NEW DELHI: E-commerce giant Amazon has asked the independent directors to investigate several related-party transactions carried out by Kishore Biyani-led Future Retail (FRL) in 2019-20 and 2020-21.
Amazon has said that if its assumptions are correct, FRL can generate/recover Rs 4,303 crore by unwinding the transactions that do not appear to have prudent commercial substance and in the best interests of FRL and its shareholders.
In a letter written on 24th November to the independent directors and audit committee of Future Retail, Amazon has alleged that review of the financial statements of FRL demonstrates that the funds raised in 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.
According to Amazon, total additional funds available with FRL in FY20 stood over Rs 9,000 crore.
Amazon said that security deposits made by FRL increased by approximately 125% from FY19 to FY20 and continued around the same level in FY 2020-2021 (the Covid period).
This is despite the number of stores reduced from 1,511 to 1,350 and then further reduced to 1,308 stores over successive financial years, it added.
“It appears that a number of properties may be leased from the Future group entities. The aforesaid data demonstrates a compelling reason to investigate and understand the commercial rationale, if any, for the substantial increase in security deposits in a year where business expansion was curtailed,” the letter read.
Further, it asked directors to look into advances paid to suppliers.
“In FY20, FRL’s advances to suppliers increased substantially (by approximately 184%), even though purchases during the financial year reduced compared to the previous financial years. This is even more curious because on the one hand, it appears that FRL delayed payments to creditors and on the other, it nearly doubled its advances to suppliers, that too, in a year, where most, if not all, businesses were conserving cash,” read the letter.
Related-party transactions between FRL and FEL
Amazon highlighted that around March 2020, Future Enterprises Limited (FEL) received a capital advance from FRL amounting to Rs 3,560 crore.
In the same financial year, FRL purchased significant amounts of goods and services from FEL amounting to Rs 3,472 crore.