The year 2017 was quite an eventful one in the competition law sphere. Under the banner of 'ease of doing business' the Government pruned the regulatory oversight of mergers and acquisitions by the Competition Commission of India (CCI) by widening the de-minimis exemptions applicable to mergers and acquisitions and also exempting a number of sectors from the application from the CCI's merger regulation powers under Sections 5 and 6 of the Competition Act, 2002 ('Act'). The Government also abolished the Competition Law Appellate Tribunal (COMPAT) in its tirade against the multiplicity of tribunals and shifted all appeals to the National Company Law Appellate Tribunal instead. Meanwhile, the Supreme Court gave its first set of decisions under Section 3 of the Competition Act, while the Bombay High Court reignited the debate on CCI's jurisdiction vis-à-vis other sectoral regulators. The CCI also came out with its first leniency decision which was closely followed by the amendments to the leniency regulations. Here is a look at the significant developments that took place in 2017.

I. The Institutions

The sprawling premises of Kota House on Shajahan Road, in New Delhi, no longer hosts the exclusive club of competition practitioners before the COMPAT. They will now join the queue before the National Company Law Appellate Tribunal (NCLAT) with fellow company law practitioners and those who practiced before the Board of Industrial and Financial Reconstruction and its Appellate body. On 26.05.2017, the COMPAT ceased to exist and all pending matters were transferred to NCLAT, which is presided over by retired Supreme Court judge S.J. Mukhopadhaya as Chairman, former High Court judges Bansi Lal Bhat and A.I.S. Cheema, and Mr. Balvinder Singh as its technical member.

Upto seven tribunals were abolished and merged with existing tribunals without any open consultation with stakeholders, which prompted some to challenge the validity of this action before the Supreme Court of India in Social Action for Forest and Environment v. Union of India1.

What's worse, the Government appears to have turned its attention towards the CCI itself with some reports suggesting that the Ministry of Corporate Affairs (MCA) has proposed that the strength of the CCI should be reduced from seven to three.2 Currently, only six members are present and the Government appears to be in no rush to make an appointment for the seventh position which is lying vacant since September 2016. Three more are scheduled to retire in 2018, including the current Chairman. The FTC faced a similar situation in 2017 where three of the five commissioner positions lay vacant for almost a year before President Trump finally made two nominations which are yet receive a Senate confirmed. It could well be that the Modi government chooses to let the CCI seats that will fall vacant this year remain just that.

II. Scope of CCI's Jurisdiction– The Ericsson & Vodafone judgments

On 30.03.2016, the Delhi High held that neither the application of the Patents Act, 1970 nor pending civil patent infringement suits will eclipse the jurisdiction of the CCI under the Competition Act to address allegations relating to abuse of dominance by Ericsson which held certain Standard Essential Patents.3 In effect, the decision held that a set of facts can be agitated before a civil court or a sectoral regulator and also give rise to a cause of action that may adjudicated by the CCI in parallel. Such proceedings would not be mutually exclusive. In September 2017, the Court reiterated this position in Uttarakhand Agricultural Produce Marketing Board & Ors v. CCI and Anr.4 where the Delhi High Court upheld the investigation initiated by the CCI even though the factual dispute per-se had been agitated before the Hon'ble Uttarakhand High Court in a writ proceeding.

Simultaneously, the Bombay High Court, also in September of 2017, issued a differing view in Vodafone. The matter involved the Cellular Operators Association of India and its main incumbent members, namely Vodafone, Idea, and Airtel being accused of forming a cartel to limit the entry of a new player, Reliance Jio. Jio first approached the Telecom Regulatory Authority of India (TRAI) complaining that the incumbents were deliberately delaying and denying it points of interconnection leading to congestion in its networks. TRAI issued a preliminary finding in its favour. Subsequently, Jio also filed a complaint before the CCI, which initiated an investigation. Meanwhile, the incumbents and the Association had challenged the TRAI's finding and subsequently, challenged the jurisdiction of the CCI before the Bombay High Court. The Court held that while in principle the CCI could exercise jurisdiction over enterprises and persons who are regulated by their respective sectoral authorities, in this particular case the core of the allegation was governed by contracts falling within the purview of regulations issued by TRAI and the terms of their telecom licenses issued by the Department of Telecommunications. Therefore any dispute relating to the interpretation and regulation of such points of interconnection fell within the exclusive domain of authorities constituted under the TRAI Act. The High Court also noted that the CCI had relied heavily on TRAI's finding which itself was under challenge before a separate court. The Court also went a step further and substituted its opinion for that of the CCI's holding that none of the evidence before the CCI established that COAI or the incumbent players had acted with the intent to thwart the entry of Jio in the market.

The Court's ruling is questionable in as much as the main issue before the CCI was whether the incumbents agreed to restrict the points of interconnect and was not whether the contractual terms between the operators and the TRAI regulations had been violated. The decision has already been appealed and it will be for the Supreme Court to finally rule on this important aspect, which will affect a number of pending matters challenging the jurisdiction of the CCI in similar circumstances including Ericsson, currently pending in appeal before a division bench of the Delhi High Court [for more on the Vodafone judgment and the issue of CCI's jurisdiction see here].

III. Anti-Competitive Agreements

Notable decisions: Horizontal restraints and cartels

The Supreme Court rendered its first substantive judgment on merits under the Competition Act relating to a cartel matter. In CCI v. Co-ordination Committee of Artists and Technicians of West Bengal Film and Television and Ors.5 the Eastern India Motion Pictures Association (EIMPA) and the Committee of Artists and Technicians of West Bengal Film and Television Investors (Coordination Committee) had threatened to boycott channels that intended to telecast of the Bengali dubbed version of the serial 'Mahabharat' as they believed that such a practice would hamper the development of similar serials produced in Bengali language and therefore affect producers, artists and technicians working in West Bengal. In view of the threats, one of these channels decided to stop the telecast of the dubbed version of the serial giving rise to a complaint before the CCI. The CCI upheld the allegation, however, in appeal, the COMPAT set aside the CCI order holding that since the two associations operated in different relevant markets, the issue of cartelization could not have arisen. The Supreme Court sided with the CCI. It held that effects flowing from a contravening act should be considered while deciding the relevant market. Interestingly, the Supreme Court extensively discussed the importance of relevant markets in competition assessment. As the same was done in the context of cartel case, it can be argued that defining a relevant market is necessary even in Section 3 matters [for more on this case see here]. Such a position would bring into question several decisions of the CCI, which has steadfastly held that defining a relevant market was not necessary while dealing with anti-competitive agreements. It is yet to be seen whether a relevant market will be delineated in ever Section 3 case from now on [for more on this issue see here].

The Court was not done for the year, however, and issued its second notable decision in Excel Crop Care v. CCI & Anr6. Again related to a cartel matter, the Court upheld the decision of the CCI to penalize three Aluminium Phosphide Tablet manufacturers for rigging tenders. However, the CCI had imposed a penalty to INR. 318 crore (approximately USD 48.5 million), which was based on the total turnover of the companies, despite them having a number of verticals and different products. The Supreme Court disagreed and established the concept of relevant turnover holding that while calculating the penalty leviable, the CCI must only take into account the turnover attributable to the segment or product in question.

The CCI also continued its enforcement against bid rigging by imposing a cumulative penalty of around approximately INR 206 crores (approximately USD 32.3 million) on seven cement companies in relation to tenders for cement procurement issued by a state government department.7 In its second bid rigging decision8 the CCI imposed a penalty on ten transportation companies for rigging bids in response to tenders floated by a public sector undertaking for transportation of coal and sand. Individuals responsible were also penalized.

Finally, the CCI also went after three companies for collusively bidding in tenders floated by the Delhi Jal Board for supply of water purification chemical 'Poly Aluminium Chloride'.9 Curiously, two of the parties (Aditya Birla and Grasim Industries) had approached the CCI under the merger regulation provisions in 2015. In that case, the CCI had held that Grasim and Aditya Birla form part of the same 'group'10 of the Act and hence "that the Parties are not likely to have exercised a competitive constraint on each other irrespective of the Proposed Combination"11. However, when the parties pointed this out and argued that they cannot cartelize within themselves, as they formed a single economic entity, the CCI held that the concept of 'group' would have no application to proceedings under Section 3 of the Act. The position seems to be quite questionable and contrary to jurisprudence in the EC, where such conduct would fall outside the purview of Article 101 of the Treaty (akin to Section 3) but may be objected to by the procuring authority separately depending on the tender terms and other applicable laws.12 By taking such a contradictory position it appears the CCI want to have its cake and eat it too.

Separately, vessel sharing agreements were exempted from the operation of Section 3 of the Act by virtue of a notification dated 16th June 2017 issued by the Ministry of Corporate Affairs for a period of one year "provided such agreements do not include concerted practices involving fixing of prices, limitation of capacity or sales and the allocation of markets or customers."

Notable decisions: Vertical restraints

In Fx Enterprises Solutions v. Hyundai Motor13, one of Hyundai's dealers approached the CCI complaining that Hyundai had restricted its dealers from engaging with other car manufactures, maintaining resale prices, and tying-in of CNG kits, lubricants and car insurance with the sale of its cars. The CCI upheld the allegation relating to resale price maintenance holding that the 'Discount Control Mechanism' maintained by Hyundai by virtue of which the maximum discount which a dealer can offer to the end-consumer was fixed, resulted in foreclosure of intra-brand price competition and higher prices for consumers. The mechanism was maintained by way of employing monitoring agencies who secretly reported on dealers flouting the policy, who were then penalized monetarily for every instance of violating the policy. The CCI also held Hyundai liable for tying in the sale of lubricants from Indian Oil Corporation and Shell with the sale of its cars by mandating its dealers only to deal with the two aforesaid brands. However, the cancellation of warranties for using non-recommended lubricants was held to be valid.

Leniency – a year of firsts

The CCI also came out with its first leniency decision in 2017. In Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electrical items14, the CCI penalized three companies for allocating tenders floated by the Indian Railways. The investigation had been initiated based on information received from the Central Bureau of Investigation. Post the initiation, one of the opposite parties filed an application under Section 46 of the Competition Act admitting to the contravening conduct and seeking leniency. After noting the stage at which the application was filed, the nature of evidence and value addition provided, the CCI granted a 75% reduction in penalty for the leniency applicant and individual concerned. The other two participants who continued to disavow any wrongdoing did not receive any reduction in penalties.

The first leniency decision was followed amendments to the Competition Commission of India (Lesser Penalty) Regulations, 2009 in August 2017. The some of the more significant changes were as follows:

  • Individuals were specifically brought under the ambit of the Regulations with definition of an 'applicant' being amended. Unfortunately, Regulation 3 was also amended to provide that at the time of making the leniency application the enterprise must also provide the names of the individuals who were involved in the cartel activity and on whose behalf leniency is being sought. This is troublesome as the extent of the activity is not always known at the time of first contact with the regulator and will depend on the outcome of the company's internal investigation.
  • Importantly, the confidentiality provisions were substantially amended to provide greater safeguards against the disclosure of the information made by the leniency applicant. Regulation 6 now provides that where investigator wishes to disclose any information for the purposes of the investigation and the applicant objects to the same, such disclosure maybe be allowed subject to prior approval by the CCI.
  • Regulation 4 was also substituted to incentivize cartel participants from conceding to contraventions by making applicants 'subsequent' to the third marker, eligible for upto a 30% reduction in the applicable penalty.

The entire leniency process is unfortunately facing a stern test before the Delhi High Court on the principles of natural justice. A number of auto part manufacturers appear to have received notices from the CCI's investigative arm in relation to an on-going investigation. The petitioners have alleged that the order of the CCI's initiating the investigation has been redacted and no access was allowed to the case file on the grounds of confidentiality. While the arguments are yet to be concluded, this High Court bears the grave responsibility of drawing a fine balance between the confidentiality provisions that are necessary for the successful implementation of a leniency regime and the legal rights of the opposite parties to fair defence.

IV. Abuse of Dominance

The CCI re-imposed a fine on the Board of Control for Cricket in India (BCCI) for anti-competitive practices with respect to Indian Premier League's media rights. The IPL is cricket's most lucrative Twenty20 tournament globally. When Sony won the media rights for televising the IPL in 2008, it entered into an agreement with BCCI that required the BCCI from sanctioning any another professional domestic Indian T20 competition for a period of 10 years. In 2013, the CCI found that this clause "has been pursued by BCCI consciously to protect the commercial interest of the bidders of broadcasting rights as well as the economic interest of BCCI" to the detriment of the game and consumers.15 After the order was set aside on appeal due to procedural lapses and remanded back, the Commission, in November 2017, essentially re-affirmed its earlier order and imposed a fine of INR 52.24 crores (USD 8.18 million).

The CCI also imposed a penalty of INR 591.01 crores (USD 8.18 million) on Coal India for abusing its dominance in the relevant market for production and supply of non-coking coal by imposing unfair, arbitrary and one-sided clauses under its fuel supply agreements with thermal power producers and sponge iron manufacturers in India.16 In two other cases based on similar allegations against Coal India, CCI upheld the allegations but did not impose any penalty in view of the aforesaid order of penalty.17

The pharmaceutical sector continued to be an important focus area for the CCI. Apart from levying fines as it has done in several cases over the last few years on distributors' associations for imposing restrictive terms on appointment of new dealers/retailers18, the CCI also ordered its first abuse of dominance investigation against Roche for allegedly blocking the entry of Biocon and Mylans' generic in Biocon & Mylan v. Roche19. The case revolved around the biological drug Trastuzumab used as targeted therapy for certain types of breast cancer. Trastuzumab raked in over USD 6 billion globally for Roche in 2017 and has been one of the best selling drugs over the last several years. In its prima facie order, the CCI held that by denigrating and disparaging biosimilars before doctors and hospitals, Roche was abusing its dominant position. The CCI appears to have taken a cue from the practices detailed in the European Commission's Pharmaceutical Sector Inquiry Report of 2009 where it has been specifically recognized that a creating doubt about the safety and efficacy of generic drugs was one of the more well established strategies employed by innovator drugs companies to thwart the entry and growth of generics. The French Competition Authority has also been active in this space fining Schering-Plough and Sanofi-Aventis for similar conduct.20 Roche promptly challenged the order of the Commission on jurisdictional grounds due to on-going civil suit between the parties, placing yet another matter on the lines of Ericsson and Vodafone before the Delhi High Court.

V. Mergers and Acquisition – Ease of business v. Competition Regulation

Important Notifications

By notification dated 27th March 2017 the de minimis thresholds applicable vis-à-vis Section 5 and 6 of the Competition Act were revised,21 in terms of which, all transactions where the value of assets being acquired, or merged is not more than INR 350 Crores (USD 54 million) or where the turnover attributable to the said portion of the business is not more than INR 1000 Crores (USD 154.5 million) need not be notified to the CCI. The notification finally brings India in line with international practice that looks at only the portion, division or business being acquired while assessing whether thresholds have been breached.

Similarly, the Government also realized the futility of requiring parties to file a notification with the CCI within 30 days of the trigger event. On 29th June 2017, the Government did away with the 30 day rule, although India remains a suspensory jurisdiction and hence parties may still have an incentive to notify and obtain approval from the CCI at the earliest.

In order to facilitate the consolidation of public sector banks, exemptions from application of Section 5 and 6 of the Act was given in respect of Regional Rural Banks and Nationalized banks.22 A similar exemption was also granted to combinations involving government companies in the oil and gas sector.23

Reports also suggest that combinations involving stressed assets will also be exempted from CCI's jurisdiction in order to assist and facilitate quick resolution of companies under the Insolvency and Bankruptcy Code.

Notable Transactions

This year also saw some big combinations passing through the scrutiny of CCI with relative ease while a record three were sent to phase II.

The global consolidation in the agro-chemicals sector saw the CCI clearing two transactions with remedies, while the third entered phase II. Valued at USD 130 billion, the global merger between Dow and DuPont24 turned out to be a complex transaction in the agro-chemical sector because of the large number of overlaps in their products and services portfolios. After considering the divesture commitments made by the parties to the European Commission, the CCI found two India specific relevant markets where the merger triggered concerns in India, and required additional divestments.

ChemChina/Syngenta deal was also approved by the CCI after ChemChina voluntarily committed to divestment of three formulated crop protection products sold in India and somewhat extraordinarily that Adama (ChemChina's subsidiary) and Syngenta would operate as independent and competing entities in India for a period of seven years!

The Agrium/Potash combination was cleared by the CCI after extensive rounds of discussions on the remedies. The Commission noted that Potash Corporation, through its subsidiaries Arab Potash Company (APC), Sociedad Quimica y Minera (SQM) and Israel Chemicals Limited (ICL) along with Canpotex, which was a company jointly held by Agrium and Potash Corporation, collectively accounted for 45 to 50 percent of the Indian potash market in India. This raised concerns of horizontal conduct and the Commission proposed that the parties divest all shares that Potash held in APC, ICL and SQM. The parties however objected to the divestment in SQM in view of its insignificant presence in India. The disagreement reached the appellate tribunal negotiations, post which the parties agreed to the complete divesture.

Bayer's USD 66 billion takeover of Monsanto was also sent to Phase II and a decision is expected within the next few months. Whether the CCI will be satisfied with the global remedies offered by Bayer or require additional divestments in India will be known soon.

The telecom sector in India also saw significant consolidation that was perhaps overdue, triggered by the entry of Reliance Jio. Bharti Airtel undertook several acquisitions within the sector, namely, the acquisition of Telenor, 25 the consumer mobile business of Tata Teleservices,26 and certain spectrum from Aircel and Dishnet as well as Videocon.27 Amalgamation of the telecommunications businesses of Vodafone and Idea Cellular was also a significant deal also received a swift approval in spite of the parties' significant market shares.28

The CCI also approved the merger of the first (Dish TV) and fourth (Videocon d2h) largest direct-to-home (DTH) operators with minor behavioral conditions attached.29

Though the transactions in the telecom and DTH sectors took placed in markets characterized by high HHIs, the CCI approved the transactions without imposing any commitments. While the CCI noted the sector specific guidelines/rules issued by the Department of Telecommunications and the TRAI, which imposed market share caps, it also analyzed the merging parties on the basis of diversion ratios, the absence of switching costs, and churn rate between operators. Structural issues inherent to the markets, such as chronically low profit margins and increasing debt also weighed in CCI's decision to allow the transactions to go through unconditionally.

Three major ship liners, Nippon Yusen Kabushiki Kaisha Ltd. (NYK), Mitsui O.S.K. Lines Ltd (MOL), and Kawasaki Kisen Kaisha (KL) agreed to merge their container liner shipping business and container terminal services business worldwide, excluding Japan.30 The CCI found that on most of the concerned shipping routes where the operations of the two entities overlapped, the combined market share of the parties, or the incremental increase in the market share, would not be significant enough to create any competition concerns. Interestingly, the CCI also considered overlaps in several services and operations between the companies which were not a part of the merger. To address the concerns of possible anti-competitive horizontal conduct arising, the liners voluntarily undertook to implement strict Chinese walls and prevent information sharing between the merged business and those which are to operate independently.

Other globally significant transactions sailed through unconditionally, such as Essilor's USD 54 billion merger with Luxottica,31 which has been sent to Phase II by the EC and is also still pending clearance by the FTC, and AT&T's USD 108 billion acquisition of Time Warner,32 which has been challenged by the USDOJ in court. The merger between GE and Baker Hughes relating to oilfield services and products33 and HP's acquisition of Samsung's34 printer business were also cleared with relative ease, save for requiring that HP limit the term of the non-compete clause to three years, reiterating what has now become an age old requirement of the Commissions'.

Gun-jumping

In 2017 there were nine cases where penalties were imposed under Section 43-A of the Act for failure to notify the CCI of reportable transactions. About half of these related to acquisitions of certain portions of the business of the target entity, which when taken alone, would not have breached the thresholds. However, the CCI stuck to its narrow interpretation of the exemption, requiring that the total turnover of the target enterprise had to be considered and not merely that of the relevant business or assets. With the position having been expressly clarified by the Government in March 201735, one would expect the number of gun jumping penalties to decrease significantly in 2018.

The CCI also continued to limit the application of the investment only exemption. In 2015, EMC Limited entered into an agreement for acquiring 19.77% shares of Mc Nally Bharat Engineering Company Limited (MBECL), which was duly notified to CCI. The Commission noted that MNK Private Ltd. (MNK), a promoter group company of EMC, had already acquired 12.32% of shares capital in MBECL a few months earlier. According to the Commission, that transaction formed the first leg of EBC's acquisition of MBECL. ECB argued that the acquisition of 12.32% would qualify for the exemption under Item 1 of Schedule I of the Combination Regulations as it was an investment made in the ordinary course of business. However, the CCI held that the investment was 'strategic' and not merely passive, excluding it from the purview of the exemption.36

Conclusion

The year 2018 has much to look forward to. While the Supreme Court established that only relevant turnover ought to be taken into consideration when imposing penalties, several questions remain regarding its application which the CCI and appellate tribunal will no doubt have to face. The apex Court must also settle the question of CCI's jurisdiction in matters involving the application of other sector specific statutes, while the immediate fate of the CCI's leniency regime hinges on the approach the Delhi High Court takes in the writ proceedings.

Footnotes

1. W.P. No. (C) 561 of 2017

2. Amitav Rajan, 'MCA proposes to halve CCI member strength to three' Indian Express, 23.08.2017

3. Telefonaktiebolaget LM Ericsson (PUBL) v. CCI & Ors., W.P.(C) 464/2014, decision dated 30.03.2016

4. W.P. (C) 10411/2016, decision dated 22.09.2017

5. Civil Appeal No. 6691 of 2014, decision dated 10.3.2017 .

6. Civil Appeal No. 2480 of 2014, decision dated 08.05.2017 .

7. Ref. Case No. 5 of 2013, decision dated 19.01.2017

8. In re: Western Coalfields Limited v. SSV Coal Carriers Pvt. Ltd. & Ors., Case No. 34 of 2015, Order dated 14.09.2017

9. Ref. Case No. 3& 4 of 2013., decision dated 5/10/2017

10. As defined in Explanation (b) to Section 5 of the Act relating to combinations;

11. C-2015/03/256, order dated 31.08.2015

12. See eVigila, Case C-538/13, judgment dated 12.03.2015 and Opinion of the Advocate General Campos Sánchez-Bordona delivered on 22.11.2017 in Case C-531/16

13. CCI order dated 14.6.2017 in Case No. 36 of 2014

14. Suo moto Case 3 of 2014, decision dated 18.01.2017.

15. Case No. 61 of 2012, decision dated 08.02.2013

16. Case No. 03, 11 & 59/2012, decision dated 24.03.2017

17. Case No. 8 of 2014, decision dated 21.04.2017 and Case Nos. 05, 07, 37, & 44/2013 decision dated 21.04.1027

18. Case 54 of 2015, decision dated 31.10,2017; Case No. c-175/09/dgir/27/28-MRTP, decision dated 02.03.2017

19. Case 68 of 2016, decision dated 21.04.2017.

20. The decision of the Court De Cassation in the Schering Plough case, dated 11.01.2017 is available at , http://www.autoritedelaconcurrence.fr/doc/cass_subutex13d21.pdf; The decision of the Court De Cassation in the Sanofi- Aventis case, dated 18.10.2016 is available at http://www.autoritedelaconcurrence.fr/doc/cass_13d11.pdf

21. Ministry of Corporate Affairs, Notification dated 27.03.2017

22. Ministry of Corporate Affairs, Notifications dated 10.08.2017 and 30.08.2017 respectively

23. Ministry of Corporate Affairs, Notification dated 22.11.2017

24. Combination Registration No. C-2016/05/400, decision dated 8.06.2017

25. Combination Registration No. C-2017/03/494, decision dated 30.05.2017

26. Combination Registration No. C-2017/10/531, decision dated 16.11.2017

27. Combination Registration No. C-2017/05/509, decision dated 21.06.2017 and Combination Registration No.C-2017/05/510, decision dated 21.06.2017

28. Combination Registration No. C-2017/04/502, decision dated 03.10.2017

29. Combination Registration No. C-2016/12/463, decision dated 04.05.2017

30. Combination Registration No. C-2016/11/459, decision dated 29.06.2017

31. Combination Registration No. C-2017/05/511, decision dated 29.06.2017

32. Combination Registration No. C-2016/11/456, decision dated 13.02.2017

33. Combination Registration No. C-2017/03/498, decision dated 09.06.2017

34. Combination Registration No. C-2016/10/444, decision dated 27.04.2017

35. See: Supra, Fn. 20.

36. Combination Registration No. C-2015/07/293, decision dated 26.04.2017

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