FAQ on CCI order suspending the Amazon Future Deal

In December 2021, CCI levied a penalty of INR 202 crores on Amazon for not notifying CCI about the indirect acquisition of Future Retail and for making false statements regarding the purpose of the Amazon-Future Coupon combination. In addition, CCI also kept its 2019 approval of the Amazon -Future Coupon deal in abeyance. 

Some questions have been raised multiple times in the context of this order. In this post, we will try to address these questions.

(a) Did the CCI not know that the purpose of the combination was in fact an indirect acquisition of FRL? 

CCI provides in the penalty order that “given that the combination is between players who are known in the online marketplace and offline retailing and they have contemplated strategic alignment between their businesses, the Commission considers it necessary to examine the combination afresh…”  Thereby giving the impression that it had no clue about the coming together of two retail companies. However, it is interesting to note that the approval order dated 28th November, 2019 for the same deal provides: 

With respect to the presence of Future Group and certain Acquirer Affiliates in the business of B2C retail, 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 in overall B2C retail or in any narrower segment stated above is not such as to raise any competition concern. Therefore, the Proposed Combination is not likely to raise any competition concern and the exact relevant market definition is being left open.” (emphasis supplied)

In this case, whatever CCI may want to portray now, at the time of approving the deal in 2019, CCI has looked into the impact of the combination on retail business and the indirect acquisition of FRL. Therefore, CCI’s claim that “the misleading submissions, false statements, omission and suppression of material particulars, facts and documents discussed…, have denied and disabled the Commission an opportunity to assess the effects of the actual Combination, with specific focus to the actual intended objectives” is not correct.

However, does it mean that CCI should have overlooked any misrepresentation by Amazon regarding FRL acquisition? The answer is no. It is the duty of the notifying party to provide correct information. The notifying party submits the notice along with an affidavit that all information provided by the notifying party is true. The insistence of Amazon in the response to Request for information (RFI) that FRL deal was not interconnected was indeed a suppression of facts. Whether such suppression affected the competition assessment or if the direction of CCI to hold the combination in abeyance is commensurate with the impact of the misrepresentation is another question. 

(b) Does CCI have the power to keep its approval in abeyance?

CCI has no power to hold any combination in abeyance. It has 210 days from the date of notification to complete its inquiry and within these 210 days, it can either approve or modify or revoke the deal under Section 31 of the Competition Act, 2002. In case CCI doesn’t approve a combination within 210 days, it is deemed to be approved. Therefore, the construct of keeping a combination in abeyance is alien to the Competition Act and it falls foul of the time bound nature of the entire approval process. 

Also, the power in Section 45(2) of passing such other order it may deem fit cannot be used to keep its previous approval in abeyance. The ambit of CCI’s powers under 45(2) is to be necessarily read with the sub-section preceding it, i.e., Section 45(1) which provides for penalty in case of misrepresentation.  

(c) Can CCI unscramble an already implemented combination? 

Unlike its foreign counterparts, CCI does not have specific powers under the Competition Act, 2002 to unscramble an already implemented combination. In fact, the Competition Act, 2002 provides that CCI cannot inquire into a combination after the expiry of one year from the date the combination has taken effect. The Amazon-Future deal took effect in 2019/2020. Therefore, CCI directing that a new notice be filed for a combination which has taken effect in 2019/2020 may be ultra vires the Competition Act. 

However, let us for a minute assume that CCI has the power to call for re-notification of the deal after it has consummated. What are the options available with CCI after it has received the notification?

i. It can approve the deal; or

ii. It can suggest modifications in the deal; or

iii. It can revoke the deal. 

For (ii)  and (iii), CCI will have to launch a Phase II inquiry, which seems improbable given that CCI has already concluded that the retail market is not going to get affected because of FRL and Amazon affiliates coming together. There is no question of the combination going through a Phase II inquiry unless CCI says that its earlier assessment was incorrect. If CCI takes the inquiry into Phase II, then Amazon may rightly request for minutes/notings from CCI for the previous approval order, which may put CCI in a difficult position. 

(d) How does CCI determine how much penalty to impose?

This is a million-dollar question. Look at the order in UltraTech Cement Limited dated 12.03.2018 (Combination Registration No. C-2015/02/246), where the misinformation was directly linked to the market assessment and still CCI chose to levy a penalty of INR Fifty Lakhs and did not put the combination in abeyance. In the Canada Pension Plan Investment Board (CPPIB) case (Combination Registration No. C-2017/11/536), where similar allegations were made, CCI again decided to levy a penalty of INR Fifty Lakhs. To my knowledge, CCI has not come up with any penalty guidelines even for internal consumption and therefore, the penalty amounts are completely arbitrary. One may argue that cooperation from the parties plays a mitigating factor, and the same has been noted in several orders too. However, what is considered to be cooperation is very subjective. 

(e) Lastly, does this order mean that the Future Amazon deal is dead? 

The deal is not dead. As mentioned earlier, the Competition Act, 2002 provides that CCI cannot inquire into a combination after 1 year of its taking effect. This would imply that while Section 6(2A) of the Competition Act, 2002 provides that no combination shall take effect unless 210 days have expired from the date a notice is given to CCI, the Competition Act, 2002 recognises that this is not a sacrosanct rule and that combinations do not automatically get annulled because there is no CCI approval. This argument gains more weight by the fact that Section 43A of the Competition Act, 2002 only provides for a penalty for not notifying the Commission. It does not provide the CCI any power to revoke the deal. 

Under the Competition Act, 2002, CCI has the power to annul a deal only if it determines that the combination has an adverse effect on the competition in the relevant markets and that such adverse effect cannot be mitigated by modifications to the combination. As mentioned earlier, CCI has already assessed the impact of the combination on the retail market and therefore, it may not be in a position to now contradict its own earlier assessment. 

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