NCLAT Upholds Imposition Of Rs. 200 Crores Penalty On Amazon By CCI As "Fair And Sensible"

Background Facts

Amazon.com NV Investment Holdings LLC ("Amazon"), a subsidiary of Amazon.com Inc. Amazon wanted to notify a 'Combination', bearing Registration No. C- 2019/09/688, to the CCI through a Notification dated 23.09.2019 ("Notice"), as per Section 6(2) of the Competition Act, 2002, in Form I of Schedule II to the CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 ("Combination Regulations").

The Combination was with respect to acquiring of 49% shareholding in Future Coupons Pvt. Ltd. alongwith other transactions. In 'Part V: Description of the Combination' of the aforesaid Notice, the Combination notified by Amazon comprised the following 3 transactions:

• Transaction I: The issue of Nine Million One Hundred and Eighty Three Thousand Seven Hundred and Fifty-Four (9,183,754) Class A voting equity shares of Future Coupons Pvt. Ltd ("FCPL") to Future Coupons Resources Private Limited ("FCRPL"). Prior to, and immediately post issuance of such equity shares, FCPL will be a wholly owned subsidiary of FCRPL;
• Transaction II: The transfer of Thirteen Million Six Hundred and Sixty Six Thousand Two Hundred and Eighty Seven (13,666,287) shares of FRL held by FCRPL (representing Two decimal Five Two Percent (2.52%) of the issued, subscribed and paid-up equity share capital of Future Retail Limited ("FRL"), on a Fully Diluted Basis) to FCPL;
• Transaction III: The acquisition of the Subscription Shares representing Forty Nine percent (49%) of the total issued, subscribed and paid-up equity share capital of FCPL (on a Fully Diluted Basis) by Amazon, by way of a preferential allotment.

Amazon had also submitted that it did not have any direct or indirect shareholding in FRL and it would not acquire directly any rights in FRL. Amazon only had limited investor protection rights in FCPL with a view to protect the value of its investment in FCPL. These rights can be exercised only through FCPL and not directly by Amazon.

Based on the information furnished by Amazon, the CCI had granted approval to the 'Combination' vide an order dated 28.11.2019.

Proceedings Before CCI

On 25.03.2021, the FCPL filed an application before the CCI under Sections 43A, 44 and 45 of the Competition Act, 2002 (Act, 2002), in relation to the acquisition of 49% shareholding in FCPL by Amazon. It was submitted that Amazon has initiated arbitration proceedings in relation to transfer of assets of FRL, a company in which FCPL holds 9.82% of the shareholding, and there are related litigations pending before the constitutional courts. It was alleged that Amazon had taken completely contradictory stands in the arbitration proceedings and constitutional courts with respect to its investments in FCPL, as compared to the representations and submissions made before the CCI. Such contradictions were said to establish false representation and suppression of material facts before the CCI.

The CCI was of the prima facie view that Amazon failed to identify and notify FRL Share Holding Agreement as a part of the 'Combination', in terms of Regulation 9(4) and Regulation 9(5) of the Combination Regulations; Amazon had concealed its strategic interest over FRL; and Amazon had made false and incorrect representations and concealed/suppressed material facts in contravention of the provisions of the Act, 2002. Accordingly, the CCI had issued a Show Cause Notice under Sections 43A, 44 and 45 of the Act, 2002 to Amazon, on 04.06.2021.

After perusal of facts and materials on record, the CCI vide an order dated 17.12.2021 had arrived at the conclusion that Amazon had suppressed "the actual purpose and particulars" of the 2019 deal and sought to "establish false representation and suppression of material facts". It was observed that it was necessary to examine the deal afresh and hence its approval "shall remain in abeyance" until then.

The CCI had also imposed a penalty of Rs. 200 Crore on Amazon for failing to identify and notify the FRL Shareholders Agreement as a part of the deal, which was an obligation under Section 6(2) of the Competition Act, 2002.

"As regards failure to notify combination in terms of the obligation cast under Section 6(2) of the Act, Section 43A of the Act enables the Commission to impose a penalty, which may extend to one percent of the total turnover or the assets, whichever is higher, of such a combination. Accordingly, for the above mentioned reasons, the Commission hereby imposes a penalty of INR Two Hundred Crore upon Amazon".

"In exercise of the powers conferred under sub-section (2) of Section 45 of the Act, the Commission hereby directs Amazon to give notice in Form II within a period of 60 days from the receipt of this order, and, till disposal of such notice, the approval granted vide Order dated 28th November, 2019, in Combination Registration No. C-2019/09/688, shall remain in abeyance".

Proceedings Before The NCLAT

Amazon filed an appeal before the NCLAT challenging the CCI order dated 17.12.2021 on the issues of imposition of Rs. 200 Crore penalty; keeping in abeyance the approval granted to the 'Combination' of Amazon; and certain findings against Amazon in the said order.

Contentions Of Amazon

The Appellant, Amazon, submitted that the Investor Affiliate, Amazon Seller Services Private Limited ("ASSPL"), was not acquiring any `Shares' or `Voting Rights' or `Assets' or `Control' in `Future Retail Limited' (`FRL') and as such, hence, Section 5 of the Competition Act, 2002 was not attracted. It was further submitted that the proviso to Section 20(1) of the Competition Act, 2002, bars the CCI from enquiring into a consummated transaction, after a year has passed since the transaction came into effect. It was submitted that the limitation to enquire had got over on 26.12.2020. Also, since CCI had given approval on 28.11.2019, it could not have been revoked or kept in abeyance.

Amazon contended that only Section 44 of the Competition Act, 2002 was applicable to the case, as it applies to parties to a `combination', filing a notice under Section 6 (2) of the Competition Act. However, as there was no `misstatement' or `misrepresentation' or `false information' that was material to the CCI's assessment of the `notified Combination', hence the said provision was inapplicable to the case. Further, CCI being a `Statutory Authority' is not to be permitted to improve its case in Appeal as per decision of the `Hon'ble Supreme Court' in Mohinder Singh Gill V Chief Election Commissioner, 1978 1 SCC.

Contentions Of The CCI

The Respondent No.1, CCI, contended that the approval of `Combination' by CCI on 28.11.2019 was limited to the overlapping `Business Activities' of Amazon, `FCPL' and the `Group Entities' and was adjudged unlikely to cause any `Appreciable Adverse Effect' on `Competition' in India. Further, the approval Order dated 28.11.2019 did mention that it was contingent and shall stand `revoked' if at any time, the information provided by Amazon was found to be incorrect. Therefore, the CCI's approval cannot be "construed as showering immunity in any manner from later proceedings before it for the `Breach of other Sections of the Act'".

Further, CCI has the power to revoke an `Approval' or keep the same in abeyance, as per decision of the Supreme Court in Sahara India Real Estate Corporation Ltd. v SEBI & Another, (2013) 1 SCC.

Decision Of The NCLAT

The NCLAT opined that an Authority who imposes a penalty performs a `Duty', an exercise of discretion must be done according to the rules of reason and justice. Undoubtedly, the `Discretionary Power' is to be reasonably and fairly exercised in a `judicious' and `sound' manner and ought not to be `vague', `whimsical', `fanciful', `arbitrary' and `capricious' one.

The NCLAT held that Amazon in order to conceal its violations, had intentionally concealed the `real ambit and purpose' of the `Combination'. However, the imposition of maximum penalty of Rs.1 Crore each by the CCI under Section 44 & 45 of the Act, 2002 was slightly on the higher side and excessive one. "As such, this `Appellate Tribunal', based on the relevant facts and circumstances of the case, Viz., availability of competitions in the market, financial health of the industry, etc., which float on the surface and also, in the teeth of the `1st Respondent/CCI' in the impugned order dated 17.12.2021 had provided an opportunity to the `Appellant/Amazon' to file a fresh `Notice' in Form II, etc., to prevent an `aberration of justice', in `furtherance of justice', exercising its prudence and as a mitigating factor, imposes a penalty of Rs.50 Lakhs (Rupees Fifty Lakhs) each, as per Section 44 and 45 of the Competition Act, 2002, and the said sum, is directed by this `Tribunal' to be paid by the `Appellant/Amazon', within 45 days from today."

The Bench also upheld that Amazon had failed to provide the relevant information on the `Combinations' being responsible and accountable in not giving `Notice' as required and in this regard. "This `Tribunal', to secure the `ends of justice' is not displacing the imposition of penalty of INR Rs.200 Crore levied upon the `Appellant/Amazon' by the `1st Respondent/CCI' in the `impugned order' dated 17.12.2021, since the same is a fair and sensible one, as per Section 43A of the Competition Act, 2002. As such, this `Tribunal' directs the `Appellant/Amazon' to pay the sum of Rs.200 Crore within 45 days from today, Also, this `Tribunal' directs the `Appellant/Amazon' to give notice to the `1st Respondent/CCI' in `Form II' within 45 days from today (the date of passing of this `Judgment') and till the disposal of such notice, by the `1st Respondent/CCI', the `Approval' granted on 28.11.2019 (vide Combination Registration No.C-2019/09/688), shall be `kept on hold'."

Case Title: Amazon.com NV Investment Holdings LLC v Competition Commission of India & Ors., Company Appeal (AT) No. 01 of 2022

Counsel For Appellant : Mr. Gopal Subramanium, Mr. Arun Kathpalia and Mr. Amit Sibal, Senior Advocates Mr. Pavan Bhushan, Ms. Ujwala Uppaluri, Ms. Hima Lawrence, Ms. Bani Brar, Mr. Kaustubh Prakash, Mr. Aishvary Vikram Singh, Mr. Swapnil Singh, Mr. Saksham Dhingra, Mr. Vinay Tripathi, Mr. Anand Pathak, Mr. Shashank Gautam, Ms. Sreemoyee Deb, Mr. Rajat Moudgil, Ms. Anubhuti Mishra, Mr. Amit Kr. Mishra, Mr. Vijay Purohit, Mr. Mohit Singh, Mr. Shivam Pandey, Ms. Samridhi Hota, Ms. Nikita Bangera, Mr. Chetan Chawla, Ms. Didon Misri, Mr. Rishabh Juneja, Mr. Sanyam Juneja, Mr. N. Subramaniam and Ms. Nandini Sharma, Advocates.

Counsel For Respondent-1 : ASG Mr. N. Venkataraman with Mr. Manu Chaturvedi, Mr. Chandrashekhar Bharathi and Sanyat Lodha, Advocates. Ms. Shama Nargis (Deputy Director Law, CCI, R1)

Counsel For Respondent-2 : Mr. Mukul Rohatgi and Mr. Harish Salve, Senior Advocates Mr. Ramji Srinivasan and Mr. Dayan Krishnan, Senior Advocates with Mr. Mahesh Agarwal, Mr. Pranjit K Bhattacharya, Mr. Rishi Agrawala, Mr. Raghav Shankar, Ms. Rajshree Chaudhary, Advocates.

Counsel For Respondent-3 : Mr. Krishnan Venugopal and Mr. Saurabh Kirpal, Senior Advocates with Mr. Rajat Sehgal, Advocate.

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