The National Company Law Appellate Tribunal (NCLAT), in a recent judgment, upheld the ₹200-crore penalty imposed on e-commerce giant Amazon by the Competition Commission of India (CCI) and directed the company to pay it within 45 days.

The CCI order, dated December 17, 2021, penalised Amazon for “misleading” the anti-trust regulator through “false statements” and “material omissions” on its dealings with the Future group. The CCI’s decision came two years after some irregularities were flagged in Amazon’s proposed acquisition of a 49 per cent shareholding in Future Coupons Pvt Ltd (FCPL), which had been earlier approved by CCI.

Combinations and competition

The term ‘combination’ is defined under Section 5 of the Competition Act, 2002, which outlines the conditions under which (i) the acquisition of enterprises by one or more persons; or (ii) a merger or amalgamation of enterprises would be treated as a combination.

While the terms ‘merger’ and ‘amalgamation’ are not defined, a merger would typically include the creation of unified control over enterprises that were previously distinct independent entities. This may happen either through acquisition of stock or purchase of physical assets of the merging entities.

If any transaction falls within the purview of ‘combination’, it is obligatory to report it to the CCI, as per Section 6 of the act. In other words, the CCI must be notified about the proposed combination before giving effect to it. The prepayment of consideration in part or full would amount to consummation of combination and, thus, be in violation of the act.

Section 6 of the act also stipulates that no enterprise in India shall enter into a combination that causes or is likely to cause an appreciable adverse effect on competition. The factors considered by CCI to determine the anti-competitive effects of a proposed combination include (i) market share of the parties engaging in combination, (ii) the extent of entry barriers, (iii) degree of countervailing power in the market, (iv) likelihood of removal of effective competitors in the market; and (v) relative advantages of the combination. Where there is no likelihood of an appreciable adverse effect on competition, the CCI may approve the combination.

However, if the CCI feels that the combination is likely to have an appreciable adverse effect on competition, it shall direct that the combination should not take effect. The act also provides for penalties on various counts such as (i) non-furnishing of information and failure to issue notice of combination to CCI (under Section 43A of the act), (ii) making false statements or omission to furnish material information to the CCI on a proposed combination (under Section 44 of the Act), and (iii) general omission or suppression of material information (under Section 45 of the Act).

Moot point for CCI

Amazon had notified before the CCI three of its transactions that involved the Future group. However, there was no mention that Amazon intended to have a strategic interest and control either directly or indirectly in the subsidiary company of FCPL, that is, Future Retail Ltd (FRL). Amazon’s interest in FRL and the ultimate objective of entering into a deal with the Future group had become a moot point for CCI.

Upon reviewing the internal documents of Amazon, the CCI observed that the basis of Amazon’s dealings with the Future group was to build an ultra-fast delivery service across top cities in India, leveraging the nationwide footprint of the Future group.

Through these transactions, Amazon wanted to secure its position as the single largest shareholder in FRL when foreign direct investment would be opened up in the retail sector. This was essentially to block competitive interest in FRL and utilise its pan-India presence to Amazon’s advantage.

CCI observed that Amazon had misrepresented itself by claiming that the deal was to expand its portfolio in the payments landscape in India. Further, Amazon had wrongly claimed that it did not have any direct or indirect interest in FRL. As per CCI, Amazon had never indicated that the deal was pursued to give it a foot-in-the-door in the Indian retail sector and acquire strategic rights over FRL. Accordingly, the anti-trust regulator held that it was a wilful case of misrepresenting the purpose of the proposed combination and the deals.

Disclosure vs confidentiality

Amazon, in its defence, made detailed submissions before the NCLAT in the appellate proceedings. Among other things, Amazon stated that the CCI order relied upon internal correspondence dating back to 2018, when Amazon was exploring various investment structures including direct investment in FRL. Amazon also raised the ground of breach of confidentiality as the information relied upon by CCI was stated to be confidential under Section 42A of the Arbitration and Conciliation Act, 1996.

As per the section, an arbitral institution and the parties to the arbitration agreement are required to maintain confidentiality of the proceedings except for the arbitral award where its disclosure is necessary. Further, Amazon contended that only such facts that impinged on the assessment of whether a combination causes, or is likely to cause an appreciable adverse effect on competition would be material for determining the penal action under the act.

The NCLAT, in its judgment, opined that because of the “incorrect disclosures” of Amazon, there was no room for the CCI to have any suspicion that the proposed combination was anti-competitive in nature. Further, Amazon had intentionally not informed CCI of the “real ambit and purpose” of the combination.

Thus, the CCI had no opportunity to evaluate the effects of the actual combination and the order of approval was obtained by Amazon based on the “misstatement of facts”, “misrepresentation” and the lack of “full and frank disclosures”. Accordingly, the NCLAT came to the “inescapable conclusion” that Amazon had not fulfilled its obligation, as set out under Section 6 of the act.

As for the ₹200-crore penalty imposed on Amazon by CCI, the NCLAT opined that it was fair and sensible. The decision on the penalty may be subject to challenge before the Apex Court. Alternatively, Amazon may pay the penalty and give proper notice of the proposed combination to CCI for reexamination. At present, arbitration proceedings are underway between the Future group and Amazon, administered by the Singapore International Arbitration Centre (SIAC).

Recently, the SIAC reportedly refused the plea of Future group to terminate the proceedings initiated by Amazon on account of, among other things, the underlying deals lacking the regulatory approval of CCI. The decision of the NCLAT may stand out as an important milestone in the competition law jurisprudence in India as it deals with a one-of-a-kind case involving the intricate intermingling of powers of the CCI to examine documents while addressing confidentiality norms under the arbitration law.

That said, the matter has not attained finality and there is a likelihood of Amazon approaching the Apex Court to challenge the NCLAT’s order.

The writers are advocates at Phoenix Legal, a law firm