Approved Combinations under the Recent Combination Sections/Regulations

The Competition Commission, recently on November 4, 2011, approved the acquisition of BCL Springs Division of Bombay Burmah Trading Corporation Limited (BBTCL) by NHK Automotive Components India Pvt. Ltd. (NHK Automotive), a wholly owned subsidiary of NHK Spring Co. Ltd. (NHK Japan). BBTCL agreed to sell its BCL Springs Division to NHK Automotive as a going concern on a slump sale basis for a lumpsum consideration as per the terms and conditions of a Business Transfer Agreement between the parties. The acquisition came within the purview of Section 5 (a) (i) of the Competition Act, 2002 and was required to obtain the approval of the Competition Commission as per Section 6 of the Act read with the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011.

As might be known, BBTCL belongs to the Wadia group and is engaged in the businesses of plantations, food, textiles, chemicals, electronics and light engineering, healthcare, real estate. The Spring Division, which was under acquisition here, is concerned with the manufacture, sale and distribution of various kinds of springs. In its order, the Commission discussed the automotive components sector in India, including springs manufactured for automobiles and noted that there exist two different markets – one, for original equipment manufacturers, and one for the replacements after-market to meet after-sales requirements. The acquirers and acquired in this case were present in the original equipment manufacturers market, making this the relevant market for the Appreciable Adverse Effect on Competition test. The territorial boundaries of India were considered the relevant geographic market. The order then analyses the market in greater detail, looking for potential overlaps in the markets of the acquired and the acquirers and at the impact on other major players in the market. The Commission laid down the following reasons why there was likely to be no appreciable adverse effect on competition through the acquisition –

• The two parties were involved in two different segments of the original equipment manufacturers market. While BCL Spring division was involved manufacturing springs for the 2-3 wheeled vehicles, NSI was manufacturing springs for 4-wheeled vehicles.
  
• The processes for manufacturing were different. While BCL used the cold formed production process, NSI used the hot-formed process.
  
• Prices of the springs manufactured by the two were different.
  
• The acquired and the acquirers could not be said to be involved in different stages or levels of production in India in respect of their springs for 2-3 wheeled and 4 wheeled vehicles as the two were completely different markets.

Having considered these facts, the Commission approved the combination under Section 31 (1) of the Act.

As a recap, the sections in the Competition Act relating to combinations i.e. Sections 5 and 6, were brought into force from June 1, 2011 vide a notification on March 4. Subsequently, on May 11, 2011, the Commission issued the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (also effective from June 1, 2011), which deal with procedural aspects of notification of combinations, exemptions and pre-merger notification process under the Act. Since coming into effect, the Commission has approved 6 combinations, including above discussed. The other five are: ·

• The merger of AHIL and APIL (approved on 19th October, 2011) ·
  
• The acquisition of the laminates division of BBTCL by AICA Kogyo Company Ltd. and Aica Laminates India Pvt. Ltd. (approved on 30th September, 2011) ·
  
• The acquisition of certain assets of Wockhardt Ltd., Carol Info Services Ltd., and Wockhardt EU Operations (Swiss) AG by G&K Baby Care Pvt. Ltd. and Danone Asia Pacific Holding Pvt. Ltd. (approved on 15th September, 2011) ·
  
• The acquisition of UTV Software Communications Ltd. by Walt Disney Company (Southeast Asia) Pvt. Ltd. (approved on 25th August, 2011) ·
  
• The acquisition of Bharti AXA Life Insurance Co. Ltd. and Bharti AXA General Insurance Co. Ltd. by Reliance Industries Ltd. and Reliance Industrial Infrastructure Ltd. (approved on 26th July, 2011)

[This post has been authored by Shruti Jere, Student, 5th Year, B.A./B.Sc. LL.B., WBNUJS]

Run Out of Beverage Options During a Movie Interval ?? No Relief as CCI Rules Such Exclusive Supply Agreements Are Not Per Se Anti – Competitive

Consumers Guidance Society v. Coca Cola and INOX

The Competition Act, 2002 officially replaced the erstwhile Monopolies and Restrictive Trade Practices Act, 1969 (‘the MRTP Act’) via a Government notification dated 28th August 2009. Thus, even though the Competition Act was passed way back in the year 2002, it was notified in 2003 and further amended in 2007 to be officially brought into operation only as late as September 1, 2009. All this while, all cases relating to monopolistic / restrictive trade practices were being heard by the MRTP Commission under the repealed MRTP Act. With section 66 of the Competition Act being duly notified with effect from 1 September 2009 onwards, all pending investigations and proceedings by the Director General under the MRTP Act relating to monopolistic / restrictive trade practices have been transferred {as is the case at hand under section 66(6)} to the Competition Commission of India (CCI).

This pre September 2009 issue relates to a complaint filed by the Consumers Guidance Society, Vijayawada before the erstwhile Monopolies and Restrictive Trade Practices Commission (MRTPC) against Inox Leisure Private Limited (ILL), a company which operates multiplexes across various locations in India. The Commission delivered its final order on 23rd May 2011.

What are Exclusive Supply Agreements?
These prevent a purchaser from acquiring products from any other person apart from the manufacturer solely. These are usually held to be anti-competitive because they preclude a competitor’s products from being available widely and hence limit supply and competition. This post covers the CCI’s never-before-seen attitude towards such agreements and the unprecedented circumstances under which such agreements were held to be non-anti-competitive.

ISSUE

Whether the Exclusive Supply Agreement between Inox and its supplier Hindustan Coca Cola Beverages Pvt. Ltd. (HCCBPL) was a Restrictive Trade Practice and an Abuse of Their Dominant Positions

ALLEGATIONS : On First Look, Parties Seem to be at Fault
HCCBPL and ILL were supplying inter alia packaged drinking water and soft drinks at an ‘inflated and exorbitant price’ in sharp variance with the ordinary price prevailing in the market. A difference of more than 100% in the MRPs was noted between products being sold over the multiplex counter and those available in retail stores i.e. higher prices to buyers at Inox and lower prices in the open market. This resulted in Discriminatory Pricing with products of the same quality, quantity and standards being sold at different prices to different buyers.

There was FORECLOSURE creating barriers to entry as Inox was selling only Coke products providing the consumer with no alternative choice inside the multiplex as a result. It thus enjoyed complete economic power and commercial advantages over its competitors

Faulty Delineation of Relevant Market : Major Lapse in Investigation
The Director General upon preliminary investigation identified the respective relevant markets for ILL as ‘retail sale of bottled water and cold drinks inside IIL multiplexes’ and that for HCCBPL; ‘supply of bottled water and cold drinks to owners of closed market of multiplexes’ Striking down such an illogical inference, the Commission emphatically stated that such an inference would go on to mean that every retail outlet, restaurant or store having exclusive supply agreement with a supplier will be deemed dominant within the boundaries of its premises. The delineation had to be carried out on a pan-India level, taking into account multiplexes located throughout the country.

CCI’s Holding and Reasoning: Logic + Appreciable Business Interest = Effective Competition
Out of total 900 multi-screen theatres all over the country, HCCBPL had exclusive access to only 214 such screens whereas its closest rival PEPSICO had similar ESAs with 600 such multiplexes. Thus, this resulted in dominant player being created as there existed healthy competition between two parties in the market.

Furthermore, the impugned agreement was for a short period of four months and terminable by either party by giving 30 days’ notice. Thus, the option of switching suppliers on periodical basis cannot be said to have resulted in denial of market access / foreclosure.

Supply of products by HCCBPL made to multiplexes constituted less than 0.3% of its total supply of such products in India. Taking into account the business volume of the beverages market in India, there can be hardly be any appreciable adverse effect on competition because of ESA between HCCBPL and ILPL.

Hence, the ESA agreement was held neither to be anti – competitive nor abusing any dominant positions.

Notings and Observations 

The Commission has stayed true to the spirit of Competition Policy in India. Before declaring any agreement to be anti-competitive, first and foremost, it has to be concluded whether its operation would amount to Appreciable Adverse Effect on Competition. Thus, the Commission in the instant case has poignantly delved deep into facts and the prevalent market situation. Even though the Commission is receiving bulk load of cases every day, it has avoided blindly following the Director General’s findings which were proved erroneous. This speaks a lot about the character and capacity of the members and shows that the industry watchdog is not just an eyewash.

[This post has been authored by Shoumendu Mukherji, B.A./B.Sc. LL.B., 3rd Year, The W.B. National University of Juridical Sciences, Kolkata]  

CCI’s latest order on Combination comes out in record time: Merger Regulation receives thumbs-up!

In the Competition Commission of India’s (CCI) latest approval of a proposed combination (see here), passed on 19th October, 2011, the CCI approved the amalgamation of ALSTOM Holdings India Limited (AHIL) and ALSTOM Projects India Limited (APIL) in a swift period of 7 days upon receiving notice! This is CCI’s fifth order pertaining to Combinations since the Combination Regulations came into effect on June 1, 2011, and with this CCI beats all its own records in speed.

Previous orders passed by the CCI approving mergers were between AICA Laminates India and Bombay Burmah Trading Corporation ( order passed in 23 days), between G & K baby Care Limited and Danone Asia Pacific Holdings on the one hand and the Wockhardt group on the other (order passed in 22 days), the much hyped acquisition of UTV Software Communications Limited by Walt Disney Company (order passed in 25 days) and the acquisition of the Bharati Group Holdings by Reliance Industries Limited and Reliance Industrial Infrastructure Limited (order passed in 18 days). Thus all the orders have been passed within a month, even though the time-limit for the CCI under the Regulations is one hundred and eighty days!

This would quell doubts of many in the industry who were apprehensive about the compulsory pre-merger review process that was created by the Combination Regulations this year, where entities within certain thresholds would have to mandatorily notify the CCI about any proposed Combinations. Since no combination could take place without the CCI’s prior sanction, many felt that delays caused in passing orders by the CCI would cost trade and business dearly. However, with the five orders passed to date, the CCI has quelled all doubts regarding its efficiency. The latest order, coming within a week of one of the parties giving notice to the CCI, goes a long way in boosting the merger regulation regime in India. 

[This post has been authored by Sreerupa Chowdhury, B.A./B.Sc. LL.B., 4th Year, The W.B. National University of Juridical Sciences, Kolkata]

Through the Looking Glass of Dominance: CCI starts Investigating Saint Gobain for Limit Pricing

The Competition Commission of India (CCI) is certainly trying to live up to its new status of the premier competition law watchdog in the country, if recent events are to be taken as an evidence of its proactive stance. Recently, it has launched a full-fledged inquiry against Saint-Gobain, the renowned French glass manufacturing company. This had started after a preliminary review, according to the CCI, has revealed that the Indian unit of the company, Saint Gobain Glass India Limited (SGGIL) has engaged in the practice of limit pricing with the motive of rendering entry into the float glass sector unprofitable and not financially viable for other players in the market.  

For the uninitiated, limit pricing is a strategy that a monopolist can adopt to discourage entry of new players in the market. Usually, limit price is a price lower than the average cost of production or otherwise, just low enough for a new player not to make any profit that can encourage him to enter the market to compete with the monopolist. Obviously, the monopolist can, using his already strong foundation or considerable resources in the market, maintain this price position longer than a small-scale new player can. A classic example of abuse of dominant position, limit pricing is prohibited under the competition laws of many countries, including the Indian Competition Act, 2002. 

SGGIL, however, has denied all such allegation and are steadfastly representing that under no circumstances can any evidence of abuse of dominance be found against them.

[This post has been authored by Shouvik Kr. Guha, Research Associate, The W.B. National University of Juridical Sciences, Kolkata]