Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi, Members found no cartelization in respect to the skyrocketing prices by the airlines during the Jat Agitation.

Informant had alleged that Jet Airways, Spice Jet and Indigo had contravened the provisions of Section 3 of the Competition Act.

Informant’s Submissions

During the month of February 2016 when Jat Agitation was going on, domestic airlines had skyrocketed their rates particularly between the Delhi-Chandigarh and Delhi-Amritsar routes.

From the above instance, it was noted that the aviation industry had been exploiting the passengers during such conditions as the same was observed during the Chennai Floods and Nepal Earthquake.

Preliminary Conference

Commission on noting the allegations and submission by the Informant held a preliminary conference and made a reference to the Director-General of Civil Aviation in terms of Section 21 A of the Act, later the Commission sought certain information from 5 airlines.

What did the Commission note?

Commission noted that with the use of algorithms, there exists a high possibility of collusion with or without the need of human intervention or coordination between competitors.

Therefore, Commission opined that there was a need for investigation of the algorithms used by airlines, so as to determine whether the fares set by the airlines during the alleged period were an outcome of collusion or not?

 Hence, on 9-11-2018 an order was passed to cause an investigation to be made.

 DG in its investigation report concluded that no contravention of Section 3(3) read with Section 3(1) of the Act was found against the conduct of Spice Jet, Air India, Go Air and Indigo during the period of ‘Jat’ Agitation, but in regard to Jet Airways, DG excluded the same from its purview of investigation since the airline was grounded in April 2019 and due to grounding of Jet Airways and un-availability of any employee/personnel, the Resolution Professional could not provide any price data, booking dates, capacity of flight, number of passengers flown and the number of price buckets used by Jet Airways during the period of ‘Jat’ Agitation.

After the objections and suggestions were filed, parties were directed to appear for a final hearing on the investigation report on 23-02-2021.

On the fixed date of hearing, Commission noted that neither the informant nor its counsel appeared before the Commission.

Further, Commission considered the matter in its ordinary meeting and decided to pass an appropriate order.

What did the investigation try to ascertain?

It was ascertained whether the increase in air-ticket prices during the period of Jat Agitation was the result of an agreement between the OPs?

Whether the price data suggested any uniformity in prices indicative of price parallelism?

DG found no contravention of Section 3(3) read with Section 3(1) of the Act against the conduct of Spice Jet, Air India, Go Air and Indigo during the period of Jat Agitation.

Analysis and Decision

Commission noted that the existence of an ‘agreement’ is sine qua non before ascertaining whether the same is anti-competitive or not in terms of the scheme of Section 3 of the Act.

Definition of ‘agreement’ as given in Section 2(b) of the Act requires inter alia any arrangement or understanding or action in concert whether or not formal or in writing or intended to be enforceable by legal proceedings.

The establishment of ‘agreement’ would require some explicit or tacit arrangement amongst the parties wherefrom a concert between them can be deciphered. This may include, amongst others, exchange of information in the form of communications/ e-mails or in any other form of communication amongst the competitors, whether – explicit or tacit, oral or in writing, formal or informal including through parallel conduct which cannot be otherwise explained etc.

 In the instant matter, no such emails were found which could show any exchange of information among the airlines establishing any form of collusion during or after the period of Jat Agitation.

The investigation did not reveal any price parallelism or identical pricing of tickets by the airlines.

Further, elaborating more, Commission noted that widespread usage of algorithms in price determination by individual firms could pose possible anti-competitive effects by making it easier for firms to achieve and sustain collusion without any formal agreement or human interaction.

Based on DG’s investigation, Commission noted that airlines were using different software’s for the pricing of tickets in different fare bucket.

No evidence on record was found to establish a cartel amongst the airlines during the period of Jat Agitation.

Hence, no case of contravention of the provisions of Section 3(1) of the Competition Act was made out against the airlines. [Shikha Roy v. Jet Airways (India) Ltd., 2021 SCC OnLine CCI 31, decided on 3-06-2021]


Advocates before the Court:

For SpiceJet Limited: Mr. Abhishek Sharma, Advocate along with Mr. Shashi Shekhar, Executive (Legal) of OP-2

For InterGlobe Aviation Limited: Mr. Raj Shekhar Rao, Senior Advocate with Mr. Sagardeep Rathi, Mr. Pranjal Prateek and Mr. Ebaad Nawaaj Khan, Advocates

For Go Airlines (India) Limited: Mr. Vihang Virkar and Mr. Karun Jhangiani, Advocates along with Mr. Prashant Shinde, Senior General Manager (Legal) of OP-4

For Air India Limited: Mr. Pratik Majumdar, DGM of OP-5

Op EdsOP. ED.

When a corporate entity is subject to insolvency proceedings, often as a part of the resolution plan, a competitor seeks to acquire the insolvent entity. This is a typical case witnessing an overlap between insolvency law and competition law, and such acquisitions under the Insolvency and Bankruptcy Code (IBC) are to be reported to the Competition Commission of India[1].

When the IBC first came into being, it provided for the resolution applicant to seek Competition Commission of India (CCI) approval regarding the resolution plan within the prescribed time-limit (which was 270 days); however, it did not mention whether this approval was to be obtained before the approval of the committee of creditors or whether it was to be obtained after their approval or simultaneously. This confusion was alleviated by the Amendment Act of 2018 whereby sub-section (4) was added to Section 31 and its proviso specified that the approval from CCI was to be obtained before seeking the approval of the committee of creditors.

In 2019, the Competition Law Committee suggested in their report that combinations which do not cause any adverse effect on competition may be permitted to obtain “green channel” approval from the CCI; this dispensation also extends to combinations driven by the IBC. The Committee based its report on the fact that there was a very high approval rate of CIRPs that were notified to the CCI.

Green channel approval is based on the concept of “failing firm defence”. It means that the anti-competitive effects of the failing firm (in this case, the insolvent firm) exiting the market are to be evaluated with respect to the anti-competitive effects of the firm being acquired by a competitor. If it is observed that the latter is not more than the former, the acquisition or merger is approved by the competition authorities.

This defence has also got statutory recognition[2], and it essentially consists of a three-stage test[3], viz. firstly, if the firm is about to exit the market due to financial distress, secondly, whether there exists any alternative which is less anti-competitive than the merger or acquisition in question, and thirdly if the firm would be forced to exit the market in absence of this combination.

If the answers to these questions are in the positive, the combination is permitted. The CCI has also recognised the failing firm defence, as was noted when Reliance Industries sought to acquire 37.7% stake in Alok Industries[4]. Keeping these in mind the green channel approval mechanism was proposed by the Competition Law Committee.

Advantages of Green Channel Approval

The Code mandates CIRPs to be completed within 330 days, but it has been observed that the time taken for completion of the process extends this time-limit. Since the time taken for obtaining approval from the CCI adds to the time taken for approval of the resolution plans as a whole, automatic approvals would accelerate the whole process, thereby furthering the very purpose of enactment of the IBC, that is, to provide for resolution of distressed firms in a “time-bound manner[5]”.

Green channeling will do away with the requirements of obtaining prior approval from CCI in case on combinations, and consequently it will reduce the burden of compliances as well on resolution applicants.

It must also be noted that the requirement of obtaining prior approval from CCI may result in multiple applications being filed for the same transaction. This was observed in the Patanjali and Adani Wilmar fiasco where both wanted to acquire Ruchi Soya[6] and when UltraTech and Dalmia Bharat both wanted to acquire Binani Cement[7]. Situations like these lead to unnecessary litigation which may be done away with if green channel approval could be afforded to resolution plans.

Overall, automatic approval of resolution plans will make the whole resolution process simpler, easier and more expedient for all the stakeholders but since the impact of a resolution extends to laws beyond the insolvency regime, the demerits of the proposition should also be taken into consideration.

Disadvantages of Green Channel Approval

If all resolution plans were approved automatically and later it was observed that it had anti-competitive effects, the concerned combination would have to be modified or prohibited, and since it would be modified after the completion of the merger or acquisition as the case may be, the inconvenience caused would be amplified. This is because creditors in a CIRP usually extend additional finances depending on the resolution plan and if such a plan would be prohibited after its completion, the interests of the creditors would be prejudiced. Thus, it is much better that resolution plans go through the scrutiny of the CCI before being approved.

The IBC currently provides for prior approval of resolution plans which involve combinations, thereby encouraging coordination between both the authorities—National Company Law Tribunal and the Competition Commission of India. Green channel approval of resolution plans will discourage resolution applicants from approaching the CCI for approval of their plans or for consultation on whether they may have any anti-competitive effects on the market. This increases the scope of disputes arising later on, as it might have adverse effects on the interests of consumers and businesses (both upstream and downstream).

Conclusion

There are arguments present both in favour of and against the proposition and thus before implementing the recommendations of the Committee, a thorough analysis should be done, keeping in mind the interests of all the stakeholders. If the scales are tilted more towards the implementation of green channel approval, then it may be integrated into the insolvency regime, however it must be noted that the current mechanism of coordination and cooperation between the NCLT and the CCI should be encouraged and sustained nevertheless. A fine balance among interest of diverse stakeholders and an effective implementation are the need of the hour.


Bhumesh Verma is Managing Partner at Corp Comm Legal and can be contacted at bhumesh.verma@corpcommlegal.in. Ishika Chattopadhyay, Student Researcher, Final year student Department of Law, University of Calcutta.

[1] S. 5, Competition Act, 2002.

[2]  S. 20(4)(k) of the Competition Act, 2002.

[3] Guidelines on the Assessment of Horizontal Mergers under the Council Regulation on the Control of Concentrations between Undertakings, (Ch. VIII), Official Journal of the European Union, <https://eurlex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:52004XC0205(02)&from=EN#page=10>.

[4] “Complete Alok Industries takeover: SBI to RIL”, 3-1-2020, <https://www.ibcguide.com/complete-alok-industries-takeover-sbi-to-ril/>.

[5] Preamble to the IBC.

[6] “Patanjali moves NCLT Against Ruchi Soya Lenders Approving Adani Wilmar Bid”, The Economic Times, 24-8-2018 <https://cfo.economictimes.indiatimes.com/news/patanjali-moves-nclt-against-ruchi-soya-lenders-approving-adani-wilmar-bid/65532351>.

[7] “Nclat Approves UltraTech’s Revised Bid of Rs 7950 Crore for Binani Cement”, The Economic Times, 15-11-2018, <https://economictimes.indiatimes.com/industry/indl-goods/svs/cement/nclat-holds-ultratechs-bid-for-binani-cement-valid/articleshow/66615756.cms?from=mdr>.

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): Ashok Kumar Gupta (Chairperson) and U.C. Nahta and Sangeeta Verma (Members) heard the information filed by MPCDF under Section 19(1)(a) of the Competition Act, 2002 and disposed of the same.

The Informant herein, was involved in pharmaceutical trade whereas, Opposite Party 1 (OP-1), was a registered state-level association of wholesalers and retailers of pharmaceutical companies. One of the Informant’s member, dealt in pharmaceutical products. The Informant had alleged that its aforesaid member, had approached clearing and forwarding agents of various pharmaceutical companies, seeking supply of their products, for which he made an advance payment to them in the form of cheques/Demand Drafts (DD). However, these cheques/DDs were returned and he was denied the supply of pharmaceutical products by said companies without assigning any reason.

It was alleged that OP-1 used to issue No Objection Certificate (NOC)/Letter of Consent (LOC) on the basis of which appointment of the stockist was made by pharmaceutical  companies and, the practice of mandating NOC/LOC was stifling competition in the market by limiting access of consumers to various pharmaceutical products and controlling supply of drugs in the market by ensuring that only those distributors which were favored by OP-1 were eventually selected by the pharmaceutical companies to do business with them. The Commission prima facie found merit in the allegations of the Informant. Accordingly, the Commission directed the Director General (DG) to cause an investigation.

Findings of the DG in the Main Investigation Report

The DG investigated the conduct of OP-1 to determine whether it was mandating the requirement of NOC/LOC to be taken from it prior to the appointment of stockist by the pharmaceutical companies. He observed that Clause 28(a) of the Drugs (Price Control) Order, 2013 created an obligation on a pharmaceutical company to sell drugs/medicines unless there was a “good and sufficient reason” to refuse. He also observed that member of the Informant, used to send indent along with a draft/cheque, without having been appointed as a stockist, despite being aware of the procedure for appointment of stockist. Instead of following the due procedure, the member of the Informant indulged in threatening the pharmaceutical companies, issuing reminders within a very short gap and sending letters at wrong addresses. The DG concluded that OP-1 was consistently using anti-competitive activities which included grant of approval before appointment of stockist, imposing restrictions on the rates of the products and regulating the supply of the goods and despite there being a circular in place against the practice of seeking and providing NOC/LOC, OP-1 was constantly violating it. According to the DG, the act of indulging in the said practices by OP-1, amounted to limiting and controlling supplies of pharma products, thereby contravening provisions of Section 3 of the Act.

Oral Submission by OP-1

OP-1 denied all the allegations made against it. OP-1 had no role to play between the distributors/stockist and the pharmaceutical companies. OP-1 further stated that the DG had cherry-picked the statements of witnesses to suit its findings and had not provided complete detailed versions of replies and submissions of the Informant or him.

Order

The Commission relied on DG’s Report and directed OP-1, to cease and desist from indulging in the practice of mandating clearance/NOC/LOC which had been held to be anti-competitive in terms of the provisions of Section 3 of the Act. It also directed OP-1 to organize, in letter and spirit, at least five competition awareness and compliance programs for its members. The Commission imposed a penalty on OP-1 at the rate of 10% of the average of its income.[Madhya Pradesh Chemists and Distributors Federation (MPCDF) V. Madhya Pradesh Chemists Druggist Association (MPCDA), 2019 SCC OnLine CCI 7, decided on 03-06-2019 ]

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India: A four-member bench comprising of Devender Kumar Sikri, Chairperson and Sudhir Mital, Augustine Peter and U.C. Nahata, Members, ordered the matter filed under Section 19(1)(a) of Competition Act 2002, to be closed forthwith holding that no case of contravention of provisions of the Act was made out against the makers of the movies ‘Padmavat’ and ‘Padman’ (opposite parties).

The informants alleged that the opposite parties (OPs) had violated Section 3(3) of the Act. The informants were primarily aggrieved by the fact that the OPs, makers of the above named two movies, colluded to share the market by scheduling different dates/time frames for releasing their respective movies, resulting in controlling the supply of movies in the market. It was informed to the Commission that in a joint press conference, makers of the movie ‘Padman’ announced the postponing of the release date of their movie on request of makers of the movie ‘Padmavat’. As per the informants, sharing and allocation of time frame for movie release was a collusion between filmmakers that fell within the ambit of Section 3(3)(c) of the Act, and thus impermissible.

After perusing the information and noting the facts, the Commission observed that releasing of a movie is a strategic and tactical business decision taken by the producers. In the instant matter, the release of ‘Padmavat’ was delayed due to severe protests by a certain section of the society, and not by collusion with any other party. Moreover, the decision of not releasing both the movies at the same date was taken due to non-availability of a sufficient number of screens, which would have caused loss to producers of both the movies. The CCI held that such decision, being a result of market outcome, was a legitimate business decision rather than an anti-competitive practice. In absence of any evidence regarding a concerted action by the OPs, the CCI held that the anti- competitive conduct alleged against them was not established. The matter was accordingly directed to be closed forthwith. [Kshitiz Arya v.  Viacom 18 Media (P) Ltd.,2018 SCC OnLine CCI 41, dated 01.06.2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India: The Commission recently dealt with an application that was filed by the Association of Registration Plates Manufacturers of India, under Section 19(1)(a) of the Competition Act, seeking information against the respondents collectively, alleging them of having contravened the provisions of the Act. The informants sought investigation into the anti-competitive manner that was being done through cartelisation of implementation of a mandatory “High Security Registration Plates” (HSRP) Policy in various States by the respondents. The informants had previously filed several cases in the High Courts for larger interest of competition and public interest for the implementation of the aforementioned policy. The HSRP Policy was promulgated in 2001 following Parliament attack and the objective behind it was to control the usage of counterfeit registration plates over vehicles. The respondents had got their companies type- approved on 3 consecutive days in the same year.

The applicant pointed out that the Supreme Court had held in Association of Registration Plates v. Union of India, (2005) 1 SCC 679 that the State shall have the power to select a certain manufacturer through notice inviting tender (NIT) and can impose tender conditions for the purposes of manufacturing, supplying or selling of HSRP. He argued that the conditions upon which the tender was issued was such that it proved cartelization amongst the respondent companies had taken place as the rates quoted by them were so high that it could only be secured if there did not exist any competition in the selection process. This was done by seeking assistance from officials of the Transport Department in creating a “tailor-made pre-eligibility criteria”. But when non-manipulated NITs were issued in other states, since the respondent companies could not control the market in those states, the HSRP rates saw a fall in them in such states. This acted as an impetus for the respondent companies to lower their own rates to unreasonably lower prices so as to again be able to eliminate competition.

The Commission held that a careful consideration of the facts of the case ruled out a specific case of bid rigging in any State post relaxation of norms since many previous contracts that the respondent companies had secured were cancelled subsequently and other companies formed contracts instead of the ones in question. The Court mentioned that this could at best be called a case wherein misconduct by public officials had taken place since they connived with the bidding entities. But it went on to acknowledge that CBI had already begun proceedings in that regard and hence, the Commission didn’t need to look into that matter any longer. [Association of Registration Plates Manufacturers of India v. Shimnit UTSCH India Private Limited; Case No. 58 of 2017, decided on 14.11.2017]