Will CCI Be The Knight In Shining Armour For Future Retail?
India’s competition regulator has found itself at the centre of a litigation battle between U.S. e-commerce major Amazon and Kishore Biyani’s Future Retail Ltd. Soon, the Competition Commission of India will have to pick a side. And that’ll entail the regulator having to review a decision it took way back in 2019.
The regulator’s intervention has been called for by Future Retail’s independent directors claiming that Amazon misrepresented its intent at the time of making the investment. And so, the CCI should revoke its order approving the e-commerce major’s investment in Future Coupons Pvt., the parent company of Future Retail.
Two competition law experts BloombergQuint spoke with said it’s unlikely the CCI will come to Future Retail’s rescue.
“I think the CCI will have its task cut out if it wants to revoke its 2019 order,” Karan Chandhiok, partner at law firm Chandhiok & Mahajan, said.
The CCI will have to actually pinpoint what was the material misrepresentation made, or disclosure that was incomplete which could have led to a different outcome as far as this approval is concerned.Karan Chandhiok, Partner, Chandhiok & Mahajan
Rahul Singh, partner at law firm Khaitan & Co., holds the same view. On the material disclosure allegation, “I don’t see much of an issue [for Amazon].”
Any lawyer worth his or her salt can tell you, it’s not a cakewalk to just get an approval from the CCI unless you satisfy the regulator. Therefore, I find it slightly surprising that somebody is making a claim today that somehow there was something which was not disclosed at that point in time to the commission.Rahul Singh, Partner, Khaitan & Co.
CCI’s Power Of Revocation
The Competition Act, 2002 doesn’t specify circumstances in which an order, granting approval to a deal, can be revoked. But by way of decisional practice, all approvals by the regulator come with a specific language — that the order shall stand revoked if, at any time, the information provided by the acquirer is found to be incorrect.
All approvals the regulator gives are conditional on parties making full and frank disclosures. This has been by way of decisional practice since the act itself is silent on the CCI’s revocation powers, Chandhiok said.
And then there are Sections 44 and 45 which give the CCI power to impose penalty for making false statement or omitting to furnish material information, he said.
In the past, the regulator has imposed penalties under this section when Canada Pension Plan Investment Board and ReNew Power Ltd. failed to notify an inter-connected transaction. It also penalised UltraTech Cement Ltd. for claiming Century Textiles & Industries Ltd. and Kesoram Industries Ltd. are competitors even though its promoter — the Birla family — held stake in these two companies.
Under Section 45, there’s also a residuary clause which allows the CCI to pass any orders that it deems fit. Perhaps the regulator can derive the revocation power from here. But equally, once a transaction has closed and a year has passed, the CCI’s jurisdiction to unscramble that transaction goes away.Karan Chandhiok, Partner, Chandhiok & Mahajan
That’s under Section 20 which says that the CCI shall not initiate any inquiry after the expiry of one year from the date on which such combination has taken effect.
Here, Chandhiok said, you have a scenario where there’s a question of whether material information was given or not. But even in an extreme situation where the parties have not notified the CCI at all, there’s a one-year limitation on initiating inquiry.
“I think the intent of Parliament was to limit the CCI’s jurisdiction in revoking where mergers, acquisitions have already taken place and a year has passed. Though we don’t have a precedent for this, this will be a limiting factor.”
What Was ‘Concealed’ From The CCI?
In 2019, the CCI had approved Amazon.com NV Investment Holdings LLC’s 49% investment in FCPL — a promoter entity of Future Retail. The regulator’s order had noted that certain intra-promoter group transactions will precede Amazon’s investment, including acquisition of 7.30% stake by FCPL in Future Retail.
Prior to these transactions, Amazon’s India legal head Rakesh Bakshi had exchanged emails with Jeff Bezos which reveal its true intent, the independent directors have claimed. In brief, they’ve alleged, Amazon told the CCI that its intent was to grow Future Coupons’ business but its interest lay mostly in Future Retail.
So, will masking the alleged true intent amount to material non-disclosure?
Singh responded in the negative saying that given the CCI’s track record of thorough investigation of deal documents, it’s unlikely that the shareholder agreements weren’t submitted.
I would err on the side of assuming all of those transaction documents were disclosed to the commission. I would be very surprised that the CCI gave an approval without any of those agreements being submitted to it.Rahul Singh, Partner, Khaitan & Co.
Intuitively, he said, it’s safe to assume that everybody, including the CCI, read the schedule that had restrictive covenants. “Neither Bezos, Amazon nor the independent directors are naïve. I’m absolutely sure the regulator isn’t either.”
The CCI’s order itself bolsters this assumption, Chandhiok pointed out.
In its order, the CCI had done an assessment of overlapping businesses of Amazon and Future Retail. It found no competition concerns in neither B2B (business-to-business) sales market — that is, Amazon branded devices, digital payment and online marketplace/intermediation services — nor the B2C (business-to-consumer) retail market.
“…the commission carried out the assessment at overall India retail market level, separately for organised segment, and within organised segment separately for other narrower segments. The commission observed that the presence of FRL and Acquirer Affiliates [Amazon] in overall B2C retail or in any narrower segment stated above is not such as to raise any competition concern.” – The CCI’s 2019 order
And so, the CCI had approved Amazon’s investment in Future Coupons saying it’s unlikely to cause any appreciable adverse effect on competition.
The CCI actually did its job. It had done an overlap analysis with Future Retail since it realised because of the nature of the interconnected transactions, the nature of how Amazon could perhaps influence Future Retail, it’s important to see how these two groups are coming together, Chandhiok said.
Having done this analysis, I think it’ll be very difficult for the CCI to say, I seemed to have missed something since it was not disclosed to us and now that you are actually a strategic investor, I need to do that analysis again today. More importantly, they’ve already done that analysis in 2019 and so I think it will be very difficult for the CCI to go back and say I missed something.Karan Chandhiok, Partner, Chandhiok & Mahajan
The Potential Game Plan
When asked why is it that the independent directors are making these allegations two years after the transaction with Amazon, Ravindra Dhariwal had told BloombergQuint that it’s only now for the first time, they’ve been told that the Amazon-Future Coupons and Future Coupons-Future Retail shareholder agreements have to be read together. Dhariwal, along with Gagan Singh and Jacob Mathew, is an independent director on Future Retail’s board.
It could all be an attempt to prove that the agreements are bad in law, Hiroo Advani, founder at Advani & Co. and an arbitration law specialist, told BloombergQuint. That would help Future Retail thwart a negative outcome it may face in international arbitration with Amazon, and give legs to its deal with Reliance Retail Ventures Ltd.
If there is a specific adverse finding by the CCI to say that the agreements are anti-competitive, then the enforcement of the SIAC (Singapore International Arbitration Centre) arbitral award, if in favour of Amazon, can potentially be challenged on public policy grounds.Hiroo Advani, Founder, Advani & Co.
It could also be that the transactions documents specified the CCI approval as a condition precedent. If by some magical wand that approval were to go away, a condition precedent is not met in the first place, Chandhiok said. “So it can then be argued before the court that the conditions for closing were never met, and the agreement is void. It’s a long shot but considering what we see these days in arbitration and in courts, nothing is far-fetched.”
The CCI is set to hear all parties on Jan. 4, 2022.