Amazon case

IV HIGH COURT

Intel Technologies India (p) Ltd (Appellant-1), Intel Corporation USA (Appellant-2) v.
Competition Commission of India (Respondent 1), Matric Info System (P) Ltd. (Appellant-2) 1.
It is a review petition under Article 226 before the Karnataka High Court. It is alleged that
there is violation of sections 3&4 of the Act as the Appellants were refusing to provide the
warranty in India for boxed microprocessors which are imported from authorized sources
abroad but not those sourced from the Intel authorized dealers in India. The case of the 2 nd
Respondent is that they are a company incorporated in India. They are in the business of
import and sale of information technology products. They imported 4000 boxes of
microprocessors from Intel in five instances and in three instances claim of warranty were
raised in Dubai and were honoured. However, for warranty of those imported in India the first
Appellant informed them, in view of changed warranty policy they must contact the point of
purchase. On this the second Respondent gave information to the Commission. The case was
registered as Matrix Info System (P) Ltd. V. Intel Corporation. Finding prima facie case, the
Commission ordered the DG to investigate the case. This order of the Commission is subject
matter of challenged in this order. The interim order granted was challenged in S.L.P.(C)
No.12643/2020, in which the Supreme Court ordered that writ petition should be disposed of
within 6 weeks. However, on 2.7.21 another judge of this court to wait till the decision in
Flipkart Internet Pvt Ltd and Another v. CCI. However, the same writ petition was dismissed.

It is submitted by the petitioners that the impugned order of the Commission is in

derogation of the earlier decision of the High Court of Delhi and earlier decision of the
Commission. The Commission’s order results in defeating legitimate expectations and normal
commercial practice. This is not only violative of rules of natural justice but discriminatory as
well. Modification of warranty policy consistent with observations made in similar cases is
part of normal business practice and therefore, cannot be termed as abuse of dominance.
Investigation by the DG will have serious consequences.

On the other hand, the Respondent-Commission submitted that arguments are

misconceived and decisions relied on by the petitioners are not applicable here. Neither rules
of natural justice violated nor legitimate expectations defeated. As order of investigation is
not coercive action (non-binding), it does not require a review by the high Court. The second
Respondent submitted on similar grounds.

After hearing arguments and perusal of papers the High Court declined to intervene on
certain grounds. The MRTP Act was enacted in view of the Directive Principles to avoid
concentration of wealth but liberalisation of economic policies in 1990’s needed a new
competition policy and law. In Steel Authority of India v. CCI 2 the Supreme Court observed
that before ordering the DG to investigate the case the Commission is neither required to hear
the IP nor the OP. Commission is a specialised body performing different types of functions.
Courts should avoid interfering with the functioning of the Commission, with certain
exceptions.

The petitioners have argued that ordering investigation runs counter to what the
Commission said in Ashish Ahuja vs. Snapdeal. com3 and the Delhi High Court decision in
1
Writ Petition no.50727 of 2019 (GM-RES)
2
(2010) 10 SCC 744
3
Case no. 17/2014 decided on 19.05. 2014
Kapil Wadhwa vs. Samsung Electronics co. Ltd4. The petitioners assert that they have
reframed their ‘warranty’ policy in accordance with the ratio of these cases.

Ashish Ahuja case- The ‘informant’ Ashish Ahuja had purchased certain products from the
SanDisk in the open market and not from its authorized distributors and sold them on
Snapdeal which had stopped sale of informant’s products through its portal stating that it is
only the authorized partners of SanDisk who could sell items through Snapdeal. The
informant was asked to obtain an NOC from SanDisk for selling its products through
Snapdeal which had circulated a letter representing that it would offer warranty services only
on those products that are sourced from its four authorized distributors. The commission
observed that insistence by SanDisk that the storage devices sold through the online portals
should be bought from its authorized distributors by itself cannot be considered as abusive as
it is within its rights to protect the sanctity of its distribution channel. It is necessary in a
competition driven market to protect its image and goodwill. According to the High Court
there is substance in the arguments of the Respondent that Ashish Ahuja case, in which goods
were purchased from unauthorised dealers, is different from this case, where goods were not
purchased from unauthorised dealer but from the principal office of Intel, that is authorised
source but from outside India.

Kapil Wadhwa v. Samsung Electronics also does not help the petitioners as it is pleaded
that the respondents have no control pertaining to the sale, distribution and after sales
services of its goods which are imported by the appellants and sold in India… With respect to
after sales services, since the respondents do not warranty anything regarding their goods sold
abroad, but imported into India and further sold, they not being responsible for the warranty
of those goods. As poor service by the Appellant, Wadhwa, might adversely effect reputation
of the Respondent, the Appellants must display prominently that the Respondents do not give
any warranty on goods sold here.

Res judicata – the Court in response to the plea that Ashish Ahuja and Kapil Wadhwa case
constitute res judicata, cites Sir William De Grey in The Duchess of Kingston case5 first, that
judgment of a court of concurrent jurisdiction, directly upon the point, is, as a plea, a bar, or
as evidence conclusive, between the same parties, upon the same matter, directly in question
in another court; secondly that the judgment of a court of exclusive jurisdiction, directly on
the point, is, in like manner, conclusive upon the same matter, between the same parties,
coming incidentally in question in another court, for a different purpose. The High Court says
that these two cases were neither between the same parties nor on the same matter, therefore,
they do not constitute res judicata.

Proceedings under the Competition Act in rem – It was argued by the petitioners that as the
remedy under the Competition Act are in rem, therefore, the petitioners are entitled to benefit
of these two cases. This is observed in Samir Agrawal v. Competition Commission6 by the
Supreme Court of India that remedy under the Act is in rem and effects public interest.
Because of the reason of ‘public interest’ the petitioners are entitled to take the advantage the
two cases (Ahuja and Wadhwa cases). The High Court says that it is difficult to agree with
this logic. If a public policy effects a large number of people, the whole world becomes the
party. That is what is meant by ‘in rem.’ That is even those who are not parties are res
judicated. Even if a proceeding may be in rem its outcome does not necessarily results in res

4
(2012) SCC on line Del 5172
5
(1776) 1 Leach 146
6
(2021) 3 SCC 136
judicating the whole world. In case of an election petition though a large section of public is
interested the case does not result in ‘in rem’ or res judicating the whole world. In Samir
Agrawal the Court has used ‘in rem’ in the context of explaining ‘locus standi’. Additionally,
a precedent is not a statute. Interpretative rules for both of them are different. In Samir
Agrawal the Apex Court used the word rem to explain that the Commission, being under a
duty to ensure fair competition must use information from whatever source, it possible to get
it. Therefore, the ratio, regarding ‘in rem’ in Samir Agrawal should not be applied in a case
where parties and subject matter are different.

Whether section 26 damages he reputation of the petitioners? – The Commission under

section 26 has several alternatives; it can close the case under clause (2), or order
investigation under clause (1) or order investigation or refuse to do so after a preliminary
inquiry, but under clause (1) it cannot do complete inquiry. The argument that orders under
section 26 (1) may tarnish the image of the petitioners, may be true to some extent. The
investigation may be intrusive as well. But similar contention in another case was repelled by
the Divisional Bench of this High Court.

However, the conferment of enormous powers to the DG is to prevent harm by the

powerful market to competition, and competitors. These enormous powers may be countered
by the Commission. The Act provides many safeguards.

Under the Act there are many checks and balances. Hearing opportunities, right to appeal
at several levels, apart from corrective measures by the Commission if an illegality is
committed by the DG. However, the investigation by the DG is in the nature of administrative
function. The petitioners could not show if any wrong has been done to them. They approach
the High Court in haste without any real grievance. A cost of Rs. Ten lakhs is imposed on
them, which is payable to the Commission. The Commission permitted to complete long
pending inquiry.
V NCLAT

Amazon.com NV investment Holdings LLC, USA v. Competition Commission of India OP1,

Future Coupons (P) Ltd., OP2, Confederation of All India Traders, OP3, All India
Consumers Product Federation v. CCI, Amazon.com NV Investment Holdings LLC,
Confederation of All India Traders v. CCI, Amazon.com NV Investment Holdings LLC and
Confederation of All India Traders7. We are discussing only Appeal 1/2022. It is appeal
against the order of the Commission under sections 43A, 44 and 45 of the Act, that is penalty
may be imposed for making false statement or for not following the instructions of the
Commission (imposition of a penalty of Rs. 202 crore and the approval accorded to
Combination Registration 688 was kept in abeyance).
In stark contrast to the Internal Correspondence of Amazon, the disclosures made against
Item 5.3 of Form I, summary filed pursuant to Regulation 13A of the Combination
Regulations, query 2.13(c) of letter dated 9th October, 2019 and query 2.5 of the letter dated
24th October, 2019, did not indicate a possibility of the Combination being pursued by
Amazon for having a ‘foot-in-door’ in the Indian retail sector, acquire strategic rights over
FRL (Future Retail Limited of Future Group) or entering into any commercial partnership
with FRL to expand the ability of Amazon in ultra-fast delivery services. Instead, the business
potential of FCPL (Future Coupons (P) Ltd.) was shown as the driving factor for Amazon to
pursue the Combination and FRL was merely shown as a factor of financial strength. The
Internal Correspondence of Amazon makes it abundantly clear that Amazon was all along
7
Supra note 2
focussed/interested in FRL. The Internal Correspondence of Amazon does not speak about
the business potential of FCPL, as has been claimed and projected in the Notice and in the
responses to the letters of the Commission. Similarly, the Notice presents the rationale of
indirect rights over FRL, as protection to investment in FCPL but the Situation update dated
10th July, 2018 identifies the same set of rights as answer to the following question ‘What
strategic rights do we get through this investment.’

In the Notice, Amazon had represented that its rationale behind the Combination was the
business potential of FCPL to create long term value and provide return on the investment
made by Amazon. However, the Internal Correspondence of Amazon clearly shows different
purposes for envisaging the Combination (i.e., ‘foot-in-door’ in the Indian retail sector, secure
rights over FRL that are considered as strategic by Amazon and Commercial Arrangements
between the retail business of Future Group and Amazon). In its response to the letters dated
9th October, 2019 and 24th October, 2019 of the Commission, Amazon had continued with
the suppression of actual purpose of the Combination. Amazon has not contested the
genuineness of the Internal Correspondence or their contents. It is obvious that the purpose of
Amazon to pursue the Combination was not the potential of the gift and loyalty card business
of FCPL, as has been claimed in the Notice. Rather, FCPL was envisaged only as a vehicle in
the Combination to which no value or purpose is ascribed in the Internal Correspondence.
Further, it is clear from the above discussed e-mail dated 19th July, 2019 that the entire
consideration of the Combination has been arrived at on the basis of 25% premium to the
regulatory price of FRL shares and that such premium was paid on account of the strategic
rights and the call option provided to Amazon. Thus, the instant matter is a clear, conscious
and wilful case of omission to state the actual purpose of the Combination despite the
disclosure requirement under Item 5.3 of Form I read with Regulation 5 of the Combination
Regulations and Section 6(2) of the Act. Further, Amazon has failed to provide any material
or plausible explanation in its response to the SCN and in the subsequent submissions to
demonstrate that its disclosures against Item 5.3 are correct and that the business potential of
FCPL was a consideration for Amazon to pursue the Combination.
Given that the Combination is between players who are known in the online marketplace
and offline retailing and they have contemplated strategic alignment between their
businesses, the Commission considers it necessary to examine the combination afresh based
on a notice to be given in Form II with true, correct and complete information, as required
therein.
A penalty of Rupees two crore is imposed under sections 44 and 45 of the Act and penalty
of two hundred crore for violation of section 43A read with section 6(2).
Before the NCLAT Appellant Amazon contends that Amazon is acquiring neither ‘shares’,
nor ‘voting rights’ nor ‘assets’ of FRL (Future Retail Limited), therefore, section 5 is not
attracted.
The Respondent CCI contends that penalty was imposed only after a show cause notice.
The appellant Amazon had stated that it is not acquiring directly or indirectly any share of
FRL but only of FCPL to protect its interest in FCPL.
The second Respondent, FCPL, contends that acquirer is required to notify all inter-
connected steps and individual transactions that form part of the ‘combination’ to achieve the
‘ultimate intended effect’ of the ‘combination’. The 3 rd Respondent, Confederation of All
India Traders contends that indirect investment by Amazon in FRL in contrary to ‘Fema
Regulations’.
On 23.09.2019 the Commission received notice of combination by Amazon accompanied
by three 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
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; and
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; and
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.”
The appellant in the notification stated the economic and strategic purpose as FCRPL,
being the parent entity of FCPL and a part of the Promoter Group, has invited the Investor to
invest in FCPL with a view to strengthen and augment the business of FCPL. FCRPL, FCPL
and Amazon all three has stated that economic and strategic purpose is to strengthen FCPL.
When CCI required response from the Appellant “As per the notice, Acquirer will get certain
rights over the FRL. You are required to provide details of shareholding. The Appellant had
mentioned that it does not have any direct or indirect shareholding in `FRL’ and further it
would not acquire directly any rights in `FRL’ and also claimed that `Commercial
Arrangements’ were not entered into pursuant to the `Combination’ and were not part of, or
connected with the `Combination’ in any manner whatsoever. On the basis of this
clarification, the CCI had issued ‘approval order’ on 28.11.2019. FCPL. The real intention of
Amazon was not to invest in FCPL but to create contractual rights so that FRL does not enter
into any contractual relations with Amazon’s rivals.
In the opinion of the Tribunal ‘obligation’ to file the ‘notice’ is binding, as per section 6(2)
coupled with Combination Regulations 2011. In accordance with requirement of Form I Part
V ‘Description of the Combination the ‘Acquirer is enjoined to make known ‘any other
transaction(s) that is/are inter-connected in terms of sub-Regulation (4) and/or (5) of
Regulation 9 of Combination Regulations 2011.
Section 17 of the Indian contract Act 1872 defines ‘Fraud’ as ‘any concealment of material
fact’. In accordance with section 18 of the Contract Act, a ‘misrepresentation is material if it
influences the decision of a prudent decision maker. The difference between Fraud and
Misrepresentation is that in the former the person making the suggestion believes that
suggestion is not true but, in the latter, he believes it to be true but in both it misleads the
person to whom it is suggested. However, the burden of proof (prima facie material) is on the
person who makes the allegation. According to the 1 st respondent internal e-mail of Amazon
suggest that purpose of investing in FCPL is to become largest single shareholder on FRL.
Amazon has pinpointedly asserted that its purpose to invest in FCPL is (i) the unique
business model of FCPL; and (ii) to add credibility to its (FCPL’s) financial position, it has
invested in, and proposes to invest in FRL, which is a publicly traded company. T his
`Tribunal’ pertinently points out that quite opposite to the internal communications/emails of
the Appellant/Amazon had not shown a possibility of the `Combination’ being pursued for
having a foot-in-door in the Indian retail sector, acquire strategic rights over `FRL’, etc.
According to NCLAT the `Appellant/Amazon’ had made only the limited disclosures with
regard to `FRL’ only in the realm of `FRL’s Equity Warrants’ held by the `2nd
Respondent/FCPL’ and had not spelt out the real combination of the Appellant/Amazon
acquiring `strategic rights’ and interests over FRL as well as executing `Commercial
Contracts’ between it and the `FRL’.
The penalty has been imposed for violation of ‘civil obligation’. Once it is established that
there was a failure to notify the `Proposed Combination’, as required under Section 6 (2) of
the Competition Act, 2002, the `penalty’ has to follow, and the likely AAEC can be evaluated
again. In consequence the appeal of Amazon is dismissed.