Background      

The year 2019 marked the completion of a decade since the behavioural provisions of the Competition Act, 2002 (‘Act’) came into force. Over the course of the past one year, competition law policy and enforcement in India has seen some very important developments, ranging from the conclusion of a comprehensive review process of the Act to important decisions, which among other things, dealt with long-standing questions about the ideal composition of the Competition Commission of India (‘CCI’), that must adjudicate matters. This update summarises certain key developments in the Indian competition law regime over the past one year.

A. The Competition Law Review Committee Recommends Changes to India’s Antitrust Enforcement Framework

After consulting with various experts, the Competition Law Review Committee (‘CLRC’), which was set up by the Government of India (‘GoI’) in 2018, issued its report to the Ministry of Corporate Affairs in July 2019 (‘CLRC Report’)[1]. CLRC has made a wide-ranging set of recommendations with the objective of aligning India’s antitrust enforcement regime with new age markets and addressing legal complexities that have arisen in CCI’s functioning so far. Some of the important proposals include:

i. Structural changes: (a) Setting up of a governing body to perform quasi-legislative functions and drive antitrust policy in India; (b) a higher level of permissible delegation within the organization; (c) structural merger of the office of the Director General (‘DG’) with CCI; and (d) the introduction of a dedicated appellate bench at the National Company Law Appellate Tribunal.

ii. Enforcement functions: (a) the introduction of settlement and commitment mechanisms for non-cartel conduct; (b) allowing CCI to review anti-competitive agreements that do not strictly qualify as being horizontal or vertical in nature (including ‘hub and spoke’ agreements, which are a type of ­cartel among ‘spokes’ that is coordinated through a vertically related ‘hub’); and (c) allowing reasonable exercise of intellectual property rights as a defence against claims of abuse of dominance.

iii. Merger control functions: (a) allowing the GoI to introduce alternate mergers and acquisitions notifiability thresholds, such as ‘deal value thresholds’ (which are aimed to be based on the value of the deal in addition to the assessment based on the party’s financial statements); (b) the dilution of standstill obligations for public bids and takeovers or when otherwise derogated by CCI; (c) the introduction of ‘material influence’ as a standard for determination of control; (d) clarifying that shareholding must be computed on a ‘fully diluted basis’; and (e) affording equal opportunity to CCI and parties to propose remedies.

The GoI is expected to soon progress a bill in the Indian Parliament that may reflect CLRC’s recommendations.

B. CCI Concludes its ‘E-Commerce’ Study and Identifies certain ‘Self-Regulation’ Measures for the Industry

E-commerce marketplaces in India are likely to remain competitive due to increased internet penetration, competition in the telecom sector, and significant investments in the e-commerce space. Acknowledging the rapid growth and rising importance of online trade and with a view to ascertain CCI’s enforcement and advocacy priorities in relation to e-commerce, CCI consulted various industry stakeholders and carried out an e-commerce market study in 2019. The study focused on e-commerce services such as: (i) consumer goods; (ii) accommodation services; and (iii) food and delivery related services. The results of the e-commerce study were published by CCI recently[2]. Some of CCI’s non-binding observations or ‘self regulation’ measures include:

i. Platform neutrality: Online platforms often act as both marketplaces as well as competitors in those marketplaces. To address possible incentives for such platforms to prefer their own verticals, the study observes that balancing transparency with competitive risks of over-disclosure could reduce information asymmetry and foster competition.

ii. Platform-to-business contract terms: On account of the growing dependence of businesses on marketplaces, the study notes that platforms ought to protect the interests of contracting parties by adopting a negotiating framework for basic contract terms and streamlining contractual policies relating to discount, penalties and conflict resolution.

iii. Platform parity clauses (‘PPCs’): PPCs generally restrict sellers from offering their goods or services at prices lower than that of the enterprise’s direct sales channel or other platforms. The report correctly refrains from taking a singular approach towards all PPCs and acknowledges that their assessment would vary depending on the sector involved and resultant efficiencies and foreclosure effects.

iv. Exclusive agreements: As is the case with PPCs, the report acknowledges that exclusivity arrangements in the e-commerce space (e.g., single branding and preferred-seller models) would be assessed based on competitive conditions in the market and the resultant efficiencies and foreclosure effects.

v. Deep discounts: The report acknowledges that deep discounts (often termed as growth-over-profit strategies) are often important for platforms to acquire customers and establish a network in their early years of operations. Their antitrust examination would typically turn on factors such as market power, nature of discounts, underlying intent or rationale of the entity offering discounts and whether the resultant consumer welfare arises from efficiencies or competitive distortion.

C. Legislative Developments

CCI also introduced some important changes to its merger control regulations in 2019, the most significant one being the introduction of the ‘green channel’ notifications regime, which allows for ‘fast-track’ approval for combinations that do not involve any kind of overlap[3].  This is a self-assessment regime i.e., parties are able to self-assess and declare that they (including their respective group entities) do not overlap in any manner (i.e., horizontally, vertically or in terms of complementarily goods or services) and then receive a deemed approval upon filing.

Apart from this, CCI has also: (i) modified its ‘short form’ (i.e., the notification form usually filed in low-market share transactions) which, among other things, now requires disclosures relating to complementary overlaps and market share information of the three preceding years (as opposed to the earlier requirement of one year); and (ii) increased its combination filing fee from ₹15 lacs (approximately USD 21,063) to ₹20 lacs (approximately USD 28,085) (for short form notification) and from ₹50 lacs (approximately USD 71,211) to ₹60 lacs (approximately USD 84,254) (for long form notifications).

D. Decisional Trends

A majority of the various behavioural inquiries concluded by CCI in 2019 involved closure decisions. In fact, in the past one year, CCI has referred seven complaints for detailed investigation, which range from the investigation against Intel for alleged abusive contractual terms in relation to warranties[4], against MakeMyTrip, Ibibo Group and OYO for alleged abusive practices in the online travel agencies segment[5] and against Maruti Suzuki for alleged anti-competitive resale price maintenance[6]. During this time, CCI issued eight contravention orders – a large portion of which were under CCI’s leniency regime.

These trends seem to exhibit a balanced enforcement approach by CCI, which is likely to result in better prioritization of the resources at its disposal.

In another important development, the Delhi High Court (‘DHC’) issued a landmark decision[7] in April 2019 which deals with important questions about CCI’s composition while performing adjudicatory functions. The decision held, among other things, that CCI must have a judicial member at all times and that the provision of the Act that allowed a ‘casting vote’ to CCI’s chairperson was unconstitutional. DHC also directed CCI to frame guidelines to adopt the principle of ‘one who hears decides’ and the judicial member(s) is present in proceedings leading to adjudicatory orders. DHC’s decision is presently pending challenge before the Supreme Court of India.

On the merger control front, CCI approved 71 transactions in 2019 out of which two were approved subject to certain modifications. The two combinations that were approved subject to modifications are:

i. The acquisition of electrical and automation business of Larsen & Toubro Ltd. (‘L&T’) by Schneider Electric India Private Limited (‘Schneider’), which was followed by a subsequent investment by MacRitchie Investments Pte. Ltd. in Schneider[8]. The acquisition involved consolidation of the two closest competitors in the low voltage switchgears sector. After a detailed antitrust analysis of the concentration levels, likely portfolio and clustering effects etc., CCI approved the transaction subject to certain remedies regarding the concerned products which included: (a) the acquirers reserving a  part  of  L&T’s  installed  capacity to offer white labelling services to third party competitors; (b) subsequently, giving these competitors  access to the technology of white-labelled  products to manufacture them for a certain period; and (c) removing de facto exclusivity from its distribution network.

ii. The acquisition of minority stake of ANI Technologies Pvt. Ltd. (‘Ola’) and Ola Electric Mobility Pvt. Ltd. (‘OEMPL’) by Hyundai Motor Company (‘Hyundai’) and Kia Motors Corporation (‘Kia’)[9]. The transaction involved certain strategic cooperation in relation to Ola’s fleet operation and OEMPL’s e-mobility business in India (e.g., promotion of leasing of Hyundai vehicles to Ola’s drivers). To address the possibility of Ola preferring its drivers who own Hyundai or Kia vehicles on its platform, the parties offered certain voluntary modifications which primarily required that the strategic collaboration among the parties would be on a non-exclusive basis and that Ola would ensure that its taxi marketplace algorithm would not discriminate any drivers based on the brand of their vehicle.

Authors:
Bharat Budholia, Partner
Aakarsh Narula, Senior Associate
Shivam Jha, Associate

Footnotes:

[1] The CLRC Report is available at http://www.mca.gov.in/Ministry/pdf/ReportCLRC_14082019.pdf.
[2] CCI’s e-commerce report is available at https://www.cci.gov.in/sites/default/files/whats_newdocument/Market-study-on-e-Commerce-in-India.pdf.
[3] The amendment is available at: https://www.cci.gov.in/sites/default/files/notification/210553.pdf. See also AZB’s inter alia update dated August 15, 2019.
[4] Case No. 1 of 2019.
[5] Case No. 14 of 2019.
[6] Case No. 1 of 2019.
[7] Mahindra Electric Mobility Limited and Ors. v. Competition Commission of India, W.P. (C) No. 11467 of 2018.
[8] Combination Registration No. C-2018/07/586.
[9] Combination Registration No. C-2019/09/682.