Competition | July – September 2023
Enforcement Matters
Delhi High Court holds that the Patents Act will prevail over the Competition Act
On 13 July 2023, a division bench of the Delhi High Court, while deciding on the interplay between the Competition Act and the Patent Act, held that the jurisdiction of the controller of patents would prevail, to the exclusion of the CCI, when deciding on matters relating to anti-competitive practices by patent holders. The court’s findings were primarily based on the fact that (i) the Patents Act, as compared to the Competition Act, is a self-contained specialized law that explicitly addresses issues related to anti-competitive agreements and abuse of dominance through licensing of IPR; and (ii) that legislative intent can be inferred from the fact that the Patent Act’s provisions qua evaluating the reasonableness of licensing agreements, though materially identical to the powers of CCI, were enacted after the Competition Act came into force. Based on this reasoning, the Dehi High Court quashed the CCI’s proceedings against Telefonaktiebolaget LM Ericsson (PUBL) and Monsanto Holdings Private Limited, while alsoobserving that once a settlement has been reached between an informant and a person against whom information is filed, the CCI’s foundation to initiate proceedings is lost.
CCI holds litigations instituted by Boehringer to protect its IPR, not an abuse of dominance
On 22 August 2023, the CCI rejected an abuse of dominance complaint filed by Macleods Pharmaceutical Limited, which inter-alia alleged that Boehringer Ingelheim Pharma GmbH & Co. KG D and its Indian subsidiary (“Boehringer“), through frivolous and vexatious litigations, prevented its competitors from using ‘Linagliptin’ (a patented compound whose validity was disputed). While refusing to delve into matters pertaining to patent validity, the CCI observed that the litigations initiated by Boehringer could not be deemed to be mala fide under the existing facts and circumstances. In this regard, the CCI observed that the two criteria to consider while assessing if a litigation is abusive are (a) whether the case objectively appears baseless, i.e., no reasonable litigant could realistically expect success on merits; and (b) whether the case was filed with an intent to prevent competition, i.e., to prevent a competitor from effectively competing or thwarting a potential entrant into the market.
CCI refuses to interfere in IRDAI’s regulatory functions
On 26 July 2023, the CCI dismissed an abuse of dominance claim against IRDAI and the Indian Institute of Insurance Surveyors and Loss Assessors (“IISLA”), which is a body promoted by IRDAl. It was inter-alia alleged that making an IISLA membership, a prerequisite to obtaining IRDAl surveyors and assessors licence, was anti-competitive. In its order, the CCI observed that alleged anti-competitive conduct was undertaken in exercise of the IRDAI’s regulatory functions, which is not per se amenable to the jurisdiction of the CCI as per a recent decision of the Delhi High Court (discussed in our previous edition of Versed).
CCI rejects abuse of dominance allegations against Tata Motors
On 23 August 2023, the CCI rejected allegations of abuse of dominance and anti-competitive practices raised against Tata Motors Limited (“TML“) by two of its authorized dealers for commercial vehicles. The allegations broadly pertained to the process for placing vehicle orders with TML; and the terms of the dealership agreement(s), which had the effect of restricting dealers from (i) diversifying into other businesses; and (ii) making sales outside allocated territories. The CCI observed that TML was a dominant entity in the market for the manufacture and sale of commercial vehicles in India. However, CCI found that in so far as the process for placing orders with TML was concerned, there was an objective justification for the process being followed and also noted that there was no proof of coercion on the part of TML. As regards to the alleged restrictions in the dealership agreements, the CCI held that the restrictions were not absolute since (i) diversification into other businesses by dealers could freely take place after obtaining TML’s permission, which did not seem to be unreasonably withheld; and (ii) the territorial restrictions placed on the dealers were limited to active sales, whereas passive sales could take place outside the allocated territories.
Other developments
CCI finds Chandigarh Housing Board guilty of abuse of dominance: The CCI, while finding the Chandigarh Housing Board (“CHB“) dominant in the market for provision of services for the development and sale of residential flats in Chandigarh, held that the imposition of and actions taken pursuant to certain conditions in its allotment letter were abusive. Noting that CHB had already undertaken corrective measures, the CCI did not impose any monetary penalty and ordered CHB to cease and desist from undertaking such activities.
CCI holds chemists and druggists associations of Sriganganagar, Rajasthan guilty of anticompetitive conduct: TheCCI found that arrangements which had the effect of pre-deciding trade margins and incentive schemes for pharmaceutical manufacturers under the threat of boycott amounted to anti-competitive agreements and consequently ordered these trade associations to cease and desist from undertaking such activities.
CCI rejects case against University Tenders: While rejecting a complaint filed by book suppliers against certain universities, CCI observed that a party initiating a tender can be deemed to be a procurer acting as a consumer. Further, it observed that such entities have the right to make decisions to suit their best interests and preferences in order to get the full benefits of consuming a product or service. Accordingly, CCI concluded that the universities had not engaged in any anti-competitive behaviour.
Merger Control
NCLAT upholds AGI Greenpac’s acquisition of Hindustan National Glass
On 28 July 2023, the National Company Law Appellate Tribunal (“NCLAT”) dismissed challenges against the CCI’s conditional approval of AGI Greenpac’s takeover of Hindustan National Glass & Industries. The NCLAT, while looking into the procedure under the second phase (Phase II) of the merger approval process, held that (i) the CCI’s show cause notice (“SCN“), when it’s of the prima facie opinion that a combination may cause an AAEC, should be issued to both the acquiring and the target entities. However, failure to do so would not automatically vitiate proceedings; and (ii) once the CCI receives the party(s) response to the SCN (which may include modifications), it can either (a) proceed to approve the combination if it is satisfied with the response; or (b) if the CCI is not satisfied with the response to the SCN, it can direct the parties to publish details of the combination and invite public comments on the same. In this regard, it was noted that the right of public participation in the merger approval process only arises after the CCI has considered the response to the SCN and continues to be of the prima facie view that the proposed combination may cause an AAEC.
NCLAT upholds the PVR-Inox merger
On 10 August 2023, the NCLAT dismissed an appeal filed by the Consumer Unity & Trust Society (“CUTS“) that challenged the PVR-Inox merger. It was inter-alia alleged that the merger was an anti-competitive agreement with the potential to cause an appreciable adverse effect on competition (“AAEC“) and would lead to abuse of dominance. The NCLAT, while coming to its decision, reasoned that it would be incorrect to equate actions taken pursuant to a merger with an anticompetitive agreement under the Competition Act. Further observing that once the merger was completed, PVR and Inox no longer existed as two separate entities and as such any arrangements between them could not be considered an agreement within the purview of the Competition Act. With respect to the abuse of dominance allegations, the NCLAT agreed that the merged PVR-Inox could be deemed dominant, but also noted that the merged entity had not undertaken any abusive conduct. Consequently, upholding CCI’s position that dominance is not anti-competitive per se, and that it is only when the actions of the dominant entity are in the nature of the abusive conduct set out in the Competition Act that it becomes anti-competitive.
CCI imposes penalties on Platinum Trust and TPG Upswing for wrongly filing under the Green Channel Route
On 18 August 2023, the CCI held that the acquisition of a minority stake in UPL Sustainable Agri Solutions Limited (“UPL SAS“) by Platinum Jasmine A 2018 Trust and TPG Upswing Limited was wrongly filed under the green channel route (“GCR“) on account of certain overlaps between a portfolio entity of the acquirers and UPL SAS. Notably, GCR filings can only be made if there are no overlaps between the acquirer and target entities and are deemed approved on the date of filing.
On account of the identified overlaps between the parties, the CCI found all other factors and averments relating to the nature of the overlap to be irrelevant and imposed a penalty of INR 500,000 (USD 6,007) for failing to notify the transaction and a penalty of INR 5 million (USD 60,072) for submitting false statements in the GCR declaration. To this end, the CCI stated that the GCR was modelled on a trust-based self-assessment and further emphasised that notifying parties choosing to avail the benefit of the GCR must assess overlaps in the utmost good faith.
CCI penalises Airtel for gun-jumping
On 23 August 2023, the CCI penalised Bharti Airtel Limited (“BAL“) for failing to notify the CCI of its acquisition of an additional 20% stake in Bharti Telemedia Limited (“BTL“) from Lion Meadow Investment Limited (“LIML“), pursuant to which BAL would become the sole shareholder of BTL; and LIML’s interconnected acquisition of 0.664% in BAL (“Proposed Combination“). While coming to its findings the CCI assessed whether an exemption relating to incremental acquisitions, by existing shareholders who hold 50% (or more) in a target enterprise, not leading to a change from joint to sole control, (“Exemption“) could be applied to the Proposed Combination. In this regard, the CCI analysed LIML’s rights in BTL, such as veto rights and the right to appoint a director, and eventually held that LIML exercised joint control over BTL. Based on this, and coupled with the fact that LMIL’s rights in BTL would be extinguished after the share transfer to BAL, the CCI concluded that the Proposed Combination would not be able to avail the benefit of the Exemption since there was a change from joint to sole control. Importantly, in its analysis the CCI observed that control can be determined from the mere existence of rights that would lead to material influence rather than the actual conduct in relation to these rights. Further, noting that the concept of ‘joint control’ does not require the exercise of an equal degree of control by all shareholders. Consequently, the CCI imposed a penalty of INR 10 million (USD 120,144) after considering past non-compliances by BAL as an aggravating factor while determining the quantum of penalty.
CCI imposes penalty on MassMutual for gun-jumping
On 7 August 2023, the CCI imposed a penalty of INR 500,000 (USD 6,007) on Massachusetts Mutual Life Insurance Company (“MassMutual“) for failing to notify the acquisition of a ~16% stake in Invesco Limited (“Invesco“), an offshore company with 4 Indian subsidiaries (“Proposed Combination“). Invesco’s main presence in India was through its subsidiary that acted as an asset management company (“AMC“) for a mutual fund. In its order, the CCI held that MassMutual had incorrectly assessed the applicability of the de-minimis exemption by failing to consider Invesco’s mutual fund business in India. Further observing that with respect to mutual fund businesses, (a) the value of assets will be the aggregate of (i) assets of the AMC of the mutual fund, (ii) assets of the trustee of the mutual fund (if it is also subject to the acquisition) and, (iii) assets under management of the mutual funds; and (b) turnover will be the aggregate of (i) turnover/revenue from operations of the mutual fund’s AMC, (ii) turnover/revenue from operations of the trustee of the mutual fund, (if it’s subject to the acquisition), and (iii) turnover of the mutual funds. Further explaining that the turnover of mutual funds can be understood to be any income from securities held irrespective of whether the fund exercises ‘control’ on account of its holdings and as such, it is the aggregate of: (i) gross value of sale and redemption of securities and (ii) other income such as dividends, interests, etc.
CCI approves General Atlantic’s acquisition of a minority stake in Acko subject to modifications.
On 6 July 2023, the CCI approved General Atlantic Singapore ACK Pte. Ltd.’s (“General Atlantic“) acquisition of an additional minority stake in Acko Technology & Services Private Limited (“Acko“) subject to certain behavioural modifications. In light of a horizontal overlap between NoBroker Technologies Solutions Private Limited (“NoBroker“) which is a General Atlantic group portfolio entity; and Vivish Technologies Private Limited (“Vivish“) where Acko has a minority stake, the CCI expressed concerns relating to the influence the acquirer group would have, post transaction, over two prominent players that provided society/gated community management services. To address these concerns, General Atlantic voluntarily proposed certain modifications which were accepted by the CCI. As such, General Atlantic undertook not to directly or indirectly, (a) interfere in any matter related to Vivish or Acko’s investment in Vivish, (b) access any non-public information about Vivish that may be in Acko possession, and (c) influence or engage with Acko’s representatives who were appointed to Vivish’s board.
CCI approves Air India Vistara merger subject to modifications
On 1 September 2023, the CCI conditionally approved the composite transaction pursuant to which Tata SIA Airlines Ltd. (“Vistara“) which is a joint venture between Air India Limited (“Air India“) and Singapore Airlines Limited (“SIA“) would be merged into Air India and SIA would subsequently acquire a 25.1% stake in Air India (“Proposed Combination“).
The CCI in its analysis, noted that pursuant to the Proposed Combination, the parties could enjoy substantial market power on certain identified domestic and international routes which could in turn have anti-competitive consequences (“Identified Routes“). In order to assuage the CCI’s concerns, the parties proposed certain voluntary modifications whereby they committed to maintaining certain minimum annual scheduled air passenger transport capacities for a period of 4 years (subject to certain contingencies) in the Identified Routes. Based on the above, the CCI approved the Proposed Combination subject to the modifications being carried out, while also observing that approval of the Proposed Combination under the merger regime would not provide the parties with immunity from future scrutiny under the behavioural provisions of the Competition Act.
Other developments
CCI Imposes Gun jumping Penalties on Axis Bank, Cummins and NTPC: The CCI imposed gun-jumping penalties of (i) INR 4 million (USD 48,058) on Axis Bank Limited (“Axis Bank“), (ii) INR 4 million (USD 48,058) on NTPC Limited (“NTPC“); and (iii) INR 1 million (USD 12,041) on Cummins Inc (“Cummins“). In each of these cases, the parties had made bona fide errors in assessing the applicability of certain exemptions. While coming to its findings of contravention in each case, the CCI reiterated that the Indian merger regime is mandatory and suspensory in nature and as such the bona fides of an erring party would not affect a finding of a contravention.
CCI approves IPCA’s majority acquisition in Unichem subject to modifications: The CCI approved Ipca Laboratories Limited’s majority stake in Unichem Laboratories Limited (“Unichem“), both of whom are active in the pharmaceutical sector. To allay the CCI’s concerns relating to the post -closing effect on the formulations market, the parties volunteered certain modifications, which were accepted by the CCI pursuant to which Unichem agreed not to re-enter the formulations market for 36 months post- closing.
Developments in the Legal Framework
Draft Combination Regulations published for stakeholder comment
On 5 September 2023, the CCI published the draft ‘Competition Commission of India (Combination) Regulations (“Draft Combination Regulations“), which are intended to replace the existing regulations and provide a mechanism to implement the changes to the Indian merger regime as contemplated in the Competition (Amendment) Act, 2023 (“Amendment Act“). A brief overview of some of the key highlights of the Draft Combination Regulations is set out below:
Calculation of Deal Value: The determination of ‘deal value’ for the purposes of the newly introduced INR 2000 crore ‘Deal Value Threshold’ (“DVT“) will include considerations paid in lieu of any (i) covenant, undertaking, obligations or restrictions imposed (e.g., non-compete fees); (ii) interconnected and incidental transactions;(iii) options and securities; and (iv) occurrence or non-occurrence of a contingent event. The Draft Combination Regulations further state that if the precise value of a transaction cannot be determined then the notifying party should assume that the threshold has been met and act accordingly.
Substantial Business Operations: As per the Amendment Act, the DVT will only get triggered if the target enterprise has substantial business operations in India. In this regard, the Draft Combination Regulations contemplate that this criterion will be met if 10% of the target’s (i) global users, subscribers, customers, or visitors in the preceding twelve months; (ii) global gross merchandise value in the preceding twelve months or (iii) turnover from all products or services in the financial year preceding the date of the transaction is from India.
Further, the Draft Combination Regulations also provide for (i) the nature of rights that can be exercised on shares acquired through open market purchases pending CCI approval; (ii) the formalization of the pre-filing consultation process; (iii) the format in which voluntary modifications are to be provided; and (iv) an increase in the filing fees.
CCI publishes draft Commitment and Settlement Regulations for public comments
On 23 August 2023, the CCI published the draft Competition Commission of India Commitment Regulations (“Commitment Regulations“) and the draft Competition Commission of India Settlement Regulations (“Settlement Regulations“) for public comments. Notably, this was done to provide a framework for the newly introduced concepts of Commitments and Settlements in the Amendment Act, which are applicable to cases relating to abuse of dominance and vertical restraints. Through these draft regulations, the CCI inter-alia set out details of the (i) procedure and timelines to be followed while making an application; (ii) the quantum of fees payable; and (iii) the nature and effect of the Commitment or Settlement proceedings on the parties involved.
Other legal developments
Rural Banks: The CCI has exempted regional rural banks from the merger control provisions of the Competition Act for a period of five years starting from 19 July 2023.
Appointment of DG Investigation: By a notification dated 18 July 2023, the CCI has now been empowered to appoint the DG on the basis of the recommendations of a three-member search cum selection committee which is to comprise of representatives from the CCI, Ministry of Corporate Affairs and an expert nominated by the Central Government.
For more information contact:
Zenia Cassinath
Practice Head – Competition
zenia.cassinath@veritaslegal.in
DISCLAIMER
VERSED by Veritas Legal intends to provide the readers with an overview of some of the noteworthy legal developments for education / information purposes only. This newsletter should not be construed or relied on as legal advice, or to create a lawyer-client relationship. Readers should reach out to us for any specific factual or legal questions or clarifications; and are encouraged to seek legal advice before acting on any information provided herein. The enclosed information is available in the public domain and shall not be construed as dissemination of any confidential information.