Uncategorized

[By Shubham Gandhi & Aditya Puri] The authors are students at the Dharmashastra National Law University, Jabalpur.  The Competition Act, 2002 (“the Act”), as legislated by the Parliament, is a special statute that governs the practices conducted in a market and ensures that healthy competition is maintained. The legislature in the Competition (Amendment) Bill, 2020 has stressed the need to identify a legislative way to cover agreements that otherwise do not fall in the ambit section 3(3) and 3(4). Considering the scheme of the Act, the question which arises is whether the Act contains enough space to accommodate the independent application of section 3(1) read with (“r/w”) 19(3) or the two agreements, i.e., horizontal and vertical agreements, are exhaustive of the scope of anti-competitive agreements as restricted by the Act under section 3(3) and 3(4) of the Act, respectively. This issue is yet to be settled with finality by the Apex court of the land. The author(s) in this article will throw open the discourse with regards to scope and extent of umbrella provisions viz. section 3(1), undertake a purposive interpretation of the Act to disseminate the scheme of section 3(1), highlight the precedents recognizing the extent of section 3(1) and will exemplify the growing need to curb advance anti-competitive agreements which do not fall under section 3(3) or 3(4) of the Act. Underlying Purposive Interpretation The words used in the literal sense are the most reliable source of interpretation. It is to be emphasized that statutes invariably have some purpose of accomplishing. The sympathetic discovery of the purpose is the best guide to the intended meaning of the statute. In clear terms, the apex court in Excel Corp v. CCI laid down that, “In ordinary circumstances, once the ‘plain meaning’ of the words in a statute has been identified there is no need for further interpretation. Different considerations can apply, however, in cases where a statute would be unconstitutional if interpreted literally.“ The preamble of the Act provides for sustenance and protection of competition, ensuring the freedom of trade for the other participants of the market in light of economic development of the country, and preventing practices that have the potential of causing an adverse effect on competition, as laid down in the judgment of CCI v. SAIL. The factor of “economic development” is a dynamic phenomenon requiring flexibility on the part of the commission to accommodate the changing nature of anti-competitive agreements. To achieve the said purpose, the Act bestowed upon the commission the power to take action under section 18 of the Act. The literal semantics of section 3(1) nowhere suggests that the scope of agreements mentioned therein are limited to the ones categorically mentioned under sections 3(3) and 3(4), i.e., horizontal and vertical agreements, respectively. The section explicitly uses the phrase “any agreements” while prescribing the anti-competitive agreements. To disseminate our argument, reproduction of section 3(1) is necessary: “No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.” It is just a matter that the horizontal and vertical agreements are certain in structure and scope that they deserve a categorical mention. Further, the other agreements not mentioned under section 3 are, in author(s) view, not certain in scope and structure to be bestowed with a categorical mention. Also, the definition of ‘agreements’ under section 2(2) has been left wide and open to facilitate the inclusion of even a blink of an eye. In such a scenario, defining the contours of all the agreements covered under section 3 is nearly impossible. It is the contention of the author(s) that agreements stipulated under sections 3(3) and 3(4) are only illustrative of “any agreements” under section 3(1). They do not exhaust the scope of section 3(1). Hence, the legislators used the phrase “any agreement” to leave the scope of the section open-ended to accommodate the ever-changing dynamics of anti-competitive agreements entered by market players to “eliminate practices having an adverse effect on the competition, to protect the interest of the consumers.” Therefore, any interpretation inclining towards restricting the reading of section 3(1) to horizontal and vertical agreements would be a creative exercise unnecessarily narrowing the scope of section 3(1). The approach adopted by CCI The CCI first decided the issue regarding the standalone application of section 3(1) in the case of Ramakant Kini v. Dr. Lh Hiranandani Hospital, wherein the commission categorically stated that if the agreement does not fall within the ambit of section 3(3) or 3(4) due to its nature, then resort shall be made to section 3(1) r/w 19(3) to serve the purpose of the Act. Although the Ramakant case was overruled by order of COMPAT, as the agreement in the specific case does not vitiate the principles of AAEC, it does not discuss the interpretation done by CCI regarding 3(1). After that, the CCI in P.K Krishnan v. Paul Madavana, while referring to the Ramakant Kini Judgment, held that “in Dr. L. H. Hiranandani Case (Ramakant Kini case) the position is quite clear that an agreement, even if it is not falling under section 3(3) or 3(4) of the Act, is amenable to the jurisdiction of the Commission under section 3(1) if the same has an appreciable adverse effect on competition.” CCI again accepted this line of reasoning in the case of Rohit Medical Store v. Macleods Pharmaceutical Ltd. The author(s) find the interpretation adopted by CCI in the aforementioned cases in line with the preamble. Also, section 18 puts the commission under a duty to prevent practices from having adverse effects on competition. Moreover, it is observed in various cases, like      Builders Association of India v. Cement Manufacturers’ Association and CCI v. Co-ordination Committee of Artists, that the associations always contend that they were merely an association of people and did not undertake any economic

[By Damini Chouhan & Vinisha Jain]  The authors are students at the Institute of law, Nirma University.  Background The Covid-19 pandemic was no less than a catastrophe for economies around the world. In India, insolvency resolution process among other economic activities has suffered a huge setback. The funds invested by the creditors have remained blocked for an entire year and the delay has worsened the stress on ailing companies as they had no recourse to stress resolution during this period. To house these challenges, the government believed that it is the opportune time to introduce the pre-pack regime in India. Pre-packs are a semi-formal agreements that are designed to facilitate the restructuring of a company in a more expeditious way. The Ministry of Corporate Affairs formed the Insolvency Law Committee in May 2020 to prepare the structure of pre-packs suitable for the Indian markets. While discussing the key features of pre-packs the sub-committee of Insolvency Law Committee noted that in most countries under this regime, the promoters and management have ‘the first and exclusive right’ to buy the business of Corporate Debtor (“CD”). The Graham Review[i] was also cited by it which expressed the probability that during economic depressions, the management of the company would be the only willing candidate to buy the CD due to the lack of Resolution Applicants. Hence pre-packs inclines towards the possibility of bringing Management Buyouts  (MBOs) in India. Introduction Pre Packs can bring a breakthrough change in India’s financial market by paving the way for the much awaited (“MBOs”) transactions. MBOs are the type of acquisitions steered by the current management to acquire the ownership of the company. MBOs have the potential to streamline and revitalize the companies’ competence by unclogging the plethora of opportunities a management can avail of, in the interest of the company. Since, buyouts confer more freedom and control in the hands of management, the decision making process becomes easier. However, the journey of MBOs in India will be full of roadblocks owing to two reasons; First: the negative mind-sets and presumptions, present not only in India, but world-wide that insolvency of a CD takes place due to the failure of its management. Second: the stringent regulatory framework in India makes MBOs a rare event. Mind-sets and Presumptions The apprehensions with respect to the management of the CD can be seen in the insolvency regimes of Canada, Australia and Britain. They are structured on the belief that the management of a defaulting company should not be given the responsibility to administer the insolvency process. In their view, the management having driven the CD insolvent obviously lacks the adeptness possessed by the experts and administrators and ‘leaving them in the charge of distressed company would be like leaving the fox in charge of the henhouse”[ii] . Such reservation raises concerns regarding the credibility of the management and rears doubts with respect to its intention in bringing round the distressed company. Despite these fears, America’s insolvency regime is built on the faith that chances of the revitalizing the ailing company are higher when the same management carries out the formal process. Being based on the risk model, their insolvency regime propounds that the current management is more interested in the wealth maximization of the company’s business as they already know the business in and out. An insolvency practitioner on the other hand may be an expert, but his or her interest would be limited to paying out the creditors and keep the company going, even if as an empty shell. Legal Framework in India The management ensuing MBOs will have to go through the obstacle laid path floored by the RBI and Companies Act, 2013. Understanding the sensitivity of Indian financial market and status quo of the debt market in India, RBI has placed restrictions on banks, to give funds to the firms against the assets of the target company as it fears that investments in buyouts of ailing companies can put unnecessary strain on overall economy. In addition to the RBI regulations, SEBI (Alternative Investment Funds) Regulations 2012 are also present that regulate evolving sources such as venture capital funds, private equity funds, to keep an eye on them. Furthermore, Section 67 of Companies Act, 2013 bars the public companies to provide any financial assistance to any person for the purpose of buying any shares in the company or its holding company which pushes the management to opt for delisting of the company. Moreover, delisting process is also not hassle-free making the MBOs even more extensive procedure. Conclusion The possibility of MBOs through the Pre Packs can be a game changer. Even though, MBOs will not have a red carpet in India but the possibilities cannot be narrowed down to zero. In the current setting where there is a lack of resolution applicants it is prudent to introduce a feasible model of MBOs in India. Thus, the regulatory framework surrounding MBO transactions needs to be eased out if MBOs have to be made a viable option. The scepticism associated with MBOs is not irrational rather it is overly cautious. Since, the insolvency laws in India are continuously evolving and are being considered mature enough to introduce pre-packs it is time to introduce MBOs as well. Further, adding them as a subset of the Pre-Pack regime will also provide MBOs the necessary checks and balances under to prevent any misuse apprehended hitherto. With the advent of MBOs, the developing debt market will get a chance to grow and the distressed companies will be able to revive better in the hands of current management. [i] Ministry of Corporate Affairs, Report of the Sub-Committee of the Insolvency Law Committee on Pre-packaged Insolvency Resolution Process (October 2020), (January 08, 2021), https://ibbi.gov.in/webfront/notice_alongwith_subcommittee_report_for_public_comments.pdf. [ii] Gerard Mc Cormack, Control and Corporate Rescue: An Anglo American Evolution, 56, Intnl. & Comp. L. Q. 515, 524 (2007).

[By Milind Rajratnam and Anusha Maurya] The authors are students at the Dr. Ram Manohar Lohiya National Law University, Lucknow.  During online shopping festivals such as Flipkart’s “Big Billion Days” and Amazon’s “Great Indian Festival”, e-commerce giants offer some major discounts on their products. In 2020, during the initial days of their flagship festive season sales, Flipkart and Amazon were raking together at $3.5 billion (about Rs 26,000 crore). More often than not, these discount tactics lead to clashes between traders’ associations and e-commerce giants. It has also been an epicenter of controversy wherein stern allegations of anti-competitive practices and FDI policy violations are made against E-commerce giants by several traders’ associations. Prima facie deep discounting creates a mirage of consumer welfare, however, in reality, it threatens the very objective of consumer welfare by eliminating competition in the market. Owing to this, it is a widely debated issue in the realm of competition laws across the world. This blog critically analyses the current legal framework in India governing predatory pricing in the e-commerce sector along with its loopholes. It concludes by recommending some effective measures that can be adopted by the Indian legislators from their European counterparts to deal with this menace. What is Predatory Pricing? Predatory Pricing is a strategy embraced by major e-commerce companies to sustain short-term losses by reducing the prices of their goods below average cost and then recouping the losses by charging higher costs after the elimination of other competitors from the market. To prove that a particular pricing strategy is “predatory”, it is imperative to prove that such price is set below the marker of average cost with the purpose of eliminating other competitors. Therefore, the determination of the threshold as well as the allied circumstances, at which prices become predatory, is of paramount importance. On 20 August 2009, the Competition Commission of India (hereinafter “CCI”) rolled out the Competition Commission of India (Determination of Cost of Production) Regulations wherein it was clarified that the default cost benchmark for the determination of whether a dominant undertaking is pricing below cost is the Average Variable Cost (hereinafter “AVC”) test, but the CCI may also resort to the nature of the industry, cost prevailing at market value, etc. However, in MCX Stock Exchange Ltd. v. NSE (the first case concerning predatory pricing in India), it was highlighted that the CCI has complete discretion in adopting several other approaches for the determination of predatory pricing in India. In this case, it was held that the Average Total Cost (hereinafter “ATC”) test, which calculates a firm’s total average cost by dividing its fixed costs and variable costs by its total output, is a more economical and long-term test to determine predatory pricing. Indian Jurisprudence on Predatory Pricing: Under the Indian Jurisprudence, predatory pricing is defined as ‘discriminatory or unfair pricing’, and is prohibited under the Competition Act, 2002 (hereinafter “Act”). Section 4 of the Act expressly prohibits any group or enterprise from abusing its dominant position in the market by imposing ‘unfair price’ (including predatory price) or any ‘unfair condition’ that may eliminate competition or restrict market access to the new entrants. Since predatory pricing is the practice of abusing the dominant position, it must be proved that such an e-commerce platform is a dominant player in the market. While determining the dominant position of an enterprise, the consideration of its market share in the relevant market plays a vital role. However, in All India Online Vendors Association v. Flipkart, the CCI held that online marketplaces cannot be prosecuted for abusing “dominant position” as their current market share represents only a minuscule fraction of the total market. Moreover, a narrow interpretation of ‘dominant position’, as stipulated in the Act, will preclude a new entrant in the market from being scrutinized for the practice of predatory pricing, though it may have sufficient financial resources to withstand losses. Such an interpretation is responsible for the exoneration of a number of entities that were alleged to engage in such anti-competitive and unfair practices. For instance, in Airtel v. Reliance, the CCI held that Reliance Jio Infocomm Ltd. cannot be made liable for predatory pricing as it was a new entrant in the relevant market and its competitive pricing is a short-term business strategy to establish its identity in the market. In this regard, the authors recommend that during the assessment of dominant position and predatory pricing by online marketplaces, one should consider not only their market share but also their position of strength in the market. This view has also been upheld in a recent order of the Supreme Court wherein the capacity to sustain losses while offering unfair prices was held to be an indicator of the position of strength in the market. Legislative Interventions so far: The past few decades have seen substantial growth in e-commerce in India. Despite this booming development, the laws regulating the same have experienced considerable setbacks. The major laws governing e-commerce are the Information Technology Act, 2000 and Information Technology (Intermediary Guidelines) Rules 2011 which prima facie aim to regulate e-commerce and e-transactions rather than focussing on anti-competitive practices in the realm of e-commerce. Furthermore, their regulatory impact stands nullified due to Section 79 of the IT Act which provides immunity to e-commerce marketplaces on the ground of them being “intermediary” in the transaction. Owing to this, most of the e-commerce giants evade any anti-competitive liability under the masquerade of being “intermediary” facilitating online sales. Thus, the Indian Government through its Ministry of Consumer Affairs Food and Public Distribution has rolled out the Consumer Protection (E-Commerce) Rules, 2020 (hereinafter “Rules”) that specifically outline the obligations of sellers and e-market platforms in an effort to adopt a more consumer-centric approach. These Rules vide Rule 4(3) and Rule 6 explicitly bar e-commerce entities and sellers of e-marketplace respectively from engaging in unfair trade practice’ in the course of business on its platform or otherwise. Also, Rule 4(11) prohibits e-commerce entities from unreasonably manipulating prices in

[By Kajal Singh and Nikunj Maheshwar] The authors are students at Institute of Law, Nirma University. Introduction In the backdrop of divergent national laws and broadly worded treaties, Private International Law (PIL) helps in deciding the choice of law, jurisdiction and enforcement of judgements between the sovereign states.[i] While the application of PIL in matters concerning family and property have attained some certainty, the world at large remains divided on its application in matters concerning tax and revenue.[ii] Axiomatically, because tax laws vary in accordance with disparate interests of countries and wherein domestic courts are vested with exclusive jurisdiction to decide matters pertaining to them. Recently, the Bombay High Court (HC) in the case of Aberdeen Asia Pacific Including Japan Equity Fund v. Deputy Commissioner of Income Tax[iii] (Aberdeen) was to decide the applicability of PIL to an international tax matter. The HC opined that in absence of any deeming fiction in the Indian Income Tax Act, 1961 (the ITA) the principles of PIL will apply in determining the status of the foreign entity and its liability under the ITA. The authors in the subsequent discussion will analyse the judgement and highlight its significance in the realm of international tax matters. Facts of the Case In 2010, Aberdeen Delaware Business Trust (Trust), which had been incorporated in accordance with laws of Delaware, USA converted into Aberdeen Institutional Commingled Funds LLC (AICFL), a limited liability company (LLC). As a sequitur, all its sub-trusts also converted into sub-funds or series of AICFL. The Delaware laws provided that any trust may be converted into an LLC and on such conversion, only the legal status of the entity will change. Further, for all other purposes, it will be treated as the erstwhile trust. Post reorganization, the sub-funds decided to carry forward the losses which were incurred by the sub-trusts prior to the conversion. Pertinently, the ITA provides for carry forward of losses subject to certain conditions in cases wherein the company undergoes a change in its legal form. However, the ITA has no specific provision which speaks of the taxability of a trust converted into an LLC. Subsequently, seeking clarification on whether the sub-funds created post-conversion can carry forward the losses incurred by sub-trusts, AICFL filed an application before the Authority of Advance Ruling (AAR). The AAR observed that the sub-funds will not be allowed to carry forward the losses. Pursuant to the AAR’s ruling, AICFL appealed before the HC. The HC rejected the petition on technical grounds but on the substantive issue held that the reorganization (para 21) of the trust shall be dealt in accordance with the laws of Delaware. Despite this observation of the HC, the tax department, under section 148 of the ITA, initiated reassessment proceeding against the sub-funds. Consequently, the sub-funds challenged these proceedings before the HC. Arguments and the Judgment Revenue authorities argued that AICFL was never an assessee in India and the erstwhile trust has ceased to exist. Unlike in Delaware, an entity’s change in its legal form will lead to the formation of a new entity in India. Accordingly, the new entity so formed will be allotted a different PAN number. Thus, losses incurred by the sub-trusts cannot be allowed to be carried forward in the name of a new entity. Additionally, under section 70 of ITA, only an assessee who has previously filed an income tax return in India is allowed to carry forward its losses. Essentially, AICFL is a new entity formed and has never filed an income tax return in India and thus, in accordance with section 70 is disallowed to carry forward the losses. Per contra, the petitioners argued that in absence of any deeming fiction in Indian law which speaks of the taxability of such a conversion, the same should be determined in accordance with the principle of lex domicilii, i.e. the law of the country or place where the trust was incorporated. Thus, since the trust was incorporated, in accordance with the laws of Delaware the conversion is essentially a change in its status and not the formation of a new entity. The HC adverting to the argument of lex domicilii followed the lead of the Supreme Court (SC) in the case of Technip SA v. SMS Holdings[iv] (Technip SA), upheld the application of the principle and passed confirmed that the LLC will be treated as the erstwhile trust and would thus, be allowed to carry forward its losses. Analysis The Supreme Court of UK in the case of Kuwait Airways Corporation v Iraqi Airways Co[v] (Kuwait Airways) opined that in cases involving foreign elements and parties, more weightage must be accorded to the laws of another country irrespective of them being different from the laws of the forum court. To appreciate the judgments, it is relevant to revisit the case of Technip SA, wherein the jurisprudence laid in Kuwait Airways was made the law of the land. In the instant matter, Technip, a French company acquired control over another French company, Coflexip which had under its control Seamec, a listed Indian company. The SC was to decide whether Indian or French law will apply in determining the date on which Technip acquired control of Seamec. The SC held that as per PIL, the question of legal status must be determined according to the law of the land, where the entity/person was incorporated unless it is contrary to public policy. Elaborating upon the same, the court held that merely because laws of two sovereign states are different will not make them ipso facto contrary to public policy; rather they will have to be tested on the touchstone of morality and justice. Adverting to another ruling of M/s Citicorp trustee Company Ltd. v. Commissioner[vi] were in the AAR, was to determine the taxability of a UK based trust that converted into a company. It observed that neither the Indian tax laws nor the Double Tax Avoidance Agreement between India and the UK discussed about the taxability of entities in event