Summary of the Competition (Amendment) Bill, 2020
On 12 February 2020, the Ministry of Corporate Affairs (MCA) published the much-awaited Competition (Amendment) Bill, 2020 (Bill), proposing far reaching amendments to the Indian competition law regime. The Bill follows the Competition Law Review Committee's (CLRC's) recommendations, a high-level committee constituted to suggest amendments to cater to the changes demanded by the ever-dynamic Indian markets.
Set out below are certain salient features that may be of interest:
- Introduction of a Governing Board – Introduction of a "governing board" that will be empowered to pass regulations and exercise supervision over the Competition Commission of India's (CCI's) functioning. This oversight is anticipated to increase judicial discipline and reduce the number of procedural challenges against the CCI's findings;
- Appointment of Director General (DG) – The CCI, as opposed to the Central Government, will exercise the power to appoint the DG;
- Recognition of Buyers Cartels and Hub and Spoke Cartels– The Bill explicitly recognises buyer cartels and hub and spoke cartels. The inclusion of hub and spoke cartels is relevant in the context of the rising number of marketplace platforms with the capability of facilitating collusion between its vendors/partners;
- Deposit of Penalty for Appeal – The Bill stipulates that before filing an appeal, the appellant must deposit 25% amount of the penalty levied on it or such other lower amount "as may be prescribed";
- Settlements and Commitments – The Bill introduces two dispute resolution mechanisms, namely settlements and commitments. Settlements allow a party to apply for closure of the CCI's proceedings - after submission of the DG's investigation report but prior to the CCI's final finding. Commitments may be applied for after initiation of the DG's investigation but before submission of the DG's investigation report with the CCI. Both, settlements and commitments, are non-appealable but may be revoked by the CCI under certain circumstances. The CCI may also use the evidence submitted to initiate an inquiry separately. It is hoped that the mechanisms provide procedural economy and efficiency, and encourage the imposition of innovative deterrents by the CCI;
- Reduction in Merger Review Waiting Period - Merger timelines have been reduced from 210 days to 150 calendar days (extendable by 30 calendar days by the CCI, under certain circumstances). Reduction in the period is expected to facilitate timely closure of transactions;
- Dilution of Standstill Obligations for Public Bids/Hostile Takeovers – Parties will be exempt from the standstill obligation under the Competition Act, 2002 (Act) if their transaction involves the implementation of an open offer or a market purchase, subject to (i) the CCI being notified of the acquisition, (ii) the shares or convertible securities being maintained in a specific manner, and (iii) among other things, the acquirer not exercising any beneficial rights in the shares until the CCI's approval; and
- Definition of Control – The Bill amends the definition of control to mean the exercise of "material influence" over the management or affairs or strategic commercial decisions of one or more enterprise / group by another. However, no guidelines have been provided for what constitutes "material influence" so as to amount to "control" in terms of the Act.
The amendments proposed by the Bill are a mixed bag of structural, procedural, and substantive changes. In particular, the structural changes i.e., the introduction of a governing board and subsuming of the DG's office into the CCI, pose the risk of compromising the independent functioning of the CCI and DG, respectively. However, it is anticipated that any such risk will be mitigated through the practical implementation of Chinese walls between the governing board and the CCI, and the CCI and the DG.
Click here to access the Bill.
COMBINATION/MERGER CONTROL ORDERS
Total Holdings SAS receives CCI clearance for the acquisition of 37.40% stake and joint control of Adani Gas Limited1
The CCI approved the acquisition of joint control through a 37.40% shareholding of Adani Gas Limited (AGL) by Total Holdings SAS, a French subsidiary of Total S.A.
In India, the parties exhibited horizontal overlaps in the wholesale supply of natural gas. However, low market shares ruled out concerns relating to appreciable adverse effects on competition (AAEC) in India.
In its vertical overlap analysis, the CCI noted that both parties are present in the upstream market (i.e., the wholesale supply of natural gas in India), and only AGL has presence in the downstream market (i.e., the retail supply of natural gas in India). However, given the insignificant presence of both the parties, as well as the presence of competitors like Gas Authority of India and Indian Oil Corporation in the relevant market, the CCI observed that the combination is not likely to raise any concerns from a competition law perspective.
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CCI allows Adani Properties Private Limited to acquire 23.5% shareholding in Mumbai International Airport Limited2
The CCI cleared Adani Properties Private Limited's (APPL's) acquisition of a 23.5% stake in Mumbai International Airport Limited (MIAL).
APPL is engaged in a range of business activities including real estate, ports and logistics, mining, etc. APPL's shareholding is held by the SB Adani Family Trust (84.41%) and Mr Karan G Advani (15.59%) (collectively, Adani Group). MIAL is engaged in operating and conducting services pertaining to the managing of Mumbai's Chhatrapati Shivaji International Airport.
The CCI noted that Adani Enterprises Limited and Mundra International Airport Private Limited (both part of the Adani Group of companies) are present in the market for the development, operation, and maintenance of airports and / or the market for the provision of access to airport facilities / premises.
However, it observed that since the provision of services at one airport is not substitutable with those provided at another airport, competition dynamics for each airport are only homogenous within its own premises (which are distinct from other airports).
Following this approach, the CCI held each airport to be a distinct relevant geographic market and consequently, noted that no Adani Group entity had operations within the vicinity of Mumbai/MIAL. Accordingly, with no vertical relationship exhibited between the parties and no AAEC concerns, the CCI approved the combination.
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CCI grants conditional approval to Hyundai Motor Company and Kia Motors Corporation for acquisition of minority stake in ANI Technologies Private Limited and Ola Electric Mobility Private Limited3
The CCI approved the acquisition of a minority stake in ANI Technologies Private Limited (Ola) and Ola Electric Mobility (Ola Electric) by Hyundai Motor Company (HMC) and Kia Motors Corporation (KMC), subject to compliance with voluntarily submitted behavioural modifications to the combination.
The combination involved the (i) acquisition of 3.61% and 0.90% shareholding in Ola by HMC and KMC, respectively, (ii) acquisition of 4.54% and 1.13% shareholding in Ola Electric by HMC and KMC, respectively, and (iii) strategic cooperation between (a) HMC and Ola and (b) HMC and Ola Electric, in relation to Ola and Ola Electric's mobility businesses (Strategic Cooperation Agreements).
HMC and KMC are subsidiaries of the Hyundai Motor Company, which along with its subsidiaries forms the Hyundai Motor Group (HMG). HMG is engaged in the manufacturing and distribution of automobiles, automobile parts and accessories, and research and development of automotive engineering across the globe. In India, HMC operates through its subsidiaries Hyundai Motors India Limited (HMIL), Hyundai Motor India Engineering Limited, and its affiliate Prime Mover Mobility Technologies Private Limited (Revv), while KMC operates through its subsidiary Kia Motors India Private Limited.
Ola is a ride-sharing company that integrates city transportation for customers and driver partners onto an online platform. Through its subsidiaries and affiliates, Ola also undertakes a number of ancillary activities, including digital payment systems, online food delivery, leasing commercial passenger vehicles through Ola Fleet Technologies Private Limited (Ola Fleet), as well as renting scooters for last mile travel. Ola Electric is an affiliate of Ola, at a nascent stage of operations for the provision of charging infrastructure for two and three-wheeler electric vehicles (EVs).
While parties did not exhibit any direct horizontal overlaps, the CCI noted certain indirectly overlapping and complementary activities with respect to four-wheeler self-drive services, the EV supply chain, and the radio taxi supply chain.
The CCI did not see any competition concerns with respect to four-wheeler self-drive services since (i) the market is populated by various players (e.g., Zoomcar, JustRide, Drivezy, Carzonrent, etc.) and (ii) Ola Fleet has not commenced its operations as yet.
Further, the CCI observed complementarity in the fact that while Ola Electric is entering the market for EV charging services, HMC and KMC are looking to manufacture and supply EVs. However, the CCI did not envisage any anticompetitive issues in this regard given that the EV market is at a nascent stage,
With respect to the radio taxi supply chain, the CCI identified concerns in relation to the vertical linkage among the parties. Ola, a vertically integrated leader in the radio taxi market, procures vehicles from various manufacturers (including HMIL, the second largest player in the Indian auto sector), and then leases them to taxi drivers to conduct their business.
The CCI found that because the gross booking value and incentives of Ola Fleet cabs are relatively higher, Ola Fleet cabs are preferred over other cabs in the Ola marketplace. Further, according to the Strategic Cooperation Agreements and the internal board presentation of HMG, the parties intended to leverage Ola assets to promote leasing of HMG vehicles to Ola drivers.
In light of this, the CCI noted that the proposed combination was likely to incentivise Ola to give preference to drivers operating HMG vehicles. Accordingly, on account of the strong market position of both parties, drivers registered in Ola's marketplace who operate cabs of competing makes were likely to be disadvantaged.
The parties argued that albeit well-entrenched, neither Ola nor HMC / KMC was dominant in their respective markets as they each had significant competitors. Despite this, the parties made voluntary commitments to the CCI regarding the non-exclusivity of the strategic collaboration among the parties. The commitments included submissions to the effect that (i) drivers would not be given preference or discriminated against based on the brand of vehicle they operated, and (ii) that Ola's marketplace would be operated in an objective manner.
As a result of the parties' commitments, the CCI cleared the combination.
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This decision is testimony to the general digital ecosystem concerns raised by antitrust regulators world-over on platform neutrality, where the company running the platform seeks to promote its own brand to the detriment of others. The remedy offered by the parties seeks to address such concern in this case.
CCI allows acquisition of 44.44% shareholding in GMR Airports Limited by TRIL Urban Transport Private Limited, Valkyrie Investment Pte Limited and Solis Capital (Singapore) Pte Limited subject to adherence with voluntary commitments4
The CCI granted conditional approval for acquisition of 19.75%, 14.81%, and 9.88% (collectively, 44.44%) equity stake in GMR Airports Limited (GAL) by TRIL Urban Transport Private Limited (TUTPL), Valkyrie Investment Pte Limited (Valkyrie) and Solis Capital (Singapore) Pte Limited (Solis), respectively.
TUTPL is a wholly owned subsidiary of Tata Sons Private Limited (Tata Sons), engaged in the development of urban transport and infrastructure facilities. Pertinently, Tata Sons, through its group entities (Tata Sons Group), holds a majority stake in two airlines, namely AirAsia India (joint venture with AirAsia Berhad) and Vistara Airlines (joint venture with Singapore International Airlines).
Valkyrie is a Singapore-incorporated special purpose vehicle owned by GIC Pte Limited through its group of investment holding companies (GIC Group). Solis is also an investment vehicle, which is a part of the group of companies held by SSG Capital Management (Singapore) Pte Limited (SSG Group). The SSG Group is engaged in alternative asset management and focuses on investments in the Asia Pacific region.
GAL is a subsidiary of GMR Infrastructure Limited (GIL). GIL is the ultimate parent entity of a number of companies with activities across a range of sectors (GMR Group). GAL, through its subsidiaries, is engaged in developing, managing, and operating airports in India and around the world. There were no horizontal overlaps between the parties.
A vertical relationship between the Tata Sons Group and the GMR Group was found to exist, as the GMR Group (through GAL) is present upstream, in the provision of development, operation, and maintenance of airports, which is vertically linked with the downstream services provided by the Tata Sons Group. These services include provision of scheduled and non-scheduled air transport services, food and beverage services, retail services, in-flight catering services, ground handling services, cargo services, and maintenance and repair operations.
Accordingly, the CCI delineated the relevant markets as (i) the market for provision of access to airport facilities / premises at each of GAL's airports (upstream), and (ii) the market for provision of air transport activities and other specific services at each of GAL's airports (downstream).
Further, the CCI observed that pursuant to the proposed combination, Tata Sons Group would also acquire rights over certain reserved matters, and a board seat in GAL's entities which are currently operating or would be running, its airports.
In its assessment, the CCI noted that once a contract is awarded by the Government of India, the awardee inevitably becomes a monopolist. The monopoly results from the grant of an exclusive right to develop, control, operate, and maintain the airport allowing the awardee to operate independent of market forces for a few decades. This implies control over the terms of providing access to airport facilities / premises to various third-party service providers. Therefore, the CCI held that the GMR Group had market power in the upstream market.
Further, on account of the proposed combination, and its presence in the airline business and other associated businesses, the Tata Sons Group would have presence in both, the upstream and the downstream markets, as defined above.
Accordingly, the CCI's concerns involved a potential conflict of interest arising out of the proposed combination where the parties may be incentivised to foreclose the market for downstream players (i.e., competing airlines and other service providers). The CCI also noted the requirement for safeguards to ensure no airline gets preferential treatment in the allotment of slots and access to other services.
To allay these concerns, the parties made voluntary commitments to the effect that (i) the Tata Sons Group would not appoint a board director or key managerial person for any airport concession entity, (ii) there would be no directors on GAL's board who also hold directorships in any conflicted entity, (iii) the Tata Sons Group's nominee director on GAL's board would recuse themself from matters in relation to slot allocation, (iv) GAL would ensure no commercially sensitive information in relation to slot allocation is disclosed to the Tata Sons Group's nominee director, and (v) adequate monitoring systems would be put in place such that airport concession entities ensure "competition neutrality, a level playing field and fairness".
Based on these commitments, the CCI granted its approval.
Click here to access the order.
This order demonstrates common conflict of interest issues that can arise due to vertical overlaps. To address such issues, information control and ring-fencing measures are typically employed. In this case, these were used as remedial tools to achieve competitive neutrality, and to ensure fair and equal treatment of all airlines.
CCI imposes penalty for gun-jumping on Canada Pension Plan Investment Board5
The CCI imposed a penalty of INR 5,000,000 (approximately USD 66,555)6 on the Canada Pension Plan Investment Board (CPPIB) for failing to notify an inter-connected transaction with a transaction that had been previously notified.
The acquisition of 16.33% stake in ReNew Power Limited (ReNew) by CPPIB (Transaction I) was duly notified to the CCI on 27 November 2017 and received the CCI's approval on 9 January 2018. Transaction I had two legs, namely, an acquisition of 6.33% of ReNew's existing equity shares from Asian Development Bank (Secondary Acquisition), and the acquisition of 10% equity stake by way of compulsorily convertible preference shares of ReNew (Primary Acquisition). The Secondary Acquisition was closed on 31 January 2018 and the Primary Acquisition was closed on 23 March 2018.
The CCI's penalty order focused on the non-notification of ReNew's acquisition of Ostro Energy Private Limited (Ostro) (Transaction II) which was supported by Transaction I and closed on 28 March 2018.
The CCI came to know of Transaction II by way of press releases issued by ReNew and CPPIB on 2 April 2018 and 3 April 2018, respectively. However, no disclosure regarding Transaction II had been made in the notice filed with respect to Transaction I.
The CCI also reviewed email correspondences between CPPIB and ReNew which revealed that CPPIB was concerned about due diligence being conducted in relation to Transaction II. In fact, CPPIB wanted access to the due diligence even before discussing term sheets in relation to the Primary Acquisition in Transaction I.
Additionally, other documents considered by CPPIB's Investment Department Decision Committee (Investment Committee), demonstrated that CPPIB was aware of Transaction II at the time of evaluating the investment opportunity. More so, the Primary Acquisition in Transaction I was conceived, negotiated, contemplated, and pursued to finance a certain strategic acquisition by ReNew (i.e, the acquisition of Ostro by way of Transaction II).
The CCI noted that while none of the several other potential acquisitions by ReNew were mentioned in these documents, the Ostro acquisition was discussed at length. The documents included statements to the effect that:
- ReNew was in late stage discussions to acquire Ostro at the time of Transaction I;
- estimates of the expected returns from the investment proposed in ReNew were based on business operations of both, ReNew and Ostro;
- ReNew asked CPPIB to support the acquisition of Ostro;
- Ostro was one of the top ten independent power producers, which was specifically highlighted to signify its proposed acquisition by ReNew; and
- the projects of Ostro overlap with Indian states where ReNew has operations and Ostro's assets have higher credit quality than ReNew's assets.
The CCI also found it relevant that after the closing of Transaction II, CPPIB publicly declared that its additional investment in ReNew (i.e., the Primary Acquisition) was done to support ReNew's acquisition of Ostro.
Accordingly, the CCI held that Transaction I and Transaction II were inter-connected and CPPIB and ReNew, being the acquirers in Transaction II, were held to be in contravention of the obligation to notify the CCI. Further, the CCI held that the facts and developments regarding Transaction II were material to Transaction I, which were omitted at the time of notification of Transaction I. Accordingly, the CCI imposed a penalty of INR 5,000,000 (approximately USD 66,555) on CPPIB.
Click here to access the order.
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1. Total Holdings SAS and Adani Gas Limited (Combination Registration No. C-2019/10/694) dated 28 November 2019.
2. Adani Properties Private Limited and Mumbai International Airport Private Limited (Combination Registration No. C-2019/10/696) dated 14 November 2019.
3. Hyundai Motor Company, Kia Motors Corporation, ANI Technologies Private Limited and Ola Electric Mobility Private Limited (Combination Registration No. C-2019/09/682) dated 30 October 2019.
4. TRIL Urban Transport Private Limited, Valkyrie Investment Pte Limited, Solis Capital (Singapore) Pte Limited and GMR Airports Limited (Combination Registration No. C-2019/07/676) dated 1 October 2019.
5. Proceedings against Canada Pension Plan Investment Board and ReNew Power Limited under Chapter VI of the Competition Act, 2002 dated 21 November 2019.
6. Exchange rate applied 1 USD = INR 75.12 as on 26 March 2020. The exchange rate has been applied uniformly throughout the newsletter.
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