The 2019 Amazon deal with Future Coupons, a unit of Future Retail Ltd, has been suspended by the chief national competition regulator in India, the Competition Commission of India (CCI). In addition, the regulatory body has also fined the US e-commerce giant Rs 200 crore for concealing facts while obtaining approval for the deal.
The CCI said in a 57-page order that it believes “it is necessary to re-examine the combination (transaction),” and that its approval from 2019 “must stay in abeyance” until then. Amazon has also been hit with a Rs 200 crore fine. “In exercise of the powers conferred by sub-section (2) of Section 45 of the Act, the Commission hereby directs Amazon to give notice in Form II within 60 days of receipt of this order, and the approval granted vide Order dated November 28, 2019, in Combination Registration No. C-2019/09/688, shall remain in abeyance until such notice is disposed of,” the CCI order read.
The CCI order also stated that the e-commerce giant had “suppressed the actual scope” of the deal and made “false and incorrect statements” while seeking clearances.
The statutory body stated that it was now “essential to re-examine” the deal and that approval “must remain in abeyance” until that time Amazon delivers the CCI 60 days notice of the proposed deal, as mandated in Form II of the Act and the said notice is disposed of by the CCI.
A penalty of Rs 200 crore was imposed for failing to identify and notify Future Retail Limited Shareholders Agreement (FRL SHA) as part of the agreement, which was an obligation under Section 6(2) of the Act. Amazon has been given two months to pay the money.
The CCI’s decision came two weeks after the Supreme Court granted Amazon two weeks to file a response in the case.
The CCI made its decision in response to FCPL’s March application, in which the Future Group firm alleged that Amazon violated FEMA regulations in the FCPL deal, and has asked the Competition Commission of India (CCI) to revoke the approval given to the deal. The Independent Directors of the Future group accused the American online retail giant of misleading authorities to obtain approvals for the purchase of stake at the FCPL. They alleged that Amazon had concealed information and misrepresented facts while seeking approval for the investment from CCI. Taking cognizance of the complaint, the CCI issued a show-cause notice to Amazon after examining documents.
The CCI order will have far-reaching consequences, because Amazon is using the 2019 deal to block the proposed purchase of Future Retail by the Reliance group. As Amazon has an indirect shareholding in Future Retail through its ownership in Future Coupons, it is opposing the Future-Reliance deal saying the 2019 deal prohibits such a sale. Now that the CCI approval for the 2019 deal has been suspended, it will mean its ownership of Future retail will also get suspended.
ED summons Amazon India head to probe alleged irregularities in Amazon – Future Coupons deal
Notably, on November 28, the Enforcement Directorate (ED) had also summoned the top management of Amazon Inc. and Future Coupons Pvt Ltd. (FCPL) for questioning and verification of documents in connection with their August 2019 deal.
The case dates back to 2019 when Amazon had invested Rs 1,431 Crore to purchase a 49% stake in Kishore Biyani led FCPL. FCPL owns a 9.82% stake in Future Retail Ltd, the promoter entity that runs a chain of retail stores namely Big Bazaar, Food Bazaar, and Easyday. Therefore, by acquiring the 49% stake in FCPL, Amazon had gained control of 4.81% in Future Retail, which also granted it veto power in the company.
Amazon is using this stake in Future group to block the proposed acquisition of Future group by Reliance group, and is engaged in a bitter legal war over the issue. Amazon founded by Jeff Bezos has been opposing the proposed Rs 24,700 sale of assets of Future Retail to Mukesh Ambani led Reliance Industries Ltd, alleging breach of control. Amazon contested and prevented the deal stating that according to the August 2019 deal, Future Group can’t finalize any deal with Reliance Retail Ventures Ltd which is a subsidiary of Reliance Industries Ltd.
The ED is now investigating whether Amazon had violated Foreign Exchange Management Act (FEMA) and complied with other regulations while acquiring the stake.
