[BREAKING] NCLAT upholds ₹200 crore penalty imposed by CCI on Amazon for discrepancies in Future deal

The National Company Law Tribunal (NCLAT) has upheld an order of the Competition Commission of India (CCI) which imposed a ₹200 crore penalty on Amazon for failing to reveal crucial details of its acquisition of a 49 per cent stake in Future Coupons Private Limited (FCPL)..The Bench of Justice M Venugopal and Dr Ashok Kumar Mishra also dismissed appeals filed by the All India Consumer Product Distributors Federation and the Confederation of All India Traders, and gave Amazon 45 days to deposit the penalty and comply with the CCI order..The ₹200 crore penalty was imposed for Amazon's failure to identify and notify the Future Retail Limited Shareholders Agreement (FRL SHA) as a part of the deal, which was an obligation under Section 6(2) of the Competition Act, 2002.The competition watchdog had also kept in abeyance the deal between Amazon and Future until the former gives notice to the CCI of the proposed deal as per Form II specified under the Act, within a period of 60 days..In its judgment, speaking of the failure of Amazon to disclose certain information regarding the deal, the NCLAT held,"In the instant case, this `Tribunal’ pertinently points out that quite opposite to the internal communications/emails of the Appellant/Amazon had not shown a possibility of the `Combination’ being pursued for having a foot-in-door in the Indian retail sector, acquire strategic rights over `FRL’, etc. To put it precisely, the Appellant/Amazon had projected in `FRL’, `FCPL’ only a vehicle, for which, no intention was assigned."Noting that Amazon had made only limited disclosures and had not spelt out the real combination of its acquisition of strategic rights and interests over Future Retail Limited (FRL), the Bench came to the conclusion that,"...the Appellant/Amazon had not fulfilled its obligation as per ingredients of Section 6 (2) of the Competition Act, 2002, attracting imposition of penalty under Section 43A of the Act, extending to 1% of the total turnover or the Assets whichever is higher of such a `Combination’.".As regards the penalty of ₹2 crore imposed against Amazon by the CCI under Section 45 of the Competition Act, which prescribes a penalty amount of ₹1 crore, it held,"However, the imposition of maximum penalty of Rs.1 Crore each, as per the `impugned order’ dated 17.12.2021, passed by the `1st Respondent/CCI’, as per Section 44 and 45 of the Competition Act, 2002, is slightly on the higher side/excessive one, as opined by this `Tribunal’..."It thus imposed a penalty of ₹50 lakh on the e-commerce giant, which is also required to be paid in 45 days..The proceedings against Amazon were initiated based on an application dated March 25, 2021 (Application) of FCPL. Amazon had notified CCI about the proposed transaction to acquire 49 per cent stake in FCPL. A notification regarding the same was given by Amazon on September 23, 2019, pursuant to Section 6(2) of the Act, in Form I of Schedule II to the CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations).In terms of ‘Part V: Description of the Combination’ of the aforesaid notice, the combination notified by Amazon comprised the following three (3) transactions :Transaction I: The issue of Nine Million One Hundred and Eighty Three Thousand Seven Hundred and Fifty-Four (9,183,754) Class A voting equity shares of FCPL to Future Coupons Resources Private Limited (FCRPL). Prior to, and immediately post issuance of such equity shares, FCPL will be a wholly owned subsidiary of FCRPL; andTransaction II: The transfer of Thirteen Million Six Hundred and Sixty Six Thousand Two Hundred and Eighty Seven (13,666,287) shares of FRL held by FCRPL (representing Two decimal Five Two Percent (2.52%) of the issued, subscribed and paid-up equity share capital of Future Retail Limited (FRL), on a Fully Diluted Basis) to FCPL; andTransaction III: The acquisition of the Subscription Shares representing Forty Nine percent (49%) of the total issued, subscribed and paid-up equity share capital of FCPL (on a Fully Diluted Basis) by Amazon, by way of a preferential allotment..The CCI noted that the combination consisted of a composite of acquisition of shares, rights and commercial contracts.Transaction I, Transaction II and Transaction III alone were identified and notified as constituent steps of the Combination, and FCPL SSA and FCPL SHA alone were stated as agreements executed in relation to the combination.However, FRL SHA was also part of the combination and was executed at the behest of Amazon, is overwhelmingly evident from the email dated 4th April, 2019 of Amazon to Future Group. But the same was not notified as part of the combination."The rights of Amazon over FRL are at the heart of the negotiations and the need for FRL SHA was to achieve the said objective of the Combination. It is for these strategic rights and for the call option, that Amazon had paid a premium of 25% over the regulatory share price of FRL. This makes it clear that neither FRL SHA would have been executed in the absence of other steps/ transactions of the combination nor would Amazon have gone ahead with Transaction III in the absence of FRL SHA," the CCI said.In sum, the CCI said that Amazon ought to have notified the combination, inter alia, consisting of the following inter-connected steps:(a) Transaction I; (b) Transaction II; (c) Transaction III; (d) FRL SHA for the purpose of acquisition of strategic rights over FRL through FCPL SHA; and (e) commercial agreements between Amazon and Future groups, for the purpose of establishing strategic alignment and partnership between Amazon Group and FRL as well as have a ‘foot-in-the-door’ in the India retail sector."Amazon failed to notify FRL SHA and the commercial arrangements, as parts of the combination between the parties, and suppressed the actual purpose and particulars of the combination in contravention of the obligation contained in subsection (2) of Section 6 of the Act read with Regulation 5 and sub-regulations (4) and (5) of Regulation 9 of the Combination Regulations," the CCI ruled..[BREAKING] CCI suspends clearance for Amazon-Future deal, imposes ₹200 plus 2 crore penalty on Amazon .Amazon was represented by Senior Advocates Gopal Subramanium, Arun Kathpalia and Amit Sibal along with Advocates Pavan Bhushan, Ujwala Uppaluri, Hima Lawrence, Bani Brar, Kaustubh Prakash, Aishvary Vikram Singh, Swapnil Singh, Saksham Dhingra and Vinay Tripathi.They were led by a team from P&A Law Offices led by Partners Anand Pathak, Shashank Gautam, Sreemoyee Deb, Amit Mishra and Vijay Purohit, as well as Anubhuti Mishra, Rajat Moudgil, Mohit Singh, Shivam Pandey, Samridhi Hota, Nikita Bangera, Chetan Chawla, Didon Misri, Rishabh Juneja, Sanyam Juneja, N Subramaniam and Nandini Sharma..CCI was represented by Additional Solicitor General N Venkataraman and Advocates Manu Chaturvedi, Chandrashekhar Bharathi and Sanyat Lodha.Senior Advocates Mukul Rohatgi, Harish Salve, Ramji Srinivasan and Dayan Krishnan argued for FCPL, along with Advocates Mahesh Agarwal, Pranjit K Bhattacharya, Rishi Agrawala, Raghav Shankar and Rajshree Chaudhary.Senior Advocates Krishnan Venugopal and Saurabh Kirpal, and Advocate Rajat Sehgal appeared for the Confederation of All India Traders..Senior Advocate Darpan Wadhwa and Advocates Arvind Kumar Gupta, Purti Gupta, Henna George, Shivani Sharma, Surbhi Dhanuka and Amer Vaid, Advocates represented All India Consumer Product Distributors Federation..[Read judgment]