Amazon Vs. Future Group: CCI gives a blow to Amazon by revoking the deal and imposing ₹ 202 Crore penalty

AMAZON VS. FUTURE GROUP: CCI GIVES A BLOW TO AMAZON BY REVOKING THE DEAL AND IMPOSING ₹ 202 CRORE PENALTY

The Competition Commission of India (CCI) passed an unprecedented Order under Sections 43A, 44 And 45 of the Competition Act, 2002 in the proceedings against Amazon in the Future Group deal case. CCI which is India's apex body on antitrust has imposed a ₹ 202 Crore Penalty on the Amazon and revoked Amazon-Future Deal of 2019 is a big setback for the Amazon Group. Amazon was opposing and fighting the legal battles to block the proposed deal between Future Group and Reliance where Reliance Retail offered the price of ₹ 25,000 crore.

Overview of the Case

CCI in its order held that, in pursuance of the show cause notice dated 4th June, 2021 (SCN), based on an application dated 25th March, 2021 (Application) of Future Coupons Private Limited (FCPL). The order passed by this apex Antitrust body of India shall govern the disposal of the proceedings started against Amazon.com NV Investment Holdings LLC (Amazon), which is a direct subsidiary of Amazon.com Inc, under Sections 43A, 44 and 45 of the Competition Act, 2002 (Act), in relation to its acquisition of 49% shareholding in Future Coupons Private Limited (FCPL).

According to the CCI order, The said transaction was notified to the Competition Commission of India (Commission) by Amazon in Combination Registration No. C-2019/09/688 according to (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations).

Order is passed in 57 pages, Consisting of the CORAM of Mr. Ashok Kumar Gupta, Chairperson Ms. Sangeeta Verma, Member and Mr. Bhagwant Singh Bishnoi, Member.

Appearances were made from Amazon, FCPL and for CAIT.

For Amazon : Mr. Gopal Subramanium and Mr. Amit Sibal, Senior Advocates with Mr. Anand S. Pathak, Ms. Sreemoyee Deb, Ms. Anubhuti Mishra and Mr. Rajat Moudgil, Advocates alongwith Mr. Rakesh Bakshi, Mr. Ankur Sharma, Ms. Ujwala Uppaluri and Ms. Hina Doon, representatives of Amazon

For FCPL : Mr. Harish Salve and Mr. Ramji Srinivasan, Senior Advocates with Mr. Raghav Shankar and Mr. Pranjit Bhattacharya, Advocates alongwith Mr. Sanjay Rathi, representative of FCPL

For CAIT : Mr. Krishnan Venugopal and Mr. Saurabh Kirpal, Senior Advocates with Mr. Rajat Sehgal and Mr. Debayan Gangopadhyay,Advocates

Background of the Case:

Amazon and the Future Group have entered into:

(a) a share subscription agreement dated 22nd August, 2019 (FCPL SSA) to set out the terms and conditions of subscription by Amazon and the issuance by FCPL of its shares to Amazon;

(b) a shareholders agreement dated 22nd August, 2019 to determine their respective rights and obligations as shareholders of FCPL (FCPL SHA).

Description of the Combination notified by Amazon comprised the following three transactions:

Transaction I: The issue of Nine Million One Hundred and Eighty Three Thousand Seven Hundred and Fifty-Four (9,183,754) Class A voting equity shares of FCPL to Future Coupons Resources Private Limited (FCRPL). Prior to, and immediately post issuance of such equity shares, FCPL will be a wholly owned subsidiary of FCRPL; and

Transaction II: The transfer of Thirteen Million Six Hundred and Sixty Six Thousand Two Hundred and Eighty Seven (13,666,287) shares of FRL held by FCRPL (representing Two decimal Five Two Percent (2.52%) of the issued, subscribed and paid-up equity share capital of Future Retail Limited (FRL), on a Fully Diluted Basis) to FCPL; and

Transaction III: The acquisition of the Subscription Shares representing Forty Nine percent (49%) of the total issued, subscribed and paid-up equity share capital of FCPL (on a Fully Diluted Basis) by Amazon, by way of a preferential allotment.

However, it was stated in the Notice that obligation of Amazon to consummate Transaction III is subject to the completion of Transaction I and Transaction II. The Notice also mentioned that Amazon would acquire certain rights in terms of FCPL SHA to protect its investment in FCPL. The Notice also referred to an agreement dated 21st August, 2019 between Amazon Retail India Private Limited (ARIPL) and Future Consumer Limited (Future Consumer) for supply of, inter alia, food category products of Future Consumer to ARIPL. On the rationale of the Combination, Amazon had stated in the Notice that it believes that FCPL holds potential for long term value creation and providing returns on its investment.

Initiation of proceedings under Sections 43A, 44 and 45 of the Act

FCPL filed the Application dated 25th March, 2021 stating that Amazon has initiated arbitration proceedings in relation to transfer of assets of FRL, a company in which FCPL holds 9.82% of the shareholding and there are related litigations pending before the constitutional courts.

"In the instant matter, the Competition Commission of India had approved acquisition of 49% equity shareholding of FCPL by Amazon in Combination Registration No. C-2019/09/688, vide Order dated 28th November 2019 issued under Section 31(1) of the Act. As per the Order, the notice under Section 6(2) of the Act was filed pursuant to the execution of Share Subscription Agreement (FCPL SSA) and Shareholders Agreement (FCPL SHA) both dated 22nd August 2019, inter alia between Amazon, FCPL and the promoters of FCPL.

Of late, disputes have arisen between Amazon and FCPL in relation to transfer of the assets of FRL, a company in which FCPL holds 9.82% of the shares. In relation to the above said dispute, Amazon had initiated arbitration and related litigation proceedings are also pending before the constitutional courts. In the present Application, FCPL has submitted that Amazon has taken a completely contradictory stand in the arbitration proceedings and constitutional courts with respect to its investments in FCPL as compared to the representation and submission before the Commission. Such contradictions are alleged to constitute false representation and a suppression of material facts.

Arguments of Amazon

It is observed by the CCI that some of the contradictory statements made by Amazon before CCI vis-à-vis before Arbitrator.

In response to a specific query on the rights of Amazon over FRL, Amazon had submitted as follows: "The Investor has limited investor protection rights in FCL with a view to protect the value of its investment in FCL". On the same issue it contended before the Arbitrator and constitutional courts that FCPL SHA, SSA and FRL SHA are a single integrated transaction.

Before CCI with respect to Amazon rights over FRL, it was argued by the Amazon that the rights granted to Amazon in relation to FRL are with a view to protect its investment in FCPL. Before the Arbitration and constitutional courts it was contended that the special and material rights under the FCPL SHA including under the FRL SHA, were contractually agreed, promised and provided to the Claimant as a material consideration to its investment.

Findings of CCI and other developments

Amazon had represented before the Commission that FRL SHA was independent of the combination i.e. acquisition of 49% shareholding in FCPL by Amazon. However, it has now been brought to the notice of the Commission that Amazon has claimed before the arbitrator that FRL SHA is an integrated part of the combination. This factual aspect of the combination was not made known to the Commission. Rather, the submissions before the Commission presented a different factual scenario that the combination does not include FRL SHA; and the acquisition of 49% shareholding in FCPL by Amazon and FRL SHA were independent of each other. Amazon ought to have identified and notified FRL SHA as a part of the combination, in terms of Regulation 9(4) and Regulation 9(5).

It was also found that Amazon has concealed its strategic interest over FRL, which it now claims to be arising from the rights that were represented as mere investor protection.

Amazon was given a time period of 15 days to reply to the notice from the day of its receipt. After seeking extension of time, Amazon filed its response to the SCN on 28th July, 2021 along with a request for oral hearing in the matter (Response to SCN). The Commission acceded to the request and heard Amazon at length on 22nd September, 2021. Following the oral hearing, Amazon filed its written submissions as well on 5th October, 2021. The Commission considered the written submissions in its meeting held on 18th October, 2021 and decided to pass an appropriate order in due course. Amazon vide another letter dated 29th October, 2021, furnished a copy of the partial award passed in the arbitration proceeding between Amazon and the Future groups. The Commission also received an application dated 7th November, 2021 from FCPL seeking access to the records of the case and provide a personal hearing in the matter. The Commission considered these submissions and applications in its meeting held on 15th November, 2021

In the Writ Petition No. 12889/2021 [CAIT v. Commission], In the meantime, Confederation of All India Traders (CAIT) filed a Public Interest Litigation before the Hon'ble Delhi High Court, seeking expeditious disposal of the matter. Upon considering the Writ Petition on 16th November, 2021, the Hon'ble Delhi High Court disposed of the same.

Special Leave Petition (Civil) Diary No. 28613/2021, Further to the above developments, the Hon'ble Supreme Court of India considered the SLP filed by Amazon on 29th November, 2021 and disposed of the same with directions.

Amazon filed a letter dated 30th November, 2021 before the Commission after the order of the Hon'ble Supreme Court of India, stating therein that it will file its response to the reply filed by FCPL on or before 9th December, 2021. Amazon also requested vide the said letter for an oral hearing at any suitable time after filing of the response. FCPL also filed a letter dated 30th November, 2021 praying that the Commission be pleased to pass necessary orders on the SCN before 13th December, 2021. The Commission allowed Amazon to make its oral submissions before the Commission on 13th December, 2021.

At the outset, the Commission notes that, while some of the factual foundations of the Combination may be relevant in both the arbitration and the instant proceedings, the legal issues for determination in the arbitration proceedings and the instant proceedings for violations of the provisions of the Act are mutually independent.

Order of the regulatory body

CCI after analyzing the submissions from all the parties held that, Amazon ought to have notified the combination, inter alia, consisting of the following inter-connected steps: (a) Transaction I; (b) Transaction II; (c) Transaction III; (d) FRL SHA for the purpose of acquisition of strategic rights over FRL through FCPL SHA; and (e) commercial agreements between Amazon and Future groups, for the purpose of establishing strategic alignment and partnership between Amazon Group and FRL as well as have a 'foot-in-the-door' in the India retail sector. Amazon failed to notify FRL SHA and the commercial arrangements, as parts of the combination between the parties, and supressed the actual purpose and particulars of the combination, as discussed above, in contravention of the obligation contained in subsection (2) of Section 6 of the Act read with Regulation 5 and sub-regulations (4) and (5) of Regulation 9 of the Combination Regulations.

CCI held that, all the contraventions discussed above arise from a deliberate design on the part of Amazon to suppress the actual scope and purpose of the Combination, and the Commission finds no mitigating factor. Resultantly, the Commission considers it appropriate to levy the maximum penalty of INR One Crore each under the provisions of Section 44 and Section 45 of Act. Accordingly, Amazon is directed to pay a penalty of INR Two Crore. Also, it held that, As regards failure to notify combination in terms of the obligation cast under Section 6(2) of the Act, Section 43A of the Act enables the Commission to impose a penalty, which may extend to one percent of the total turnover or the assets, whichever is higher, of such a combination. Accordingly, for the above mentioned reasons, the Commission hereby imposes a penalty of INR Two Hundred Crore upon Amazon.

Having said that, Amazon was directed that within a period of 60 days from the receipt of this order monetary penalty has to be paid. Also, CCI has stated in the order that Amazon has 60 days to re-appeal with true, correct and complete information. And till then, its order for approval dated 28th November, 2019, in Combination Registration No. C-2019/09/688, shall remain in abeyance. However, Amazon has limited options now including appealing to a higher court or approaching the National Company Law Appellate Tribunal (NCLAT). It would be interesting to see how this case moves in the coming days.