CCI slaps Rs 200 Crore penalty on Amazon for suppressing actual scope & intent of Amazon-Future deal

Read Order: Amazon.com NV Investment Holdings LLC, In re dated Dec 17, 2021 u/s 43A, 44 and 45 of the Competition Act, 2002

Pankaj Bajpai

New Delhi, December 22, 2021: The Competition Commission of India (CCI) has imposed a penalty of Rs.200 crores on Amazon for failing to notify the details of its ‘combination,’ i.e. acquisition of 49% stake in Future Coupons Private Limited (FCPL), as required u/s 6(2) of the Competition Act, 2002. 

The Coram of Ashok Kumar Gupta (Chairperson), Ms. Sangeeta Verma (Member) and Mr. Bhagwant Singh Bishnoi (Member) also imposed a separate penalty of Rs.2 crores for suppressing the actual scope and purpose of the combination, a term used in competition law for acquisition, merger or amalgamation of two or more enterprises. 

While revoking the approval granted for Amazon’s deal with Future Group, the CCI in its order,  stated that Amazon suppressed the actual purpose and particulars of the 2019 deal and sought to establish false representation and suppression of material fact.

Going by the background of the case, the  Amazon in 2019 had entered into a deal worth Rs. 2,000 crores with Future Group. As part of the deal, Amazon had acquired 49 % stake in Future Coupons (Promoter firm of Future Retail). The  Amazon notified the said transaction to the CCI in Combination Registration No. C-2019/09/688 notice. In terms of Description of the Combination of the said Notice, the Combination notified by Amazon comprised the three transactions:

1. 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

2. 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

3. 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.

It was also stated in the notice that in relation to the combination notified to the CCI, Amazon and the relevant entities and persons, belonging to 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; and (b) a shareholders agreement dated 22nd August, 2019 to determine their respective rights and obligations as shareholders of FCPL (FCPL SHA) Amazon stated in the notice that the parties have only executed FCPL SSA and FCPL SHA in relation to the combination.

The notice also mentioned that Amazon would acquire certain rights in terms of FCPL Shareholders Agreement (FCPL SHA) to protect its investment in FCPL. These, inter alia, included the requirement of prior written consent of Amazon, for FCPL to decide on or implement any matter under the shareholders’ agreement dated 12th August, 2019 relating to FRL (FRL SHA), which requires the consent of FCPL.

Amazon had also stated that it does not have any direct or indirect shareholding in FRL. It would not acquire  directly any rights in FRL. Amazon has only limited investor protection rights in FCPL with a view to protect the value of its investment in FCPL. These rights can be exercised only through FCPL and not directly by Amazon. The said rights have been derived from the rights granted to FCPL in terms of FRL SHA, which was negotiated by the promoters, FRL and FCPL, independent of the investment by Amazon in FCPL and with a view to unlock value for FCPL. 

The FCPL then filed an Application 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. It was alleged in the application that Amazon took completely contradictory stands in the arbitration proceedings and constitutional courts with respect to its investments in FCPL as compared to the representations and submissions made before the Commission. Such contradictions were said to establish false representation and suppression of material facts before the Commission.

After considering the submissions, the CCI held that Amazon ought to have notified the combination among other things, consisting of the inter-connected steps: (a) Transaction I; (b) Transaction II; (c) Transaction III; (d) FRL SHA for the acquisition of strategic rights over FRL through FCPL SHA; and (e) commercial agreements between Amazon and Future groups, to establish strategic alignment and partnership between Amazon Group and FRL as well as have a ‘foot-in-the-door’ in the India retail sector. 

However, Amazon failed to notify FRL SHA and the commercial arrangements as parts of the combination between the parties and suppressed the actual purpose and particulars of the combination, in contravention of the obligation contained in Section 6(2) of the Act r/w Regulation 5 and sub-regulations (4) and (5) of Regulation 9 of the Combination Regulations.

Stating that misleading submissions, false statements, omission and suppression of material particulars, have disabled the Commission an opportunity to assess the effects of the actual Combination, the CCI observed that in terms of Section 43A of the Act, if any person or enterprise fails to give notice u/s 6(2) of the Act, the Commission shall impose on such person or enterprise a penalty which may extend to one percent of the total turnover or the assets, whichever is higher, of such a combination. 

In case of a contravention u/s 44 & 45 of the Act, each of the said provisions renders the contravening person liable, inter alia, to a penalty, added CCI.