Amazon suffered a massive setback on Friday when the Competition Commission of India suspended its approval to the Jeff Bezos-owned retail giant’s deal in August 2019 through which it acquired a 49 per cent stake in Future Coupon Private Ltd and a 4.82 per cent indirect interest in Future Retail Ltd (FRL).
The two Kishore Biyani companies have been at the centre of a proxy corporate battle between Amazon and Mukesh Ambani’s Reliance Retail which signed a Rs 24,713 crore deal with Biyani in August 2020 to acquire Future Retail.
Amazon has been trying to stymie the FRL-Reliance Retail by trying to assert its pre-emptive rights under the prior transactions in 2019. It has even obtained a favourable verdict from the Singapore arbitration tribunal which it has been trying to enforce in Indian courts without much success.
The CCI decision to withhold its approval to the original FCPL-Amazon deal effectively erodes the basis on which the US giant is fighting the case.
In its ruling, the CCI said Amazon had furnished false and incorrect information and suppressed certain material facts while seeking approval for the transaction with FCPL and did not adequately divulge the nature of its pre-emptive rights in Future Retail.
The Commission asked Amazon to re-submit its application for approvals of that deal within the next 60 days and ordered it to pay fines amounting to Rs 202 crore for violation of several sections of the Competition Act.
The fines must be paid within 60 days of Friday’s order.
Deliberate design
In its 57-page order, the CCI said that there was a “deliberate design on the part of Amazon to suppress the actual scope and purpose of its proposal in 2019 and that its approval for the transaction which was given in November that year, will remain in `abeyance’.
While approving the Future Coupons-Amazon deal in November 2019, the CCI had mentioned that its order would stand revoked if, at any time, the information provided by the acquirer was found to be incorrect. “This approval should not be construed as immunity in any manner from subsequent proceedings before the Commission for violations of other provisions of the (Competition) Act," it had said.
In June this year, the body had issued a show-cause notice to Amazon citing FCPL’s allegations that the US giant had taken completely divergent stand with respect to the transaction before the CCI while seeking its approval – and then before the arbitration tribunal and various Indian courts when it was trying to block the Future Retail-Reliance deal.
The accusation against Amazon is that it had submitted before the CCI that it had opted to invest in FCPL on account of account of its unique business model. But later during the battle with the Future group, it had said in the courts that the FCPL transaction had been struck because of the special and material rights that it was indirectly acquiring in Future Retail.
The transaction between Amazon and FCPL was struck on August 12, 2019. At that time, several entities from the Future group including Future Retail, Future Coupon and certain promoter companies had also entered into a shareholders’ agreement (SHA).
In its notice, CCI said Amazon had represented before the commission that the Future group SHA was independent of its acquisition of 49 per cent in FCPL. However, it was brought to its notice that Amazon had subsequently claimed before the arbitrator that the SHA was an integral part of the combination – a fact that had not been disclosed before the CCI. The Commission also said that Amazon had concealed its strategic interest over FRL.
CCI, in the order said that Amazon had represented that its rationale behind the investment was the business potential of FCPL to create long-term value and provide return on the investment made by Amazon.
However, anti-trust regulator said that Amazon’s internal correspondent clearly showed that the global retail giant intended to get a “foot in the door” in the Indian retail sector at a time when Indian laws did not allow foreign investment in offline retail companies engaged in both food and non-food retail. Amazon was looking to contrive a mechanism to acquire Future Retail (called Taj in the internal e-mails) which would give it “the largest asset with a pan-India footprint”.
CCI observed that Amazon had “continued with the suppression of actual purpose of the combination’’. The body felt that the purpose of Amazon to pursue the investment or the combination was not the potential of the gift and loyalty card business of FCPL, but, the latter was envisaged only as a vehicle and the main purpose was the business of FRL.
A Reuters report recently said that Amazon warned the antitrust body that revoking the 2019 deal with Future Group would send a negative signal to foreign investors and allow Reliance Industries to "further restrict competition".
