Did Amazon jump the gun in India? -CCI suspends clearance for Amazon-Future deal, imposes ₹200 plus 2 crore penalty on Amazon
Amazon Inc has been trying to expand its market power as the largest retail chain in India since its entry in this sub-continent in June 2013. But it faces a tough challenge from India’s Reliance Group, which apparently backed by the establishment, is not losing any opportunity to stop Amazon’s expansion in India. The saga of Amazon’s unsuccessful bid to take over the sick Future retail group, with a chain of departmental stores across the metropolitan cities in India, due to the series of legal battles across various judicial and quasi-judicial fora , had attracted media limelight but somehow seems to have been forgotten amongst the myriad of legal battles fought in India between the main contenders, Amazon and Reliance Group.
In this blog I have tried to recapitulate the main legal battles fought between the two large conglomerates, the Amazon Inc and the Mukesh Ambani led Reliance Group for the takeover of the Future Retail Group to put the record straight for readers’ benefit.
In past few years, the tussle between the Reliance group, Future Group and Amazon went through the adjudicatory filters of Competition Commission of India (“CCI”), National Company Law tribunal (“NCLT”), National Company Law Appellate Tribunal (“NCLAT”) , Delhi High Court and the Supreme Court of India (“Apex Court”). Amazon.com NV Investment Holdings LLC (“Amazon”) invested an amount of Rs 14,310,000,000/- (“Indian Rupees Fourteen Billion Three Hundred Ten Million”) in Future Coupons Private Limited (“FCPL”) and acquired 49% equity share capital in FCPL, for the ultimate benefit of Future Retail Limited (“FRL”), the parent holding company. The shareholding agreement (“SHA”) entered between FRL, FCPL and Amazon on 22 August 2019 restricted FRL from transferring/disposing off its assets without the consent of the Amazon. Moreover, the FRL was prohibited from transferring/encumbering/disposing of its Retail Assets either directly or indirectly to a “Restricted Person”. The list of Restricted Persons under the FRL-SHA and the FCPL SHA agreements included Mukesh Dhirubhai Ambani (“MDA”) group (Reliance Retail Ventures Limited and Reliance Retail and Fashion Lifestyle Limited). However, post-execution of the SHA agreements the FRL board of directors passed a resolution approving a composite scheme of Arrangement whereby, FRL and certain other group companies were to transfer “Logistics & Warehousing Undertaking and Retail & Wholesale undertaking” to MDA group. Being aggrieved by this decision of the FRL board, Amazon invoked arbitration proceedings. Meanwhile Corporate Insolvency Resolution process (“CIRP”) under the Insolvency & Bankruptcy Code, 2016 (“IBC”) was initiated before the NCLT Mumbai by Bank of India[1] (Financial creditor to FRL, the holding co. of Future Group) against FRL, in which Amazon filed the intervention application for dismissal of CIRP initiated. However, the intervention petition was rejected by NCLT, Mumbai. The NCLT order was the last straw that halted the Amazons intervention as it was only considered as a third party to the CIRP proceedings before NCLT.
In the above background, let us now recollect the multiple proceedings that embarked before the various judicial forums.
Proceedings before CCI under the Competition Act, 2002
Amazon filed a combination notice on 23 September 2019, notifying its proposed acquisition of 49% shares in FCPL before the Competition Commission of India (CCI) under Section 6(2) of the Competition Act, 2002 (“the Act”) and the CCI (Procedure in Regard to the Transaction of Business Relating to Combination) Regulations, 2011 (“Combination Regulations”).
However, the CCI, though approved the proposed combination but subsequently issued a Show Cause Notice on 04 June 2021 under Regulation 48 of the CCI (General) Regulations, 2009 asking for reasons from Amazon for suppressing the fact regarding the execution of the Future Retail Limited Shareholding Agreement (FRL-SHA) between Amazon and FCPL , as an interconnected and notifiable transaction, in violation of Regulations 9(4) and 9(5) of the Combination Regulations and CCI, after considering Amazon’s reply , vide its order dated 17 December 2021 , penalised Amazon with INR 200 Crores under Section 43A of the Act, for failing to notifying an inter connected notifiable combination, along with additional penalty of INR 1 Crore under Section 44, and an additional INR 1 Crore under Section 45 for suppressing and misrepresenting the actual purpose and strategic intent[2] of its investment in FCPL. Furthermore, CCI directed Amazon to give fresh in Form II within 60 days and, till disposal of such notice, the approval granted earlier was suspended. However, instead of filing fresh notice, Amazon preferred appeal against these orders of CCI before the appellate tribunal, the NCLAT.
Appeal before NCLAT
The NCLAT vide order dated 13 June 2022 held that Amazon had indeed hidden the true objective behind the combination that was to establish strategic alignments between the business activities of FRL and Amazon Group through making an investment in FCPL and justified the penalty of INR 200 Crores imposed by the CCI. However, the Tribunal held that the imposition of maximum penalty of Rs.1 Crore each, under Sec 44 and 45 of the Act, was on the excessive side. Therefore, the NCLAT reduced the penalty to Rs.50 Lakhs (Rupees Fifty Lakhs) each, under Section 44 and 45 of the Act. The CCI thereafter issued a recovery notice dated 25 April 2023 directing Amazon to pay the amounts of the penalties of INR 201 Crores as per the NCLAT order dated 13 June 2022.
Appeal before the Supreme Court
The second Appeal filed by the Amazon against the above NCLAT Order 13 June 2022 and the CCI recovery notice dated 25 April 2023, is pending before the Supreme Court of India for adjudication. The Supreme Court vide an interim order dated 08 May 2023[3] in favour of Amazon stayed the recovery notice dated 25 April 2023 issued by CCI stating that no coercive action to be taken against the Amazon till further order. The said interim order is still operating till today and Amazon has not paid the penalties.
Arbitration Proceedings instituted under the SIAC Rules, 2016
So, when the MDA group proposed an amalgamation with FRL on 29 August 2020, a dispute arose between FRL and Amazon pursuant to which Amazon initiated arbitration proceedings against FRL in New Delhi under the SIAC Rules, 2016 as per the arbitration clause existing in the FCPL-SHA dated 22 August 2019. With consent of both parties, an Emergency Arbitrator (“EA”) was appointed. The EA through an order dated 25 October 2020 prohibited FRL from taking any steps directly or indirectly to transfer/dispose/alienate/encumber FRL’s Retail Assets to any third party. This order was challenged by FRL and a series of litigation took place in the Delhi High Court for and against the said order of the EA, on the limited question whether the award of the EA under SIAC Rules ,though seated in New Delhi, will be considered as an award by the Arbitral Tribunal under the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The Division Bench of the Delhi High Court , vide order dated 08 February 2021, finally held that the award of the EA is not enforceable as an award under the Arbitration Act . The matter finally reached the Supreme Court and the Apex Court vide its order dated 19 April 2021[4] cleared the air and observed that EA in an arbitration is governed by Part-I of the Arbitration Act and would qualify as an “arbitrator” under the definition of an “arbitral tribunal” thus an order passed by the EA will be valid under Section 17 of the Arbitration Act.
MDA Group calling off the deal with FRL.
Meanwhile, the secured creditors of FRL objected to the proposed scheme of amalgamation between FRL and MDA group[5] and the FRL failed to obtain required 75% clearance from the secured creditors as envisaged under the Companies Act, 2013. Pursuant to which the deal was finally called -off between MDA and FPL group. Also, the operating order of the Hon’ble Apex Court dated 19 April 2021, as aforesaid, confirming the EA order made FRL and MDA group difficult in concluding the deal.
Proceedings before NCLT, Mumbai
Initiation of CIRP against FRL
Meanwhile, Bank of India, one of the secured financial creditors of FRL instituted CIRP under section 7 of the IBC for default in repaying an amount of Rs 856.10 Crores before NCLT Mumbai. During the proceedings, FRL applied for one-time restructuring the facilities under the “Resolution Framework for Covid-19 related stress” regulated by RBI. Despite approval of the proposed restructuring by NCLT, FRL was still under an obligation to repay an amount of at least Rs 788.40 crores to the Bank of India. However, FRL defaulted in the payment of the said debt amount to Bank of India. Consequently, NCLT vide order dated 20.07.2022[6] in view of the existing debt and its default by FRL, ordered the institution of CIRP and moratorium was imposed, till the approval of the future resolution plan by the Committee of Creditors (CoC). The CIRP is still going on and no resolution plan has been approved by the CoC.
Amazon Intervention Petition
The Amazon filed an intervention petition[7] under Section 65 of IBC, 2016 in the above CIRP process against FRL Amazon raised the plea of fraudulent and malicious intent between the financial creditor (Bank of India ) and the corporate debtor (FRL) because as per Amazon, despite knowing about the deteriorating financial condition of FRL, Bank of India further extended loan facilities to FRL and also initiated the insolvency proceedings for CIRP against FRL with an mala fide intention to sabotage the FCPL-SHA executed between FRL and Amazon. However, NCLT rejecting the allegations made by Amazon observed that the onus of proving the fraud was on Amazon and it has miserably failed to establish the same. Further, the NCLT taking reference from the order of the EA observed that there was no injunction against the lenders from exercising their contractual rights or statutory rights. Moreover, it was observed that the Amazon is not even a stakeholder in respect to the corporate debtor (FRL) and Amazon being a third party to the proceedings before the tribunal has no locus standi to the question the initiation of CIRP proceedings under Section 7 of the IBC.
Comment: Amazon has been only partly successful in stopping MDA group in taking over the FRL. However, in the process of doing so it has also suffered a setback in terms of not only the penalty amount of INR 201 Crores imposed by CCI and the NCLAT order, ( (confirming the CCI order passed under 43A, 44 and 45 of the Competition Act, 2002) , but also the suspension of the approval for the acquisition of 49% stakes in FCPL by the CCI/NCLAT. Though this order has been stayed by the Apex Court but when the matter is finally heard, the limited /moot question to be decided, inter alia, will be , whether CCI is empowered to withdraw or suspend its approval of the proposed acquisition by Amazon because of suppression of the fact of a preexisting FCPL-SHA of 2019. In my view, the chances of the Apex Court ruling against CCI are bleak . In any situation if Amazon loses its appeal before the Hon’ble Apex court, then it will turn the clock back and Amazon will have to seek fresh approval of CCI for the proposed acquisition of 49% stakes in FCPL after disclosing the complete background as above. Further, in such event happening, if CCI comes with a modification prohibiting Amazon in exercising strategic business alignments into FRL through FCPL-SHA, then it would also raise a pertinent question on the validity of the Arbitral proceedings instituted by the Amazon. Also, in views of the ongoing CIRP, nothing stops MDA Group /Reliance from filing a resolution plan for the revival of FRL after offering a viable resolution plan to pay off the entire debts of FRL, which, if in compliance with all laws[8], will have to be considered on its merits by the committee of creditors (“CoC”) under the IBC. In such situation, Amazon will be out of the picture as it has failed to be impleaded as a party before NCLT, Mumbai and to our knowledge, it has still not challenged the NCLT order rejecting its intervention plea before NCLAT. Therefore, the dust is not settled, and we can expect a range of fresh litigations once the appeal is decided by the Hon’ble Apex Court.
#Amazon #Reliance #Futurertail
[1] BOI owed approximate INR 750+ Crores to FRL.
[2] To acquire indirect control over FRL.
[3] https://main.sci.gov.in/supremecourt/2022/22360/22360_2022_6_806_44273_Order_08-May-2023.pdf
[4] SLP (C) No(s) 6114/2021
[5] https://rilstaticasset.akamaized.net/sites/default/files/2023-01/Media-Release-RRVL-29082020.pdf
[6] C.P.(IB)-527(MB)/2022
[7] Intervention Petition/1/2022 In C.P.(IB)/527(MB)2022.
[8] Like Amazon , MDA Group/Reliance will also have to seek approval of CCI for the proposed resolution plan , whether or not is would cause any appreciable adverse effect on competition in the relevant market , under the proviso to Section 31(4) of the IBC .
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