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CAIT rebuts Amazon stand that CCI has no power to revoke approval for deal with Future Retail

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The Confederation of All India Traders (CAIT) has questioned Amazon's recent comment that the Competition Commission of India (CCI) had no power to revoke the approval it granted for the Future Coupons deal and said that if Amazon felt that way, it should not have turned up for hearings of CCI

CAIT rebuts Amazon stand that CCI has no power to revoke approval for deal with Future Retail
The Confederation of All India Traders (CAIT) has criticised Amazon's recent comment that the Competition Commission of India (CCI) had no power to revoke any approval once granted.
In 2019, the CCI had approved Amazon's $200 million investment in Future Coupons Private Limited.
A Reuters reported quoted Amazon as saying in its submission that the power to revoke an approval was a drastic power and was not available to a statutory authority unless expressly provided in Indian law.
CAIT has said that if Amazon felt that way, it should not have turned up for the hearings of CCI and could have told the regulator as much.
"Surprisingly, they did not invoke this during various hearings in any court including recent hearing in the Supreme Court," the CAIT release said, adding, "…it’s an afterthought just to get the matter escaped from CCI."
Following is the text of the full press release from CAIT
While referring the media report, CAIT submits:
(1) CAIT does not engage itself in surreptitious and clandestine activities. CAIT is now transparently bringing out the arguments made before the CCI, which conclusively prove with evidence from Amazon’s own internal records that Amazon deceived the CCI and fraudulently obtained the approval from CCI in 2019.
(2) It is worth mentioning that the matter was heard by CCI and hearings could be concluded in a time-bound manner only because of the PIL filed by CAIT in Delhi High Court, which directed CCI to complete the proceedings and dispose off the matter immediately.
(3) The application to the CCI is legally called ‘Notification’ and the transactions for which approval is sought is called ‘Combination’.
(4) The Competition Act, the Regulations and the Forms prescribed therein require the applicant to:
(a) Truthfully notify all interconnected transactions in the Combination and seek approval of the CCI.
(b) To enclose the internal documents through which approval was obtained for the Combination from the board/ key managerial personnel of the applicant.
(c) To declare and affirm (A) true and complete particulars of the Combination have been notified; (B) all documents have been furnished; (C) all information and documents furnished are true, correct and complete.
(5) The above requirements are because when a Combination is notified, the CCI does not investigate and find out what is the actual Combination. Further, the CCI is supposed to give its decision on the Combination in a time-bound manner.
(6) Amazon, as is its wont, made false representations, made a mockery of the requirements of the Competition Act and the Regulations, deceived and misled the CCI and obtained the approval.
(7) The arguments made and the evidences presented before CCI were set out below.
(8) Scope, Purpose and Rationale of the Combination as represented by Amazon in the Notification:
(a) Amazon is investing Rs. 1,431 crore in FCPL because of the growth potential of the gift and loyalty card business of FCPL. Paragraph after paragraph, FCPL’s gift and loyalty card business was explained.
(b) Amazon is not acquiring any indirect stake in FRL.
(9) Against the above, see the following extracts from the email sent by Mr. Rakesh Bakshi, Amazon India to Mr. Jeff Bezos, the CEO of Amazon, US seeking his final approval for the Combination:
‘Structure: Due to the recent PN2 restrictions under Indian foreign investment laws, we will use a “twin-entity investment” structure to invest in Future Retail.
The number of equity shares of Future Retail to be held by Future Coupons has been calculated such that Amazon can indirectly hold the same number of shares of Future Retail that Amazon would have acquired if Amazon had directly invested INR14B in Future Retail at a price per share representing a 25% premium on the minimum regulatory price prescribed for issuance of fresh shares of a listed entity under Indian law. In summary, Amazon is paying a premium of 25% (INR2.8B i.e ~$41MM at current exchange rates) over the regulatory price of the securities of Future Retail. This premium is being paid on account of the strategic rights and Call Option being provided to Amazon.’
(10) What a glaring contrast. The approval sought from Mr. Jeff Bezos and the approval given by him is for the following transaction:
(a) The investment of Rs. 1431 crore is in FRL and not FCPL. FCPL is only a vehicle in the ‘twin-entity’ structure.
(b) The value ascribed to FCPL as per the above email is simply ‘ZERO’
(c) The Rs. 1,431 crore has been arrived at in the following manner:
(i) Shares of FRL that will be held indirectly by Amazon – 2,61,02,421
(ii) Preferential issue price of FRL as on 22-08-2019 – Rs. 438.58 per share
(iii) Price after applying 25% premium for the strategic rights over FRL acquired by Amazon – Rs. 548.28 per share
(iv) Total investment by Amazon = (i) x (iii) = Rs. 1,431 crore
(d) Where is FCPL in all this? The whole email does not talk a word about FCPL’s business.
(11) Amazon’s representations on interconnected transactions in the Combination
(a) There are no interconnected transactions other than those notified.
(b) The only transaction documents executed in connection with the aforesaid Combination are FCPL SSA and FCPL SHA.
(c) The Business Commercial Agreements (BCAs) between Amazon and FRL and other affiliates are normal routine agreements, not part of the Combination and not connected to Amazon’s investment in any manner whatsoever. This was stressed atleast 5 times and Amazon specifically asked the CCI not to examine the BCAs.
(d) Amazon represented that Amazon by itself did not desire any right over FRL, the multi-brand retail company.
The FRL SHA was entered into independent of investment by Amazon and without the knowledge of Amazon between FCPL and FRL prior to Amazon’s agreement with FCPL on 22-08-2019.
(e) FRL SHA is not a part of the Combination.
(12) See the following evidences:
(a) Amazon’s internal email from its lawyer to the lawyer of Future group which states that FRL SHA has to be entered into between FRL and FCPL for Amazon to get strategic rights over FRL has been given to CCI.
Amazon only insisted on the FRL SHA – is it not an interconnected transaction?
(b) Extracts from the following emails to Mr. Jeff Bezos on the BCAs: ‘To execute on the above Business Commercial Framework (BCF) the founder of Taj believes a close alignment via a strategic investment with an online player is important.
As of last week, we have aligned with Taj on an investment framework to proceed further with this transaction. A Business Commercial Framework (BCF) to build and accelerate Ultra-Fast Delivery across top-20 cities in India leveraging Taj’s national stores footprint as a Copperfield seller, is agreed in principle with Taj team;
We believe that a two-hour delivery promise, for 15,000 SKUs across top-20 cities will be a unique differentiating capability. It will allow us to cover 85% of our Prime members and 63% of all customers. To serve this customer base, we believe working closely with a large Copperfield seller is important. We believe that Taj is one of two key pan-India retailers worth pursuing (the other being Brigade). Taj has a strong portfolio of private label selection in grocery (450+SKUs, across packaged foods, home and personal care) and value fashion (27 brands with a median ASP of $9.2 (INR 600), contributing to 80% of their GMS for fashion). Against our investment of $400 to 600MM in TRL, we estimate the discounted cash flow value of BCF over 10 years of $702MM (INR 45.6B);…….’
Note: Taj is FRL and BCF is the BCAs in the above email.
(13) It is clear from the above that there cannot be more white lies.
(14) Para 8.8 of Form I requires the following to be annexed to the Notification:‘8.8 Documents, material (including reports, studies, plan, latest version of other documents), etc. considered by and/or presented to the board of directors and/or key managerial person of the parties to the combination and/or their relevant group entities, in relation to the proposed combination.’
(15) There cannot be any doubt that all emails to Mr. Jeff Bezos through which Amazon obtained his approval should have been annexed against Para 8.8. of Form I. Mr. Jeff Bezos is not a clerk in Amazon, he is the CEO and hence KMP.
(16) Amazon deliberately did not annex the above emails. This is wanton omission to mislead the CCI.
(17) Further, Amazon deliberately attached a business plan of gift and loyalty card business of FCPL as if the money of Amazon was to be invested in this business of FCPL and Amazon would reap returns on such investment. This is a deliberate falsification to deceive the CCI.
(18) If all the above are not deception, what else is deception?
(19) Amazon’s counsels could not counter any of the allegations or evidence produced before the CCI. (20) CCI requires no further proof or evidence and should immediately revoke the approval. The only legal consequence of the above deception and hoodwinking played by Amazon over CCI is revocation of the approval granted by CCI to Amazon.
(21) Infact, CCI’s approval order provides that the order shall stand revoked if, at any time, the information provided by the Acquirer is found to be incorrect. When the approval order itself provides for revocation as the consequence in case of submission of incorrect information, how there can be any doubt that for an act of deception, the CCI cannot revoke the order?
(22) Mr. Gopal Subramaniam, Amazon’s counsel rightly argued that - if there is ‘deception’ in any Notification, that approval has to go. There cannot be any worst deception than the above. Therefore, as per Amazon’s own submission, the approval granted by CCI has to be annulled.
(23) Amazon, which wrote to CCI on 24-11-2021 to cancel the approval granted by CCI for Future – Reliance deal argued before the CCI that the CCI has no power to revoke an approval already given. So Amazon wants the law of the land to apply differently for the white-skinned Amazon and apply differently for black-skinned Indian companies and public.
(24) We have brought the above to the attention of the public so that the true colours of Amazon are brought out in the open.
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