The National Company Law Appellate Tribunal (NCLAT) on Monday rejected a plea of Amazon, which ultimately suspends the approval for the e-commerce giant’s deal with Future Coupons
The National Company Law Appellate Tribunal (NCLAT) dismissed Amazon’s appeal against the Competition Commission of India’s (CCI) decision to suspend the e-commerce giant’s merger with Future Coupons.
CCI had suspended its clearance of Amazon’s agreement to purchase a 49 per cent share in Future Coupons Pvt Ltd (FCPL) in December of last year.
Amazon had withheld information when obtaining permissions for the deal at the time, according to the regulator, which fined the company Rs 202 crore.
A bird’s-eye view of the entire issue
The problem primarily affects three companies: Amazon, Future Group, and Reliance.
The crux of the problem is two major trade agreements, one between Amazon and Future Group in 2019 and another between Reliance Retail and Future Group in 2020.
Amazon-Future Group Deal 2019
Amazon purchased a 49 per cent stake in Future Group subsidiary Future Coupons, which owns 7.3 per cent of Future Retail, in September 2019.
According to Amazon, the arrangement included a list of 30 businesses with whom the Future Coupons could not trade, including Reliance Retail.
The motivation for this purchase, according to Amazon, was Future Coupons’ business potential to produce long-term value and offer a return on Amazon’s investment.
Reliance Retail-Future Group Deal 2020
Future Group, which was on the verge of bankruptcy at the time, inked an MoU with Reliance Retail in August 2020 to sell its consumer retail business for INR 24,713 crore.
This very deal stirred controversy between Amazon and Future Group as Amazon made a petition for the acquisition to be blocked in arbitration at the Singapore International Arbitration Centre (SIAC).
Legal tussle in India
However, Future went to Delhi Court in November 2020 after SIAC issued an interim ruling restricting the deal.
The CCI issued a show-cause notice to Amazon in July 2021, for distortion of interests and suppression of important facts in the acquisition.
Given that Amazon said that the reason for its investment was Future Coupons’ commercial potential to build long-term value and offer a return on investment, the e-commerce giant investment, however, turned out to be the acquisition of Future Retails Limited through a “twin-entity investment” arrangement, owing to foreign investment regulation limits in the country.
Amazon’s bid to acquire stake in Future Retails Limited indirectly
Instead of investing directly in Future Retails Limited, Amazon decided to invest in the promoter business, Future Coupons Pvt Ltd.
This was revealed by Amazon’s Internal Correspondence – a July 18, 2019 email from Amazon India’s head of legal affairs to Amazon founder Jeff Bezos, which also sought consent to finalise the transaction.
According to the CCI’s decision, these emails established that Future Coupons was only a vehicle for Amazon to obtain a stake in Future Retail. As a result, the CCI fined Amazon Rs 200 crore for failing to reveal the specifics of its ‘combination’ as required by law.
The CCI also issued a separate penalty of Rs 2 crore for concealing the actual scope and purpose of the combination, which is a legal term for the purchase, merger, or amalgamation of two or more businesses.
Amazon directed to pay 201 crores as penalty
The American e-commerce company subsequently appealed the CCI’s ruling to the NCLAT, which has now upheld Rs 200 crore penalty and given the business 45 days to pay the same.
The NCLAT, on the other hand, somewhat amended the CCI directives, saying that the penalty of Rs one crore each was severe and lowered it to Rs 50 lakh each. This means that the company is facing a total penalty of Rs 201 crore.
CCI’s ruling, according to NCLAT, was based on the fact that Amazon had not declared its intentions or strategic interests in the acquisition of Future Coupons.