The National Company Law Appellate Tribunal (NCLAT) on June 13 upheld the Competition Commission of India’s (CCI) December order, in which the competition watchdog had revoked its earlier approval given to the Amazon-Future deal in 2019 and also slapped a heavy penalty of Rs 202 crore on the e-commerce behemoth for suppression of information regarding deal.
The CCI in 2019 had approved a deal between Amazon and Future Group, under which the e-commerce major acquired a 49 percent stake in Future Coupons Pvt Ltd (FCPL). However, Future Retail’s independent directors earlier last year claimed that Amazon had acquired indirect control and veto powers over listed Future Retail Ltd with a multi-step transaction that sought to evade Indian laws.
According to this deal, Future Retail Ltd (FRL), FCPL and Kishore Biyani companies (promoter entities) entered into a shareholders’ agreement (FRL SHA) on August 2019 under which FRL was required to obtain the prior consent of FCPL for certain matters including disposal of FRL’s retail business and assets to any third party and particularly to certain restricted persons.
Subsequently, FCPL, Amazon and Promoter entities entered into a subscription agreement (FCPL SSA) and shareholders’ agreement (FCPL SHA) under the terms of which Amazon agreed to invest Rs 1,431 crore in FCPL. Under the FCPL SHA, FCPL was required to obtain the prior consent of Amazon before FCPL gave its consent to FRL for the key matters under the FRL SHA.
As a result, as long as Amazon held 33 percent of Future Coupons’ equity, the latter required Amazon’s consent for certain matters such as raising debt beyond a certain threshold, further equity funding of Future Coupons, investments, divestments and other merger and acquisition activities, and transfer of intellectual property or substantial assets. Furthermore, Future Coupons, under the agreement, had a consent right over certain matters concerning Future Retail such as fund raising (through equity or debt) by Future Retail from certain competitors of Amazon.
NCLAT in its order, not only upheld the powers of CCI, but also said Amazon did not fully disclosing the nature of the deal when it sought approval for the combination deal.
Here are other highlights from the tribunal’s order:
- The Tribunal noted that Amazon had made only “limited disclosures” with regard to Future Retail (FRL) equity warrants held by FCPL and “had not spelt out the real combination of the Appellant/Amazon acquiring `strategic rights’ and interests over FRL as well as executing `Commercial Contracts’ between it and the `FRL’.”
- The appellate court said that Amazon had not mentioned that the FRL SHA and Business Commercial Agreements (BCAs) were part of the combination sought to be approved and that the “`FRL SHA’ was executed to shower upon the Appellant/Amazon indirect rights over `FRL’, which the `Appellant’ pondered strategic in the letters/communications.”
- The Tribunal said that there was on the part of Amazon, a `Misstatement of Fact’/`Misrepresentation’ since the e-commerce major did not reveal the internal emails to CCI “which make known the real ambit and purpose of the notified Transactions.” This, the Tribunal note, misled CCI into granting an approval.
- The Tribunal said that CCI had “no opportunity to evaluate the effects of actual real `Combination’. Hence, this `Tribunal’ comes to an inevitable and inescapable conclusion that the `Appellant/Amazon had not fulfilled its obligation as per ingredients of Section 6 (2) of the Competition Act, 2002, attracting imposition of penalty under Section 43A of the Act, extending to 1% of the total turnover or the Assets whichever is higher of such a `Combination’.”
- The appellate Tribunal also dismissed Amazon’s plea that CCI had no powers under the Competition Act to annul/revoke/hold in abeyance its approval order. It said that “a reading of Section 45 (2) of the Competition Act, 2002, clearly points out that `without prejudice to the provisions of sub-section 1 (45), the `Commission’ may also pass such other order as it deems fit’, which, without any hesitation steers this `Tribunal’ in holding that…CCI… has an incidental/ancillary/residual power to pass an `Order’ of keeping the `Approval Order’ dated 28.11.2019 passed by…CCI… in abeyance / or to put it on hold.”
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