amazon has alleged that Future Retail transferred Rs 7,000 crore to Kishore Biyani-controlled Future Enterprises Ltd (FEL) in FY20 as capital advance & payment for goods and services in FY20. This, as per the letter, included a capital advance of Rs 3,560 crore advanced by FRL to FEL and the purchase of significant amounts of goods and services from FEL amounting to Rs 3,472 crore.
"It is for the independent directors to examine, whether such transactions entered into by FRL and FEL, including with related parties (directly or indirectly, or through a series of transactions), were undertaken in the best interest of FRL, at arm's length and were driven by fiscal prudence, especially when FRL was allegedly facing financial distress at this time," the letter stated.
The letter also alleged that Future Retail's audit committee members had expressed concerns about the financial management of FRL, and also a proposed independent third party investigation to find reasons for the increase in the company’s debt.
"It appears that FRL generated a cash buffer by delaying payments to third-party creditors. This may have been done with a view to making payments to related parties in preference to the repayment of monies due to third-party creditors/vendors. Related-party dues seem to have been settled to the extent of 94 percent of purchases in FY20, while only 59 percent of dues of other creditors were settled. This requires thorough examination," Amazon alleged in the letter.
Amazon added, "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."
Amazon also called for an investigation by statutory authorities, regulators or enforcement agencies “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."
In response to Amazon’s letter, a Future Group spokesperson said Amazon is not a shareholder or a creditor of FRL and has no locus to address the letter, and that all related party transactions are on record and part of the public disclosures made by the company.
"Amazon's letter is nothing but an after-thought and a counterblast to the showcause notice by Competition Commission of India against Amazon in pursuance of the complaint by Future Coupons Pvt Ltd. (FCPL) seeking withdrawal of CCI’s approval for Amazon’s investment into FCPL. The allegations contained in Amazon’s letter are being made as part of a legal dispute that is being dealt by the Supreme Court, the High Court and other regulatory forums," the spokesperson said.
The spokesperson also added that Future Retail's board had formed a Crisis Management Committee to deal with the situation arising out of COVID lockdown, nation-wide store closures and the sale of pledged shares impacting all aspects of the company’s functioning and that various questions raised by the committee from time to time were clarified by management with supporting documents and presentations to their satisfaction and through special audits wherever required.
"All related party transactions and records of fund utilisation are on record and part of the public disclosures made by the company as part of standard governance practices. There is nothing new that is being brought to the notice, except for false speculations being created out of selective excerpts from these documents. One should understand the motivation behind these allegations and the timing of the same, rather than rely on these baseless and malicious allegations," the spokesperson added.
This escalation between the companies over the Rs 24,713 crore deal between Future and Reliance Retail comes after FRL’s independent directors shot two letters to the CCI alleging Amazon misled CCI and that it never intended to invest in FCPL.
(Edited by : Jomy Jos Pullokaran)