E-Commerce Deals Are Falling Between The Cracks, Says Competition Regulator
CCI Chairman shares his views on exemption thresholds, settlement provisions, outcome in Hyundai and Cadila cases.
A nine-member team has been tasked with reviewing the competition law in view of the changing business environment and suggest amendments to it. Sudhir Mittal, chairman of the Competition Commission of India, spoke to BloombergQuint on some of the areas that the committee should focus on, the regulator’s decision to not narrow down the filing exemption under its merger control regulations, the outcome in the Hyundai case before the National Company Law Appellate Tribunal and a procedural clarity that the Delhi High Court ruling in Cadila Healthcare case has brought in.
Watch the interview here
Here are the edited excerpts from the interview:
Minority Acquisitions: Change In Stance
In July this year, the CCI proposed amendments to its merger control regulations. One of them had to do with narrowing down the Item 1 Exemption which provides that non-controlling acquisitions of less than 25 percent shareholding, made solely as an investment or in the acquirer’s ordinary course of business, doesn’t need to file with the CCI for prior approval.
Solely as an investment means acquisition of less than 10 percent shareholding which doesn’t given an acquirer:
- Rights which ordinary shareholders can’t exercise
- Right to nominate a director
- Capacity to influence management of the target
Through the proposed amendment, the CCI sought to do away with the 10 percent shareholding threshold. This would’ve meant that irrespective of the threshold, acquirers would have to fulfill these three conditions if they wished to avail of the filing exemption.
In the final version of the amendments, notified this month, the regulator chose to maintain a status quo on Item I Exemption.
What prompted the CCI to change its stance on this issue? Has the regulator parked this idea only for the time being?
No, we aren’t going to come back to it. After discussions with the stakeholders, it came out that there will be a large number of notifications that would come to the CCI where there would not be any appreciable adverse effect on competition. So, this chapter is closed. But we may have a relook at Item 1 in its entirety. The committee is looking at the entire Competition Act; it may happen as part of it.
Item 1 aside, are there deals that are not coming to the CCI for approval which may potentially harm competition?
In terms of de-minimis, yes. Deals below the asset and turnover threshold need not come to the CCI. A lot of e-commerce companies will not really meet the prescribed threshold and they are the ones who are falling between the cracks. So, you have to probably look at introducing size of the transaction test. This could also be part of the committee’s review.
Settlement Provisions
What are some of other areas which the committee should focus on?
On the merger side, they should look at thresholds [for notifying a transaction]. On the anti-trust side, the point is how do you try and close cases as early as possible. There could be settlement provisions where the party—which is being proceeded against—comes to the CCI and tries to close the matter. They could say we will rectify our abuse or whatever it is and then settle there and then. And there is no action thereafter against the party concerned—this would save time and the party concerned will not continue with that abuse.
Hyundai’s Case: CCI’s View On Outcome
Recently, the NCLAT dismissed the CCI’s order against Hyundai, saying the regulator merely relied on the Director General’s report and didn’t analyse the evidence independently.
What are your views on the NCLAT’s order and are you contemplating an appeal?
The CCI is likely to file an appeal. The NCLAT has said the CCI has relied on DG’s report. Well, the Competition Act has a certain process laid down. The DG is the first investigating part of the enquiry. It is not that the CCI totally relies on the DG’s findings. There is an entire process of giving opportunity to parties after the DG’s report. It’s on the basis of the evidence which is found by the DG, submission made by parties and CCI’s own assessment of that evidence that a decision is made. So, it is unfair to say that the commission totally relies on the DG’s report.
The CCI’s order [in Hyundai’s case] was extremely detailed. The process is if you order an investigation, the DG would call for evidence. It is not that the CCI, after the DG report has been submitted, calls for fresh evidence. That’s not the process at all. So, the evidence collected during the investigation is what the CCI has to rely upon. After the DG has written the report, the CCI looks at it independently.
Cadila Healthcare Case: Procedural Clarity
Last month, a division bench of the Delhi High Court ruled that:
- Merely because the CCI didn’t name a particular entity at the time of directing a DG enquiry and is made part of it in the course of it, the investigation won’t stand vitiated.
- The CCI can investigate the management even without an adverse finding against a company. There’s no merit in the argument that the management can be investigated only after the company is found guilty of anti-competitive conduct.
- After the DG has submitted its investigation report, the CCI can’t recall its order that had ordered the enquiry in the first place, and
- The CCI erred in refusing to grant cross examination (to Cadila) of the three witnesses who had deposed before the DG.
What do you make of the outcome in Cadila’s case and would the regulator now have to necessarily accept cross-examination requests?
This judgment reinforces a number of things that we have been doing in the past. An issue was that can we simultaneously, while we are investigating a company, investigate the role of directors. It was argued that this can be done only later. The high court has said the CCI is well within its right to investigate the directors and the company simultaneously.
The other issue raised was if the CCI had not named a party in its prima facie order, the DG can’t investigate it. The Cadila judgment has made it clear that once the DG is investigating into the matter, his hands are not tied.
The court has clarified to an extent that in terms of principal of natural justice, you need to provide opportunity to cross-examine witnesses. I don’t think there should be an issue on this account at all.