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AMAZON’S CONTENTIOUS INVESTMENT IN FUTURE COUPONS PVT. LTD.

INTRODUCTION

The Competition Commission of India (CCI) has put its order permitting Amazon to buy a 49% share in Future Retail on hold in an unprecedented move. The CCI also imposed a ₹ 202 crore penalty on Amazon. Citing contraventions, CCI took the aforementioned steps due to Amazon misrepresenting facts in its merger notification and suppressing the actual scope and purpose of the acquisition. (1)

The long-running legal battle between Amazon and Future Group

Amazon negotiated a “twin-entity structure” in August 2019, agreeing to buy 49% of unlisted Future Coupons Pvt Ltd, which holds 7.3% of listed Future Retail Limited through convertible warrants, with the option to buy into Future Retail Limited after three to ten years. (2) Amazon filed a Notice with the CCI in September 2019, requesting permission for the merger, which included the following steps (3):

  • Future Coupons Resource Private Limited (“FCRPL”) has subscribed for 9.18 million FCPL Class A equity voting shares, making FCPL a wholly-owned subsidiary of FCRPL;
  • The transfer of 2.52% of FRL’s equity share capital to FCPL by FCRPL;
  • By way of a preferential allotment, Amazon acquired 49% of FCPL’s equity share capital.

In April 2019, Amazon provided details of other rights and agreements with the Future group of companies in the Notice in the interest of full disclosure, given that FCPL had acquired certain equity warrants in FRL prior to the merger and Amazon would acquire certain rights for the limited purpose of protecting its investment in FCPL.

The following were the declared rights and agreements (4):

  • FRL shareholders agreement dated August 12, 2019, between FCPL, FRL and the promoters of Future Group (“FRL SHA”), which granted certain indirect rights to Amazon over FRL, through FCPL; and
  • Certain pre-existing and contemplated business arrangements and agreements between the Amazon and Future group companies (“Commercial Arrangements”).

The CCI approved the Combination on November 28, 2019, based on Amazon’s comments in the Notice, responses to the requests for information, and its substantial competition assessment. Future Coupons Pvt. Ltd. possessed 9.82% ownership in Future Retail Limited and has its own digital loyalty cards, gifting, and Couponing Company. Amazon applied for and gained authorization from the Competition Commission of India, to invest in Future Coupons Pvt. Ltd.’s digital loyalty cards, gifting, and couponing. Reliance Retail Ventures Ltd. is a subsidiary of Reliance Industries Ltd. RRVL has announced the acquisition of Future Group’s retail and wholesale businesses, as well as its transportation and warehousing operations, for ₹24,713 crores in August of last year. Future Group’s retail and wholesale assets will be consolidated into Future Enterprises Ltd, and then transferred to Reliance Retail under the scheme of arrangement. The acquisition has been challenged by Amazon and Amazon is objecting to the sell-off plans, accusing Future Group of breaching the 2019 investment pact. Amazon objected to this acquisition saving it had the right of first refusal because of its stake in Future coupons. The two parties have been litigating in Delhi High Court and a Singapore-based arbitration centre over this issue since October 2020. In October 2020, the EA (emergency arbitrator) of the Singapore International Arbitration Center (SIAC) issued an interim award in favour of Amazon, prohibiting Future Retail Limited from disposing of or encumbering its assets or issuing securities to receive any money from a restricted party. (5)

The complaint to THE Competition Commission of India

Future Group had filed a complaint with the CCI in relation to this. Future Retail Limited’s independent directors had written to CCI, arguing that records reveal Amazon contradicted its internal correspondence given to courts in its application to the anti-trust monitor. They accused Amazon of presenting “totally inconsistent material” that was “contrary” to Amazon’s own internal discussions about its 2019 investments in Future Related Limited’s promoter firm.(6) As the two companies tried to find a way to resolve their nasty investment feud, Amazon requested Future Group to dismiss its complaint before the Competition Commission of India. According to accounts, Amazon, which is disputing the Future Group-Reliance Retail merger, considered its exit in lieu of compensation. Amazon had hinted at an out-of-court settlement by asking Future to abandon its complaint against Amazon for allegedly violating the Foreign Exchange Management Act (FEMA) norms by misrepresenting information before India’s Competition Commission (CCI). (7)

Competition Commission of India’s stand

While approving the acquisition in November 2019, CCI additionally said that the order will be reversed if the acquirer’s information was proved to be false at any time. It stated that “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”.(8)This is the first time the CCI has rescinded an approval it has previously given. The CCI has ordered Amazon to re-examine the combination and notify the CCI within 60 days after receiving the judgement. In addition, the regulatory body used this decision to allow third parties, such as the Confederation of All Indian Traders (CAIT), to reinforce their charges of Amazon’s wrongdoing. Amazon’s deal with Coupons allowed it to keep its Future group investment rights. Future Group’s assets were harder to sell as a result. However, since all approvals connected to Amazon’s investment in Future Coupons have been placed on hold, CCI’s decision to postpone the 2019 order may pave the way for Reliance to acquire the company. The last remaining alternative is to appeal the revocation order to the National Company Law Appellate Tribunal (NCLAT). It should be noted that the order was almost certainly going to be contested. In arguments to the CCI, Amazon contended that the regulator did not have the authority under the Competition Act to revoke authorisation for a merger.

What is the development lately: CONCLUDING REMARKS

NCLAT allowed Amazon’s plea. Amazon’s appeal against the Competition Commission of India’s (CCI) judgement suspending the American behemoth’s stake in Future Coupons was accepted by the National Company Law Appellate Tribunal (NCLAT). The NCLAT also sent notifications on the CCI and the Future Group, refusing to grant any temporary relief.(9) After the Delhi High Court (HC) granted a stay on the Amazon-Future arbitration before a three-member arbitral tribunal, Amazon sought the Supreme Court. A bench consisting of Chief Justice of India NV Ramana, Justice A S Bopana, and Justice Hima Kohli heard the matter in the Supreme Court. The Supreme Court had issued notice to Future Group to respond to the SLP filed by Amazon, which challenged the Delhi High Court’s ruling halting the Singapore International Arbitration Centre (SIAC) arbitration proceedings in the matter.

Future Group has asked the Supreme Court to postpone the sale of its retail assets to Reliance Retail till the final order is issued. The Supreme Court has put off making a decision. The Supreme Court overturned a single-judge bench of the Delhi High Court’s decision ordering harsh measures against Future Group, as well as an order refusing to stay the Singapore tribunal’s refusal to rescind the emergency award. The Supreme Court sent the case to the High Court by stating that,(10)“The present SLP is in one way connected to the outcome of the order challenged before the NCLAT. We direct parties to request NCLAT to decide the case. List on March 9”, the bench led by the Chief Justice of India said in the order.(11)

Author(s) Name: Suha (Bangalore Institute of Legal Studies, Karnataka)