The National Company Law Appellate Tribunal (NCLAT) vide its order dated June 13, 2022, has upheld the order of the Competition Commission of India (CCI) against Amazon, where the CCI penalized the latter for giving false and misleading information in the notice and suppressing material facts relating to the actual scope and purpose of the acquisition of Future group companies. In 2019, the CCI had granted approval to Amazon in respect of its investment of Rs. 1,500 crores in Future Coupons Pvt. Ltd. (FCPL) to acquire 49% of its stake, together with two other transactions involving Future Retail Ltd. (FRL) and Future Coupons Resources Pvt. Ltd. (FCRPL). Subsequently, the approval was suspended by the CCI on grounds that Amazon suppressed material facts on non-compete restrictions in the combination notice and suppressed its intentions of acquiring preferential rights over Future Retail with its acquisition of Future Coupons, in terms of which Amazon can, indirectly, prevent Future Retail from selling its assets to any of Amazon’s rivals – including Reliance Retail.
The CCI vide its order dated December 17, 2021, temporarily suspended, and kept its approval order in abeyance, imposing a heavy penalty of Rs. 202 crores on Amazon. The CCI further ordered Amazon to refile the notice in the long-form (Form II) for reassessment of the combination. This Form II notice is a more detailed way of CCI investigation and is applicable for parties that may have a combined market share of 15% and 25% in the horizontal and vertical markets, respectively.
Amazon, on the other hand, has been contending that the impugned combination comprised three (3) transactions in terms of which Amazon’s purchase of 49% in FCPL was not contingent on the completion of the other two ancillary transactions (primary issuance of Class-A voting equity shares of FCPL to FCRPL, and secondary transfer of shares held by FCRPL in FRL in favour of FCPL), and accordingly, all three transactions must not be viewed as ‘interconnected transactions’. Amazon argued that neither of the ancillary transactions, on a standalone basis, was notifiable to the CCI as the transactions were proposed to be consummated between a parent entity and its subsidiary, and therefore, the main acquisition transaction, on a standalone basis, was exempted under the benefit of ‘Target Exemption’ as the value of assets and turnover of FCPL (as of March 31, 2019) was below the prescribed thresholds in the Competition Act.
The dispute arose when Future Coupons (FCL) allowed Future Retail (FRL) to enter into a scheme of arrangement for selling its retail, wholesale, and logistics assets to Reliance Retail for Rs. 25,000 crores. Amazon restrained this arrangement on the ground that it has secured preferential rights over the assets of Future Retail, where, in accordance with the terms of the acquisition, the assets of Future Retail cannot be sold to any of Amazon’s competitors. Although Amazon secured a favourable interim Emergency Award (EA) in the Singapore International Arbitration Centre (SIAC) that stayed the impugned sale arrangement until the final order was pronounced on the dispute, Amazon, on a complaint of Future Retail, was penalised by the CCI for making contradictory stands in the Singapore arbitration proceedings as compared to its submissions before the CCI. The CCI noted in its order that Amazon intentionally suppressed its objectives from the CCI of controlling Future Retail with its acquisition of Future Coupons.
The NCLAT bench, consisting of Justice M. Venugopal and Justice Ashok Kumar Mishra upholding the order of the CCI noted that even the CCI sought justification from Amazon for filing the combination notice in Form I as the combined market shares exceed the statutory thresholds. In response to the same, Amazon had submitted that “the Investor has no shareholding in Future Retail (FRL) and does not exercise any control or influence on it, therefore, the Proposed Combination should not be subjected to Form II filing requirement”. The bench noted that Amazon had only furnished limited details and disclosures, indifferent to the details/disclosures made at the Singapore International Arbitration Centre (SIAC) and therefore, had not disclosed its strategic acquisition of rights and interests over Future Retail. The NCLAT has noted that: “the omissions, false statements and misrepresentations have the effect of influencing the line of inquiry in assessing the Combination. Irrespective of what would have been the outcome of a notice with true, correct, and complete disclosures, the misleading submissions, false statements, omission and suppression of material particulars, facts, and documents, have denied and disabled the CCI an opportunity to assess the effects of the actual Combination, with specific focus to the actual intended objectives. Condonation of such lapses would effectively mean that a notifying party could disclose its legal contracts in a distorted and elongated manner of its convenience and engage in suppressions and misrepresentations of the actual scope and purpose of the Combination. This makes all details sought in Form I and purpose of regulation of combination under the Act, otiose, besides stultifying the very legislative intent for the merger review process.”
Concisely put, the NCLAT endorsing the CCI’s order will supply considerable emphasis on the imperative to provide complete, accurate and all vital information of parties entering into combinations. Further, all interconnected and simultaneously negotiated transactions must be duly notified to the CCI. The quantum of penalty levied on Amazon is likely to have a deterrent impact on parties failing to comply with the requirement of disclosing all details concerning the purpose, scope, and contours of the investment deals in India. While preparing the combination notice, parties need to make full, whole, fair, forthright, and frank disclosure of relevant materials in respect of the deal to enable the CCI assess the proposed combination accurately.
Amazon will now have the option to either appeal against the order of the NCLAT before the Supreme Court on the question of law, or file the combination notice in Form II (long-form) and deposit the penalty of Rs. 202 crores with the CCI. Upon filing the details of the acquisition in Form II, the CCI is likely to take detailed scrutiny into the proposed combination in the Phase II review, whereafter the CCI may approve the combination, approve with structural or behavioural remedies, or may even disallow the transaction, making it the first of its kind.
Recently, Reliance has withdrawn its deal to acquire the business of Future Group after the latter’s secured creditors rejected the deal. However, due to the non-payment of dues and rentals by Future Group, Reliance has reportedly taken control of many Future Group flagship companies operating in retail, wholesale, logistics and warehousing segments (Big Bazaar, etc.) and this has dragged Future Group towards insolvency proceedings.
This tussle between the two biggest business groups over acquiring the assets of India’s second-largest retailer, Future Group having more than 1,700 stores in India, has taken unprecedented turns. With the Indian Government approving 51% FDI in multi-brand retail and 100% FDI in single-brand retail under the automatic route and further plans to allow 100% FDI in e-commerce, more foreign investors are set to bid to get a piece in the booming Indian retail sector. As the Indian online retail market is projected to reach USD 350 billion by 2030, the ongoing Amazon-Reliance battle is set to have far-reaching consequences on Indian retail, both in offline and online retail markets.
The article is written by Ketan Mukhija, Partner, and Devanshu Gupta, Associate, at Link Legal, New Delhi. The views expressed in this piece are those of the authors and are not intended for any solicitation of work. It is advisable to take prior legal consultation before taking any formal actions.