Author name: CBCL

Buyer’s Cartel: Is it Even a Concern?

Leave a Comment / Competition Law /

[By Aditya Goyal] The author is a fourth year student of National Law Institute University, Bhopal and can be reached at [email protected]. Introduction Lately, there have been growing concerns over the exploitation of buyer’s power, which has raised issues concerning the sphere of functioning of Competition law in India. The Competition Act, 2002, (“the Act”)  was introduced to streamline growing industrial practice in India and to provide a robust institution to deal with ever-increasing anti-competitive practices. The erstwhile Monopolies and Restrictive Trade Policies Act, 1969, was amended as it became redundant with time and provided various escape routes to enterprises to interfere with the market forces and capitalize at the expense of buyers. However, after almost two decades of operation of the new Act, it has started to wear out on new avenues that have opened up — one of such areas being the emergence of cartels with respect to buyers. Understanding ‘Cartel’ A plain and outright reading of the substantive law on cartelization in the Act [i] shows that the drafters had a ‘seller-oriented cartel’ in mind. This could be inferred from the fact that the definition of cartel provided in the Act is an inclusive one and mentions explicitly the aspects related to a seller. Section 2 (c) of the Act defines cartel as “an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”. The definition limits its scope to other emerging venue of a possibility of a cartel being formed by buyers. It is a settled principle that the basic premise of an anti-competitive practice is that it has an appreciable adverse effect on competition. This principle is mainly neutral as it does not specifically state as to who should be behind that anti-competitive practice, i.e., it could be a seller as well as a buyer. Buyers, as a group have the equal potential of making an appreciable adverse effect on competition. There have been examples where the buyers have formed ‘buyer groups, ‘ which is nothing but a disguised form of a cartel as it tends acting in concert with an objective, that is to say, get the lowest prices and have the upper hand as a negotiating party. The examples may include a co-operative society which may exert pressure to lower the prices. Further, the number of buyers in an oligopsonistic form of the market may severely affect the position of sellers, and it is the buyer group, indeed, which appreciably affects the competition adversely. The purpose of the Competition Act is to create an environment for healthy competition in the market, and no exchange is complete without interplay between buyers and sellers. Therefore buyers have an equal opportunity to exploit the market and the game therein for their benefits. In the US, the buyer’s cartel has been well recognized under anti-trust laws. In United States v. Crescent Amusement Co.,[ii] the buyers colluded to pay a specific price for a particular commodity at an auction and thereby decided to reallocate the goods among themselves through a second auction. This agreement within the buyers was held to be violative of the anti-trust laws because such conduct ultimately affected the efficiency and purpose of the bidding process and hence, anti-competitive. Analysis of Indian position on buyer’s cartel The Competition Commission of India (“CCI”) had various avenues to identify and punish the cartels formed by buyers. However, they lost all opportunities. In the case of Pandrol Rahee Technologies Pvt Ltd. v. Delhi Metro Rail Corporation and Ors.,[iii]the CCI had to deal with the anti-competitive activities allegedly undertaken by the respondents in the buying process of metro rail fastening system for ballastless tracks wherein they allegedly nominated only one type of proprietary system and therefore foreclosing competition. The CCI observed that the term ‘trade’ under Section 2 (x) of the Act deals with “production, supply, distribution, storage or control of goods” and therefore, does not include the aspect of buyer. Although the Courts in the US have held the buyer’s cartel as anti-competitive, the Competition law in India loses out on this particular aspect and leaves for the court to open an interpretation of the provisions that can fit well to a buyer’s cartel. However, given the specific terminology of producers, distributors, traders, or service providers, the courts in India are having a tough time reading a ‘buyer’ in the given definition. However, this does not mean that an activity of a buyer’s cartel is unchecked. A plain reading of Section 4 of the Act can accommodate a group of buyers as a ‘group in a dominant position’ and, therefore, accounts for abuse by them. This, however, is mere interpretation advanced by the author as the CCI, as well as the appellate authorities, have at no single instance used these provisions against a buyer’s group. One of the significant issues in incorporating a provision related to a buyer’s cartel is that there is a thin line of difference between a buyer’s group and a buyer’s cartel. A buyer’s group, on one hand, always aims at getting the best prices for its members, i.e., caveat emptor, whereas on the other hand, a buyer’s cartel has an element of collusion between them, irrespective of existence of an agreement. Conclusion There has always been a concern regarding the protection of legitimate buyers group which may knowingly or unknowingly pose a challenge to a competitive market by manipulating the supply and demand curves. [iv] Therefore, it is necessary that the buyers cartel is well addressed through some settled principles. It is to be noted here that the Competition Law Review Committee was set up in the year 2018 to look into the required amendments according to the economic needs of the country. The Committee, chaired by Shri Injeti Srinivas (Secretary, Corporate Affairs, Government of India) recommended, among other things, that the definition of cartel under Section 2(i) of the Act should be

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Essential Goods and Services during Corporate Insolvency Resolution Process: Interpretation and Treatment

Leave a Comment / Insolvency Law /

[By Jubin Jay and Kirti Vyas] The authors are fifth year students of National Law University, Odisha Introduction A Corporate debtor is provided with a surviving mechanism during moratorium through the application of Section 14 of the Insolvency and Bankruptcy Code, 2016 (“the Code”). The moratorium period is declared by the adjudicating authority under Section 13 of the Code after admitting the application for initiating Corporate Insolvency Resolution Process (“CIRP”) against the corporate debtor during which, continuation of all the pending suits is suspended and institution of any new suit is prohibited. Among other things, moratorium is applicable to all the “essential contracts” of the Corporate Debtor. Section 14(2) of the Code states that when an order initiating the CIRP is passed, “the supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.” The term “essential goods and services” has been defined under regulation 32 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) to mean electricity, water, telecommunication services and information technology services to the extent these are not a direct input to the output produced or supplied by the corporate debtor. A mere reading of the definition highlights that it is restrictive in nature. However, the National Company Law Tribunal has in some cases sought to expand the scope of the term ‘essential’, which in turn has created a lot of confusion. Another issue which arises from this restriction under section 14 of the Code is the manner of payment for such essential contracts being rendered by the suppliers of those particular contracts. The reason being that suppliers of essential goods and services are qualified to be mere operational creditors, and this being the case, they will never be able to recover their full payment through CIRP. The Courts have tried to deal with this situation time and again, and the position is mostly settled in this regard that such expenses incurred will be qualified as Insolvency Resolution Process cost. However, whether the payment has to be made during moratorium or not is still a point of contention. What constitutes “Essential Goods and Services”? ICICI Bank v. Innoventive Industries [i] The Tribunal opined that on a bare reading of the CIRP Regulations, it appears that electricity, water and telecommunication services and information technology services are to be considered as essential as long as these services are not a required to the output produced or supplied by the corporate debtor. Further, “essential service” is a service for survival but not for doing business and earning profits without making payment for the services used. When a company is using it for making profits, then the company owes payment to the supplier for such non-essential services/goods utilized in manufacturing purpose. The Tribunal in this case restricted the ambit of the definition to a large extent. However, soon after, the Tribunal in another case, deviated from its strict interpretation and expanded the scope of the definition, the latter interpretation being inconsistent with the definition as provided under the CIRP Regulations. Canara Bank v. Deccan Chronicle Holdings Ltd.[ii] In this case, the Tribunal held that printing ink, printing plates, printing blanker, solvents etc. will also come under the purview of exemption along with the heads as defined. The corporate debtor i.e. Deccan Chronicles Holdings Limited was in the business of publishing newspapers and periodicals. Including the above-mentioned products will be a direct input to the output product. However, the order does not even explain why additional goods and services have been covered under the ambit of essential goods and services. This created ambiguity on the position of law in this regard. However, recently National Company Law Appellate Tribunal (“NCLAT”) has again differentially opined in the case of Dakshin Gujarat VIJ Company Limited v. ABG Shipyard Limited [iii] that “from subsection (2) of Section 14 of the ‘I&B Code’, it is also clear that essential goods or services, including electricity, water, telecommunication services and information technology services, if they are not a direct input to the output produced or supplied by the ‘Corporate Debtor’, cannot be terminated or suspended or interrupted during the ‘Moratorium’ period.” The Insolvency Law Committee [iv] had advocated for expanding the scope of mandatory essential supplies covered under section 14(2) of the Code. Subsequently, the Committee had recommended that there should be a proviso added to Section 14(2) which states that “for continuation of supply of essential goods or services other than as specified by IBBI, the IRP/ RP shall make an application to the NCLT and the NCLT will make a decision in this respect based on the facts and circumstances of each case”. However, this recommendation was not adopted as an amendment to the Code. Manner of Payment for such Essentials during Moratorium. Regulation 31 read with Regulation 32 of the CIRP Regulations makes it aptly clear that any expense or amount due to the suppliers falling under Section 14(2) of the Code, during moratorium will be considered as insolvency resolution process cost and thereby will be given priority over other debts. However, the question remains as to whether these payments are to be made during the moratorium period or can they be paid later? Dakshin Gujarat VIJ Company Limited v. ABG Shipyard Ltd.[v] NCLAT mandated that payments for supply of goods and services is to be made during the moratorium period. Explanation provided by the Appellate body was that such payment is not covered by the order of moratorium. Law does not stipulate that such suppliers will continue to supply the essentials free of cost until the completion of the period of moratorium and that the corporate debtor is not liable to pay till such completion. Emphasising further on the point of regular payments, NCLAT noted that if the company does not even have funds to pay for the essentials to keep it a going entity, then it has become sick and the very question

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Supreme Court on Seat vs. Venue Conundrum in Domestic Arbitration: More Confusion than Clarity?

Leave a Comment / Arbitration Law /

[By Mreganka Kukreja] The author is a final year student of Symbiosis Law Schoole, Pune and can be reached at [email protected]. Introduction The seemingly unending saga of the seat versus venue debate seems to have taken an interesting turn in light of the Supreme Court’s recent decision in the case of Brahmani River Pellets Limited v. Kamachi Industries Limited. [i] In this judgment, the Division Bench revisited the applicability of the simple yet intriguing principles surrounding the seat and venue in the context of domestic arbitration, and thus sparked controversy. Through this blog post, the author discusses the background of the case; the key arguments of the parties; the decision of the court and the implications of the judgment on the Indian arbitration regime. Background Brahmani River Pellets Limited (hereinafter “Appellant”) entered into an agreement with Kamachi Industries Limited (hereinafter “Respondent”) for sale of iron ore pellets, which were required to be loaded from Bhubaneshwar, Odisha and were destined for the port in Chennai, Tamil Nadu. A dispute arose between the parties regarding the price and payment terms and the Appellant refused to deliver the goods to the Respondent. Accordingly, the Respondent invoked the arbitration clause under the agreement which provided that the arbitration shall take place under the Arbitration and Conciliation Act, 1996 (hereinafter “Arbitration Act”) and the venue of such arbitration shall be Bhubaneswar. The Appellant did not agree for the appointment of the arbitrator. Hence, the Respondent filed a petition under Section 11(6) of the Arbitration Act before the Madras High Court for appointment of an arbitrator. The Madras High Court vide its order appointed a sole arbitrator by holding that in absence of any express arbitration clause excluding the jurisdiction of other courts, both the Madras High Court and the Orissa High Court would have jurisdiction over the arbitration proceedings. Challenging the impugned order, the Appellant preferred an appeal before Division Bench of the Supreme Court. Issue for determination Whether the Madras High Court could exercise jurisdiction under Section 11(6) of the Arbitration Act even though the agreement contains the clause that the venue of arbitration shall be Bhubaneswar? Key Arguments of the Parties The Appellant contested the impugned order in a two-pronged manner- First, since the parties had agreed with Odisha as the venue for arbitration, it acquired the status of a juridical seat. Second, as observed in Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited and others [ii] (hereinafter “Indus Mobile Case”), once the parties agree on the seat of arbitration in domestic arbitration, the said court acquires the exclusive jurisdiction. The Appellant, therefore, submitted that Odisha High Court, being the juridical seat, holds exclusive jurisdiction in the matter and the decision of Madras High Court must be set aside. In response to the assertions of the Appellant, the Respondent argued that- first, since the cause of action arose at both the places i.e. Bhubaneswar and Chennai, both the Madras High Court and the Odisha High Court would have supervisory jurisdiction over the matter. Second, reliance was placed on the decision of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. [iii] (hereinafter “BALCO”) to argue that mere mention of the venue as a place of arbitration would not confer exclusive jurisdiction upon that court. There should be other concomitant circumstances, like the use of words “alone”, “exclusive”, “only” etc. to indicate the exclusive jurisdiction of the court over the matter. The Respondent, therefore, submitted that Madras High Court could also exercise jurisdiction over the matter. Decision [A.] Party autonomy to choose the exclusive jurisdiction of the court The Division Bench observed that Section 2(1)(e) of the Arbitration Act defines the court which would have jurisdiction to decide the questions forming the subject-matter of arbitration, and if such subject-matter is situated within the arbitral jurisdiction of two or more courts, the parties could agree to confine the jurisdiction in one of the competent courts. In this regard, Section 2(1)(e) must be read with Section 20 of the Arbitration Act which gave recognition to the autonomy of the parties as to the place of arbitration. It was noted that such party autonomy has to be construed in the context of parties choosing a court which has jurisdiction out of two or more competent courts having jurisdiction. The Division Bench then discussed the Supreme Court’s decision in Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd. [iv] (“Swastik Gases”) In this case, the arbitration clause provided that the agreement shall be subject to the jurisdiction of the courts at Kolkata. However, the appellant filed an application before the Rajasthan High Court. In holding that Calcutta High Court shall have exclusive jurisdiction, it was observed that words like “alone”, “only”, “exclusive” do not make any material difference as to the intention of the parties to choose exclusive jurisdiction. The same was also not hit by Section 23 of the Indian Contract Act,1882 as it was not forbidden by law nor was it against public policy. Therefore, in the present case, since the parties agreed to Bhubaneshwar as the venue of arbitration, the parties intended to exclude the jurisdiction of all other courts. [B.] Juridical seat designates the exclusive jurisdiction of the court  The court in the instant case discussed the Indus Mobiles case in which it was laid down that under Section 20(1) and 20(2) of the Arbitration Act, where the word “place” is used, it refers to “juridical seat” and the moment the seat is designated, it is akin to an exclusive jurisdiction clause. Therefore, on the designation of Bhubaneshwar as the venue of arbitration, a status of the seat was acquired and thus, the Odisha High Court was vested with the exclusive jurisdiction for regulating the arbitral proceedings. Given above, the Supreme Court held that when the parties had agreed to have the venue of arbitration at Bhubaneswar, the Madras High Court erred in assuming the jurisdiction under Section 11(6) of the Arbitration Act. Therefore, the impugned order was set aside. Concluding Comments [A.] Questionable interpretation of the precedents  

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A primer on the transformations in the business of law for aspiring legal professionals

1 Comment / Contemporary Issues /

[By Ankur Gupta] The author is a law lecturer with Temasek Business School at Temasek Polytechnic in Singapore. Besides facilitating learning and conducting research in various areas of law, he has a keen interest in monitoring how the business of law may change bringing with it changing expectations of employers on Skills of lawyers and other professionals working in the legal services sector. He can be reached at [email protected] or on LinkedIn. Introduction The Business Standard recently carried a report[i] on the how certain law firms in India are at the cusp of engaging and experimenting with applications powered by transformative technology such as Artificial Intelligence (AI).   This ‘think anew, act anew’ mantra informing the business of law stems from global trends shaping the operating environment of law firms. The operating environment, globally, for businesses and in turn for law firms is being transformed on account of novel applications of transformative technologies like AI, Internet of Things (IoT) and Blockchain amongst others.  The chief catalyst for technological transformation impacting law firms are the consumers of legal services, especially multinationals and other heavyweight clients who themselves are in the process of digitization and revamping their own processes and products in a bid to remain competitive. Application of AI, IoT and Cloud Computing and other transformative technologies is playing a vital role. Arguably, these consumers are increasingly demanding that providers of legal services innovate the delivery of legal services, be it law firms or their own in-house legal counsels. This piece discusses broad trends associated with how law firms are positioning themselves in an increasingly crowded market where they must compete with a host of traditional and non-traditional rivals for the same pie of business. It is hoped that this will spur aspiring lawyers and other readers to engage with developments innovation in the business of law given the potential for new career opportunities for law graduates and experienced non law professionals as a by-product of such innovation. The article is jurisdiction agnostic, a reflection of the trend that the innovation and disruption in legal service delivery and legal business models is borderless. Legal Innovation: a demand for value innovation by law firm clients Technological change is not new, neither is disruption. Industries, jobs and economies have transformed on account of innovative technology since the Industrial Revolution, if not earlier. What is, perhaps, different is that change is multi-layered: a series of small and significant changes which add to the complexity.  Such change is charecterised by emergence of new products, new players and new processes which in turn impact and give rise to issues for legal practice, legal education as well as regulators.  This paper limits the discussion to legal innovation and its relevance for law firms. On the availability of new products, it worth noting that legal tech tools are available in almost every area of legal practice[ii].  What is also noteworthy about this proliferation is that several legal tech tools are designed not necessarily with the lawyers in mind but for mass consumption. One example is online dispute resolution and management platforms which are touted as ‘self-service sites and dialogue tools’ promising convenience, cost savings and accessibility to disputing parties[iii]. The efficacy and customizability of generic applications is progressively evolving with greater usage and user feedback flowing back to developers. Lawyers are professionals and law firms are businesses providing solutions to clients. Technology is a means to this end.  How law firms service their clients and continue to provide ‘value’ and ‘value innovation’ is mediated by technology. Clients in the B2B segment i.e. businesses which engage law firms are increasingly concerned about the efficiency of law firms in offering their services. This is perhaps a pressure point for law firms. Another trend forcing law firms to re-think their offerings to make them more appealing as many large clients seek ‘full service’ solutions rather than piecemeal legal advice which has been the case so far. One example of ‘Value Innovation’ is how the Big4 are offering legal services to their clients leveraging on in-house multi-disciplinary expertise delivered by teams of legal practitioners working alongside accountants, auditors, management consultants and other domain experts. This is where technology, process improvement, resourcing and project management are assuming importance in a law firm context[iv].  Established multinational law firms such as Clifford Chance, Linklaters, Dentons Rodyk as well as several national and regional law firms seem to be joining the legal innovation bandwagon, leveraging technology atop their brand, domain expertise and reach to in the face of competition from non-law firm service providers vying a slice of the lucrative pie for legal services markets across jurisdictions. Perhaps most notable about the ongoing transformation of the business of law is the proliferation of Alternate Legal Service Providers (ALSPs) often characterized as impinging on turf traditionally ‘belonging’ to law firms.  At the most basic level, some ALSPs are offering self-service apps for clients to create simple legal documents, thereby ‘commoditizing’ legal services and removing the lawyer from the picture[v]. A wider suite of products on offer includes access to platforms which enable consumers of legal services to resolve disputes online, access to subscription-based software to build contracts and consultancy on automation of workflows and processes, protracting the potential for distermediating[vi] law firms. Developments in legal innovation also catching attention of legal academics globally Legal Innovation and Academia Attempts to capture legal innovation, as an academic subject matter, are also on the rise. Stanford Law School’s Techindex is a unique compilation of legal innovation describes on the website as “a curated list of 1211 companies changing the way legal is done”[vii]. In Asia, the Singapore Academy of Law (SAL) teamed up with the Singapore Management University (SMU) publishing two editions of State of Legal Innovation Report aimed at covering developments in legal innovation and legal technology development in nations across the Asia Pacific.  Beyond reports and compilations, formation of multi-disciplinary, cross border groupings such as Asia-Pacific Legal Innovation and Technology Association (ALITA)[viii] aimed at foster collaboration around legal

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Group Insolvency Proceedings: Unravelling the Borders of IBC, 2016

Leave a Comment / Insolvency Law /

[By Ravleen Chhabra] The author is a final year student of Institute of Law, Nirma University and can be reached at [email protected]. Introduction The Insolvency and Bankruptcy Code (“IBC” or “the Code”) has been probably one of the greatest developments in the Indian Legal System in a bid to reform India’s irresistible Non-Performing Assets conundrum. The Insolvency and Bankruptcy Board of India (“IBBI”), is the body that regulates the working of the IBC, has been actively involved in disseminating understanding and regulating the space [i]. In the wake of recent developments, the IBC had various hits and misses during its execution and is expected to mature in the coming future with better results. Despite having covered a plethora of aspects, there still exist certain issues with no provisions to govern. The current framework of this striving piece of economic legislation provides for a variety of plans for the resolution of individual stressed companies. However, owing to the lack of regulatory framework providing for consolidating the connected companies in group insolvency proceedings, lenders were finding it difficult to proceed for group insolvency proceedings. The dearth of a provision dealing with group insolvency is adversely impacting the resolution process in numerous cases where group companies are lugged to the National Company Law Tribunal (“NCLT”) by the lenders themselves, requesting for a group insolvency approach. However, in the absence of a legal provision allowing the same, the NCLT is unable to help them in any possible manner [ii]. Anchoring the First Step: Formation of the Working Group The first step in the direction of understanding the concept of group insolvency and proposing a legal framework was taken by the Central Government in January 2019 by establishing a working group under the leadership of Mr. UK Sinha, former SEBI Chief [iii]. Two months later, a committee known as the Insolvency Law Committee was reconstituted by the Government to analyse the implementation of the IBC, and craft suggestions to deal with the issues [iv]. One of the largely debated topics during the discussions was to suggest legal provisions in the IBC for allowing group insolvency. These developments seem to suggest that soon, a highly efficient and standardized framework shall be incorporated within the IBC for the resolution of an entire stressed group company having various entities in different NCLT jurisdictions. Global Regulations: How India can benefit? While examining the chapter on “Insolvency Proceedings of Members of a Group of Companies” integrated in the revised European Union (“EU”) Insolvency Regulation, 2017 (“EU Regulation”), a lot of inspiration can be taken from the impeccable manner in which the EU aims at inculcating coordination and cooperation regarding groups of companies, thereby resulting in a win-win situation for both the creditors and the debtors [v]. Article 72 (3) of the EU Regulation, in fact, signifies the importance of coordination, and not consolidation. In conjunction with the same, the recent synchronized scheme of group insolvency law in the Indian IBC shall aim to keep a group of stressed companies concomitantly to either reorganize the group as a whole or liquidate the total asset of the  group in the paramount interest of all parties involved. The ideology behind the same is to formulate a restructuring mechanism that permits the initiation of insolvency proceedings of companies within a corporate group adjudicated by the single independent court/tribunal [vi].This approach shall be helpful, keeping in mind that the groups of debtors or creditors can ask for joint proceedings, thereby reducing the likelihood of spending a huge amount of time and money. The recent amendments to the German Insolvency Act also provide for having only one administrator, while dealing with the insolvency of particular companies of a group, to improve their cooperation and coordination [vii]. Though the legislation does not provide for explicit consolidation of individual proceedings into one, they offer an opportunity to begin working in that direction. In India, it is noticed particularly in case of the infrastructure sector, that the holding company is subjected to insolvency without subjecting the subsidiary company and in most of these cases; it is tougher to put the individual company through insolvency resolution, resulting into its liquidation eventually. If India, under all odds circumstances, is able to incorporate some of these provisions as located out in European or the German Insolvency regime, then India can scotch the burgeoning cases like this and help in pumping up the  value for lenders as well. For assistance on the effective mechanism of cooperation, reference can also be made to the UNCITRAL‘s Legislative Guide on Insolvency Law, Part three: Treatment of enterprise groups in insolvency. The process of group insolvency in India can reap beneficial results in situations wherein there exists a provision allowing the debtors or creditors to seek joint proceedings against the same debtors in the same group in cases where more than one application is pending in the same court against debtors in the same group. This viewpoint can be useful in those cases where those stressed companies who are part of same group barge into the vestibule into corporate guarantees for availing and doing borrowing of either of group members or a debtor may shift his assets to those group companies to deceive creditors, in instantly recognizable situations, in such case, creditors should be able to pierce the corporate veil and initiate the insolvency proceedings within the said corporate group.  Such a scenario is possible only if the group companies are bound to coordinate and cooperate, throughout the process. Further, if any of the members fail to fulfil the obligation, the other members would not suffer the consequences. Group Formation Although the inevitable need for group restructuring of companies has been recognised, the crucial task remains of the methodology or technique of forming such groups, keeping in mind that the interests of no company should be preferred over the other. Such an objective can be achieved probably by forming groups of companies involving some form of the economic relationship, resulting in a mutual or reciprocated environment in terms of

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From Enforcer to Facilitator: Analyzing CCI’s Green Channel for M&A clearance in India

Leave a Comment / Competition Law /

[By Rashmi Birmole and Sahaja Burde] The authors are third year students of ILS Law College, Pune and can be reached at [email protected]. Introduction In what appears to be a complete overhaul of the Indian merger approval process, the Competition Commission of India (“CCI“) recently introduced a deemed approval mechanism called the “Green Channel” by way of its 7th set of amendments (Amendment Regulations 2019) [i] to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 [ii] (“Combination Regulations“) in an attempt to move towards an increased disclosure based regime [iii] regarding mergers and acquisitions and promotion of ease of doing business in India. The recent amendments have come into effect from 15th August, 2019 and are in line with the recommendations of the Competition Law Review Committee, constituted in 2018 to strengthen and re-calibrate the Competition Act, 2002 (“The Act“) to address emerging competition concerns and economic challenges in India. Through this post, the authors seek to analyze the Green Channel mechanism and its implications on the evolving M&A landscape in India. Background Under the Act, a combination is defined as the acquisition of one or more enterprises by one or more persons or mergers or amalgamation of enterprises [iv]. The Competition Regulatory Authority, i.e., the CCI is vested with the power [v] to approve mergers or combinations falling within certain deal value threshold limits, not eligible for any available exemptions and not causing any appreciable adverse effect on competition (“AAEC”) in the relevant market. Prior to the amendments, the parties involved were obligated to file mandatory pre-merger notifications for approval with the CCI, a cumbersome process [vi] that involved a number of phases and took a minimum of 210 days to be completed.  Under the recently introduced Green Channel, parties can get their proposed combination automatically and expeditiously approved on filing of notification with the CCI and fulfillment of certain eligibility criteria and subsequently give effect to them. Report of the Competition Law Review Committee- an Overview The Report of the Competition Law Review Committee [vii] (“The Committee”)  while considering mergers as a means for companies to effectively compete and gain welfare-enhancing efficiencies, observed that a delay in merger implementations leads to an increase in costs borne by the merging parties in particular and the society in general. The ideation of the Green Channel by the Committee was based fundamentally on two premises. Firstly, the data gathered from the Annual Reports [viii]   of the CCI showed that a majority of the combinations were approved without modifications and secondly, that merger control increased costs and caused delayed transactions. The Committee sought to introduce the Green Channel route to ensure a vital balance between adequate regulatory control and a greater ease of doing business. Among the recommendations for the Green Channel include self-assessment by the parties, envisioning a disclosure based regime for combinations that are unlikely to result in any AAEC. Opting for the Green Channel route would imply the waiver of the 210-day standstill period and result in the consummation of the proposed combination on mere intimation to the CCI. The possible downside of allowing parties to waive off the 210-day standstill period by opting Green Channel, as observed by the Committee, would be the difficulty involved in untangling the assets and business relationships when required. The pre-filing consultation, as suggested by the Committee, would minimize the above anticipated risk. Amendment Regulations 2019- Salient Provisions In light of the Committee’s recommendations and enduring deliberations with the Ministry of Corporate Affairs [ix], the CCI notified the 7th set of amendments to the Combination Regulations materializing the proposed Green Channel [x] as an automatic clearance channel for certain type of transactions added in Schedule III of the Combination Regulations. Provisions specifically relating to the Green Channel are as follows: Criteria for eligibility and permitted transactions The parties to the combination are required to self-assess and determine the applicability of the Green Channel route to the transaction [xi]. While determining their eligibility for the Green Channel, the parties are required to declare the absence of any horizontal and vertical overlapping between the respective group entities and any entity in which they, directly or indirectly, hold shares and/or exercise control. The absence of overlapping must be ascertained after considering all reasonable alternative market definitions. In addition to the horizontal and vertical overlapping, Schedule III also requires the parties to not engage in any activities which are complementary to each other. Eligible transactions will be deemed approved upon receipt of acknowledgement of the filing. Structure of the Form Form I in Schedule II has been replaced with a simpler form including standard declarations attesting to the lack of possible overlapping and non-causation of an AAEC. The sole objective of making the Form simpler and less cumbersome is to encourage parties to opt for the Green Channel. Additionally, sub-regulation (1A) under Regulation 13 was altered and substituted making the word limit of the summary of the combination, not consisting of confidential information, from 2000 words to 1000 words. Sub-section (1B) which required the parties to submit an additional 500 word summary is omitted, hence resulting in only one necessary submission. Penalties On occasions where the Committee finds the non-fulfillment of the eligibility criteria i.e., if the combination does not fall under Schedule III and/or declaration filed under sub-section (1) is incorrect, the notice and approval granted under the Green Channel will be held void ab initio[xii]. The Commission, retaining its regulatory power, will deal with such combinations in accordance with the power vested upon it by virtue of Section 44 and Section 20(1) of the Act, wherein the filing of wrong/incomplete information may attract penalty and such notification may be looked into by the CCI in order to assess the ability of the combination to cause an AAEC up to one year from the date of effect. The parties however, will have an opportunity to be heard before deciding on the matter. Comment While the institution of the Green Channel marks a commendable step towards facilitating

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Cross-Border Insolvency Problem in India: The Jet Airways Conundrum

1 Comment / Insolvency Law /

[By Shantanu Lakhotia] The author is a student of Jindal Global Law School, Delhi and can be reached at [email protected]. Introduction Defunct airlines, Jet Airways has a gross debt and liability that adds up to more than Rs. 36,000 crores. This includes money owed to both domestic as well as foreign lenders, employees, vendors etc. However, currently, the major issue that is critically being debated in the National Company Law Appellate Tribunal (“NCLAT”) is regarding the question of jurisdiction of the bankruptcy court in Netherlands to try matters as well as pass orders of a company registered and incorporated in India. The present article will provide a history of the account that led to such a dispute being raised in the NCLAT as well as try to provide a possible answer to the same. History In June 2019, a consortium of banks led by State Bank of India well as other creditors had approached the National Company Law Tribunal (“NCLT”), seeking declaration of Jet Airways as bankrupt and to initiate Corporate Insolvency Resolution Process against it. During the hearing scheduled on 20th June 2019, NCLT was apprised of the fact that in April 2019, two European creditors, H.Esser Finance Company and Wallenborn Transport had filed a bankruptcy petition in the Noord-Holland District Court of Netherlands, against Jet Airways citing unpaid claims worth nearly Rs. 280 crores. The Dutch Court, claiming jurisdiction under Article 2(4) of the Bankruptcy Court of Netherlands, had passed an order dated 21st May 2019, declaring Jet Airways bankrupt and had ordered seizure of one of Jet Airways’ Boeing 777 aircraft that was parked in the Schiphol airport in Amsterdam. The Administrator appointed by the Noord-Holland District Court to manage the assets of Jet Airways had approached the NCLT, requesting it to withhold the bankruptcy proceedings going on in India, as a competent court in Netherlands had already initiated the same proceeding against Jet Airways in Netherlands. The Administrator raised the contention that if two parallel proceedings take place, it would lead to a great detriment to the Creditors of Jet Airways. The NCLT refused to withhold the proceedings in India, as according to them, the relief provided under Section 234 and 235 of the Insolvency and Bankruptcy Code of India (“IBC”) for cross-border insolvency could not be used as the two sections had yet not been notified by the Government of India, and in the absence of such notification, an order passed by a foreign Court would not be binding to the NCLT. To the contention raised by the Administrator, the NCLT had categorically stated in para 29 of its order that, ‘The order passed by Noord Holland District Court, Netherland for the company registered in India is nullity ab-initio’. Aggrieved by the order passed by the NCLT, the Administrator approached the NCLAT in appeal. The NCLAT, on the assurance of the Administrator that he would not alienate any offshore assets of Jet Airways in his possession, stayed the order of the NCLT, and listed the matter for arguments. The NCLAT further passed an order that in the pendency of the present Appeal, the Administrator will co-operate with its Indian Counterpart, to collate the claims of the offshore creditors. Furthermore, the NCLAT through its order also allowed the Administrator and its Indian Counterpart to negotiate a settlement in the best interest of Jet Airways and all of its stake holders. Analysis Countries have broadly tried to tackle the problem of cross-border insolvency, through two different and contrasting principles. The first principle is one in which one Court is provided with the jurisdiction to try a bankruptcy matter in regard to a debtor and the administrator appointed by the Court has the power to take charge all the assets of the debtor, located throughout the globe. According to this approach the Courts and laws of the country in which the debtor is domiciled or has his registered office should be given preference. This is known as the principle of unity or universality. On the other hand, there exists a principle that the Court in whose jurisdiction the bankruptcy proceedings has commenced, has jurisdiction on assets present only within its country’s state boundary. The consequence of this is that the Court, cannot pass an order against any asset of the debtor abroad and the administrator appointed by the Court can also only take charge of these limited assets. Furthermore, Court will follow its local laws on the matter. This is known as the principle of territoriality. A complication that is present in the Jet Airways case is that, both India as well as Netherland’s follow different principles of cross-border insolvency law. Netherland’s insolvency regime does not perfectly fit into any one of the above-mentioned two principles, but incorporates the tenants of both of them and hence essentially forms a different kind of principle which can be described as limited-universalism principle. In India, the Joint Parliament Committee Report, 2016, in its report had clearly stated that the Insolvency and Bankruptcy Code, 2016 was brought forth to solve, the question of bankruptcy and insolvency purely limited to the domestic scenario of India. In so far as Section 234 and 235 of the IBC is concerned, it needs to be realized, that it was not added by the Viswanathan Committee to tackle the bigger picture of cross border insolvency or provide a comprehensive framework for it, but simply to allow Indian Administrator to take control of assets of a corporate debtor situated in a country outside of India as well as provide foreign Administrator with the reciprocal arrangement. The foundation of such a mutually benefit arrangement, lies in Section 234 of IBC through which the Government of India, can enter into a treaty with other countries to bring forth the principle of universality. However, in the absence of such a treaty, India will abide by a principle of territoriality. Regardless, as of this moment Section 234 and 235 of IBC, has not been notified by the Government of India and

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Algorithms and a Legislative Gap in Addressing Tacit Collusion

Leave a Comment / Competition Law /

[By Shreya Jha] The author is a fourth year student of Amity Law School, Delhi and can be reached at [email protected]. Introduction In general parlance, the concept of “algorithm” refers to the set of rules which should be followed in order to carry out a certain task. They can be represented in the form of plain language, diagram, codes, programmes, etc. The advent of the digital economy has led to the increasing use of “algorithms” in businesses to improve decision-making and predictive analytics. This is because the algorithms have the ability to process and create value out of large data sets in the form of targeted advertising, data-driven innovations, product recommendation, etc.For example, firms like Amazon and Flipkart employ “dynamic pricing” which allows them to monitor and alter the prices of goods due to changes in demand and supply. Similarly, Uber uses algorithms to adjust the price of car rides based on the demand for cab services and supply of drivers. Given its increasing use, firms’ use of algorithms has garnered the attention of antitrust regulatory authorities across jurisdictions. In India, the competition watchdog, Competition Commission of India (“CCI“) is conducting a study to understand and examine the algorithmic trends in the digital market and its antitrust implications. The use of these algorithms to fix prices might lead to unintended collusion of prices as similar prices are set across the board, leading to “tacit” collusion. How Algorithms can be used to Collude? According to Ariel Ezrachi and Maurice Stucke, there are four ways in which algorithms may be used for collusion. First, is the “Messenger” where specific algorithms are used to implement the will of humans beings who agree to collude.An example of this is the Poster Cartel case in which David Topkins, the founder of Poster Revolution and his co-conspirators were prosecuted by the US antitrust authorities for agreeing to price coordination by adopting specific algorithms for the sale of posters in the Amazon marketplace. The second type of algorithmic collusion is the “Hub and Spoke” where the same algorithm is adopted by the market players. In this type of collusion, the spokes are colluding competitors and hub is a facilitator of collusion by the spokes. There is a horizontal agreement among the spokes which is referred to as the rim as it connects the spokes. An example of this is United States v. Masonite Corp., in which Masonite, a patent-holder for hardboard entered into agency agreement with nine competitors to sell Masonite hardboards. According to the agency agreement each agent knew that others were entering into an identical agreement with Masonite. Thus, the Court inferred a horizontal agreement among the agents in this case. Third, in the case of “Predictable Agent” type of collusion, there is no agreement among competitors. Each firm unilaterally adopts its own pricing algorithm and they act as predictable agents who monitor and adjust to each other’s prices. Therefore, even though same algorithm is not used by the competitors, by programming algorithms to adjust to each other’s price, tacit collusion is affected. Fourth, is the “Digital Eye” collusion which involves machine learning algorithms who are not programmed to adjust to each other’s price or market data, but by virtue of self-learning, they collude on their own. According to an OECD Report, it is not clear how machine learning algorithms may reach a collusive outcome, however, once it has been asserted that the market conditions are prone to collusion, it is likely that algorithms learning faster than humans are able to achieve a cooperative equilibrium. Legal Framework Section 3(3) of the Indian Competition Act, 2002 (“the Act“) prohibits collusion. The Section has a broad scope as it includes both horizontal agreements as well as those practices which are done in a collusive manner. Section 3(3)can be broken down into three components: “agreement entered into”, “a practice carried on” or “decision taken”; by persons, an association of persons, enterprises or association of enterprises which directly or indirectly determines the purchase or sale prices; shall be presumed to have an appreciable adverse effect on competition. Applying the Legal Framework to Algorithmic Express Collusion Express Collusion is when anti-competitive price is achieved through “direct and express communication” about an agreement. There exists a mutual understanding among the competitors in the market. Section 3(3) of the Act is applicable in the first two scenarios of “express collusion” which involve express collusion as the algorithm merely implements the collusive structure. The Messenger Scenario In this case, algorithms are employed to simply implement the anti-competitive agreements which have been previously entered into by the human market players. The programmers feed specific instructions to achieve collusive outcomes. Hence, these fall under “agreements” entered into by “persons”. The Hub and Spoke Scenario In the Eturas case, the Court of Justice of the European Union considered the coordination of discount rates by travel agencies through a third-party intermediary’s common electronic platform. The third-party intermediary, in this case, had sent a notice to the travel agencies to vote on discount rates. Even though no agent replied, the third party intermediary unilaterally limited the discount to 3%. The Court held that this behaviour would constitute a concerted practice under Article 101 of the TFEU. Following the Eturas Case, in case of usage of a common third party algorithm for price coordination, the persons infringing Section 3(3) of the Act can be held responsible. Applying the Legal Framework to Algorithmic Tacit Collusion Algorithms, without human interference, are capable of tacit collusion where a substantive part of the collusive agreement is achieved without express communication. A recent example of this is the sudden rise in airfares for flights between Delhi and Chandigarh during the Jat agitation. The rise in airfares was attributed to the collusion among self-learning algorithms. This has been a cause of concern among competition authorities. The Predictable Agent Scenario The act of programming algorithms in a certain way to meet market stimulants would amount to “action in concert” and “practice”. Further, for the predictable agent the

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Bringing Personal Guarantors under IBC: Individual Insolvency the Next Chapter?

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[By Kartik Adlakha] The author is a fourth year student of Jindal Global Law School and can be reached at [email protected]. Introduction The Insolvency and Bankruptcy Code, 2016 (“IBC” or “the Code”) is divided into three distinct parts. While Part I titled ‘Preliminary’ and Part II titled ‘Insolvency Resolution and Liquidation for Corporate Persons’ have been in effect for long. However, Part III titled ‘Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms’ is yet to be brought into effect. Individuals and corporates are the two types of guarantors that usually guarantee a loan given to the corporate debtor. While corporate guarantors are already covered under Part II of IBC, personal guarantors find no place under IBC. Ministry for Corporate Affairs (“MCA”) is considering notifying and bringing Part III into effect in this regard. MCA and Insolvency and Bankruptcy Board of India (“IBBI”) invited public comments on the Draft Regulations for Bankruptcy Process for Personal Guarantors to Corporate Debtors. Draft Regulations for Bankruptcy Process for Personal Guarantors were published in a discussion paper by IBBI. Personal Guarantors being individuals would feature under Part III of the IBC. This blog post seeks to  present a comparative analysis between the current liquidation process for insolvent personal guarantors under Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (“RDDBFI Act”) and the process proposed under IBC. It also seeks to illustrate the pros and cons of the IBC process and will conclude with suggestions on how to make the process for individual insolvency better under IBC. Comparison between the Existing Legal Regime for Individual Guarantors and the Proposed Regime under IBC As of today, recovery from an individual guarantor is covered under the RDDBFI Act. The process under RDDBFI happens before the Debt Recovery Tribunals (“DRTs”). The Adjudicating authority under IBC as laid down by Section 179 would also be DRT but the proceedings would happen as per the new process envisaged under IBC. The process under the RDDBFI Act starts with an application to the DRT by a bank or financial institution under Section 19 of the Act which is to be accepted or rejected by the DRT within 30 days. If accepted, a summons is issued to the personal guarantor under Section 19(4) of the Act. The personal guarantor needs to submit a statement of defence as provided under Section 19(5) of the Act within 30 days of service of summons. Then, the Hearing for Admission or Denial of Documents takes place as specified under Section 19(5A) of the Act. The whole process concludes with the passing of the final order under Section 19(20) of the Act which has to be passed within 30 days from the conclusion of the hearing. A certificate of recovery is issued by the Presiding Officer with the Final Order as per Section 19(22) of the Act. The Presiding Officer then sends it to the Recovery Officer for Execution. The proposed process under IBC starts with a bankruptcy application to DRT by any individual creditor or debtor under Section 121 of the Code. Then on the direction of DRT, an Insolvency Professional will be appointed as the Bankruptcy Trustee by IBBI under Section 125 of the Code within 10 days. After this, DRT will pass a bankruptcy order under Section 126 of the Code within 14 days of receiving the confirmation of the appointment of the bankruptcy trustee under Section 125 of the Code. This order will vest all rights relating to the assets of the personal guarantor in the bankruptcy trustee until the bankruptcy process completes. This would follow a public notice by DRT inviting claims from creditors under Section 130 within 10 days from the bankruptcy commencement date (“BCD”). BCD is the date on which Bankruptcy Order has been passed. This would follow registration of claims under Section 131 of the Code and preparation of a list of creditors under Section 132 of the Code by the Bankruptcy Trustee. Post this, a meeting of creditors will be called by the Bankruptcy Trustee within 21 days from the BCD. As per Section 136, Administration and Distribution of Estate of Bankrupt will follow. After completion of administration and distribution, a final report has to be submitted by the bankruptcy trustee to the committee of creditors. The committee of creditors will have to approve the report and judge whether the bankruptcy trustee be released under Section 148 of the Code or not. The process will come to an end with the Bankruptcy Trustee applying for a discharge order under Section 138 of the Code which would release bankrupt from all bankruptcy debt. Need and Importance of Draft Regulations These regulations provide for a level playing field for recovery from both corporate and individual guarantors by bringing personal guarantors under IBC. They also promote transparency and accountability as they provide for regular reports by the Bankruptcy Trustee [i] in addition to the final report requirement under IBC. Voting process and guidelines for sale of bankrupt’s assets is also delineated under these proposed regulations. However the most important element of individual insolvency put forth by the regulations is the concept of minimum protection. The regulations elucidate that up to 5 lakh rupees of personal ornaments and a single dwelling unit would come under excluded assets and will not be subject to the bankruptcy proceedings. Working Group on Individual Insolvency, a group constituted by IBBI to recommend the strategy and approach for implementation of the provisions of the Code has proposed an all-encompassing formula for calculation of the single dwelling unit. This formula takes into account the size of the debtor’s family, the minimum area required for each family member and the circle rate of the area. This is important as it indicates that the Working Group is sensitive to the fact that individuals and not corporations are at stake here, and they do need minimum assets for their survival. However, it is felt that the upper limit of personal ornament protection is quite less and should at

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