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Future Retail Independent Directors ask CCI to revoke approval of Amazon’s investment in Future Coupons

The independent directors alleged that Amazon is harming the livelihood of lakhs of people.

The independent directors of Future Retail on November 7 sent a letter to the Competition Commission of India (CCI) asking the antitrust watchdog to revoke the approval given to Amazon’s acquisition of Future Coupons in 2019. “It is clear that Amazon has concealed facts, made misrepresentations and false representations to the Commission,” the directors wrote.

The Confederation of All India Traders (CAIT) on November 8, based on the arguments made by the independent directors’, wrote its own letter asking CCI for the same.

Recap: In November 2019, Amazon received approval to acquire a 49 percent equity in Future Coupons, the promoter entity of Future Retail, which operates 900 stores in India. Since Future Coupons owned a 7.3 percent stake in Future Retail, the deal gave Amazon a 3.58 percent stake in Future Retail. Then, in August 2020, Reliance announced that it will buy most of Future Group’s retail, wholesale, and logistics business in a deal worth Rs 24,713 crore. Amazon objected to this acquisition saying it had the right of first refusal because of its stake in Future Coupons. Both Amazon and Future have been engaged in a legal battle over this issue since October 2020, which you can read all about here. Most recently, on October 20, a Singapore arbitration court ruled in favor of Amazon, rejecting Future Retail’s plea to be excluded from the ongoing dispute. The court said that Future Retail is a party to the agreements signed between Amazon and Future Coupons and must participate in the arbitration process, which is set to begin sometime this month.

Why this matters: If CCI finds merit in the arguments made by the independent directors, it has the power to revoke the approval given to Amazon, rendering the company’s right of first refusal to the Reliance—Future deal ineffective.

MediaNama has sought comments from Amazon India and will add any response we get to this post.

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Why should CCI revoke the approval given to Amazon?

In their letters, the independent directors and CAIT point out that Amazon made contrasting submissions to the CCI and the Singapore arbitration tribunal and Indian courts regarding its investment in Future Coupons:

Amazon has falsely represented that it was investing in the business of Future Coupons Private Limited (FCPL) and taking indirect protective rights in FRL [Future Retail Limited] to protect its investment and obtained CCI approval. Whereas the actual fact is Amazon was indirectly investing in Future Retail and obtaining strategic material and special rights over FRL. — CAIT

Amazon’s submission to CCI vs representations at the Singapore arbitration tribunal and Indian courts: 

  1. Purpose of investment:
    • To CCI: Amazon told CCI that it was investing Future Coupons “only due to the unique business model of gift and loyalty cards business of FCPL and its strong growth potential,” the directors note.
    • To arbitrators and courts: But based on what Amazon told arbitrators and courts, it is clear that the investment was “to obtain the special and material strategic rights over FRL’s business and retail assets,” the independent directors said. “FRL’s assets and business represented a significant and irreplaceable asset to Amazon,” the directors added.
  2. Amazon’s role in Future Coupons’ rights over Future Retail:
    • To CCI: Amazon told CCI that the rights obtained by FCPL over FRL were negotiated independently of Amazon’s investment and that Amazon had nothing to do with the shareholders’ agreement between FRL and FCPL.
    • To arbitrators and courts: But from its arguments made to arbitrators and courts, it became clear that “the shareholder’s agreement between FCPL and FRL was at the behest of and as per the requirement of Amazon,” CAIT argues. “The special, material and strategic rights over FRL in the FCPL SHA were contractually agreed, promised and provided to Amazon as a material consideration for the investment in FCPL,” the independent directors argued.
  3. Enforceable rights over Future Retail:
    • To CCI: Amazon told CCI that its indirect rights over Future Retail were only for the
      purpose of protection of its investment and that it will not exercise these rights directly but only through FCPL.
    • To arbitrators and courts: But the directors point out that Amazon has directly enforceable rights over Future Retail including on key matters of FRL such as sale of retail assets and business of FRL. “Amazon has significant strategic rights over FRL superior to all the shareholders of FRL, superior to the rights of lenders and creditors of FRL. In effect, Amazon has usurped the rights of shareholders of FRL without holding even a single share in FRL,” the independent directors explained.

“It is clear that the transaction approved by the Commission (that is a simple investment by Amazon in FCPL, with only investment protection rights) is not the one which is now claimed by Amazon,” the directors point out.

CCI had already asked Amazon for an explanation in June

Notably, following a complaint by Future Group, CCI in a letter dated June 4 accused Amazon of concealing facts and making false submissions when it sought approval for the Future Coupons investment.

“Amazon has concealed its strategic interest […] Such interest and the purpose of the combination … was not disclosed to the Commission despite specific requirements,” Reuters cited the letter as stating. The letter further asks why the competition watchdog should not penalize Amazon and revoke the deal.

At the time, Amazon told Reuters that “it was committed to complying with India’s laws and would extend its full cooperation to the CCI.”

What would have happened if CCI knew the “facts”?

The independent directors argue that if the CCI had known Amazon’s true intent it would have examined the proposed transaction through a different lens and done the following:

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  1. Approached SEBI: The CCI would have referred the matter to SEBI to check whether it is in compliance with SEBI laws and regulations. “SEBI would have responded that the transaction triggers an open offer by Amazon, which if not done will make the transaction illegal,” the independent directors wrote.
  2. Approached Department of Economic Affairs (DEA) and Enforcement Directorate (ED): CCI would have forwarded the papers to DEA and ED for examining if the acquisition is allowed under FEMA regulations. “DEA and ED would have responded that Amazon, being a foreign entity, would require prior approval of Central Government before effecting the [open offer] transaction, without such approval, the transaction would have been illegal and invalid,” the independent directors noted.

Why Future needs the Reliance deal?

The independent directors allege that Amazon is harming the livelihood of lakhs of people and costing a huge sum of public funds by preventing the Reliance—Future deal from going through:

“FRL is on the brink of bankruptcy, putting to risk (a) over Rs. 30,000 crore of loans extended by public sector banks to FRL and other group companies; (b) employment of 50,000 employees of Future group; (c) repayment of Rs. 10,000 crore to over 6,000 SMEs, who would otherwise become insolvent.”

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