Contemporary Issues

[By Ankita Raghunath] The author is a student at the Gujarat National Law University, Gandhinagar. Recently, an inquiry has been directed to BookMyShow under section 26(1) of the Competition Act, 2002 (referred to as “Act”) on the grounds that BookMyShow has entered into anti-competitive agreements with multiplexes and theatres under the provisions of section 3 read with section 4 of the Act which deals with abuse of dominant position. Background of the CCI Order According to Showtyme, the informant in the present case, theatres are unwilling to associate with other online movie ticketing portals due to monetary incentives being provided to them by BookMyShow on zero interest. This is despite the fact that Showtyme charges significantly lower convenience fees in comparison to BookMyShow. Moreover, BookMyShow has engaged in refusal to deal by signing exclusive contracts with these theatres that act as barriers for any new competitors to enter the market. Considering BookMyShow’s dominant position in the market, these agreements effectively allow it to control the market and dictate unfair terms with the business users. BookMyShow, in reply, stated that no monetary incentives were provided to the business. Instead, it was claimed that BookMyShow offers security deposits to adjust ticket prices and revenue share of the theatres. BookMyShow also denied that they have any significant market share and asserted that exclusive agreements are a necessity as BookMyShow is a relatively new entrant to the market. The CCI rejected BookMyShow’s arguments and found that there is a prima facie case of abuse of dominance under section 4 by BookMyShow in its agreements with business users. The Commission found that the terms of the agreements between BookMyShow and the theatres prima facie have the potential to deny market access to competitors as well as potential entrants which can make it anti-competitive under Section 19 (3) of the Competition Act, 2002. The Commission is of the view that the exclusive agreements offered by BookMyShow can restrict the freedom of theatres and multiplexes to contract with competitors of BookMyShow.This limits the consumers’ choices as well. On establishing the existence of a prima facie case, the CCI directed the DG to commence an investigation under Section 26(1) of the Act. Analysis of the case BookMyShow’s capability to induce businesses’ to enter into exclusive contracts with them and adhere to unfair contractual terms, in itself, shows the position of dominance that is enjoyed by the enterprise in the market. This is the main area of concern in the present case. In the e-commerce industry, exclusive contracts can either be agreements where a product is sold exclusively on a single platform or only a single brand is listed in a particular product category. They can drive up the cost of competitors in acquiring business users on their platforms. The CCI in its market study on e-commerce, however, emphasizes that exclusive agreements can generate efficiencies and improve inter-brand competition. Hence, they must be studied on a case-by-case basis. Especially in e-commerce, the number of users already connected to a platform positively affects the value of a network connection for a user. This is otherwise known as network effects. Hence, businesses tend to become dependent on platforms with a large user base like BookMyShow as they significantly widen their access to the market and their potential for growth. The platform, hence, has a higher bargaining power which allows it to set unfair contract terms for businesses and unilaterally revise contract terms. The Commission takes notice of such unfair contracts under section 4 of the Act if the contracting party is a dominant enterprise in the relevant market. In the BookMyShow’s case, there is a need to analyze it from multiple perspectives. Competitors such as the informant have no option of even getting businesses to consider their platform in light of the exclusive agreements. Despite the unreasonable terms in the agreement, from the businesses’ perspective, terminating their exclusive contracts with BookMyShow would cost them more. Notwithstanding the considerable additional cost paid to terminate the contract, they will also not receive the same level of visibility on any other platform. Finally, BookMyShow imposes significantly high convenience fees on their customers, who are also limited in their options. CCI’s Recent Trends in relation to e-commerce The CCI, in connection with P2B contracts in its market study on e-commerce in India, mentions how exclusive contracts in e-commerce raise alarm when they are used to foreclose competition to rivals or impede entry. The market study, however, does not impose any regulations and only makes recommendations. It is left up to the platforms to decide what must be the basic contract terms, penalties imposed for breach, conflict resolution process, etc. The existing jurisprudence in relation to P2B contracts in e-commerce is also lacking. Recently, a few cases involving major e-commerce players have been looked into by the CCI. In January 2020, CCI ordered an investigation into Amazon and Flipkart for preferential listing and deep discounting as well as exclusive agreements. This can affect small sellers on these websites who struggle to gain visibility as well as offline retailers who cannot access the product from anywhere, but the platform. The DG is currently in the process of investigating whether these practices are exclusionary and constitute an AAEC in the market. Following that, in 2021, the CCI touched on the issue of unfair P2B contract terms. The CCI ordered interim relief in favour of two hotel chains that were delisted on MakeMyTrip (MMT) pursuant to an agreement between OYO and MMT. CCI held that there are limits to contractual freedom if it leads to anti-competitive outcomes. Moreover, the hotel chains did not breach any contractual obligations to merit delisting. The CCI found that the agreement between OYO and MMT was exclusionary and created barriers to entry in the market. As recently as 2022, the CCI explored exclusive agreements in conjunction with platform neutrality in the case of Swiggy-Zomato. In addition to low commissions and minimum business guarantees, Zomato offers exclusivity to restaurant partners. The CCI decided it was

[By Ashutosh Rajput] The author is a student at the Hidayatullah National Law University, Raipur. The Draft Competition Amendment Bill, 2020 (Draft Amendment) proposes the insertion of clause (2A) to Section 26 of the Competition Act, 2002 (Act). The proposed amendment reads “The Commission may not inquire into agreements referred to in section 3 or into conduct of an enterprise or group under section 4, if the same or substantially the same facts and issues raised in the information or reference from Central Government or a State Government or a statutory authority has already been decided by the Commission in previous orders”. In a nutshell, this proposed amendment allows the Competition Commission of India (CCI/Commission) to do away with the inquiry into agreements pursuant to Section 19(3) of the Act and into the conduct of an enterprise or group pursuant to Section 19(4) of the Act, which talks about inquiry into certain agreement and dominant position of enterprise, respectively. The author argues that with the changing period, the market conditions also change. Therefore, it would not be prudent if, on the same or substantially same facts and issues, the Commission chooses not to inquire into the contravention. Commission’s power to inquire under the Act: A primer Pursuant to Section 19(1) of the Act, the Commission can inquire into any contravention relating to Section 3(1) or Section 4(1) of the Act either on its own motion or on receipt of any information or on a reference made to it by the Central or State Government. Further, Section 26 of the Act lays down the procedure for carrying out such an inquiry. While carrying out an inquiry into contravention of Section 3(1) of the Act, the Commission has to give due regard to the factors such as the creation of barriers to new entrants, foreclosure of competition, and so forth. Similarly, while carrying out such an inquiry for the contravention of Section 4(1), the market share, economic power, entry barriers, market structure, and size of the enterprise has to be taken into consideration. In addition, factors such as regulatory trade barriers, national procurement policies, and consumer preferences, end-use of the product will also have to be considered while delineating the relevant market. These all factors are bound to change with the changing circumstances. It is interesting to note that the proposed amendment does not in toto vitiate the Commission’s power to vacate the inquiry, rather discretion has been imposed on the Commission in accordance with the term ‘may’ appearing in Section 26(2A) of the Draft Amendment. However, Commission cannot vitiate inquiry even at its discretion if the case is being inquired suo moto which is nonetheless, a step in the right direction. Changing market dynamics in competition law analysis The Organization for Economic Co-operation and Development (OECD), in its research paper titled “Using Market Studies to Tackle Emerging Competition Issues” has rightly observed that the market structure changes due to public policy interventions, technological innovations and so forth. Moreover, the change in market circumstances can very well be ascertained from the case of Indian National Shipowners’ Association (INSA) v. Oil and Natural Gas Corporation Limited (ONGC). In this case, INSA levied allegations of abuse of dominant position against ONGC for unilaterally terminating the contract. The Director General (DG) noted that since there was a fall in crude price, the Opposite Party (OP) was justified in terminating the contract. The commission, by supporting DG’s report, noted that “It is unambiguously established by the evidence on record that the conduct of ONGC was driven solely in response to an exceptional change in market conditions.” The change in market dynamics can also be ascertained in circumstances where the same party is again being tried before the Commission. It would allow comparative analysis for the assessment of market dynamics. One such instance is the case of Amit Mittal v. DLF Limited and Another (DLF Case), wherein the Commission found DLF Limited, the opposite party, not to be dominant in the relevant market. The Commission took note of the fact that in Belaire Owner’s Association v. DLF Limited, the Commission had found DLF Limited to be dominant in the relevant market, however, due to the changing market dynamics the market structure has been changed. It further noted that the primary distinguishing factor is the period of assessment. In the present case, the allegation of abuse was booked in the year 2011-12 whereas in the previous case, such allegation was booked in the year 2006-2009. By considering the time period of contravention to be the essence of assessing market dynamics, the Commission concluded that DLF Limited is not dominant in the relevant market. Another such instance is the case of Mr. Ajit Mishra v. Supertech Limited, wherein there was a substantial increase in the construction price, which resulted in depriving the original allottees of the flats for claiming the allotments in the agreed price, rather they were made to pay more price than the agreed price. The Commission made out a case of abuse of dominant position against Supertech Limited by noting that the facts and circumstances of the case are more or less similar to the case of Shivangi Agrawal & Anr. v. Supertech Ltd. Noida. Interestingly, unlike the DLF Case, the contravention in the present case occurred in the same year. Hence, undisputedly this case supports the ratio decidendi laid down in the DLF Case that the time period of contravention is the essence of assessing market dynamics.  Furthermore, in Rajiv Kumar Chauhan v. M/s BPTP Ltd., the Commission by relying on the case of M/s BPTP Ltd & Ors., noted that since there is no change in circumstances, BPTP Ltd., the opposite party, cannot be said to be in a dominant position. This was again reiterated by the Commission in the case of Mr. Ravinder Pal Singh v. BPTP Ltd & Ors. A comparative reading of BPTP cases as mentioned above, illustrates that the contravention took place in the year 2009-10, which led the

[By Swetha Somu and Sanigdh Budhia] The authors are students at the Gujarat National Law University. Mergers and acquisitions that fall below a certain threshold are not required to be disclosed to the Competition Commission of India (CCI) for prior clearance under the Competition Act, 2002 (the Act). This exemption, granted by the Indian Ministry of Corporate Affairs (MCA), is based on certain de-minimis thresholds enshrined under Section 5 and Section 6 of the Act. Transactions in which the target’s assets are valued at less than INR 350 crore; or the target’s turnover is less than INR 1,000 crore (Small Target Exemption) are exempted from the CCI’s approval requirement. First introduced on 27 March 2017, the MCA extended the applicability of the Small Target Exemption for another five years, till 27 March 2027, through a notice dated 16 March 2022. Recently, PVR Limited (PVR) and INOX Leisure Limited (INOX) announced their intention to merge. Post the merger (PVR-INOX Merger), INOX shareholders will get shares of PVR at the approved share swap agreement as a result of the transaction. While existing PVR and INOX screens will retain their current branding (i.e., ‘PVR’ or ‘INOX,’ respectively), new cinemas that open after the merger will be labelled as ‘PVR-INOX Ltd.’ With a combined network of over 1,500 screens, i.e., nearly 50% of the total screens in the country, the PVR-INOX Merger is intended to bring together two of India’s top multiplex companies. Normally, a deal of this nature would have necessitated prior permission from the CCI. However, this merger comes at a critical time as COVID-19 has adversely impacted multiplex businesses across the country due to fierce competition from over-the-top media service or OTT platforms. According to the financial documents of the fiscal year ending 2020-21, PVR’s revenue was INR 280 crore and INOX’s revenue was INR 106 crore. However, the PVR-INOX Merger is exempt from seeking CCI’s mandatory approval given that their post-merger turnover falls below the Small Target Exemption requirement (i.e., being below INR 1000 crores), In view of this, this article analyses the potential negative consequences of CCI’s inability to review non-notifiable mergers that prima facie seem to be anticompetitive in nature. The article further delves into existing international jurisprudence on merger reviews of non-notifiable mergers.  The authors then acknowledge the differences in the objectives and legislations between different jurisdictions, thus, finally concluding by recommending changes to the Indian framework on competition law. An Anti-Competitive Post-Merger Scenario and The Consequences Of the CCI Being Unable To Review Horizontal Mergers The CCI’s inability to review the PVR-INOX Merger may have severe implications on the promotion and sustenance of competition in India’s multiplex market as mentioned under the Act’s primary objectives. This is due to the fact that CCI is not empowered to review transactions that are exempted. Since the proposed merger is estimated to have a combined market share of 42%, there is a high possibility of the creation of a dominant position in the multiplex market. Whilst under the Act, being the dominant entity in a market is not per se unlawful; however, the abuse of that dominant position is strictly regulated under Section 4 of the Act. In addition to this, all anti-competitive agreements with or without abuse of such a dominant position will be subject to regulation under Section 3 of the Act. Section 3 and Section 4 of the Act will become applicable only at the post-merger stage. One of the key issues with post-merger regulation is the costs incurred by the parties to the transaction. A merger involves a change in the organisational structure. Given In the present scenario, both PVR and INOX may very well have invested large amounts into ensuring the legal and financial aspects of the PVR-INOX Merger are kosher. Moreover, horizontal mergers such as the PVR-INOX Merger eliminate one main competitor in the market thus reducing the competitive pressure (to reduce service prices) amongst them and the remaining non-merging firms as well. Consequently, this might result in a unilateral price increase or a coordinated price increase in the market. In both scenarios, the customers stand to lose due to increased prices and a smaller number of substitutes in the market. These anticompetitive post-merger scenarios could be avoided if CCI, like in the EU, the US or the UK, was empowered to review and regulate non-notifiable mergers that raise concerns. Although there are provisions under Indian law to regulate anti-competitive practices which arise post-merger, the late regulation of false-negative mergers incurs heavy costs. These costs have a negative take on the merged entities, their customers, the economic market structure and the consequences arising from it. The Reawakened Article 22 Of the European Union Merger Regulation (EUMR): An Inspiration  Article 22 of the EUMR has been reinvigorated through a new guidance issued by the European Commission (EC), (EUMR Guidance). The guidance allows the EC to review mergers falling under the national merger threshold through referrals raised by the member states. The condition for a referral by a European Union member state (Member State) is that “the concentration must: (i) affect trade between the Member States; and (ii) threaten to significantly affect competition within the territory of the Member State or States making the request.” The EUMR Guidance is designed to encourage Member States to approach the EC for the review of such mergers which are proved prima facie to be anticompetitive. This was brought in the light of a rise in ‘killer acquisitions’. A ‘killer acquisition’ is the acquisition of a small, nascent company by a large established entity. It has the potential to hamper effective competition by reducing the number of competitors while growing its own market share through such acquisitions. The guidance was brought to address this gap in enforcement, as the turnover of a small entity falls under the prescribed national threshold. Similarly in the United States, Section 7 of the Clayton Antitrust Act of 1914  provides for the Federal Trade Commission (FTC) or Department of Justice (DOJ) to prohibit