The real story is unfolding as neither Amazon nor Future Retail Limited (FRL) disclosed to the public shareholders of FRL that Amazon has 'control rights' in FRL.

Amazon invested not in FRL, but in a company owned and controlled by Kishore Biyani, namely Future Coupons Limited (FCL), which was carrying on business of wholesale trading of goods and merchandise and marketing and distribution of corporate gift cards, loyalty cards, and reward cards to corporate customers.

Amazon invested Rs 1,430 crore to acquire 49 per cent equity in Future Coupons Limited (FCL). Kishore Biyani held 51 per cent. FCL in turn holds 9.82 per cent voting in FRL.

FDI is permitted under automatic route in FCL. The FDI laws allow FCL to hold the shares of FRL only as long as FCL is owned and controlled by Indian residents, namely Biyani.

The documents available in public domain point to a shareholders' agreement dated August 12, 2019 at FRL level (among FRL, FCL and Biyani entities) giving FCL critical 'control' rights over the management and affairs of FRL. Under this, FRL cannot sell any retail assets without the approval of FCL. FRL also cannot sell any retail assets to any 'Restricted Persons'.

When Amazon invested 49 per cent in FCL, a shareholders' agreement dated August 22, 2019 at FCL level (among Amazon, FCL and Biyani entities) was entered into. This agreement transfers the above 2 critical rights of FCL to Amazon. Further, in terms of this agreement, Kishore Biyani and his entities are forced to vote in the same manner as FCL (Amazon) votes on the matters concerning the above 2 critical items.

Kishore Biyani and his nominated directors on the board of FRL cannot even place before the board of FRL, and the board of FRL cannot even consider any proposal on the above 2 items.

Amazon has a 'call option' to purchase the FRL shares held by Biyani and his entities when the Indian laws permit Amazon to hold shares under automatic route in multi-brand retail company.

It is clear that neither Amazon nor FRL disclosed to the public shareholders of FRL that Amazon has the above 'control rights' in FRL.

"The amendments made to the articles of association of FCL does not reflect this truth. The articles of association of FRL have never been amended. It has been ensured that the 'control rights' have been passed on to Amazon on the sly and without any disclosures," sources said.

Had this been disclosed, the Enforcement Directorate would have certainly taken action against Amazon for violation of FDI regulations. The term 'control' in FEMA (non-debt instruments) Rules very clearly covers control rights taken through shareholders agreements.

Similarly, SEBI would have asked Amazon to make an open offer to acquire 26 per cent of FRL at an approximate price of Rs 550-600 per share.

Now, Amazon, which is not even capable of purchasing even 1 share in FRL under the current FDI laws, is trying to stall a scheme of arrangement which has been considered by the board of FRL to be in the interest of all the stakeholders of FRL.

It is clear that Amazon cannot invest and rescue FRL from bankruptcy under the current FDI laws.

Reports in the media indicate that Amazon discussed certain proposals with Future group for acquiring FRL although it is unlikely how such a proposal is possible.

Further, the actions of a listed company, FRL, to reorganise itself cannot be stalled by anyone, including the promoters, if it has the approval of the requisite majority of shareholders and creditors.

Experts say that it is an irony that Amazon, which is not even a shareholder of FRL nor capable of becoming one, is attempting to exercise all the rights of a shareholder not only to the extent of 5 per cent, but to the extent of a 'controlling' shareholder.