Amazon acquired 49% stakes in Future Coupons Private Limited. Prior to this, Future Coupons acquired 9.82% stakes (including 7.3% through share warrants) in Future Retail Limited and the shareholders of Future Retail entered into a shareholders’ agreement (FRL SHA) which granted certain veto/affirmative rights to Future Coupons and these rights could be exercised only on directions of Amazon.
India’s competition law requires prior approval of the competition regulator (CCI) for conclusion of any business combination (acquisition, merger or amalgamation) above a certain threshold in terms of assets and turnover. For seeking CCI’s approval, the enterprise entering into combination needs to give notice of such combination in either Form I or Form II of the CCI (Combinations) Regulations, 2011. Form II is more detailed and is preferred in cases where the business activities of the parties are similar or substitutable and the combined market share is above 15 percent of the relevant market.
India’s foreign investment laws (Press Note 2 of 2018) also restricts any entity having equity shareholding in any e-commerce marketplace to sell its goods on such e-commerce marketplace.
Amazon’s Notice to CCI
Amazon had notified the CCI about the acquisition of stakes in Future Coupons in Form I. Amazon had also notified about the FRL SHA and various commercial arrangements entered into between Amazon and Future Group companies, however, it maintained that the FRL SHA and the commercial arrangements were independent of the acquisition.
On the rationale of the Combination, Amazon had stated in the Notice that it believes that Future Coupons holds a potential for long term value creation and providing returns on its investment.
On subsequent queries by CCI, Amazon had submitted that with a view to protect its investment in Future Coupons, certain rights have been granted to Amazon with respect to Future Coupons’ investment in Future Retail and these rights can only be exercised by Future Coupons and not directly by Amazon. Amazon had further clarified that the Commercial Arrangements are in no way connected with the Combination and each such commercial agreement has been negotiated between its respective parties, in isolation, and independent of the Combination.
Based on the Amazon’s representations, CCI assessed that the proposed acquisition is not likely to have an appreciable adverse effect on competition in India and therefore, it approved the acquisition.
Complaint by FCPL
Due to dispute between Amazon and Future Retail, Future Coupons filed an application before CCI alleging that Amazon has suppressed material information and has made false representations to CCI. Future Coupons also shared certain internal documents of Amazon with the CCI.
Issues before CCI
Findings of the CCI
The CCI referred to 3 internal documents of Amazon and noted that the internal correspondence clearly shows different purposes for envisaging the acquisition (i.e., ‘foot-in-door’ in the Indian retail sector, secure rights over Future Retail that are considered as strategic by Amazon and Commercial Arrangements between the retail business of Future Group and Amazon) and, therefore, concluded that Amazon failed to disclose and clarify the real purpose of the Combination in the Notice.
The internal documents also revealed that in order to overcome Press Note 2 restrictions, Amazon used twin entity investment structure to invest in Future Retail through Future Coupons. The CCI concluded that Amazon had misrepresented and suppressed material information in the Notice filed with the CCI.
The CCI Order
The CCI directed Amazon to give fresh notice in Form II with true and correct information and the earlier approval was kept in abeyance. The CCI also imposed a penalty of INR 200 crores (~$26.5 million) for failure to notify the acquisition as per the rules and a penalty of INR 2 crores for suppression of material facts.
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