Amazon’s legal entanglement in India offers a cautionary tale

News: Amazon’s legal dispute throws light on uncertainties, quality of legal and regulatory protection that investors face in India.

What is Amazon’s legal dispute?

Recently, Amazon was fined by the Indian competition watchdog. Its capital infusion in Future Coupons during 2019 was put in suspension.

The Competition Commission said it was denied an opportunity to assess the effects of the actual combination that gave Amazon strategic rights over publicly-traded Future Retail.

How is Amazon’s dispute different?

One, Amazon has dominance as it is not a retailer in India. It’s an online marketplace for buyers and sellers. But this case has little to do with dominance.

Two, according to India’s India’s foreign investment rules, Amazon is barred from acting as a retailer. That’s why Amazon sought to control Future Retail indirectly via its investment in Future Coupons. It has also kept its voting rights in another of its acquisitions, the grocery chain More, below 26%.

Three, Future Retail founder was desperate and wanted to channel funds to his debt-ridden retail network, and Amazon was willing to play.

Four, the competition regulator also approved the deal. Amazon also listed names of parties to which Future’s assets cannot be divested without its permission, which included Reliance.

However, after lockdown in 2020, future sold his 1,500-plus stores to Reliance. Amazon began arbitration proceedings in Singapore for breach of contract.

Five, the definition of dominance is expanding beyond price fixing. For example, China has imposed an antitrust fine on Alibaba Group for using data and algorithms to obtain an unfair advantage over merchants.

How different interpretations by court is increasing uncertainty?

First, Future tried to use the loophole to get hearings in Singapore quashed. However, a Delhi high court judge said interference by courts must be kept to a minimum. However, another bench set aside the order and stayed proceedings by the Singapore tribunal.

 Second, Future Retail is gradually going toward bankruptcy and recently missed a few payments. The dispute over the fate of its assets isn’t resolved.

Third, Amazon has challenged the latest Delhi high court order at Supreme Court and has appealed against the antitrust agency before a company-law tribunal.

What are the questions raised due to this dispute between Amazon and the founders of a retailer?

First, what is the meaning of approval by India’s antitrust authority mean if an entire chain of investment based on the approval has to be undone or reversed after two years?

Second, it is related to dispute settlement. Can one rely on international arbitration to enforce Indian contracts, or local courts will recommend alternative dispute-resolution mechanisms?

What is the way forward?

First, investors need to be protected from expensive and time-consuming litigation to protect the value of their transactions.

Second, the Indian government needs to reduce bureaucratic complexity to make it easier for global firms to navigate.

Source: This post is based on the article “Amazon’s legal entanglement in India offers a cautionary tale” published in Livemint on 21st Jan 2022.

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