Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): Noting a nationwide cartel amongst certain Beer companies, Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma, Bhagwant Singh Bishnoi (Members) imposed penalty on three beer companies on finding regular communications with respect to planning and coordinating of price hikes to propose to State authorities

CCI initiated the present matter suo motu, pursuant to the filing of an application by Crown Beers India Private Limited (OP-2) and SABMiller India Limited (OP-3), both ultimately held by Anheuser Busch InBev SA/NV (Ab InBev) against the captioned parties (OPs) for alleged cartelization in relation to the production, marketing, distribution and sale of Beer in India.

Commission noted that there appeared existence of collusion amongst OPs 2 and 3 along with United Breweries (OP-1) and Carlsberg India Private Limited (OP-4) to:

  • Align the prices of Beer
  • Seek/implement price adjustments in several States and Union Territories of India, irrespective of whether the model of distribution of alcohol (including Beer) therein was of corporation market, auction market or free market.

The aim of the companies appeared to be to ensure consistency in their pricing policies, in particular, price increases and to achieve this aim, OP1 to OP-4 appeared to have coordinated by way of series of multilateral and bilateral meetings and e-mail exchanges amongst themselves as well as through common platform of All India Brewers’ Association (OP-5).

On 31-10-2017, Commission passed an order forming an opinion that prima facie, the conduct of the OPs appears to be in contravention of the provisions of Section 3(1) read with Section 3(3)(a) of the Act and consequently, directed DG to cause an investigation into the matter. 

DG’s Report

DG noted that the sale of liquor (including Beer) does not fall within the ambit of the Goods and Services Tax (‘GST’). As such, each State/UT in India has its own unique method of regulating the sale of liquor (including Beer) within its territory, leading to differences in pricing regulations and approvals, imposition of different taxes, different excise duties and differing terms of licensing, among others.

Issue

  • Whether the OP’s indulge in cartelization in the domestic Beer market I India in contravention of the provisions of Section 3 of the Act?

DG concluded that OPs 1,3 and 4 indulged in the exchange of vital information amongst themselves about pricing and other confidential and business-sensitive information. These companies approached the State Governments collectively through the common platform of OP-5 to get price revisions to agreed levels so as to avoid price wars among themselves.

Hence, they contravened the provisions of Section 3(3)(a) read with Section 3(1) of the Act.

Analysis

Commission noted that the DG has established cartelization amongst the OPs in 10 States/UTs out of total 36 States/UTs in India.

In view of evidences collected by the DG, and analysed by the Commission, in the following States/UTs, cartelization amongst the OPs stood established:

(1) Andhra Pradesh – Price co-ordination between OP-1 and OP-3 in 2009 and 2013, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act;

(2) Delhi – Price co-ordination between OP-1, OP-3 and OP-4 through OP-5 in 2013, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act;

(3) Karnataka – Price-co-ordination between OP-1 and OP-3 from 2011 to 2018 with OP-4 joining in from 2012, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act; and cartelisation between OP-1 and OP-3 with respect to supply of Beer to premium institutions in the city of Bengaluru in 2010, in contravention of the provisions of Section 3(3)(c) read with Section 3(1) of the Act;

(4) Maharashtra – Price co-ordination between OP-1 and OP-3 from 2011 to 2018 with OP-4 joining in from 2012, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act; cartelisation between OP-1 and OP-4 to restrict/limit the supply of Beer in 2017, in contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Act; and sharing of market between OP-1, OP-3 and OP-4 from 2013 to 2017, in contravention of the provisions of Section 3(3)(c) read with Section 3(1) of the Act;

(5) Odisha – Price co-ordination between OP-1 and OP-3 in 2009 and 2010, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act; price co-ordination by OP-4 in 2015 and 2016, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act; and cartelisation between OP-1, OP-3 and OP-4, through OP-5, to restrict/limit the supply of Beer in 2015–16, in contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Act;

(6) Puducherry – Price co-ordination between OP-1, OP-3 and OP-4 in 2017, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act;

(7) Rajasthan – Price co-ordination between OP-1, OP-3 and OP-4 through OP-5 from 2011 to 2018 with OP-4 joining in from 2014, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act; and

(8) West Bengal – Price co-ordination between OP-1 and OP-4 through OP-5, from 2012 to 2018, in contravention of the provisions of Section 3(3)(a) read with Section 3(1) of the Act; and cartelisation between OP-1 and OP-4, through OP-5, to restrict/limit the supply of Beer in 2018, in contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Act.

Second-Hand Bottles

Further, apart from price co-ordination and limiting/restricting supply of Beer in various States/UTs, the DG also reached to a finding of co-ordination amongst OP-1 and OP-3 with respect to purchasing of second-hand bottles.

Commission observed that the provisions of the Act do not just pertain to the end-consumers of goods/services.

“No distinction in the Act, for the purposes of assessment of anti-competitive conduct, is made between the end-consumers, and intermediaries falling in the supply chain.”

 Coram opined that given the sheer magnitude and size of the OP companies, their countervailing buying power over small time bottle collectors, would have been substantial.

Hence, cartelization amongst OP-1 and OP-3 from at least 2009 to 2012 in the purchase of second hand bottles was clearly established.

OP-1 and OP-3 had an ‘understanding’ to share their off-take of old bottles from the market for re-use in their breweries. They had also agreed upon the rate at which they would procure such bottles from the bottle collectors. They closely monitored each other’s purchase of old bottles. Such conduct of OP-1 and OP-3 may have resulted in limiting and controlling the supply of second-hand Beer bottles in the market, amounting to contravention of the provisions of Section 3(3)(b) read with Section 3(1) of the Act.

 OP-4 was not found guilty of cartelization with respect to second-hand Beer bottles.

Commission stated that OP-1 and OP-3 indulged into nation-wide cartelisation from 2009 to at least 10.10.2018 (till the DG conducted search and seizure operation at the premises of the OPs), with OP-4 joining in from 2012 and with OP-5, since 2013, serving as a platform for facilitating such cartelisation, which is in contravention of the provisions of Section 3(3)(a), 3(3)(b) and 3(3)(c) read with Section 3(1) of the Act.

15 individuals were liable for the anti-competitive conduct of their respective companies.

Conclusion

In terms of proviso to Section 27(b) of the Competition Act, in cases of catelisation, Commission is empowered to impose upon the contravening entities penalty of upto 3 times of the profit of each year of the continuance of the cartel, or 10% of its turnover for each year of the continuance of the cartel, whichever is higher.

Commission determined the quantum of penalty imposed on the parties @ 0.5 times profit for each year of the continuance of the cartel or 2% of the turnover for each year of the continuance of the cartel, whichever is higher.

Lastly, the Coram directed the parties to cease and desist in future from indulging in any practice/conduct/activity, which has been found in the present order to be in contravention of the provisions of Section 3 of the Act. [Alleged anti-competitive conduct in the Beer Market in India, In Re.; Suo Motu Case No. 6 of 2017, decided on 24-9-2021]


Advocates before the Commission:

For United Breweries Ltd. (UBL), Mr. Kalyan Ganguly of UBL, Mr. Kiran Kumar of UBL, Mr. Perry Goes of UBL and Mr. Shekhar Ramamurthy of UBL:

Mr. Amit Sibal, Senior Advocate alongwith Mr. Ravishekhar Nair, Ms. Avantika Kakkar, Mr. Sahil Khanna, Mr. Abhay Joshi, Mr. Kirthi Srinivas, Mr. Ambar Bhushan, Mr. Saksham Dhingra, Mr. Animesh Kumar, Ms. Shreya Joshi and Ms. Sree Ramya Hari, Advocates and Mr. Govind Iyengar, Senior VP Legal of UBL, Mr. Kiran Kumar in person, Mr. Perry Goes in person and Mr. Shekhar Ramamurthy in person

For Mr. Shalabh Seth of UBL:

Mr. Ramji Srinivasan, Senior Advocate alongwith Mr. Gaurav Desai, Ms. Apurva Badoni and Mr. Shivkrit Rai, Advocates

For Mr. Steven Bosch of UBL:

Mr. Prashanto Chandra Sen, Senior Advocate alongwith Ms. Nisha Kaur Oberoi, Mr. Gautam Chawla, Mr. Rishabh Juneja and Ms. Shambhavi Sinha, Advocates

For Anheuser Busch InBev SA/NV (i.e., Crown Beers India Private Limited and SABMiller India Limited):

Mr. Manas Kumar Chaudhari, Mr. Pranjal Prateek, Mr. Sagardeep Rathi and Ms. Radhika Seth, Advocates alongwith Ms. Ajita Pichaipillai, Legal and Compliance Director of AB InBev

For Mr. Anil Arya of SABMiller India Ltd.: For Mr. Nilojit Guha of SABMiller India Ltd.:

Mr. Talha Abdul Rahman, Advocate
Mr. Tahir Ashraf Siddiqui, Advocate with Mr. Nilojit Guha in person

For Mr. S. Diwakaran of SABMiller India Ltd.:

Mr. Shreyas Mehrotra, Advocate

For Carlsberg India Pvt. Ltd. (CIPL), Mr. Anil Bahl of CIPL, Mr. Dhiraj Kapur of CIPL, Mr. Mahesh Kanchan of CIPL, Mr. Michael Jensen of CIPL and Mr. Nilesh Patel of CIPL

Mr. Rajshekhar Rao, Ms. Manika Brar, Ms. Atrayee Sarkar, Mr. Anandh Venkataramani, Mr. Nilav Banerjee, Ms. Kajori De, Ms. Afreen Abbassi and Ms. Raveena Sethia, Advocates alongwith Mr. Amit Sethi of CIPL

For Mr. Pawan Jagetia of CIPL:

Ms. Deeksha Manchanda and Mr. Shruti Rao, Advocates

For All India Brewers’ Association (AIBA): For Mr. Sovan Roy of AIBA:

Mr. Subodh Prasad Deo and Ms. Rinki Singh, Advocates, with Mr. Sovan Roy in person

Case BriefsForeign Courts

United States District Court, North District of California: While issuing a permanent injunction, stating Apple could no longer prohibit developers linking to their own purchasing mechanisms, Yvonne Gonzalez Rogers, J., held that Epic Games failed to show how Apple Inc. was operating an illegal monopoly.

Violation of Federal and Anti-Trust Laws

Plaintiff Epic Game Inc. sued Apple Inc. alleging violations of federal and state antitrust laws and California’s unfair competition laws based upon Apple’s operation of its App Store.

Epic Games claimed that Apple is an antitrust monopolist over:

  • Apple’s own system of distributing apps on Apple’s own devices in the App Store and
  • Apple’s own system of collecting payments and commissions of purchases made on Apple’s own devices in the App Store.

Antitrust jurisprudence also evaluates both market structure and behavior to determine whether an actor is using its place in the market to artificially restrain competition.

Apple argued that it does not enjoy monopoly power, and therefore does not violate federal and state law.

Trial did show that Apple was engaging in anti-competitive conduct under California’s competition laws. Further, the Court concluded that Apple’s anti-steering provisions hide critical information from consumers and illegally stifle consumer choice.

Since Apple has created an ecosystem with interlocking rules and regulations, it is difficult to evaluate any specific restriction in isolation or in a vacuum. Thus, looking at the combination of the challenged restrictions and Apple’s justifications, and lack thereof, the Court found that common threads run through Apple’s practices which unreasonably restrains competition and harm consumers, namely the lack of information and transparency about policies that effect consumers’ ability to find cheaper prices, increased customer service, and options regarding their purchases.

Apple employs these policies so that it can extract supracompetitive commissions from this highly lucrative gaming industry.

Background

In 2010, Epic Games agreed to and signed a Developer Product Licensing Agreement (“DPLA”) with Apple. Epic International subsequently signed a Developer Agreement and DPLA (for the account associated with Unreal Engine). At the time of the signing of these contracts, Mr. Sweeney understood and agreed to key contractual terms including, that Epic Games (i) was required to pay a commission on in-app purchases; (ii) was prohibited from putting a store within the App Store; (iii) was prohibited from sideloading apps on to iOS devices; and (iv) was required to use Apple’s commerce technology for any payments. Knowing the terms, Epic Games chose to enter into those contracts.

Analysis

Apples’ product Market Theory

Court considered whether the App Store provides two-sided transaction services or as Epic Games argued “distribution services”.

The Supreme Court has seemingly resolved the question: two-sided transaction platforms sell transactions. In two-sided markets, a seller “offers different products or services to two different groups who both depend on the platform to intermediate between them.”

Court found that the relevant App store product is transactions, not services, but that providing transactions may include facilitating services.

Apps or Digital Game Transactions?

Whether to narrow the scope of the transactions in terms of defining the product market.

Court concluded that the appropriate submarket to consider is digital game transactions as compared to general non-gaming apps.

Further, the Court stated that there were nine indicia indicating a submarket for gaming apps as opposed to non-gaming apps:

  • the App Store’s business model is fundamentally built upon lucrative gaming transactions;
  • gaming apps constitute a significant majority of the App Store’s revenues;
  • both the gaming, mobile, and software industry, as well as the general public, recognize a distinction between gaming apps and non-gaming apps;
  • gaming apps and their transactions exhibit peculiar characteristics and users;
  • game app developers often employ specialized technology inherent and unique to that industry in the development of their product;
  • game apps further have distinct producers—game developers—that generally specialize in the production of only gaming apps;
  • game apps are subject to distinct pricing structures as compared to other categories of apps;
  • games and gaming transactions are sold by specialized vendors; and
  • game apps are subject to unique and emerging competitive pressures, that differs in both kind and degree from the competition in the market for non-gaming apps.

Between digital game transactions and all app transactions, the relevant product is game transactions.

All Gaming Transactions or Mobile Gaming Transactions?

Court observed that the appropriate submarket to consider is the mobile gaming transactions market.

On a careful consideration of the evidence, Court found that Apples’ app distribution restrictions do have some anti-competitive effects. Unlike the increased merchant fees in Amex, Apple’s maintenance of its commission rate stems from market power, not competition in changing markets

Apple has shown procompetitive justifications based on security and the corollary interbrand competition, as well as generally with respect to intellectual property rights.

Epic Games has not met its burden to show that its proposed alternatives are “virtually as effective” as the current distribution model and can be implemented “without significantly increased cost.

California’s Unfair Competition Law

Epic Games challenges Apple’s conduct under the “unlawful” and “unfair” provisions of the UCL.

Court found that Epic Games has the standing to bring a UCL claim as a quasi-consumer, not merely as a competitor.

Since Epic could not show a violation of law, the claim under the “unlawful” standard failed.

Remedies

While Apple’s conduct did not fall within the confines of traditional antitrust law, the conduct fell within the purview of an incipient antitrust violation with particular anti-competitive practices which have not been justified.

Apple contractually enforces silence, in the form of anti-steering provisions, and gains a competitive advantage. Moreover, it hides information for consumer choice which is not easily remedied with money damages.

 Apple’s business justifications focus on other parts of the Apple ecosystem and will not be significantly impacted by the increase of information to and choice for consumers.

 A nationwide injunction shall issue enjoining Apple from prohibiting developers to include in their:

Apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to IAP.

Nor may Apple prohibit developers from:

Communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.

The Court concluded that Epic Games has not shown that the DPLA is unconscionable. A contractual term is not unconscionable unless it is found to be both procedurally and substantively unconscionable. Here, the absence of substantive unconscionability is dispositive. A contractual term is not substantively unconscionable unless it so “one-sided so as to ‘shock the conscience”

Epic Games pointed to no other evidence or authority based upon which the Court could find that the provisions at issue “shock the conscience.”

These are billion and trillion dollar companies with a business dispute.  

Breach of Contract

 Under California law, “the elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (2011)

Further, it was contended that, Epic Games’ actions violated the DPLA provisions

(1) requiring developers not to “hide, misrepresent or obscure any features, content, services or functionality” in their apps and not to “provide, unlock or enable additional features or functionality through distribution mechanisms other than the App Store,”; and

(2) requiring Epic Games to pay Apple “a commission equal to thirty percent (30%) of all prices payable by each end-user” through the App Store.

For the above argument, Court concluded that Epic games breached the provisions of DPLA and that Apple was entitled to relief for the violations.

Breach of the Implied Covenant of Good Faith and Fair Dealing

Since Court had concluded that Apple was entitled to relief on its breach of contract claim, the Court denied relief to Apple as to its alternative claim for the breach of the implied covenant of good faith and fair dealing.

Unjust Enrichment

 Apple asserts a counterclaim for unjust enrichment against plaintiff based on its alleged failure to pay Apple the agreed-upon 30% commission under the DPLA, but it asserts this counterclaim only “[i]n the alternative” to its claim for breach of contract.

The above stated alternative claim was denied.

Indemnification

Under California law, “[a]n indemnity agreement is to be interpreted according to the language and contents of the contract as well as the intention of the parties as indicated by the contract.” Myers Bldg. Indus., Ltd. v. Interface Tech., Inc., 13 Cal. App. 4th 949, 968 (1993)

Apple contended that it is entitled to indemnification from Epic Games under the indemnification provision because plaintiff’s lawsuit involved claims arising from or related to its breaches of its certifications, covenants, obligations, representations, or warranties under the DPLA, and its use of the Apple Software or services, its licensed application information, its covered products, and its development and distribution of the foregoing.

No such express language was included in the indemnification provision at issue.

In light of the absence of such express language, and in light of the terms used in the indemnification provision that suggested that it covers only third-party claims, the Court found and concluded that Apple has not shown that it is entitled to recover attorneys’ fees and costs from Epic Games pursuant to Section 10 of the DPLA.

Conclusion

Apple sought a declaratory judgment that:

  • DPLA is valid, lawful, and enforceable contracts
  • Apple’s termination of the DPLA with Epic Games was valid, lawful and enforceable
  • Apple has the contractual right to terminate the DPLA with any or all of the Epic games’ wholly owned subsidiaries, affiliates, and/or other entities under its control; and
  • Apple has the contractual right to terminate the DPLA with any or all of the Epic Affiliates for any reason or no reason upon 30 days written notice, or effective immediately for any “misleading fraudulent, improper, unlawful or dishonest act relating to” the DPLA.

Epic Games had contended that Apple was not entitled to the above-stated judgment and Apple’s termination of the DPLA as to Epic Games was “unlawful” retaliation.

Bench stated that the present matter does not involve retaliation.

Epic Games never showed why it had to breach its agreements to challenge the conduct litigated.

In Court’s opinion, plaintiff’s challenges to Apple’s claim for declaratory relief failed as to the remaining requests.

Relief to which Apple was entitled is that to which Epic Games stipulated in the event that the Court found it liable for breach of contract, namely:

  • damages in an amount equal to (i) 30% of the $12,167,719 in revenue Epic Games collected from users in the Fortnite app on iOS through Epic Direct Payment between August and October 2020, plus (ii) 30% of any such revenue Epic Games collected from November 1, 2020, through the date of judgment; and
  • a declaration that (i) Apple’s termination of the DPLA and the related agreements between Epic Games and Apple was valid, lawful, and enforceable, and (ii) Apple has the contractual right to terminate its DPLA with any or all of Epic Games’ wholly owned subsidiaries, affiliates, and/or other entities under Epic Games’ control at any time and at Apple’s sole discretion.

Final Words

As a major player in the wider video gaming industry, Epic Games brought this lawsuit to challenge Apple’s control over access to a considerable portion of this submarket for mobile gaming transactions. Ultimately, Epic Games overreached.

Court did not find Apple as an antitrust monopolist in the submarket for mobile gaming transactions. Though, the Court did find Apple’s conduct in enforcing anti-steering restrictions to be anti-competitive.

In view of the above discussion, Court gave the verdict in favour of Apple except with respect to violation of California’s Unfair Competition Law and only partially with respect to its claim for declaratory relief.

Apple Inc. and its officers, agents, servants, employees, and any person in active concert or participation with them were hereby permanently restrained and enjoined from prohibiting developers from

  • including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing and
  • communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.

Injunction which was previously ordered was terminated.[Epic Games Inc. v. Apple Inc., Case No. 4:20-cv-05640-YGR, decided on 10-09-2021]

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]