Amazon Vs Future Group + Reliance: Where Do They All Go From Here?
CCI suspends approval to transaction between Amazon and Future Group. Is Amazon still in the game?
The Competition Commission of India’s curveball to U.S. e-commerce major Amazon has led to a confusing situation to say the least.
The regulator has suspended the approval it granted in 2019 to Amazon.com NV Investment Holdings for its investment in Future Coupons Pvt. In its order, the CCI has broadly made three conclusions:
That in 2019, Amazon had misled the regulator to believe that the investment and its purpose were the business of Future Coupons.
That there was deliberate design on the part of Amazon to suppress the actual scope and purpose of the combination.
And, that Amazon failed to notify the Future Coupons and Future Retail Ltd. shareholders agreement as an interconnected part of the deal.
To recap, Amazon had invested roughly Rs 1,400 crore for a 49% stake in Future Coupons. The agreements also gave Amazon certain rights vis-à-vis Future Retail. At that time, certain intra-promoter group transactions had preceded Amazon’s investment, including acquisition of 7.30% stake by Future Coupons in Future Retail.
CCI’s order has questioned the true intent behind all of this, which has led to a commercially and legally muddy situation.
Since regulatory approval to the 2019 deal stands suspended, does Amazon's transaction with Future Coupons and rights in Future Retail also stand suspended or ineffective? Does that allow the Future Group to proceed with the sale of its retail assets to Mukesh Ambani-led Reliance Industries Ltd.? What happens to the Singapore arbitration proceedings that stem from Amazon's allegations that the Future Group entities violated deal conditions? Does Amazon get nothing out of all of this?
BloombergQuint put these questions to lawyer Sitesh Mukherjee and Karan Chandhiok, partner at Chandhiok & Mahajan.
Watch the interaction here:
Where Does Everyone Go From Here?
Future Group entities are yet to convene a meeting of shareholders and creditors to seek approval for the scheme of arrangement between 20 group entities, including six listed companies, with Reliance Retail Ventures Ltd., Reliance Retail Ltd. and Fashion Lifestyle Ltd. Meanwhile, Reliance Retail has extended the deadline for completion of the deal with Future Group from Sept. 30 to March 31, 2022.
Obviously, the strategy that the Future Group will have, is to use the CCI order to say that Amazon’s rights no longer exist, Mukherjee said. But that may not be the correct position. Typically, regulatory approvals are a condition precedent for any deal to go through but it’s unlikely that Future Group will succeed with the argument that a condition precedent has not been met and that Amazon has no rights.
Once a condition precedent is satisfied in the contract, it cannot be unscrambled. So today, parties can’t stand and say that actually the condition precedent is not satisfied. They can only do so if they can prove fraud, and that’s nobody’s case here.Sitesh Mukherjee, Independent Counsel
"Therefore, I think to use the CCI order to say condition precedent was not satisfied, may not be possible. But we are also assuming that the regulator’s order will hold till the end—let’s see how it plays out if Amazon challenges it," Mukherjee added.
A challenge is imminent, expects Karan Chandhiok, partner at Chandhiok & Mahajan.
The power of the CCI to keep the approval under suspension is suspect, Chandhiok said. Hypothetically, he said, let’s say the 2019 transaction wasn’t notified at all. In such a situation, the CCI would’ve invoked the penalty provisions because there’s a limiting provision in the law that says you cannot look into combinations after year of closing.
Therefore, it is at best, a procedural violation. On the conclusion that Amazon didn’t reveal the full intent- there is an obligation on the CCI to look at all the transaction documents. All parties that we have represented for combinations, the CCI does read, asks a lot of questions. In fact, CCI doesn’t stop there and sees financial books and other material outside of what the parties may have submitted.Karan Chandhiok, Partner, Chandhiok & Mahajan
To be clear, CCI’s order of last week notes that all the shareholder agreements, including between Future Retail-Future Coupons, were submitted.
The regulator’s point is that Amazon, in the filing and via specific queries put to it, never admitted that its intent is to get a "foot-in-door" in the Indian retail sector, acquire strategic rights over Future Retail, or enter into any commercial partnership with it to expand presence in ultra-fast delivery services.
What Happens To Singapore Arbitration?
In October, the Singapore International Arbitration Centre had concluded that Future Retail is a party to the dispute that arose from the agreement between Future Coupons and Amazon. Basis this favourable order, Amazon had approached the Supreme Court to halt Future Group's efforts to convene a meeting of its shareholders and creditors. The apex court is yet to decide on this.
Mukherjee said that he doesn’t see the CCI order impacting the arbitration proceedings.
I don’t believe that the CCI’s order, to keep the approval in abeyance, effaces Amazon’s contractual rights. If you recall we had similar issues in the put option-assured return cases. What was held by Indian courts is that if you have a contractual arrangement, there’s some way to give effect to itSitesh Mukherjee, Independent Counsel
If the rights under the contract cannot be implemented, an equivalent value may have to be given to Amazon, Mukherjee added. "The question of specific performance may come under a cloud if the CCI order is to hold, but Amazon’s right to claim damages doesn’t go away anywhere."
Specific performance simply means direction to a party by the court to do what it agreed to under the contract.
Amazon’s endgame is to stop Reliance Retail from acquiring Future Retail- as is clear from the share sale restriction it put in the 2019 contract with Future Group. To that end, both the experts agreed, Amazon will challenge the CCI’s suspension order with all its might.