Abstract
Recently the Competition Commission of India revoked its permission and approvals granted to E-commerce giant Amazon with respect to an acquisition deal signed with India’s Future Coupons Private Limited. The dispute between Amazon and Future Coupons has seen many rounds of litigations in various courts and tribunals. The order passed by the Competition Commission has implications for the relevant stakeholders involved. This article seeks to examine the order and its immediate implications.
Introduction
Since the dawn of the 21st century, the world has become highly globalized and interconnected. As a major developing economy, India is seen by many global companies and entities as a key market with a large population that is slowly increasing its disposable income. Various industries in the country are seen as highly competitive.
Intending to regulate and control the nature of competition in India, the legislature passed the Competition Act 2002, constituting the Competition Commission of India (hereafter referred to as the CCI). The CCI has been formed to ensure and regulate fair competition amongst businesses in the country, protect the interests of consumers, and promote trade freedoms.
Order Of The CCI On Amazon
On 17th December 2021, the CCI revoked permissions granted to American E-commerce giant Amazon to proceed on a deal with the Future Retail, whereby Amazon would acquire a 49% stake in Future Coupons Private Limited (hereafter referred to as FCPL). In a 57-page order, the CCI held the deal between Future Retail and Amazon to be in abeyance, stating that Amazon had failed to disclose important information and had falsely gained the approval of the CCI. The CCI further imposed Rs. 200 crores as a penalty on Amazon under Section 43A of the Competition Act 2002.
Given the order passed by the CCI, this article will seek to analyze the recent order and the implications on the concerned stakeholders. It will also examine the future of the retail industry in light of the order.
Background Of The Case And Stakeholders Involved
To understand the order passed by the CCI against Amazon, it is pertinent to understand the background of the dispute and the stakeholders involved.
In 2019, Amazon entered into a deal with Future Retail. As part of the deal, Amazon was to get a 49% stake in Future Coupons Private Limited (FCPL). FCPL held a 7.3% stake in Future Retail. This resulted in Amazon indirectly acquiring a 3.58% stake in Future Retail. Amazon also had a “call option” to acquire shares of FCPL in Future Retail. As part of the agreement, a condition was set by Amazon that Future Retail was not permitted to sell its assets to various companies. Reliance Industries was one of the companies where Future Retail couldn’t sell its assets.
As a result of the ongoing COVID-19 pandemic and economic recession, Future Coupons faced mounting debt from its creditors. To manage the debt, Future Retail agreed with Reliance Retail in 2020 to sell the retail, logistics and warehousing business. This also included supermarket chain Big Bazaar, and other relevant brands.
Legal Proceedings And Chain Of Events Leading Up To The CCI
The Future Retail and Amazon dispute has undergone multiple rounds of litigation at various courts and tribunals. This also includes arbitration. The chain of legal proceedings leading up to the order of the CCI can be summarized as follows.
To prevent the sale to Reliance Retail, Amazon initiated arbitration proceedings at Singapore, with Singapore International Arbitration Centre as the arbitrator. In 2020 the arbitrator passed an emergency award, in favor of Amazon, prohibiting Future Retail from selling its retail assets to Reliance Retail and completing any steps regarding the transaction in dispute.
In March 2021, Amazon applied to the Delhi High Court to enforce the emergency award passed by SIAC, under Section 17 of the Arbitration and Conciliation Act 1996. Section 17 addresses the right of a party to apply to an arbitration tribunal for interim measures to preserve the sale of goods subject to the arbitration. The High Court initially ruled in favor of Amazon, upholding the stay, noting that the award passed by SIAC was enforceable, under Section 17(2) of the Arbitration and Conciliation Act. The single judge bench stated that Amazon’s investment was according to law, and did not amount to any intent to control Future Retail.
Following this, Future Retail appealed against the judgment of the Single Judge bench. A two-judge bench stayed the order noting that Amazon intended to apply to the Supreme Court to enforce the award.
The Supreme Court in Amazon Holdings LLC V. Future Retail Ltd, on 6th August upheld the verdict of the single judge bench of the High Court, stating that the Emergency Award passed by SIAC was enforceable under Indian law. Refence can be made to Paragraph 41 of the judgment. The Supreme Court recognized party autonomy under the Arbitration Act, noting that parties could determine disputes following institutional rules. This included interim awards passed by Emergency Arbitrators. In Paragraph 35 of the judgment, the apex court noted that once a party has participated in Emergency Award proceedings, it could not state that the award didn’t bind it.
PIL Filed By The CIAT
It is to be noted that a PIL was filed by the Confederation of All India Traders (CIAT) before the Delhi High Court to expeditiously dispose of the matter, and direct the Competition Commission of India to revoke the approval of the deal signed between Amazon and Future Retail. The CIAT stated that Amazon had made false statements to the competition regulator regarding the deal between Future Retail and Amazon. It called on the CCI to revoke the approval under Section 45 of the Competition Act 2002.
The CIAT contended before the High Court that it sought to protect traders and suppliers of the Future Retail, with whom transactions amounted up to Rs. 10,000 crores. The CIAT stated that FCPL sought action against Amazon from the CCI under Section 44 and 45 of the Competition Act. The Delhi High Court via order on 16th November directed the CCI to consider the plea of the CIAT and dispose of the matter within 2 weeks and take decisions on the Show Cause Notice issued to Amazon in light of the allegations against it by CIAT. A further duration of two weeks was granted by the Supreme Court to the CCI to dispose of the matter.
It is to be noted that the Apex Court has stated that the proceedings relating to the enforcement of arbitration, and the proceedings relating to revoking of the approval granted by the CCI are distinct and independent of each other.
Arguments Raised At The CCI
The stakeholders before the CCI concerning the dispute in question are the CIAT, the FCPL and Amazon. The Commission’s appropriate laws and sections were Section 43A, Section 44 and Section 45 of the Competition Act 2002. The parties made submissions on 13th December 2021 before the CCI.
The counsel argued for the CIAT that the nature of the Combination signed between Amazon and FCPL was such that Amazon violated laws governing Foreign Direct Investment. Such acquisition would create entry barriers to the retail market. Section 5 of the Competition Act 2002 defines “Combination”. The section above stipulates that a Combination is an acquisition of enterprises by any person, or a merger or amalgamation of enterprises. The CIAT further argued that commercial agreements signed between Amazon and FCPL were not referred to when the CCI approved the deal in 2019. CIAT contended that there were instances of suppression and misrepresentations before the CCI by Amazon. Via this argument, it was stated that Amazon violated Section 6 of the Competition Act.
The FCPL has argued that Amazon intended Future Retails to be a part of the Commination formed. However, Amazon failed to inform the regulator (including the CCI). Documents were submitted to the CCI following which it was contended that said documents were disclosed in the Arbitration, and that FCPL was unaware of such documents existing. FCPL in its arguments alleged a lack of transparency and failure to disclose documents. The FCPL further argued that the documents submitted by Amazon to the arbitrator were contrary to the statements and disclosures made by Amazon.
Amazon contended that the transaction and deal signed by Future Retail with Reliance was contrary to the provisions stipulated in the contract, and that Future Retail was in breach of contract. It was further contended that Amazon did not violate Sections 44 and 45 of the Competition Act. Counsel representing Amazon submitted before the CCI that Section 44 and 45 would only be attracted if there were material suppressions and omissions of fact. Amazon did not conceal any material facts. Furthermore, it was stated that Amazon had communicated to the regulatory authority the nature of the Combination, and any adverse effects related to competition.
Section 44 of the Competition Act addresses the penalties imposed whereby a combination party falsely discloses, or omits to disclose material facts. It stipulates that said party would be liable to a fine of between Rs. 50 lakh to Rs. 1 crore as determined by the CCI.
Section 45 of the Competition Act addresses the penalties imposed where a party furnishes false information, or omits to furnish material facts that must be furnished to the regulator. It also stipulates the penalty if materials to be furnished to the CCI are suppressed or destroyed. The penalty stands as fines up to Rs. 1 core imposed by the CCI
Findings Of The CCI
The issue for determination by the CCI was to examine Amazon’s liability under Section 43A, 44 and 45 of the Competition Act and if Amazon was guilty of suppression of material facts before the CCI with relation to the Combination in question, as per Section 9 of the Combination Regulations. On examination of internal documents and communications of Amazon, along with submissions made by Amazon in pursuance of Regulation 13A of the Combination Regulations, the CCI made the following findings.
The CCI deemed that internal documents of Amazon showed that rights over Future Retail Ltd (a constituent of FCPL) was contemplated via a series of commercial agreements between the parties. The CCI deemed such agreements were not brought to notice by the CCI when seeking approval. Furthermore, the CCI stated that the integral nature of such agreements was not brought to the notice of the CCI in subsequent submissions by Amazon.
It was also determined that Amazon failed to disclose information to the CCI on shareholder rights in Future Retail Ltd and the importance of Future Retail as a strategic measure to increase presence in the Indian retail market. The CCI stated that Amazon was guilty of suppressing the purposes of the Combination before the Commission, and had misled the CCI to believe that the Combination so concerned was in the legitimate interests of Amazon and Future Retail Ltd.
Finally, the CCI stated that examining concerned internal documents led to the discovery that Amazon sought to acquire Future Retail Ltd fully upon further reform and liberalization of Foreign Investment in India.
The CCI stated that Amazon violated the Competition Act’s Section 6(2). In pursuance of the same, exercising its powers under Section 43A of the Competition Act, the CCI was entitled to impose a fine on Amazon of Rs. 200 crore on Amazon. The maximum permitted penalty of Rs 1 crore fine for material suppression of facts relating to the combination under Section 44 and Section 45 of the Combination Act.
Implications For Amazon And Concerned Parties
The CCI via its verdict placed the approval granted to the deal between Amazon and Future Retail in 2019 in abeyance. The CCI stated that under Section 6(2) of the Competition Act, either party may choose to give a notice in Form 1 or Form 2, as specified. It has further stated that it requires examining the deal in question as a fresh application under Form 2, with complete and true information regarding the Combination as part of the deal. The CCI has given Amazon 60 days from receiving the CCI order to furnish the details in Form 2.
The verdict of the CCI has implications for Amazon and the concerned parties. It is important to note two facts. Firstly, the verdict of the CCI is considered as unprecedented as this is the first time the CCI has ruled against a corporation in such a manner. Furthermore, the deal in question has merely been kept in abeyance. The CCI has clarified that it is open to examining the deal as a fresh application once again.
Addressing the impact on Amazon, it stands to reason that Amazon would have to re-submit relevant documents and forms concerning the Combination and the concerned deal with FCPL to the CCI. Upon receiving such documents, the CCI can examine the nature of the deal and purpose of the contract between Amazon and FCPL. The CCI has the power to decide in favor of the application or against the application by Amazon. Amazon furthermore may choose to appeal against the order of the CCI to the Supreme Court, requesting that the agreement between Amazon and FCPL stands valid.
Concerning Future Coupons, the ruling has significant implications. This is because FCPL has been burdened by debts owed to creditors, further hampered by the economic recession due to the COVID-19 pandemic. It can be stated that the survival of FCPL hinges upon future examination of the deal by the CCI. Suppose the CCI refuses to grant approval to the deal signed between Amazon and FCP. In that case, FCLP can sell its concerned assets to Reliance, with an intent to gain financial stability.