The Corporate & Commercial Law Society Blog, HNLU

Tag: Competition Law

  • Material Influence Test – A Convoluted Approach For Determining Control

    Material Influence Test – A Convoluted Approach For Determining Control

    By Priyashi Chhajer, fourth-year student at NLU, Jodhpur

    The concept of control has been laid down in various statutes and defined differently as per their requirements. Competition Act, 2002 (‘Act’), Companies Act, 2013, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, Foreign Direct Investment policy are a few examples. ‘Control’ is defined in explanation of section 5 of Act, which reads as “Controlling the affairs or management by one or more ‘enterprises’ or ‘groups’, either jointly or singly, over another enterprise or group.” Acquiring control of enterprise may lead to appreciable adverse effect on competition and is therefore required to be notified to the Competition Commission of India (‘CCI’).

    An uncertain and wide definition was adopted in the Act as the legislature intended to determine acquisition of control on factual basis. However, because of an absence of clear and specific guidelines the scheme of control continues to be ambiguous. The uncertain boundaries of control have also led to inconsistency in interpretation resulting in improper imposition of penalties.

    Recently Ministry of Corporate Affairs introduced Draft Competition (Amendment) Bill, 2020 in February wherein; material influence over the affairs of business and management has been proposed as a standard to determine control. This test on one hand will put large number of transactions under scrutiny and help in monitoring competition in market; but at the same time it will give excessive power to CCI thereby hampering the ease of doing business.

    Ambit of Control – Asymmetrical Interpretation Leading to Confusion

    As a matter of practise, CCI  has attempted to assess control by the yardstick of “decisive influence” over the affairs of another enterprise or group by way majority shareholding, veto rights or contractual agreements. However, these boundaries have diluted over the period of time.

    In Multi Screen Media Private Limited Case,  veto rights over strategic commercial decisions were exercised. CCI in this order extended the ambit of control to  not only proactive rights but also negative and affirmative rights. In subsequent RB Mediasoft/ IMT order, mere right to convert zero coupon optionally convertible debentures into equity share,  was  considered as control. Threshold was further lowered in case of Jet- Eithad, where  Eithad acquired 24% stake without any veto or quorum rights, along with the right to appoint 2 out of 12 directors.  CCI took into account  Eithad’s ability to control the managerial affairs of business and considered the transaction as acquisition of control.

    Later on, CCI started shifting the threshold towards material influence for determining ability to exercise control. In Argium Inc. and Potash Corporation of Saskatchewan, Inc., it was observed that although Potash Corp. held 14% interest, it still had the capacity to control the affairs as it was leading in production in global market and thus might exercise influence.

    In the recent  Ultratech/Jaiprakash Order , CCI defined material influence as “the lowest level of control, implies presence of factors which give an enterprise ability to influence affairs and management of the other enterprise including factors such as shareholding, special rights, status and expertise of an enterprise or person, Board representation, structural/financial arrangements etc.” CCI expanded the ambit of control to include material influence and not just de facto and de jure control (acquiring more than 50% of voting rights by way of shareholding).

    Later in 2018,  this expansive threshold was reiterated in Meru Travel Solutions vs. ANI Technologies and Ors, where CCI ruled that Softbank has ability to exercise  material influence even though it is a minority shareholder in Ola and Uber. Therefore, even the acquisition of  minority shareholding, for investment purposes may attract section 5 and section 6 under competition Act.

    The scope of  policies is left wide and inclusive, so as for the CCI to interpret it in a manner favouring competition law objectives. The strict definition may impede promotion of social and economic cause. However, inconsistent factual determination of control by regulatory body has clearly lead to dysfunctionality, as it has breed vagueness for business entities and lack of clear legislative guidance has vested excessive discretionary power with CCI.  

    Complexities  that are Propagated by “Material Influence” Test

    Firstly, unavailability of codified guidelines and the open-ended interpretation of ‘control’ adopted by CCI will empower them with unrestricted power to take up suo-moto cognizance of any transaction. For instance, in Jet – Eithad Case where there was acquisition of mere 24% stake without any significant rights; CCI still took the matter into its hands and reviewed the deal. Not only this, disparity amongst different regulators makes compliance unmanageable  for the businesses . As was seen in abovementioned case where affected by the CCI’s orders, SEBI reopened the case and ordered to investigate the matter again.

    Secondly, even when there is likeliness of appreciable adverse effect on competition, the transaction needs to be notified in accordance with section 6(2) of Act. Sporadic definition and lack of precedential clarity will result in ambiguity pertaining to determination of transactions that needs to be notified. There have been instances wherein the CCI took 60-90 days to conclude prima facie inquiry, which in turn should be completed in 30 days. Open ended test of control will bring more transactions under review which will lead to delay in execution of  transactions and deterrence in ease of doing business.

    Thirdly, expansion of definition of control has also led to expansion of the meaning of ‘group’ under explanation (b) of section 5. In this explanation group is considered to be formed when “two or more enterprises are directly or indirectly in position to control the management or affairs of another business”. The new threshold will affect the applicability of  numerous exemptions available to intra group dealings. Also, it will be difficult to determine horizontal and vertical overlaps during merger filings.

    Fourthly, many financial investments and private equity transactions will now come under the review of competition commission as because of the expansive definition the pure minority protection rights can also now be seen as negative control triggering mandatory notifying obligation under section 6 of the Act.

    Position of Law in other Jurisdictions

    Indian regime is similar to that of the EU. However unlike in India, EU provides detailed guidelines for interpretation of control. Article 3(2) of ‘Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings’ defines control as the ‘possibility of exercising decisive influence on an undertaking’. It implies that one may or may not actually exercise decisive influence but even a slightest possibility of exercising effective decisive influence is ample enough to bring it under the ambit of control. There are no particular thresholds specified to assess when there is change of control. However, European Commission issued a Consolidated Jurisdictional Notice, which acts as a guide and tool for interpretation. It anticipates and provides for all possible instances when merger regulations can be triggered. Possibility of exercising decisive influence can be on the basis of right, assets or contracts, or any other means, either separately or jointly.

    In the US, the concept of control is defined in Hart-Scott-Rodino Regulation (‘HSR’). Section 7 of Clyton Act  provides for three tests – the commerce test, the size of transaction test and the size of person test. For the transaction to fall under HSR filing obligation, above tests must be fulfilled. Generally, acquisition of voting rights and assets is looked into to determine change in control.

    CCI has failed to remedy the indefiniteness surrounding the concept of control. International organisations such as  OECD endorse global uniformity for the definition of control. Unfortunately, the domestic inconsistency has resulted into cross-border disparities for the understanding of control.

    Conclusion

    A transaction can be reviewed under section 5 of Act only if there is change in control. Earlier it was decided by way of decisive influence over management or affairs of business by way of majority shareholdings, veto rights and contractual agreements.  By virtue of this threshold those transactions comprising acquisition of non-controlling powers, however having appreciable adverse effect on competition were left unchecked. To alter the situation Competition Law Review Committee, 2019 proposed to lower the threshold of control so as to include those minority shareholdings that can affect competition.

    Material Influence test is the lowest threshold of control. As a consequence of this, majority of combination transactions will come under review process. It will increase the load of the CCI with insignificant notifications and will also be onerous for the parties involved in transactions. Moreover, lack of guidance and inconsistency in precedential trail adds to the existing confusion on kinds of transactions that are eligible for notification.

    Therefore, there is pressing need to make the market investor friendly for economic growth. Sizable problems posed by the proposed amendment weighs down the benefits that it purports. Cues must be taken from other jurisdictions so as to promote certainty in domestic regime. CCI must tread with caution so that ease of doing business is not affected and market entities do not get caught in clutches of cumbersome notifying process, unforeseen penalties and vagueness.

  • SEBI in the Shoes of CCI: the Jurisdictional Tussle Continues

    SEBI in the Shoes of CCI: the Jurisdictional Tussle Continues

    By Deepanshu Agarwal, a fourth-year student at UPES, Dehradun

    Introduction

    The Securities & Exchange Board of India (‘SEBI’) and the Competition Commission of India (‘CCI’) are separate independent regulatory bodies which often jurisdictionally overlap with each other. This happens due to the commonality in their objectives of ensuring the protection of consumers and promoting a healthy market.

    In the case of Advocate Jitesh Maheshwari v. National Stock Exchange of India Ltd. (2019) (‘NSE Case’), CCI refused to deal with the matterregarding abuse of dominance by National Stock Exchange (‘NSE’) and allowed SEBI to continue with their practice. This was a drastic turn taken by CCI to allow a sectoral regulator to deal with the abuse of dominance, which is an issue majorly dealt with by CCI under section 4 of the Competition Act, 2002.

    In the instant case, the informant alleged that for almost four years (i.e. 2010-2014), NSE had been giving preferential treatment and unfair access to some of the traders by communicating to them price feed and other data. According to the informant, this was a discriminatory practice followed by NSE towards other traders on the same footing & thus resulted in ‘denial of market access’. Moreover, the informant proposed the relevant market as the ‘market for providing services of trading in securities’ and contended that NSE is a dominant player in the market as it holds a huge market share, consumer dependency and entry barriers for the new stock exchanges.

    Though CCI noted that such discriminatory practices exist in its jurisdiction, the case was dismissed without going into its merits. The reasoning of CCI was that: (i) the allegations against NSE were not final and are yet to be established in appropriate proceedings; and that (ii) there was a lack of evidence to form a prima facie opinion about the role of NSE. However, CCI mentioned that it could examine the discriminatory and abusive conduct independently, based on cogent facts and evidence after the completion of investigation by SEBI. But the question that remains unanswered here is that if SEBI does not reach an adverse finding on the question of NSE’s role, can CCI then still examine NSE’s conduct? To answer this question, it becomes imperative to analyse this order in the light of the Supreme Court’s judgment in the case of CCI v. Bharti Airtel Ltd. & Ors. (2019) (‘Bharti Airtel’).

    The jurisdictional tussle in Bharti Airtel

    Though this case revolves around the jurisdictional fight between Telecom Regulatory Authority of India (‘TRAI’) and CCI, yet it is a landmark judgment when it comes to the jurisdictional overlap between CCI and other sectoral regulators, apart from TRAI.

    Reliance Jio Infocomm Ltd., a new entrant in the telecom market, approached CCI against the Incumbent Dominant Operators (or ‘IDOs’ namely Bharti Airtel, Idea Cellular and Vodafone) for forming a cartel to deny market entry and thereby causing an adverse effect on competition in the telecom market. While the case was already under investigation by TRAI, CCI found out a prima facie violation against the IDOs. The Bombay High Court, in the appeal made by the IDOs, set aside the order of CCI on the grounds of lack of jurisdiction as the matter was already under investigation by TRAI.

    The Supreme Court while confirming the findings of the Bombay High Court did not deny the jurisdiction of CCI altogether but made its investigation subject to the findings of TRAI. It did so by giving CCI a secondary jurisdiction over the matter. In this regard, the court held that “Once that investigation is done and there are findings returned by the TRAI which lead to the prima facie conclusion that IDOs have indulged in anti-competitive practices, the CCI can be activated to investigate the matter going by the criteria laid down in the relevant provisions of the Competition Act and take it to its logical conclusion”.

    Applying the reading of Bharti Airtel to the NSE case, it can be concluded that the jurisdiction of the CCI begins only when there are adverse findings returned by SEBI. Similar to TRAI, SEBI is also a sectoral regulator and will have primary jurisdiction in dealing with the abuse of dominance/adverse competition in the capital markets. Therefore, it can be concluded in the instant order that the CCI was justified in not going into the merits, by accepting itself as a regulator having a secondary jurisdiction in such cases.

    Since the instant order passed by CCI is in line with Bharti Airtel, it also suffers from similar criticisms.

    Criticism of the NSE Case

    Since both SEBI and CCI have a common objective to ensure consumer protection and fair market competition, it is clear that there may be jurisdictional overlaps. Both the Securities and Exchange Board of India Act, 1992 and the Competition Act, 2002 provide for jurisdiction in addition to and not in derogation to other laws. However, neither of the two acts provide the remedy in case of a jurisdictional overlap. This ambiguity paves the way for concurrent jurisdiction of both the regulators which further leads to conflicting decisions and legal uncertainty.

    In such a scenario, putting CCI at a lower pedestal by giving it secondary jurisdiction (as evidenced in Bharti Airtel and the NSE case) may not be the optimal solution for jurisdictional issues. Rather, the CCI being an independent competition watchdog should be allowed to deal with the competition matters freely and irrespective of the findings of the sectoral regulators. It has to be noted that CCI is a specialized body created solely with the purpose to prevent abuse of dominance and adverse effect of competition. Therefore, subjecting CCI’s jurisdiction to the findings of any other sectoral regulator would only hamper the object for which it was created, thereby weakening its authority.

    The Way Forward

    The best way through which the jurisdictional tussle can be resolved is following the mandatory consultation approach. This means that if a situation of jurisdictional intersect arises, then both the regulators should consult with each other as to who can deal with the matter more effectively and efficiently. This can be a credible solution to remove all defects from such jurisdictional matters and ensure some technical input is also given by the sectoral regulator.

    Under the current regulatory framework, India follows a non-mandatory consultation approach. Section 21 & 21A of the Competition Act incorporates a mechanism for consultation between the statutory authorities and the commission. However, consultation under these sections is neither mandatory nor binding.

    Lessons should be drawn from other countries which are successfully following the mandatory consultation approach. For example, in Turkey, under the Electronic Communications Law No. 5809, the Competition Board has the statutory duty to receive and take account of the opinion of the relevant regulatory authority (the Information Technologies and Communications Authority) when enforcing the competition law in the telecommunications sector. Moreover, Turkey’s competition authority also sends its opinion to the Information Technologies and Communications Authority regarding draft regulations in the consultation process.

    The mandatory consultation process is also followed in other countries like Argentina and France. This process was also suggested in India by the National Committee on National Competition Policy and Allied Matters in 2011. Therefore, it is the need of the hour that this change be implemented.

    Considering the existing legislative framework, substituting the word ‘may’ with ‘shall’ in Sections 21 and 21A of the Competition Act and making the opinion of CCI or the sectoral regulators binding upon the other will leverage the expertise of both the entities and will enable the initiation of a cooperative regime.

    Conclusion

    Abuse of dominance/adverse effect on market is specifically the area that CCI deals with, it is erroneous for SEBI to encroach upon the same. Both the technical aspects and the competition matters in a case have to be viewed separately. SEBI being a sectoral regulator and a lex specialis in the capital markets can deal with the technical matters more effectively than CCI. Whereas, on the other hand, CCI being a lex specialis in competition matters can deal with the same with more proficiency. Therefore, in cases involving jurisdictional conflict, it is fallacious to place CCI at a secondary stage. Rather, the mandatory consultation approach should be followed by the regulators in such cases to solve the conflict in a more harmonious and effectual manner.

  • Google, Don’t Be Evil: Forecasting Antitrust Issues in Gmail-Meet Integration

    Google, Don’t Be Evil: Forecasting Antitrust Issues in Gmail-Meet Integration

    By Tilak Dangi, a fourth-year student at NALSAR, Hyderabad

    The lockdown has seen rapid growth in the use of video conferencing platforms. Data shows that Zoom and Skype have noted the highest increase of 185% and 100% respectively in Daily Active Users in three months in India. In the race to capture the market of virtual video conferencing applications, Google has been unable to capture a large market share so far. However, it does not want to stay behind. Consequently, Google has recently announced deeper integration between Gmail on mobile and Google Meet (‘Meet’) video conferencing service. The intention behind the integration is clear: Meet wants to tackle the market share among the technology giants for the market of virtual video conferencing applications.

    This article will analyse Google’s integration within the parameters of section 4(2)(d) & section 4(2)(e) of the Competition Act, 2002 (‘the Act’). Section 4(2)(d) prohibits one entity from concluding contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. Section 4(2)(e) prohibits entity using its dominant position in one relevant market to enter into or protect, other relevant markets. The author asserts that Google is using its large consumer base of e-mail users to enter into the video conferencing market.

    Relevant Market

    Section 4 of the Act prevents any dominant entity from abusing its dominant position in various ways. Section 4(2)(e) of the Act mentions two relevant markets:

    1. The market where the entity is in a dominant position.
    2. The market which the same entity aims to enter into or protect.

    However, both these relevant markets must be distinct from each other. Section 4(2)(d) of the Act mentions two different products which require to establish two distinct relevant markets:

    1. The market of the primary product; and
    2. The market of the supplementary product which, by their nature have no connection with the primary product.

    Section 19(7) of the Act mentions the factors to determine the relevant market. In the present fact scenario, one relevant product market would be of e-mail services and another would be of virtual video conferencing. That being said, Google may argue that both the markets are the same since both provide for online communication. Therefore, the determination of demand-side and supply-side substitutability of both the product is required to establish that both the products are not substitutes for each other.

    • Supply-side substitutability

    The services provided by Gmail are emailing services that users can access through the web and using third-party programs that synchronize email content through Post Officer Protocol and Internet Message Access Protocol. On the other hand, Meet provides video meeting platforms wherein 100 users can connect. The programs through which both of the applications run are different and therefore, one product cannot substitute the other because of a change in price, for instance.

    • Demand-side substitutability

    E-mail provides a consumer with services such as sending and receiving messages electronically. Additionally, the sender and receiver do not need to be online at the same time. However, Meet provides a consumer with video conferencing services similar to face-to-face communication between two or more people while all consumers are required to be online at the same time. Thus, e-mail is a textual conversation between two or more members over the internet while video conferencing is a real-time video conversation over the internet. Both the applications serve a different purpose and therefore, the consumers will not reasonably switch to the other commodity if the price of one commodity increases or decreases.

    Therefore, considering factors mentioned under section 19(7) of the Act, both the products are not supply-side or demand-side substitutable in the relevant geographic market of India.

    Position of Dominance

    While determining the position of dominance when an allegation is made under sections 4(2)(d) and 4(2)(e) of the Act, it is not necessary for a product to be dominant in the second relevant market also. As held in the National Stock Exchange of India v. Competition Commission of India (‘NSE case’), it is enough even if the enterprise wishes to use its strength in the market of its dominance to enter into or to protect itself in the other market. Therefore, the issue before the CCI is going to be: whether Google is in a dominant position in the market of e-mail services in India?

    Section 19(4) of the Act prescribes various factors that the CCI may need to consider in assessing a dominant position, such as market share, size, resources, competitors, economic power, commercial advantages, vertical integration, and etc.

    While the data of the number of users in India of Gmail is not publicly available, certain factors can be used to attribute the dominance of Google. Gmail enjoys 43% of market share worldwide followed by Apple’s iPhone having 27% and Apple Mail of 9% and 7 more competitors. On October 26, 2018, Gmail stated that it has over 1.5 billion active users through a tweet. In 2011, Gmail’s market penetration in India stood at 62%, the highest in the world as per digital marketing intelligence firm Comscore. Google has certain advantages that its product provides; it gives more than 15 gigabytes of storage, compared to the free version of Yahoo! Mail and MSN Hotmail that only give 1GB and 250MB respectively. Unlike its competitors, all of whom attempt to shove paid premium services with premium features, Gmail offers all its features to all its users without any such charges. Moreover, Gmail has vertical integration with Duo, YouTube, Photos, Google web platforms where Google is already declared in the dominant position. Considering the size of the subscribers of Gmail, the small size of its competitors, the technological and economic advantage it has; the dominance can be safely attributable to Google in the relevant market.

    Violation of Section 4(2)(d)

    For proving the case under section 4(2)(d) of the Act, the CCI after establishing dominance has to determine two factors:

    1. Sufficient market power; and
    2. An element of coercion i.e., the customer is coerced to take or purchase a second product if she wishes to buy a particular product.

    In the case of Sonam Sharma v. Apple Inc, the CCI noted that price bundling is a strategy whereby a seller bundles together many different good items for sale and offers the entire bundle at a single price.

    In the present factual scenario, if the user intends to install or update Gmail to use the email services, the user by default will be availing Meet even if the user does not require the same. In essence, Meet will come along with Gmail by default. A consumer who only intends to use Gmail will be arm-twisted into installing Meet also even when the user does not want or require it. Secondly, if the user only wants to install Meet, it requires Gmail ID, hence mandating someone to have a Gmail ID to use Meet.

    The situation is very similar to that of United States of America v. Microsoft Corporation, wherein a US District Court held Microsoft in violation of competition law as it integrated its operating system and web browser.

    Violation of section 4(2)(e)

    For establishing the case under section 4(2)(e) of the Act, the CCI after establishing dominance has to determine two questions:

    1. Whether Google enjoyed advantages in the video conferencing market by virtue of its dominance in the e-mail market?
    2. Whether Google customers in the e-mail market were potential customers in the video conferencing market?

    For any new application, creating a market share is a tough task. In a market where there are established players, competing merely based on features and quality is in itself not enough, but the competitor is required to increase knowledge about its product to achieve the consumers in the market. The Gmail application is already downloaded in all the Android phones in India due to its prior contract. Therefore, Google seems to increase the consumer base of Meet through Gmail’s consumers who are potential customers of the virtual video conferencing market and thus abusing its dominance.

    Foisting Meet into Gmail, while it functionally makes no sense whatsoever as the services of Gmail are different from that of Meet, is what Google can do to raise awareness of Meet to increase its market share, compete with rivals of virtual video conferencing market through existing consumer base of Gmail market.

    Rule of Reason Approach (Anti-competitive effects)

    The CCI has started following the rule of reason approach i.e., establishing an abuse of dominance by determining anti-competitive effects of the conduct. The question then arises here is: are there are any anti-competitive effects in the other market, i.e. the market of virtual video conferencing?

    Google may argue that since Meet is only an additional feature in Gmail, the same by its very nature does not force consumers to switch to Meet and does not restrict them to use any other video conferencing applications, therefore neither creating any entry barriers for new entrants nor driving out existing competitors out of the market. However, product bundling and entering another market through the dominant market may have following anti-competitive effects:

    1. The bundling of both the products may shift the consumer base of existing competitors who only deal within the video conferencing market and therefore, threatens to eliminate them from the market.
    2. The conduct may create entry barriers for new entities to solely enter into the market of video conferencing.
    3. The exit of the existing competitors and entry barriers for new entrants will also harm consumers as they might end up having no more choices within the product. Moreover, bundling is per se coercive for consumers who do not want both the products.

    Concluding Remarks

    The European Commission has previously in the European Union v. Google Android, declared that Google had been using product bundling as a strategy to capture market share in new markets. Google is already facing antitrust issues in various domains; such integrations would bring to light more such issues as the intention behind the same is clear and is not a fair play in the market. There are not many cases under section 4(2)(e) of the Act in India. The COMPAT in the NSE case was decided only based on the absence of two distinct markets. It thereby did not touch upon the next questions. Hence, it would be interesting to see how the CCI deals with such matters if the allegations of the same are filed.

    (The author thanks R. Kavipriyan and the Editors of the Blog for the inputs on this article.)

  • Anti-competitive Probes Against E-commerce Platforms: A Shift in Regulatory Approach

    Anti-competitive Probes Against E-commerce Platforms: A Shift in Regulatory Approach

    By Sajith Anjickal, a third-year Student at NLSIU, Bangalore

    E-commerce platforms have significantly changed the way in which businesses are conducted. The perceived benefits of e-commerce markets continue to draw in more and more buyers and sellers to transact on online platforms. This change in market dynamics has, however, begun to attract the scrutiny of competition regulators across the world. In certain jurisdictions, like the European Union, reports have been published examining the opportunities and challenges that online markets may present for competition. Regulators in some jurisdictions have also initiated detailed anti-competitive probes against major online platforms.

    Earlier this year, the Competition Commission of India (‘Commission’) also published a report identifying certain competition issues/concerns in e-commerce markets. Subsequently, the Commission, in In Re: Delhi Vyapar Mahasangh and Flipkart Internet Pvt Ltd & Anr, ordered an investigation against Amazon and Flipkart (Opposite Parties, ‘OPs’) under section 26(1) of the Competition Act, 2002 (‘Act’) for alleged violation of section 3(1) read with section 3(4) of the Act. This was based on the information that the OPs were allegedly involved in anti-competitive practices such as exclusive agreements, excessive discounts, preferred sellers, and preferential listings. In response, the OPs approached the Karnataka High Court by way of writ petition challenging the Commission’s order. The Court granted an interim stay against the order on multiple grounds, including the Commission’s failure to form a prima facie opinion as to the existence of the alleged anti-competitive agreements. In this piece, I shall demonstrate that the present order of the Commission marks a shift in its regulatory approach towards e-commerce platforms.

    Departure from Precedents

    With respect to the procedure leading up to the order under section 26(1), it appears that the Commission did not conduct a preliminary conference with the parties. While admittedly the law does not mandate a preliminary hearing to be held, such an opportunity is often provided to parties by the Commission as a matter of practice/norm. In fact, the Commission’s decision to not hold a preliminary hearing is particularly surprising given that it has previously, in similar cases such as In Re: All India Online Vendors Association and Flipkart India Pvt Ltd & Anr (‘AIOVA’), engaged with e-commerce platforms before passing orders under section 26 of the Act. A preliminary conference in the present case would have made the Commission appreciate the issues from the viewpoint of the e-commerce platforms as well. This, in turn, would have led the Commission to consider certain facts capable of affecting its decision to order the investigation. Some of these facts also formed the grounds on which the Karnataka High Court granted the interim stay. For instance, the Commission failed to take note of the fact that the OPs were being investigated by the Enforcement Directorate (‘ED’) under the Foreign Exchange Management Act, 1999. This ongoing investigation becomes relevant in view of the ruling of the Supreme Court in Competition Commission of India v. Bharti Airtel Ltd & Ors. The Supreme Court, in the context of jurisdictional conflicts, held that the jurisdiction of the Commission would be deferred until the specialised regulator takes requisite actions at first instance. Therefore, consideration of the ongoing investigation would have required the Commission to defer its jurisdiction until there are findings returned by the ED.

    In directing the investigation in the present order, the Commission observed that exclusive agreements, together with discounts and preferential listing, may have an adverse effect on competition. While making this observation, however, the Commission did not address or acknowledge its observations in prior similar cases. For instance, in In Re: Mohit Manglani and M/S Flipkart India Pvt Ltd & Ors, the informant had alleged that exclusive agreements between manufacturers/suppliers of goods and e-commerce platforms were anti-competitive. The Commission, however, dismissed this allegation noting that such agreements are unlikely to create any barriers to entry or adversely affect existing players. It also went on to highlight the benefits accrued to the consumers by virtue of online distribution platforms. Further, as regards discounting practices, online platforms have often contended that e-commerce is a comparatively nascent mode of retail in India and thus, offering products at discounted prices is essential to attract and retain consumers. This contention had found support from the Commission in In Re: Ashish Ahuja and Snapdeal.com & Anr, wherein it noted that special deals and discounts help e-commerce platforms grow. The premise of the contention, i.e., the nascency of the e-commerce marketplace, was even endorsed recently by the Commission in the AIOVA case. Interestingly, in the AIOVA case, the Commission, highlighting the consumer benefits, efficiencies, and growth potential of the e-commerce model, also observed that e-commerce markets must be regulated in a manner that does not inhibit innovation. Given these prior observations, the Commission’s contrary stance in the present order is telling.

    An Overall Shift

    The contrary stance in the present order must be viewed in the backdrop of the Commission’s recent orders in In Re: FHRAI and MMT Pvt Ltd & Ors and In Re: Rubtub Solutions Pvt Ltd and MMT Pvt Ltd & Anr. The Commission clubbed these cases and ordered an investigation into allegations regarding the preferential nature of the agreement between MMT-Go and OYO. It also directed an investigation into certain practices such as excessive discounts, noting that the combination of MMT and GoIbibo resulted in dominance in the relevant market. This denotes a significant departure from previous orders of the Commission. For instance, while approving the MMT-Go combination back in 2017, the Commission observed that the proposed combination was not likely to adversely affect competition. Additionally, in In Re: RKG Hospitalities Pvt Ltd and Oravel Stays Pvt Ltd, the Commission, citing the nascent stage of the relevant market, had rejected the charge of abuse of dominance against OYO. It is therefore apparent that the Commission has not had a uniform approach in scrutinizing allegations against e-commerce platforms.

    Conclusion

    A precedent-based assessment of the Commission’s recent orders (including the present order) indicates a notable shift in its approach towards regulating online platforms. The Commission previously seemed to follow a mild approach while examining the conduct/practices of online platforms. However, considering the market study and the recent orders, it appears that the Commission is moving towards an approach that is being increasingly followed globally, i.e., greater and aggressive regulation of online players. One hopes that the Commission channels its newfound approach into establishing competition jurisprudence that strikes a balance between various interests.