The Competition Commission of India (CCI) passed its final order on January 20, 2022, in a suo motu Case No. 10 of 2014 imposing penalties against four (4) maritime motor transport companies and their employees (those that were responsible) – Nippon Yusen Kabushiki Kaisha (NYK Line), Kawasaki Kisen Kaisha (K-Line), Mitsui OSK Lines (MOL) and Nissan Motor Car Carrier Co (NMCC), for cartelizing in the market of maritime motor transport services on Pure Car Carrier vessels (PCCs) provided to automobile Original Equipment Manufacturers (OEMs). The OEMs have been manufacturing automobiles in India and hiring the maritime transport services of the impugned enterprises for transporting their vehicles at various trade routes abroad from 2009 to 2012.
The case was initiated by the CCI based on a leniency application dated 01.10.2014 by NYK Line, which had provided evidence of collusion amongst the impugned enterprises in bids quoted to the OEMs in global tenders for certain trade routes. It is interesting to note that in the present case, although the CCI had formed its prima-facie opinion in 2014 and directed the DG to investigate u/s 26(1) of the Act, the final order was announced by the CCI only in 2022, taking over eight (8) years for the CCI to conclude its findings. The CCI, noting from the DG report, observed that the ocean shipping industry comprises multiple sectors, where various maritime motor vehicles are used for transportation, including bulk carriers, tankers, and vehicle carriers. For the present case, the CCI took Pure Car Carriers vessels (PCCs) as the relevant market for investigation, which has slightly different configurations from other modes of maritime transportation.
In its final order, the CCI noted various evidence in form of depositions/admissions, intercompany email, and regular meetings amongst the impugned enterprises for exchanging commercially sensitive price-related information on freight rates for various trade routes, offering joint services, approaching competitors on fixing rates, proximity and close matching of quoted rates in various bids on freight rates/positions/schedules, and enforcement of ‘Respect rule’ to avoid competition and protect their businesses through multi-lateral/bi-lateral agreements.
In the present case, two of the impugned parties had earlier filed joint leniency applications in 2016 which was rejected by the CCI noting that no provision of the Competition Act provides for two/more parties to jointly apply for leniency. Later, the CCI accepted separate leniency applications from the two parties. Among the four impugned enterprises, three enterprises and their participant members – NYK Line, K-Line, MOL and NMCC benefited from the lesser penalties regulations where the penalty was reduced by 100%, 50%, and 30% for each enterprise respectively, who fully disclosed, cooperated and made no attempts to distort evidence during the DG investigation.
The CCI directed impugned enterprises to cease and desist, imposing total penalties of approx. INR 63 crores on the three (3) enterprises and thirty-three (33) responsible employees for contravention of Section 3(3)(a), 3(3)(c) and 3(3)(d) the Competition Act, 2002 dealing with agreements directly/ indirectly determining purchase/sale prices, market allocation, and bid-rigging/collusive bidding, respectively. Such horizontal agreements are presumed to have an Appreciable Adverse Effect on Competition (AAEC) within India. Interestingly, the CCI dropped the proceedings against three employees individually liable in this case as they were no longer employed, could not be contacted at their registered addresses and the DG Investigation Report cannot be therefore served.
In respect of the contentions by the impugned parties of being an ‘exporter’ and therefore exempted u/s 3(5)(ii) of the Competition Act, the CCI rejected the argument and noted that for fulfilling the conditions of an ‘exporter’ and claiming the exemption, the end-product manufactured in India should be exported abroad. The Competition Act, 2002 exempts from its preview ‘the right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods/services for such export’. The CCI further noted that the main activity of the impugned parties in the present case was to provide maritime transport services to the OEMs (which are exporters actually). The CCI further noted that limited exemption has been provided to the ‘exporters’ of goods/ services under the Competition Act, and any cartels entered for the supply of any input goods/services may be protected and exempted u/s 3(5) (ii) of the Competition Act when the ultimate good is being exported abroad. Such an exemption has been granted to develop India’s exports and develop as a manufacturing hub.
Furthermore, concerning the contention that as the ultimate consumer is located abroad and the activities among the impugned enterprises had not caused any AAEC in the Indian market, and therefore the CCI would not have the jurisdiction over the case, the CCI again rejected the contentions and noted that the Competition Act provides no differentiation u/s 2(f) between ‘ultimate consumer’ and ‘immediate consumer’ based on where the goods/services are used as an input in the value chain. The CCI noted that OEMs located in India would constitute as the ‘consumer’ and therefore the activities of the impugned parties tended to cause an AAEC over the Indian markets.
Separately, on Vessel Sharing Agreements (VSAs) being earlier exempted from the preview of the Competition Act, the CCI noted that such VSA exemption itself created a carveout for agreements resulting in concerted practices such as price-fixing, limiting capacity/sales, market/customer allocation, and bid-rigging/ collusive bidding. In addition, the CCI noted the Press Release by the Ministry of Shipping giving clarifications to the industry dated 23.04.2015 which also mentioned that “Vessel Sharing Agreements are meant to promote ease of doing business in the liner shipping industry. Best practices consist of not indulging in anti-competition practices which include price-fixing, imitating capacity/sale, and market/customer allocation.”
It is interesting to note that Vessel Sharing Agreements in the liner shipping industry were earlier exempted by the Ministry of Corporate Affairs (MCA) from the scrutiny of the CCI and such exemption (VSA Exemption) ended only on 04 July 2021. The exemption was granted in the maintenance of international best practices and looking at the peculiar characteristics of the liner shipping industry, being highly capital intensive, and better realized by developing greater efficiencies and synergies for better connectivity and frequency of ships between ports. The exemption had allowed for greater participation of SMEs in the shipping industry leading to increased competition in the liner shipping industry.
Moreover, all Vessel Sharing Agreements formed by ship operators in India, being majorly monitored by the Directorate General of Shipping (DG Shipping), have been required to file existing/proposed VSAs with DG Shipping. As similar anti-trust penalties have been imposed against maritime service providers in the US, EU, and Japan, it is unlikely that the VSA exemption will be further extended in India. With the halting of the VSA exemption, shipping carriers of all nationalities operating from Indian ports are also subject to comprehensive competition laws scrutiny from the CCI prohibiting any anti-competitive agreements in form of price-fixing, limitation of capacity/sales, market allocation, and bid-rigging and cartels.
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The CCI vide its order dated December 17, 2021, temporarily suspended, and kept its approval order in abeyance, imposing a heavy penalty of Rs. 202 crores on Amazon. The CCI further ordered Amazon to refile the notice in the long-form (Form II) for reassessment of the combination. This Form II notice is a more detailed way of CCI investigation and is applicable for parties that may have a combined market share of 15% and 25% in the horizontal and vertical markets, respectively.
Amazon, on the other hand, has been contending that the impugned combination comprised three (3) transactions in terms of which Amazon’s purchase of 49% in FCPL was not contingent on the completion of the other two ancillary transactions (primary issuance of Class-A voting equity shares of FCPL to FCRPL, and secondary transfer of shares held by FCRPL in FRL in favour of FCPL), and accordingly, all three transactions must not be viewed as ‘interconnected transactions’. Amazon argued that neither of the ancillary transactions, on a standalone basis, was notifiable to the CCI as the transactions were proposed to be consummated between a parent entity and its subsidiary, and therefore, the main acquisition transaction, on a standalone basis, was exempted under the benefit of ‘Target Exemption’ as the value of assets and turnover of FCPL (as of March 31, 2019) was below the prescribed thresholds in the Competition Act.
The dispute arose when Future Coupons (FCL) allowed Future Retail (FRL) to enter into a scheme of arrangement for selling its retail, wholesale, and logistics assets to Reliance Retail for Rs. 25,000 crores. Amazon restrained this arrangement on the ground that it has secured preferential rights over the assets of Future Retail, where, in accordance with the terms of the acquisition, the assets of Future Retail cannot be sold to any of Amazon’s competitors. Although Amazon secured a favourable interim Emergency Award (EA) in the Singapore International Arbitration Centre (SIAC) that stayed the impugned sale arrangement until the final order was pronounced on the dispute, Amazon, on a complaint of Future Retail, was penalised by the CCI for making contradictory stands in the Singapore arbitration proceedings as compared to its submissions before the CCI. The CCI noted in its order that Amazon intentionally suppressed its objectives from the CCI of controlling Future Retail with its acquisition of Future Coupons.
The NCLAT bench, consisting of Justice M. Venugopal and Justice Ashok Kumar Mishra upholding the order of the CCI noted that even the CCI sought justification from Amazon for filing the combination notice in Form I as the combined market shares exceed the statutory thresholds. In response to the same, Amazon had submitted that “the Investor has no shareholding in Future Retail (FRL) and does not exercise any control or influence on it, therefore, the Proposed Combination should not be subjected to Form II filing requirement”. The bench noted that Amazon had only furnished limited details and disclosures, indifferent to the details/disclosures made at the Singapore International Arbitration Centre (SIAC) and therefore, had not disclosed its strategic acquisition of rights and interests over Future Retail. The NCLAT has noted that: “the omissions, false statements and misrepresentations have the effect of influencing the line of inquiry in assessing the Combination. Irrespective of what would have been the outcome of a notice with true, correct, and complete disclosures, the misleading submissions, false statements, omission and suppression of material particulars, facts, and documents, have denied and disabled the CCI an opportunity to assess the effects of the actual Combination, with specific focus to the actual intended objectives. Condonation of such lapses would effectively mean that a notifying party could disclose its legal contracts in a distorted and elongated manner of its convenience and engage in suppressions and misrepresentations of the actual scope and purpose of the Combination. This makes all details sought in Form I and purpose of regulation of combination under the Act, otiose, besides stultifying the very legislative intent for the merger review process.”
Concisely put, the NCLAT endorsing the CCI’s order will supply considerable emphasis on the imperative to provide complete, accurate and all vital information of parties entering into combinations. Further, all interconnected and simultaneously negotiated transactions must be duly notified to the CCI. The quantum of penalty levied on Amazon is likely to have a deterrent impact on parties failing to comply with the requirement of disclosing all details concerning the purpose, scope, and contours of the investment deals in India. While preparing the combination notice, parties need to make full, whole, fair, forthright, and frank disclosure of relevant materials in respect of the deal to enable the CCI assess the proposed combination accurately.
Amazon will now have the option to either appeal against the order of the NCLAT before the Supreme Court on the question of law, or file the combination notice in Form II (long-form) and deposit the penalty of Rs. 202 crores with the CCI. Upon filing the details of the acquisition in Form II, the CCI is likely to take detailed scrutiny into the proposed combination in the Phase II review, whereafter the CCI may approve the combination, approve with structural or behavioural remedies, or may even disallow the transaction, making it the first of its kind.
Recently, Reliance has withdrawn its deal to acquire the business of Future Group after the latter’s secured creditors rejected the deal. However, due to the non-payment of dues and rentals by Future Group, Reliance has reportedly taken control of many Future Group flagship companies operating in retail, wholesale, logistics and warehousing segments (Big Bazaar, etc.) and this has dragged Future Group towards insolvency proceedings.
This tussle between the two biggest business groups over acquiring the assets of India’s second-largest retailer, Future Group having more than 1,700 stores in India, has taken unprecedented turns. With the Indian Government approving 51% FDI in multi-brand retail and 100% FDI in single-brand retail under the automatic route and further plans to allow 100% FDI in e-commerce, more foreign investors are set to bid to get a piece in the booming Indian retail sector. As the Indian online retail market is projected to reach USD 350 billion by 2030, the ongoing Amazon-Reliance battle is set to have far-reaching consequences on Indian retail, both in offline and online retail markets.
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