Keeping up with Competition - February 2025
A monthly newsletter by Axiom5
Welcome to the seventeenth edition of our monthly newsletter, Keeping Up With Competition. The month of January 2025 saw significant activity from the Competition Commission of India (CCI) and the Supreme Court of India (SC), with rulings addressing diverse issues across various sectors. This month's newsletter focuses on the following themes:
Gun-Jumping in M&A Transactions: The CCI's increasing scrutiny of pre-merger conduct and the implications for deal timelines and strategies.
CCI Oversight in Insolvency: The complex interplay between competition law and insolvency resolution, particularly concerning the timing of CCI approvals and their impact on insolvency and bankruptcy timelines.
Dominance and Abuse in Regulated Sectors: How the CCI balances sector-specific regulations with competition principles, particularly in cases involving public sector undertakings.
The Intersection of Contractual Disputes and Competition Law: Clarifying the boundaries between commercial disagreements and anti-competitive behavior.
This newsletter provides summaries of the cases that address these questions.
Key Cases Covered:
CCI’s Imposes Gun Jumping Order on Torrent Power Limited’s (TPL) Acquisition: TPL was found to have engaged in gun-jumping by failing to notify its acquisition of a stake in a power distribution company. While the CCI found a contravention, no penalty was imposed due to mitigating factors, including the structured bidding process and regulatory ambiguity. This case highlights the complexities of navigating both sector-specific regulations (Electricity Act, 2003) and the Competition Act, 2002 (Competition Act).
Goldman Sachs (India) Alternative Investment Management Private Limited (GS AIMPL) Fined for Gun-Jumping in Biocon Biologics Limited Deal: GS AIMPL was penalized for gun-jumping in its acquisition of optionally convertible debentures in Biocon. The CCI's focus was on the accompanying shareholder rights, particularly access to board meeting minutes, which were deemed to go beyond typical investor rights and suggested a strategic interest, triggering notification requirements. This case underscores the importance of carefully assessing all aspects of a deal, including ancillary agreements, even in minority investments.
Supreme Court Clarifies CCI Approval Timeline in Insolvency and Bankruptcy Cases: The SC, in a split verdict, addressed the timing of CCI approval for combinations arising during insolvency resolution. The majority held that CCI approval is mandatory before approval (by the committee of creditors) of a resolution plan. This decision clarifies the interplay between the Insolvency and Bankruptcy Code and the Competition Act in insolvency proceedings.
CCI’s Ruling on IREL (India) Ltd. (IREL): A Case of Dominance Without Abuse: While IREL was found to be dominant in the market for Beach Sand Ilmenite, the CCI ruled that no abuse of dominance was established. Allegations of discriminatory pricing, denial of market access, and excessive pricing were not substantiated. This case reflects the CCI's rigorous analysis of dominance and the need for concrete evidence of anti-competitive conduct to establish a violation.
CCI Passes Closure Order in Case Against Honda Motorcycle & Scooter India Private Limited (HMSI), Citing Commercial Dispute and Limitation Period: A complaint against HMSI for alleged anti-competitive practices was dismissed. The CCI highlighted the newly-introduced 3-year limitation period for filing complaints and clarified the distinction between commercial disputes arising from dealership agreements and actual anti-competitive conduct. This case reinforces that contractual disagreements, without evidence of abuse of dominance or harm to competition, do not fall under the purview of competition law.
The following sections provide a more in-depth look at these developments.
CCI’s Imposes Gun Jumping Order on TPL’s Acquisition (order available here.)
In a significant ruling dated 14th January 2025, the CCI addressed the case of TPL for its failure to notify the acquisition of a 51% stake in the Dadra and Nagar Haveli and Daman and Diu Power Distribution Corporation Limited (Target) under Section 43A of the Competition Act. While the CCI found TPL in contravention of the mandatory notification requirements, it decided not to impose any penalty, citing mitigating factors and structural complexities in the bidding process. This decision highlights the interplay between sector-specific regulations and competition law.
The transaction was part of the Government of India’s initiative to privatize power distribution in the Union Territory of Dadra and Nagar Haveli and Daman and Diu (DNH-DD). TPL, a major player in the power sector, acquired a 51% stake in the Target for INR 555 crore through a structured bidding process. The Target was formed by consolidating the Electricity Department - DD and DNH Power Distribution Corporation Limited under the Dadra and Nagar Haveli and Daman and Diu Electricity (Reorganisation and Reforms) Transfer Scheme, 2022.
Despite the transaction exceeding the asset and turnover thresholds under Section 5(a) of the Competition Act, TPL failed to notify the CCI before consummating the deal. This led to the issuance of a Show Cause Notice on 25th January 2024, questioning why TPL should not be penalized for violating Sections 6(2) and 6(2A) of the Competition Act.
TPL’s Defense: Jurisdiction and Bona Fide Belief
In its defense, TPL argued that the transaction fell under the exclusive jurisdiction of the Electricity Act, 2003 (Electricity Act), and not the Competition Act. TPL contended that the Electricity Act is a special and subsequent legislation governing the power sector, and its provisions, particularly Section 60, empower the Joint Electricity Regulatory Commission (JERC) to regulate combinations in the electricity industry.
Additionally, TPL highlighted the strict timelines imposed by the bidding process, which left little room for compliance with the Competition Act. It also emphasized that the transaction did not result in any appreciable adverse effect on competition (AAEC), as the Target’s operations were highly regulated, and 49% of its shares remained with the UT Administration.
CCI’s Observations: Jurisdiction and Contravention
The CCI rejected TPL’s jurisdictional argument, reaffirming its authority to regulate combinations under the Competition Act. It emphasized that while the Electricity Act governs sector-specific issues like tariffs and access, the Competition Act is a special statute for regulating competition across all sectors, including electricity. The CCI noted that the two laws operate in mutually exclusive regulatory regimes and can be harmoniously interpreted without conflict.
On the issue of contravention, the CCI found TPL in violation of Sections 6(2) and 6(2A) of the Competition Act. It stressed that the merger control regime in India is mandatory and suspensory, requiring parties to notify combinations before consummation. TPL’s failure to do so, despite the transaction being notifiable, constituted a clear breach of the law.
No Penalty Imposed: Mitigating Factors
Despite the contravention, the CCI decided not to impose any penalty on TPL. This decision was influenced by several mitigating factors:
Structured Bidding Process: TPL was bound by strict timelines imposed by the bidding authority, leaving little room for compliance with the Competition Act.
Ambiguity in Regulatory Overlap: The overlapping provisions of the Competition Act and the Electricity Act created confusion, and TPL acted under a bona fide belief that the transaction fell under the jurisdiction of the JERC.
No Adverse Effect on Competition: The transaction did not result in any AAEC, as the Target’s operations remained highly regulated, and 49% of its shares were still held by the UT Administration.
Cooperation with Investigation: TPL extended full cooperation to the CCI during the proceedings, providing all requested information promptly and transparently.
Conclusion: A Balanced Approach
The CCI’s decision in the TPL case reflects a balanced approach to enforcement, recognizing the challenges businesses face in navigating complex regulatory frameworks. While the CCI reaffirmed the importance of compliance with the Competition Act, it also demonstrated that it considered mitigating factors in light of the unique circumstances of the case.
Goldman Sachs Fined for Gun-Jumping in Biocon Biologics Deal (order available here.)
The CCI penalized GS AIMPL, the investment manager of Goldman Sachs AIF Scheme-1 (GS AIF), for "gun-jumping" in a transaction with Biocon Biologics Limited (Biocon).
Details of the Transaction
In 2020, GS AIF subscribed to optionally convertible debentures (OCDs) issued by Biocon. These OCDs, if converted at the time of investment, would have given GS AIF a 3.81% shareholding in Biocon (on a fully diluted basis). Along with the OCDs, GS AIF also secured certain rights under a Shareholders Agreement (SHA), including:
Reserved Matter Rights: These rights pertained to specific company decisions, some of which required consent from a majority of investors and some requiring unanimous consent.
Information Rights: These rights allowed GS AIMPL access to:
Certified true copies of minutes from board, committee, or shareholder meetings, along with related records (Minutes Right)
Information regarding any direct change in certain shareholdings and access to certified true copies of the latest capitalization table of Biocon
Access Rights: GS AIF was granted access to Biocon's premises and personnel during normal business hours with prior notice.
The CCI's scrutiny was triggered by the nature of the accompanying rights acquired by GS AIF under the SHA. Although the shareholding was less than 10%, the CCI determined that the combination of the equity stake (represented by the OCDs) plus the specific rights granted under the SHA (particularly the Minutes Right and Access Right) constituted a notifiable event. These rights, exceeding those typically afforded to ordinary shareholders, raised concerns about potential influence over Biocon's strategic decisions and access to competitively sensitive information.
CCI's Observations: The Rights in Question
The CCI's investigation focused on whether the transaction qualified for an exemption from notification under the now defunct Item 1 of Schedule 1 of the Combination Regulations. This exemption applied to certain minority acquisitions that were "solely as an investment" (SAI), or in the “ordinary course of business” (OCB). The key issue was whether GS AIF's acquisition was truly SAI or OCB, or whether the accompanying rights suggested a more strategic involvement.
The exemption applied to all sub-25% SAI/OCB acquisitions, where the acquirer did not also acquire control. Additionally, it deemed all sub-10% acquisitions as SAI/OCB if these were not coupled with any acquisition of board representation rights or any extraordinary shareholder rights.
The CCI scrutinized the rights acquired by GS AIF and concluded that the Minutes Right (access to meeting minutes) and Access Right went beyond the rights typically available to ordinary shareholders. Although GS AIF argued that these rights were not "extraordinary" since all Biocon shareholders enjoyed them, the CCI noted that access to board meeting minutes, which contained confidential and commercially sensitive information, gave GS AIF an unfair advantage and suggested a strategic interest rather than a pure investment motive. The CCI emphasized that such access is not ordinarily granted to passive shareholders, and its presence indicated that GS considered the transaction strategic. In effect, the CCI clarified that whether certain rights are "extraordinary" should be determined by comparing them to the rights of typical passive investors, not just other investors in the target company.
GS AIF further argued that even though it did not qualify for the sub-10% exemption, its investment should still be considered exempt because it did not acquire any control. Regarding the rights it obtained, GS AIF asserted that they were standard practice for investors and necessary to protect their investment. They also emphasized the existence of confidentiality agreements to prevent misuse of information. However, the CCI rejected these arguments, suggesting that for inherently strategic transactions, merely meeting the objective criteria for exemption might not be sufficient. While this order relates to the former minority acquisition exemption, it is important to note that even the new minority acquisition exemption may not apply to intrinsically strategic transactions, even if they fulfill the exemption criteria. For example, the new exemption applies when parties do not acquire control, board representation rights, or access to commercially sensitive information, and have no overlaps or links. However, in light of this order, whether this exemption applies to transactions that meet these criteria but also involve the acquisition of "extraordinary" rights or may otherwise be deemed "strategic" is now open to discussion.
Penalty and Consequences
The CCI concluded that the transaction should have been notified under Section 6(2) of the Competition Act, and that GS AIMPL's failure to do so constituted a contravention of the act. Consequently, the CCI imposed a penalty of INR 40,00,000 (Rupees Forty Lakhs) on GS AIMPL, payable within 60 days of receiving the order.
This case serves as a reminder that companies must be diligent in assessing whether their transactions require CCI approval. The CCI's focus on the substance of the rights acquired, rather than just the stated intent of the investment, highlights the importance of a thorough analysis of all aspects of a deal, including ancillary agreements. Even minority investments can trigger notification requirements if they come with rights that exceed those of an ordinary shareholder and suggest a strategic interest in the target company.
Balancing Insolvency Resolution and Competition: Supreme Court Clarifies Approval Process for Combinations (order available here.)
The Supreme Court of India, in a split verdict dated January 29, 2025, addressed the interplay between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Competition Act, regarding mandatory approval from the CCI for combinations arising during insolvency resolution.
The majority, authored by Justice Hrishikesh Roy and concurred with by Justice Sudhanshu Dhulia, held that CCI approval must be obtained prior to the Committee of Creditors (CoC) approving a resolution plan involving a combination. Justice Bhatti, however, dissented, arguing that CCI approval, while mandatory, need only be secured before the National Company Law Tribunal (NCLT) approves the plan.
The case involved the resolution process of Hindustan National Glass and Industries Ltd. (HNGIL), where the successful resolution applicant, AGI Greenpac Ltd. (AGI), obtained CCI approval after CoC approval but before NCLT approval. The majority decision nullified AGI's resolution plan and directed the CoC to reconsider INSCO's plan and any others with prior CCI approval. The dissenting opinion upheld the NCLAT's view, emphasizing the commercial wisdom of the CoC and the need for timely resolution under the IBC. The Court also addressed procedural lapses in the CCI approval process, including the non-issuance of a show cause notice to HNGIL and discrepancies in the data provided by AGI.
Explanation of the Majority Decision:
Interpretation of Section 31(4) Proviso: The majority interpreted the proviso to Section 31(4) of the IBC literally, emphasizing the words "prior to" as indicative of mandatory prior CCI approval before CoC approval. They argued that this interpretation aligns with the legislative intent to ensure combinations are scrutinized for anti-competitive effects before CoC consideration.
Rejection of Purposive Interpretation: The majority rejected arguments for a purposive interpretation that would allow CCI approval after CoC approval, stating that the provision's language is clear and unambiguous. They also dismissed the argument that the mention of "CoC" in the proviso was a drafting error.
Harmony between IBC and Competition Act Timelines: The majority found no inherent disharmony between the timelines stipulated under the IBC and the Competition Act, noting that CCI approvals are typically much faster than the maximum 210 days. They also highlighted the possibility of extending the Corporate Insolvency Resolution Process (CIRP) timeline in exceptional cases.
Procedural Lapses: The majority criticized the CCI for not issuing a show cause notice to HNGIL, a mandatory requirement under Section 29(1) of the Competition Act.
Explanation of the Dissenting Decision:
Purposive Interpretation: Justice Bhatti favored a purposive interpretation of the proviso to Section 31(4), arguing that mandatory prior approval would hinder participation of eligible resolution applicants and diminish the competitive spirit of the CIRP.
Commercial Wisdom of CoC: Justice Bhatti stressed the commercial wisdom of the CoC and its role in assessing feasibility and viability of resolution plans.
Reading of Timeline: He argued that the proviso should be read harmoniously with other provisions of Section 31, suggesting that the appropriate time for CCI approval is before NCLT approval, not CoC approval. This, he argued, would ensure compliance with the Competition Act without disrupting the IBC's timelines.
Reliance on Precedent: Justice Bhatti cited previous NCLAT decisions and their subsequent affirmation by the Supreme Court as supporting his view that prior CCI approval at the CoC stage is directory, not mandatory.
Summary
The Supreme Court's split decision highlights the tension between ensuring fair competition and facilitating timely resolution of insolvency. The majority prioritized strict compliance with the Competition Act, even if it meant delaying or restarting the resolution process. The dissenting opinion emphasized the commercial considerations of the IBC and advocated for a more flexible approach to CCI approval timelines. The decision has significant implications for future insolvency cases involving combinations, underscoring the need for careful consideration of competition law requirements throughout the resolution process.
CCI’s Ruling on IREL (India) Ltd.: A Case of Dominance Without Abuse (order available here.)
In a January 17, 2025 order, the CCI addressed allegations of abuse of dominance against IREL (India) Ltd. (IREL), a public sector undertaking, in the Indian Beach Sand Ilmenite market. The Beach Mineral Producers Association (Informant) alleged IREL engaged in discriminatory pricing, denial of market access, and excessive pricing. While the CCI acknowledged IREL's dominant position, it concluded no abuse of dominance occurred under Section 4 of the Competition Act.
Background and Allegations:
The Informant, representing beach mineral industry members, claimed IREL abused its dominance in Beach Sand Ilmenite, a crucial raw material. Allegations included unfair contract terms favoring exports over domestic supply, restricted domestic access, arbitrary price increases, and discriminatory treatment favoring foreign companies.
IREL's Defense:
IREL argued its Monazite extraction fell under exempt sovereign functions (atomic energy) per Section 2(h) of the Competition Act. It also defined the relevant market broadly, including substitutes like Rutile, Synthetic Rutile, Titanium Slag, Leucoxene, and Rock Source Ilmenite, as well as imports. IREL justified its pricing based on global market dynamics, noting its prices were lower than competitor KMML's and that domestic prices were lower than export prices. Finally, IREL cited government regulatory oversight as limiting its market autonomy.
CCI's Analysis and Findings:
The CCI determined IREL's Ilmenite activities constituted a commercial enterprise subject to the Act, while its Monazite operations were exempt. It upheld the relevant market definition as mining and supply of Beach Sand Ilmenite in India, rejecting IREL's broader market definition due to the lack of interchangeability of other minerals and insufficient evidence that imports constrained IREL's pricing power.
The CCI affirmed IREL's dominance based on its >90% market share, regulatory barriers preventing private BSM mining, limited buyer power, and demonstrated pricing power.
Regarding abuse of dominance, the CCI found no evidence of discriminatory conditions or denial of market access, concluding IREL did not refuse supply to domestic consumers. The CCI also rejected the excessive pricing claim, citing IREL's pricing alignment with global market dynamics, lower domestic prices compared to exports, and absence of adverse downstream market effects. Finally, no evidence supported discriminatory pricing between domestic and foreign consumers.
Conclusion:
Despite confirming IREL's dominance, the CCI found no evidence of abusive conduct under Section 4 of the Competition Act and closed the case without penalties.
CCI Passes Closure Order in Case Against Honda Motors, Citing Commercial Dispute and Limitation Period (order available here.)
The CCI dismissed a case filed by Mr. Rajesh George, Managing Director of Classic Omega Auto Private Limited, against Honda Motorcycle & Scooter India Private Limited (HMSI), alleging violation of Section 4 of the Competition Act.
Mr. George, a former Suzuki dealer, sought an HMSI dealership in 2016. He alleged HMSI coerced him into terminating his Suzuki dealership before granting him a Honda dealership in 2017. Further allegations included HMSI forcing him to accept unpopular models and unilaterally terminating the dealership in January 2024, citing breaches he claimed were baseless.
The CCI's analysis focused on several key aspects:
Limitation Period: The CCI highlighted the three-year limitation period for Section 19 complaints introduced by the 2023 amendment. Mr. George’s cause of action arose in 2016, but the complaint was filed in 2024, exceeding the limit. The CCI deemed his reasons for the delay (continuing the dealership and fear of losing it) insufficient.
Nature of Allegations: The CCI categorized the allegations of model dumping and unilateral termination as commercial disputes arising from the dealership agreement, not inherently anti-competitive. The CCI noted the agreement allowed HMSI to terminate for breaches, and HMSI had issued prior warnings and improvement notices.
Abuse of Dominant Position: The CCI found no evidence supporting the claim of HMSI abusing its dominance. Mr. George’s decision to terminate the Suzuki dealership and join HMSI was considered a voluntary commercial choice.
The CCI emphasized that dealer-manufacturer contractual relationships are governed by the agreement's terms and don't automatically raise competition concerns unless they demonstrate anti-competitive conduct like abuse of dominance or harm to competition. The CCI concluded Mr. George’s allegations were commercial disputes, not competition law violations. The case was dismissed, with no penalties imposed on HMSI. This decision underscores the distinction between commercial disagreements and genuine anti-competitive practices.