Aayush Mishra & Aditi Dehal
In an Order dated 28 November 2019, the Competition Commission of India (CCI) had assented to Amazon’s proposal to acquire 49 percent shares of Future Coupons Private Limited (FCPL). However, in what is now called a landmark imposition, the CCI has slapped a collective fine of INR 202 Crores on Amazon for contravention of Sections 43-A, 44 and 45 of the Competition Act 2002 (the Act). In effect, the Commission has also suspended the 2019 Approval Order until the filing of a fresh Application by Amazon.
The CCI Order dated 17 December 2021 is a result of an application filed by the FCPL in March 2021, whereby it alleged that Amazon had falsely represented material facts regarding asset-transfer belonging to Future Retail Limited (FRL). FCPL further alleged that Amazon’s conduct in arbitration and court proceedings with regard to its investment in FCPL was in out-and-out contradiction with what it had submitted to the Commission. The CCI prima facie agreed that Amazon had misrepresented the material facts and consequently issued a show-cause notice to Amazon.
In the forthcoming article, the authors firstly discuss the element of misrepresentation in the Amazon-Future Deal from the CCI’s lens. In this part, the facts produced and disclosures made by Amazon in its Application for Approval of CCI are delineated and analyzed. A brief interpretation of CCI’s inspection of Amazon’s internal documents is done in this part. Subsequently, the CCI’s analysis of inter-connected transactions has been discussed and Amazon’s disclosures with respect to shareholder agreement have been appreciated. Lastly, in light of the findings with respect to material facts and disclosures, the observations of CCI concerning misrepresentation and suppression of facts on part of Amazon has been analyzed.
II. Misrepresentation and Suppression of Material Facts: Shedding Light on CCI’s Viewpoint
Disclosures in Amazon’s Application for Approval
In order to arrive at a conclusion, the CCI sought to peruse a number of disclosures incorporated in Amazon’s Application. As per the Application, prior to Amazon Acquisition, the FCPL had obtained convertible equity warrants amounting to 7.30 percent of the entire share capital of FRL. Additionally, in continuance of the same, a shareholder agreement (FRL-SHA) was entered into by FCPL, FRL and certain promoters of the Future Group.
Furthermore, the disclosures also showed that FCPL was required to seek Amazon’s consent on acting under the FRL-SHA. This was one of the rights that Amazon had acquired in pursuance of the Acquisition.
The application also highlighted the existence of certain trade connections and commercial arrangements between FRL and Amazon. This was evidenced by the fact that many of FRL’s products were listed on Amazon India Marketplace. The application also conveyed that these commercial arrangements were not to be seen as inter-connected to the Amazon Acquisition; not to mention that the obvious proximity between the two were not to be given effect until the receipt of the approval of CCI in relation to the Amazon Acquisition.
The CCI also noted that Amazon had referred to only FCPL’s business and not the FRL’s business in the Economic and Strategic Purpose section of the Application. In effect, therefore, the CCI sought explanations from Amazon regarding the rights it had obtained as a result of the FRL-SHA, with a special emphasis on the economic and strategic logic of the same. In its justification, Amazon highlighted the existing interest and investment of FCPL in FRL, which ensured rights in the nature of investor protection rights. Amazon ensured that these rights of FCPL did not in any way intrude on or hinder the decision-making process of FRL.
Scrutiny of Internal Documents by CCI
To draw an interpretation in the current matter, the CCI resorted to the internal documents of Amazon to ascertain their objectives regarding the Acquisition. The most significant of these documents, as the CCI found, was an email sent to the then-Amazon CEO Jeff Bezos seeking his approval for the Amazon Acquisition. This Approval Email bore significant outlining and detailing of FRL’s business. Several components of the email also highlighted Amazon’s tremendous interest and outright intention to become the largest shareholder of FRL, subject to the prospective liberalization of Foreign Direct Investment norms. Further, it was found that the value of Amazon’s stake in FCPL was exactly as much as the value of its indirect shareholding in FRL at a 25 percent premium.
III. Analysis of CCI’s Outlook on Inter-Connected Transactions
In its Fining Order, the CCI found that the deliberations in connection to FRL-SHA and the commercial arrangements were carried out for the purpose of Amazon Acquisition and thus were interconnected parts of the same.
The CCI appreciated that the FRL-SHA was produced before it prior to the conclusion of Amazon’s Approval Application. The Commission also noted the fact that FRL was portrayed as a target in Amazon’s Approval Application and that the coinciding details between the two had also been produced before it. However, the adjudicating body made a reference to an email from Amazon to the Future Group which stated that all of the rights of FCPL in FRL should be subject to the veto process under the FRL-SHA. As a result, the CCI iterated that Amazon’s rights under the FRL-SHA were strategic in nature.
IV. Interpretation of Findings
The Commission pointed out the ubiquitous inconsistencies between certain disclosures in the Amazon’s Application and the internal documents produced before it. Each discrepancy in information supplied to the CCI was reflective of the fact that Amazon had been interested in the business of FRL all along, and the same drove the Amazon Acquisition.
Thereafter, the Commission turned to examine the rights obtained by Amazon through the FRL-SHA and noted that the object of investor protection rights, as claimed by Amazon, is merely to safeguard the investments made in a company. However, in actuality, these rights were in the nature of strategic rights in Amazon’s Internal Correspondence. The evident discrepancy in the nature of investor protection rights as portrayed by Amazon is one of the several instances whereby it had attempted to misrepresent facts before the CCI.
CCI also observed that Amazon had intentionally withheld certain internal documents that encapsulated the objectives of Amazon Acquisition. In addition, Amazon had failed to notify the shareholder agreement and commercial arrangements as constituents of the Combination between the parties, and had stifled the objectives of this Combination. This constituted an infringement of Section 6(2) of the Act, read with Regulation 9(4) of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011.
Thus, the Commission found Amazon’s conduct to be in violation of the provisions of the Competition Act, as it had suppressed and misrepresented the material facts pertaining to disclosures and the object of the Combination. Consequently, under Section 45(2) of the Act, the Commission directed Amazon to notify in Form II within 60 days, until which point the earlier CCI-Approval shall remain suspended. Furthermore, the CCI imposed a hefty penalty of INR 202 crores over Amazon under Section 43-A of the Act.
While the Commission is known to have imposed several major penalties in the past, the same were largely due the abuse of dominant position on part of companies. However, the pecuniary imposition on Amazon herein is a first of its kind for two primary reasons: first, deliberate non-disclosure of material facts, inviting a fine of INR 2 Crores; second, failure to notify the combinations in required terms, thereby contravening Section 6(2) of the Act and inviting a fine of INR 200 Crores. The Commission has always pledged to create a productive market environment and promote compliance to the Competition Act among companies. At several instances, the regulator has noted that the imposition of penalties should be proportionally reasonable. However, given the massive market presence that Amazon holds, it is understandable that the CCI took such an extreme step or else it would give other market players the audacity to trick the Commission in the days ahead.
It is, thus, reflective of the fact that the Commission has looked at the conduct of Amazon herein as a severe invasion of the Competition Law. The gravity of Amazon’s wrongful conduct in this case so happens to have a heavier hand that in spite of the right disclosures made with respect to FRL-SHA, the Commission sought to impose such a hefty fine. The Commission had even acknowledged the inter-connection between the commercial arrangements and Amazon’s application.
In such an event, it appears that the inconsistency between the portrayal/indication of the FRL-SHA and the construction of the internal documents produced before the CCI was the primary yet substantial reason to disturb the Commission.
The authors are students at the Himachal Pradesh National Law University, Shimla