Regulations and disclosures

No room for arbitrary distinction between foreign & domestic retailers

In a setback to Amazon, the National Company Law Appellate Tribunal (NCLAT) rejected its appeal challenging the Competition Commission of India’s (CCI’s) order related to a 2019 deal worth Rs 1,431 crore with the Future Group. The tribunal on Monday also upheld the penalty of Rs 200 crore. Amazon is expected to move the Supreme Court against the NCLAT order. Although it remains to be seen how the issue is eventually settled, the case is yet another example of India’s complex regulatory environment, which often affects business. This story started with Amazon’s purchase of a 49 per cent stake in Future Coupons Pvt Ltd for Rs 1,431 crore in 2019, which was approved by the competition regulator. However, the deal was put in abeyance in 2021 by the CCI and a penalty was imposed on Amazon for suppressing information.

The appellate tribunal has upheld the view that Amazon had misled the CCI with false statements and by omitting relevant information. Amazon is said to have given an impression that it was interested in the Future Coupons business, but the transaction was being followed for having a “foot-in-door” of the Indian retail sector. Future Coupons holds equity in Future Retail, the retail arm of the Group. People in the know of Amazon’s legal defence claim it was clearly noted that the company’s investment was strategic in nature. This was done with a view that at some point the government will allow foreign investment in multi-brand retail. So far, however, the retail giant has not been able to persuade the relevant authorities about its legal position.

However, the entire issue became more complex when the Future Retail board approved a Rs 24,713-crore deal with Reliance Retail. Consequently, Amazon approached the Singapore International Arbitration Centre to halt the deal, claiming that the Future Group was violating the contract, and managed to get a stay, though the deal was approved by the CCI. This may not be relevant anymore as Reliance Retail in April decided not to follow the deal after secured lenders of the Future Group opposed the scheme and it could not be approved. The voting was conducted in line with a February order of the National Company Law Tribunal, which followed a Supreme Court order allowing the Future Group to seek the approval of the creditors and shareholders in the context of sale to Reliance Retail.

While it remains to be seen how Amazon defends its position if it appeals in the apex court to restore its deal and avoid the fine, two important points are worth highlighting here. First, the arbitrary distinction between foreign and domestic organised retailers is unnecessarily creating complications. India should not have a situation where a large investor is seen to be having a foot in the door with the hope that someday the government will allow it to invest. The initial argument that foreign investment in multi-brand retail will adversely affect local kirana shops no longer holds because large Indian business groups with deep pockets have entered the market. Thus, holding foreign investment will only help these businesses instead of small shopkeepers. Second, it’s not clear why it was necessary to allow voting for a deal which was being contested in an international forum. At a broader level, to attract long-term investments it is important to have fair and equitable regulations, and openness to accept international arbitrations.