Publications Category: Article

The Competition Commission of India (CCI) recently published its draft regulations governing business combinations for public consultation. A key aspect of these revised regulations is their guidance on the enforcement of a newly introduced deal value threshold (DVT) that will trigger the need of CCI’s pre-approval for deals valued above ₹2,000 crore. Interestingly, ‘deal value’ would also include the value of any investment in the target by any acquirer group entity in the last two years.

The need to introduce new-age merger thresholds (alongside more traditional turnover-based thresholds) assumed significance after Facebook’s acquisition of WhatsApp escaped antitrust scrutiny despite its deal value being $19 billion. WhatsApp did not meet the requisite turnover/asset levels as it was a free app and its balance sheet did not reflect the true value of its prodigious data bank. Since then, several countries have introduced DVTs to plug leakages of major strategic mergers and acquisitions (M&As), especially involving startups and tech mavericks with low sales or assets.

Critics of a DVT have been airing their concerns that any such test may bring too many no-issue foreign deals under scrutiny. However, the experience from Germany and Austria (DVT front-runners in Europe) helps alleviate some concerns. Although the German competition authority initially received many queries on whether deals should be notified based on a DVT, there were only a few deals that required a filing. Along with tech deals, some deals were from the pharma sector; these were valued highly based on the market potential of their R&D pipeline of products in advanced clinical trials.

India, however, has decided to take a slightly different approach in introducing a DVT insofar as it has completely dropped the application of any turnover/asset based threshold to deals that breach the value limit. Most countries have retained the application of turnover thresholds in some form along with DVTs (except the US, where the turnover thresholds become inapplicable only if the deal value hits $446 million).

India’s introduction of a DVT will impact both foreign and domestic deals worth over ₹2,000 crore where parties would miss out on the benefit of the de-minimis target exemption. Many such deals could earlier escape CCI scrutiny if the target company did not have the requisite turnover (₹1,000 crore) or assets (₹350 crore) in India.

It would therefore be vital for the CCI to judiciously apply the domestic nexus qualification that has been spelt out in the regulations as “substantial business operations in India” (SBOI). This would be crucial to ensure that the CCI’s limited resources are used for assessing deals that may actually impact the Indian market and filter out foreign deals with no ‘real’ nexus to India.

At first glance, the SBOI criteria applicable to targets may appear expansive, raising the risk of ‘false positives’ (no-issue deals triggering scrutiny). However, a closer look would explain the need to keep it broad to protect the very purpose of introducing a DVT and not let a ‘killer acquisition’ slip through the cracks. The standard SBOI threshold has been kept at 10%, but it has been made applicable to three different metrics: i.e., turnover, user base and gross merchandise value (GMV). This is because a DVT is sector agnostic and would equally apply to manufacturing industries, where turnover can be a relevant metric to assess domestic presence, as well as digital sectors, where user base or GMV may be more appropriate. The user base of a target would include the number of users, subscribers, customers or visitors at any point within a year preceding the deal. This should effectively translate to figures based on relevant industry standards such as monthly active users (MAU), daily active users (DAU), or unique visitors (access frequency of a website).

The SBOI language is broad enough to even cover indirect users and passive visitors. The challenge would be to ensure that such figures are accurate and reflect the actual position. The CCI should preclude unnecessary filings that may breach the threshold at some (indirect) level without ‘truly’ establishing a local nexus through the scope or scale of a target’s operations.

This is where the role of pre-filing consultations with authorities assumes significance; these have globally proven effective in preventing filings of purely foreign deals with no local nexus. Although consultations with the CCI are non-binding, they offer businesses an avenue for seeking clarifications on filing queries to avoid inadvertent gun-jumping. On DVT consultations, in particular, the CCI should assist businesses with filing decisions.

Although some tweaks may be expected in the final version of the regulations after public consultations, the DVT rules are unlikely to undergo many changes. The regime should gradually get streamlined, based on the CCI’s experience and learnings after DVT implementation and the international best practices that may emerge over time.

While it remains to be seen how effective a DVT proves at addressing ‘killer acquisitions’ and protecting competition in data-driven markets, it is good to see the CCI emerge as a front-runner in deploying digital-age tools to deal with modern antitrust challenges head on.

The article has been authored by our Competition Partner, Vivek Agarwal. Associates Divyansh Prasad and Rohan Zaveri contributed to the article. This article was recently published in the Mint (a leading Indian business newspaper).

The Mediation Bill as passed by both Houses in August 2023 and currently awaiting Presidential assent, seeks to codify, institutionalise and promote the process of mediation, by establishing the Mediation Council of India, recognising mediation service providers, and providing for the registration of mediators. It also provides for online and community mediation.

Essentially, it makes pre-litigation mediation voluntary in nature, allowing parties to choose whether or not to participate in the process.

Originally, the Bill had made pre-litigation mediation compulsory, but the Standing Committee on Personnel, Public Grievances, Law and Justice proposed to make pre-litigation mediation voluntary and not mandatory.

Now, a provision acknowledges the autonomy of the involved parties and allows them to opt-out of mediation after undergoing two sessions if they desire. Mediation can be coaxed but not forced.

Further, the Bill provides for creation of a ‘Mediation Service Provider’ or MSP, to conduct mediation procedures, accreditation, maintenance of panels and all operations ancillary thereof. The MSP shall be graded by the Mediation Council of India.

The Bill provides an indicative list of subject matters not fit for mediation, including disputes involving allegations of fraud, forgery, claims involving minors, persons suffering from intellectual disabilities and mental illness, disputes affecting the rights of third party which is not part of the mediation proceeding, tax disputes and disputes under the Competition Act.

Although, an indicative list goes a long way in reducing doubt, broadly worded subject matters such as “settlement of matters which are prohibited being in conflict with public policy or is opposed to basic notions of morality or justice or under any law for the time being in force” would possibly warrant liberal interpretation, which may prove to be a bone of contention between parties.

The Bill expands mediation to include family disputes, community conflicts and other unconventional domains in addition to civil and commercial disputes. Moreover, the Mediation Bill will have an overriding effect for conducting mediation over other laws, except for legislations specified under the second schedule and to proceedings conducted by the Lok Adalat. The second schedule includes the industrial disputes, industrial relations code, sexual harassment of women at workplace act, family courts act, finance act etc.

The Bill also provides for parties to seek interim relief before the commencement or during the mediation proceedings, by approaching the appropriate court/tribunal, in “exceptional circumstances.”

It is probable that the threshold for the grant of interim relief would be similar as under Section 9 of the Arbitration and Conciliation Act of 1996. However, the Bill is silent on the meaning of “exceptional circumstances”, leaving it up to judicial interpretation to fill in this lacuna.

Further, the Bill initially envisaged that the mediation process must be completed within 180 days, which may be extended by another 180 days by the parties. However, it appears that adhering to the suggestions of the Report of the Standing Committee, this was reduced to an initial period of 120 days, which could be extended by 60 days. Even if the parties fail to reach a settlement through pre-litigation mediation, the court or tribunal may at any stage refer the parties to mediation if they request the same.

Enforcing Settlements

The Bill seeks to enforce mediated settlement agreements (MSA) as per the provisions of Civil Procedure Code, as if it were a judgement or decree passed by the court. With this development, parties to the dispute will have quicker access to resolution in addition to reduced burden on the courts. This provision follows India’s ratification of the Singapore Chapter of UN convention on International Settlement Agreements Resulting from Mediation in 2019.

The mediation settlement agreements may be challenged within the period of 90 days from the date of receipt of the copy. The challenge can be made on the narrowed scope under grounds of fraud, corruption, impersonation or subject matters falling within the first schedule. Furthermore, the Bill ensures that any information disclosed during mediation shall not be used in subsequent proceedings except if required to prove domestic violence, child abuse, coercion etc.

Nonetheless, it lacks sanctions and penalties in the event of breach which renders the provision essentially moot.

The Bill has followed the suit of codifying the mediation provisions in International Centre for Settlement of Investment Disputes (2018), Uniform Mediation Act of USA, Model Law on International Commercial Conciliation (2002), among others. The code emerges as a beacon of hope in addressing the issues of binding confidentiality, party empowerment, procedural clarity, bias and neutrality.

However, the loopholes require immediate attention so as to instill confidence in the process.

Anuradha Dutt is the Managing Partner of DMD Advocates and Haaris Fazili is an Associate Partner at the firm. Trisha Shreyasi is an advocate and columnist.”

Competition Commission of India (CCI) has recently got its fifth Chairperson, after a hiatus of around seven months. CCI had a rather dry spell after its last Chair had retired in October 2022 until the government invoked the doctrine of necessity to allow CCI to clear certain high-value M&As which were stuck due to lack of quorum. On 23 May 2023, CCI went back to being fully functional and a spurt of enforcement orders is now imminent. The government has also enforced certain provisions of the Competition Amendment Act, 2023 (Amendment Act), including enhanced penalty for misrepresentation in merger control cases and a 25% penalty pre-deposit to appeal a CCI order. More crucial provisions such as deal-value based merger threshold, penalties based on total global turnover, and settlement of CCI cases need to wait a bit longer until CCI finalizes ancillary regulations necessary to implement them.

To put to rest discussions around the possibility of any criminal connotation associated with certain competition law violations due to the usage of words ‘offence’ and ‘punishable with fine’, the Amendment Act has replaced them with ‘contravention’ and ‘liable to a penalty’, respectively. The only criminal provision under the amended law is for non-compliance of certain orders which provides CCI the power to approach the courts and initiate criminal proceedings which may result in imprisonment or fine or both (Section 42(3)). Since CCI does not otherwise have any power to initiate contempt proceedings, the rationale behind this criminal provision is to deter repeated attempts at flouting CCI orders. Although CCI also has the power to impose penalties for non-compliance under Section 42(2), this power was not available for non-compliance of all orders prior to the amendments. So, CCI had to resort to criminal proceedings to ensure compliance of its orders. Although it is not necessary for the CCI to first exhaust its power to impose penalties for non-compliance before initiating criminal proceedings, this might become a norm post the amendments.

The 2023 amendments have also introduced a new provision which allows compounding of ‘offences’ not ‘punishable’ with mandatory imprisonment (Section 59A). Compounding, simply put, means agreeing not to prosecute an offender in lieu of some monetary consideration. Since the concept of ‘punishment’ now exists only in Section 42(3) cases, the concept of compounding is also limited to these cases. However, due to the broad wordings used in Section 59A, some experts have indicated that compounding may also be available to competition law violations resulting in civil penalties. This could have been possible prior to the amendments when the use of words ‘offences’ and ‘fines’ was not restricted only to Section 42(3). Despite the ongoing murmurs, I do not see the possibility of a compounding window opening for competition law violations, which may ultimately lead to bypassing the CCI process and penalties. Since the amendments have introduced a separate provision for the settlement of CCI cases, there is no basis to speculate that the compounding provision could have been intended to act as an additional settlement/ leniency option.

Another contention has been that compounding is not for offences punishable with both, imprisonment ‘and’ fine. Given that Section 42(3) allows for punishment which can only be monetary fine, there is no reason to keep it out of the scope of compounding. The Companies Act also contemplates a similar situation where compounding is allowed for offences punishable with ‘imprisonment or fine or both’, but not with both ‘imprisonment and fine’. It is also important to note that CCI’s power to recover penalties imposed for violating competition rules is in addition to its power to initiate criminal proceedings for non-compliance. So, one cannot take the plea of double jeopardy to avoid either the penalty for contravention or the punishment for non-compliance. This position has already been settled by courts.

Given a great deal of pendency in courts, compounding is generally considered to be a more efficient option. The Supreme Court in a matter relating to compounding under a different statute observed that the interest of justice will be better served if parties resorted to compounding at an early stage instead of engaging in protracted litigation thereby causing undue delay and strain on judiciary. It also issued guidelines to impose additional costs if compounding was not exercised within the first two hearings. The more the delay, higher the costs. Such learnings from the experience from other statues could form the basis of some guidance which may be published to ensure that the new provision on compounding is not abused. Such guidance may also cover certain important issues such as, calculation of compounding amount and availability of the compounding option to repeat offenders. For example, under the Companies Act, compounding is not allowed if an offender has compounded a similar offence in the previous three years. It is also interesting to note that the use of the word ‘may’ in the new provision clarifies that compounding cannot be claimed as a matter of right by an offender. This is because the objective behind allowing compounding is not to defeat the purpose or efficacy of Section 42(3). Courts must consider CCI’s objections (if any) before allowing compounding and ensure that the provision is not misused as a delay tactic or to circumvent the punishment.

The article has been authored by our Competition Partner, Vivek Agarwal, associate Divyansh Prasad, and associate Rohan Zaveri.

Based on recommendations made by a parliamentary panel in December 2022, the government has tweaked its proposed amendments to India’s competition law and is set to introduce the Competition Amendment Bill (2023 Bill) in Parliament. The most significant change in the 2023 Bill is that the Competition Commission of India (CCI) can now impose penalties up to 10% of the total global turnover of enterprises found to have contravened the competition law. Currently, penalties are generally calculated as a percentage of only ‘relevant turnover’ in India, which excludes sales from products which have no relation to the contravention. The current law uses the word ‘turnover’ in the penalty provision and does not specify if it is ‘total’ or ‘relevant’. In 2017, the Supreme Court clarified that turnover for imposing penalty should mean ‘relevant turnover’. It held that when the contravention “involves one product, there seems to be no justification for including other products” for imposing a penalty. Some argued that this significantly watered down the deterrent effect which the law and its draftsmen sought to achieve.

Interestingly, the government has also retained a provision that required the CCI to come out with regulations to ‘determine’ the turnover to be considered for penalties. Effectively, there may still be some elbowroom for the CCI to alleviate industry’s concerns around steep penalties through its regulations, even if the statutory limit on the maximum penalty will now be based on the total global turnover. In practice, the CCI seldom imposes the highest possible penalty on large companies and would, no doubt, continue to be mindful of the principle of proportionality whilst calculating penalties. But this development would exacerbate the need for much-awaited guidelines on determining an ‘appropriate penalty’ for a contravention, which the CCI is now required to publish under the proposed amendments.

There was no recommendation made by the panel to introduce this change, but it may have been triggered by the CCI’s recent experience in cases involving a big-tech company where the CCI had concerns about the company’s computation of its relevant turnover. Even if the objective may be to deter companies from breaching competition rules, this change may have far-reaching consequences, especially for multi-product conglomerates and big-tech companies with global operations (like Amazon), which may be under investigation for the conduct of one of their divisions and may be exposed to massive penalties based on their total global turnover.

Another interesting change in the 2023 Bill is the expansion of the scope of liability of cartel facilitators. The amendments proposed to codify the liability of cartel facilitators which ‘actively participate’ in the furtherance of a cartel. Later, the panel recommended that the scope of this proposal must be limited by an explicit obligation that the CCI must first prove that a facilitator “intended to actively participate” in a cartel. Surprisingly, the 2023 Bill has instead expanded its scope by removing the word ‘active’. Additionally, this presumption can now be raised against entities which may not have in fact participated but may have only ‘intended’ to participate in a cartel. There is no guidance on how the intention to participate would be established, especially when there is no actual participation. Such a broad provision raises over-enforcement risks and may expose certain entities (including digital intermediaries and national industry bodies organizing meetings without any agenda to share sensitive information) to the undue hardship of having to rebut such a presumption during a probe (as this issue is unlikely to come up before the CCI at the preliminary pre-investigation stage). It may, therefore, be prudent to limit this provision to cover only genuine cartel facilitators.

A recommendation of the panel that has not made it to the 2023 Bill is the inclusion of cartels in the proposed settlement regime. An objection to settling cartel cases was that there already exists a leniency regime for them. However, leniency and settlement regimes are designed to secure efficiencies at different stages of a CCI inquiry, and they co-exist in other countries. While leniency is primarily aimed at freeing resources of the investigative arm of the CCI (DG), settlements ensure efficiency once the investigation is complete and there is evidence of contravention against parties.

Even if the intention was not to offer two discounts to cartelists (one for leniency and another for settling), a provision for settlements could be made only for non-leniency cases where parties decide to defend themselves. Certain companies may not initially opt for leniency, as they may either not be aware of the evidence that exists against them or decide to take a chance hoping that all of it may not get unearthed. However, once evidence comes on record through an investigation report, companies may be given an option to reconsider their initial decision and settle the case with the CCI by agreeing to pay a discounted penalty and committing themselves to future compliance. This would be a win-win both for the company and the CCI, as extensive resources on both sides would be saved. This would also bring finality to CCI decisions as settlement orders would not be open to appeal. The exclusion of cartel settlements seems like a missed opportunity to free some of the Commission’s vital resources and improve its penalty recovery rate.

Divyansh Prasad contributed to this article and these are the author’s personal views.

Vivek Agarwal is partner, DMD Advocates and co-chair, competition committee, PHD Chamber of Commerce & Industry

There were many interesting developments in the antitrust space last year, including two reports by a parliamentary panel—one on proposed amendments to the Indian competition law, and the other on a new Digital Competition Act (DCA) to regulate anti-competitive practices of digital gatekeepers. Based on a statement made by the chairman of the panel in his first public interview of 2023, the government is working towards getting parliamentary approvals for the proposed amendments and the DCA this year itself. Another highlight of 2022 was a surge in Competition Commission of India (CCI) pursuits in the digital sector, which included ordering various detailed investigations and imposing hefty fines on Google, MakeMyTrip (MMT) and Oyo for not complying with Indian competition rules.

A recent CCI order worth a mention is the one against MMT and Oyo which dealt with allegations that MMT imposed price-parity and room-parity obligations on its hotel partners. In other words, hotel partners were not allowed by MMT to offer rooms on their own website or any other online travel agent at better terms than offered on the MMT platform. Such clauses, through which a platform coerces a seller not to offer its products or services at better terms on competing platforms or on its own website, are known as parity or ‘most-favoured nation’ (MFN) clauses. Although the focus of competition authorities has been price MFN clauses at the retail level (as these directly impact the final retail price), such clauses can also be for non-price terms and even at a wholesale level. Non-price terms may include access to the entire inventory of a seller, additional services, free upgrades and other promotions.

Retail MFN clauses are broadly of two types: (i) Wide MFN clauses, restricting better terms on the seller’s own website and any other sales platform; and (ii) Narrow MFN clauses, restricting better terms only on the seller’s own website. Views on the anti-competitive effects of wide MFN clauses seem to be more or less consistent across the world. Such clauses are likely to soften price competition among platforms, leading to higher prices for consumers, increase entry barriers by disabling new entrants from competing on prices, and facilitate collusion among platforms by increasing price transparency.

On the other hand, narrow MFN clauses are generally prohibited if their anti-competitive effects outweigh their efficiencies. The latter includes ease of ‘search and compare’, lower prices for consumers and protection of a platform’s investment (against the free-rider problem). Several European countries like France, Austria and Italy now have specific legal provisions to generally prohibit MFN clauses in the online hotel booking space. However, some of them have acknowledged the efficiencies associated with narrow MFN deals. The test involves weighing the extent of restrictions against the efficiencies arising from them. In doing so, the scope of such restrictions must be limited to what is indispensable to achieving the desired efficiency.

As far as digital gatekeepers go, the trend is to prohibit them from imposing both wide and narrow MFN clauses. After Europe’s Digital Markets Act, the Indian parliamentary panel has also recommended this prohibition in the proposed DCA. Based on the market power of gatekeepers, the anti-competitive effects of MFN restrictions imposed by them are likely to outweigh any efficiencies.

Although the term “MFN” found a passing reference in the CCI’s Snapdeal/Kaff order of 2019, the MMT-Oyo case is the first instance when the CCI has provided concrete guidance on the anti-competitive effects of a systematic MFN system. The CCI examined the “combined effect” of retail MFN clauses with MMT’s deep discounting strategies. MMT not only ensured the lowest room rates and best conditions (e.g., free breakfast and gym access) from hotels, but also offered additional discounts. This effectively reduced the net final price to the end-customer below the best available room rate. This practice led to the creation of an ecosystem where MMT could cater to a majority of online hotel bookings due to its low prices, accumulate massive commissions from hotels, and use them to fund higher discounts. The CCI observed that such an arrangement would reduce any incentive for other online travel agents to compete on commissions and would eventually lead to higher prices for consumers. Although the CCI has made its position clear on wide MFN arrangements through its MMT order, it has not conclusively opined on narrow price parity. It has only indicated that narrow clauses may be justifiable on grounds of deterring free riding. It may not be possible to draw general conclusions on narrow MFN clauses as compared to wide ones, as their effects could vary with the characteristics of different markets. However, efficiencies arising from narrow clauses must not be overlooked and must be weighed against their ill-effects.

MFN clauses are likely to stay on the CCI’s radar, especially those imposed by dominant players. Whilst the MMT order discussed concerns around those imposed by a dominant platform, similar concerns exist even for non-dominant yet popular platforms. Zomato and Swiggy are already being investigated by the CCI for imposing such clauses on restaurants. It may thus be prudent for popular platforms to keep themselves up to date on this issue and self-assess risks of their MFN deals. Prevention would be better than a cure.

Divyansh Prasad, associate, DMD Advocates, contributed to this article. These are the author’s personal views.

Vivek Agarwal is partner, DMD Advocates and co-chair, competition committee, PHD Chamber of Commerce & Industry

Hard on the heels of its recommendations on the Competition (Amendment) Bill, 2022, India’s Standing Committee on Finance tabled its report on “anti-competitive practices by big tech companies” in the Lok Sabha on 22 December 2022. To address the unique needs of digital markets, the committee has recommended the introduction of a ‘Digital Competition Act’ (DCA), which would ensure a fair, transparent and contestable digital ecosystem in India. The committee has also recommended the establishment of a dedicated ‘Digital Markets Unit’ at the Competition Commission of India (CCI), staffed with skilled experts to handle issues and cases related to digital markets.

Based on the committee’s proceedings, it appears that a consensus has finally emerged on the need for ex-ante regulations for tech giants. The CCI’s earlier stance was that existing competition rules are ‘flexible’ and ‘robust’ enough to ensure fair competition in the digital space. However, the CCI has now itself submitted to the committee that it “strongly feels that ex-ante provisions are required.” This view seems to have developed based on various learnings and challenges during multiple competition inquiries into the digital markets in the recent past.

The absence of an ex-ante regime may lead to the creation of gatekeepers and could result in a ‘winner takes all’ problem. To avoid this, the committee has recommended that a small number of leading tech players which can negatively influence competition must be identified as ‘Systematically Important Digital Intermediaries’ (SIDIs), based on their revenue, market capitalization and number of active users. Stakeholders must collaborate to arrive at a reasonable definition of a SIDI. Certain mandatory behavioural obligations should be imposed on SIDIs and they must be required to submit an annual compliance report to the CCI and publish a copy on their websites. A key challenge nevertheless would be to monitor compliance by SIDIs, as these reports would be prepared by them internally.

Another key recommendation of the committee is that any merger or acquisition (M&A) involving a SIDI, where the target provides services in the digital sector or enables data collection, must be notified to the CCI, even if it does not otherwise trigger a CCI filing. Although ‘killer acquisitions’ have been identified as a concern, deliberations with stakeholders seem limited to the introduction of a deal-value based threshold, in addition to existing turnover/ asset based thresholds. There seems to be no discussion during the committee’s meetings to introduce a requirement to pre-notify every deal led by a SIDI in the digital economy. Although there is no specific recommendation to suspend the consummation of such deals until CCI approval, it is surprising that there is no minimum threshold or local nexus requirement to keep no-issue deals out and avoid an unnecessary burden on the CCI.

Based on its deliberations, the committee has identified ten key competition issues in digital markets in India. To address these, the committee has recommended that a SIDI should: (i) not make platform access conditional on acceptance of ‘anti-steering’ conditions; (ii) not indulge in self-preferencing, including search biases or a pre-installation requirement of its own apps (i.e., must maintain platform neutrality); (iii) not make access to platform’s core service conditional on subscribing to any other service (i.e., bundling); (iv) neither commercialize user data of third parties using the platform nor use it to compete with its business users; (v) not curtail the freedom of businesses to list their products or services on various platforms/ websites at any price or terms; (vi) not indulge in self-preferencing in search rankings (i.e., a search bias) and must offer fair and non-discriminatory terms to ensure organic search results; (vii) allow use of third-party apps and prompt users to positively choose their default apps so that such apps can fairly compete with the SIDI’s own apps; and (viii) offer transparency on advertising revenues. Considering the submissions of news publishers on bargaining power imbalances and global developments on this issue, especially in Australia, the panel also recommended that a SIDI must ensure fair advertisement revenue-sharing arrangements with news publishers.

The committee has also emphasized the need to globally harmonize regulations governing digital markets to reduce the overall regulatory burden. This indicates that the DCA may be developed along the lines of Europe’s Digital Markets Act. Whilst doing so, we must be guided by learnings from other countries which may be marginally ahead of us in implementing similar rules. At the same time, we must be mindful of our local market conditions and tailor the DCA to our specific requirements, aligning it with other digital policies and laws which are already in the pipeline.

A consistent theme in the parliamentary panel’s report is the exceptional growth of the digital economy in India and its bright forecasts (not to mention its contribution to keep the Indian economy on its feet during the pandemic).

Given that digital markets are now beginning to manifest initial signs of maturity, some level of state intervention may be reasonable to ensure fair competition and the successful co-existence of mavericks and smaller players.

As a closing remark, I must mention that one must not lose sight of the fine balance which must be struck between the need to regulate and the freedom to innovate. Whilst arriving at such a balance, we must also focus on developing the concept of ‘voluntary and informed consent’ and make it compatible with the use of big data, which is currently considered to be a ‘destroyer’ of informed consent.

Divyansh Prasad, associate, DMD Advocates, contributed to this article. These are the author’s personal views.

Vivek Agarwal is partner, DMD Advocates and co-chair, competition committee, PHD Chamber of Commerce & Industry

The Standing Committee on Finance recently tabled its report on the Competition (Amendment) Bill, 2022, in the Lok Sabha. The committee was directed to review the bill and submit its report within a short period of three months. It invited suggestions from various stakeholders—including industry bodies, lawyers and economists—on the bill and discussed them with the Competition Commission of India (CCI) as well as various government ministries. Based on these deliberations, the committee identified nine key areas and has offered recommendations on eight of them. The bill, along with these recommendations, is likely to come up for discussion before lawmakers in Parliament during the Budget Session.

Deal value threshold for CCI filings: One of the bill’s key proposals was the introduction of a deal value-based threshold. Currently, a deal triggers the CCI filing requirement when certain thresholds based on parties’ turnover/assets are met. In addition to the parties’ test, the bill proposed a mandatory CCI filing requirement for all deals valued above ₹2,000 crore, provided any party to such a deal has substantial business operations in India (a ‘local nexus’ requirement, that is).

However, there was no clarity on how the deal value would be calculated (especially in part/no cash deals) and what nature and quantum of a local nexus could trigger a filing. Many found this threshold too low and apprehended that it would catch deals unlikely to raise any competition issue. Although the committee made no recommendation to raise this threshold, it suggested that the local nexus requirement should apply to a target and not to an acquirer. However, as of now, the manner of calculation of a deal’s value and guidance on the nature/quantum of the local nexus has been left to the CCI to decide through its regulations.

The Standing Committee on Finance has also approved the standard required for establishment of “control” over a target to be the ability to exercise “material influence”. However, for more certainty, it has recommended that the CCI must specify what would constitute “material influence” through its regulations. This could include guidance on the level of shareholding, special rights, board representation, structural/financial linkages and other arrangements required to breach the material-influence threshold.

On the CCI approval timelines, the standing committee rejected the proposal to make them more aggressive, and suggested sticking with the current timelines, which are more realistic.

Settlement of cartel cases: To ensure faster market corrections and to save resources, the bill had proposed a mechanism to settle certain ongoing CCI cases. The committee has now proposed to expand the scope of the settlement mechanism to include cartels. The bill had excluded cartels because these are considered the most pernicious violation of competition law and there already exists a leniency regime for whistle-blowers who are willing to cooperate with the CCI. Any additional settlement procedure could send out a wrong signal, especially to serial cartellists.

While the committee suggested that admission of guilt may not be mandatory for settlements, it allowed the provision of compensation for consumers affected by a cartel. Interestingly, under the current regime, compensation provisions kick in only when the CCI finds an entity guilty. The committee also made it clear that parties would have the option to withdraw from the procedure if there is no agreement with the CCI on settlement terms, and in case of non-agreement, parties may even appeal the CCI order. A key driver of settlements is reduced litigation and settling parties will therefore not be allowed to appeal the settlement order (as the terms would already be agreed with the CCI).

The standing committee on finance also made certain recommendations on: (i) limiting the scope of hub-and-spoke cartels to exclude those who did not intend to actively participate in the furtherance of a cartel, such as online platforms acting only as intermediaries or entities merely facilitating the organization of meetings; (ii) not raiding or recording statements under oath made by external legal counsels or independent advocates, which would compromise the principle of attorney-client privilege; (iii) using the rule-of-reason (instead of ‘per se’) approach to assess an abuse of a dominant position; and (iv) allowing a dominant company to impose reasonable conditions necessary to protect its intellectual property rights. On the issue of a judicial member being a necessity at the CCI, the committee did not make any comment, as the matter is currently pending before the Supreme Court.

I believe that the proposed amendments are still up for more fine-tuning before they become law. Although the standing committee’s recommendations are in the right direction and do iron out some kinks, a lot still depends on CCI regulations, which are expected to flesh out the details. No doubt, its endeavour would be to avoid a devil in the details.

Divyansh Prasad, an associate at DMD Advocates, contributed to this article. These are the author’s personal views.

Vivek Agarwal is partner, DMD Advocates and co-chair, Competition Committee, PHDCCI.

The Supreme Court on 25 August 2022 issued notice on a review petition, Karti P Chidambaram v. Directorate of Enforcement R.P. (Crl.) No. 219/2022, seeking review of the judgment passed just about a month earlier in Vijay Madanlal Choudhary v. Union of India SLP (Crl.) No. 4634 of 2014, which attempted to lay to rest various controversies arising under the Prevention of Money Laundering Act, 2002 (PMLA). The Supreme Court observed that at least of the two issues in the review petition required consideration. First, not providing the accused with a copy of the Enforcement Case Information Report or ECIR; and second, the reversal of the burden of proof and the presumption of innocence.

This is a positive development, as the judgment in Vijay Madanlal Choudhary confirmed the Directorate of Enforcement’s uncanalised discretion to initiate prosecutions under the PMLA even where there is neither act nor intention to project tainted funds as untainted; and blessed the Directorate of Enforcement’s policy of refusing to provide the ECIR to the accused, thus hamstringing the accused’s ability to challenge the initiation of proceedings under the PMLA.

The reference to “at least two of the issues” is also important – as even though the Directorate of Enforcement on 26 August 2022 filed an affidavit seeking to limit the notice issued to only two issues – a review of these issues alone will no doubt have knock-on effects on various other findings in the judgment.

Providing the accused with a copy of the ECIR:

The first of the two issues discussed in court on 25 August 2022 is the providing the accused with a copy of the ECIR. The primary justifications in Vijay Madanlal Choudhary for treating the ECIR as an ‘internal document’ of the Directorate of Enforcement and distinct from a First Information Report (FIR) registered by vanilla investigative agencies such as the State Police or the Central Bureau of Investigation, are:

-That the manner of conducting an investigation by the Directorate of Enforcement cannot be governed by analogies drawn from the Code of Criminal Procedure, 1973.

-That the Directorate of Enforcement is a special investigative body governed by a special mechanism, and its officers are not police officers within the meaning of the Code of Criminal Procedure, 1973.

-That though the ECIR represents the starting point of initiating penal action or prosecution by the Directorate of Enforcement, and is, for all intents and purposes, analogous to an FIR, there is neither statutory mandate nor requirement to ‘formally register’ an ECIR.

While the Court in Vijay Madanlal Choudhary was undoubtedly correct in stating that the ECIR is not mandated by statute, the ECIR remains the only document and piece of evidence which can possibly contain an articulation of the jurisdictional facts necessary for the exercise of powers under the PMLA. To initiate an investigation under the PMLA without any record of jurisdictional facts would likely amount to an impermissible roving and fishing inquiry.

There is a growing and pernicious tendency among statutory and executive authorities to withhold documents by classifying them as ‘internal’ or ‘secret’ – especially when these documents are the basis for curtailing fundamental rights. Whether the document withheld is an ECIR, ‘secret’ information/reports/file-notings or Look Out Circulars (which prevent people from leaving India), the motive behind the concealment is clear – to arrogate to these authorities the ability to curtail fundamental rights, while side-stepping judicial review. This practice of government agencies indirectly curtailing the plenary jurisdiction of the High Courts under Section 482 of the Code of Criminal Procedure, 1973, and under Articles 226 and 227 of the Constitution of India, must be stopped.

For any accused to validly challenge the initiation of an investigation under the PMLA, and to question the existence of jurisdictional fact(s), it is imperative for both the accused and the court hearing the challenge to know the basis for initiation of action under the PMLA. The Court’s analysis in Vijay Madanlal Choudhary that Section 19(1) of the PMLA is a sufficient safeguard, since the accused will be sufficiently informed of the grounds of arrest, misses the point. The very initiation of action under the PMLA ought to be amenable to meaningful judicial review to test whether the State – acting through the Directorate of Enforcement – is violating fundamental rights without the authority of law.

Put simply – regardless of whether the ECIR is a statutory mandate – in the case of an FIR, the accused has the right to seek redress from court for violation of procedural guarantees and fundamental rights from the very beginning, i.e., at the registration of the FIR – though this power is exercised sparingly by the High Courts under Section 482 of the Code of Criminal Procedure, 1973. An accused in an FIR can thus move court against the initiation of an investigation by the police on several grounds, e.g. that they are not named in the FIR, that the FIR points to the guilt of someone else, that the allegations in the FIR are manifestly attended by mala fides or that even assuming the accusations in the FIR to be true, they are on the face of it absurd, inherently improbable, do not disclose the commission of the offence alleged, etc. (in terms of State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335). By withholding the ECIR on the ground that it is an ‘internal document’ unlike an FIR, the Directorate of Enforcement seeks to sidestep not only judicial scrutiny, but to also sidestep a rich body of jurisprudence on quashing FIRs. There is no justification for denying meaningful access to the High Courts to an accused in an ECIR, however sparingly the power to quash the FIR/ECIR may be exercised.

Knock-on effects of furnishing the ECIR:

A review on the issue of not providing the ECIR to the accused can be justified on any number of grounds, however the effect of review would result in the Directorate of Enforcement being a little less ‘special’ and inching their position closer to that of the ‘regular police officer’ referred to throughout the judgment under review. Though the Court in Vijay Madanal Choudhary spent significant time distinguishing why Tofan Singh v. State of Tamil Nadu (2021) 4 SCC 1, where Customs Officers acting under the NDPS Act were treated as police officers, would not apply, there is good reason (strategically) why the Additional Solicitor General argued that Tofan Singh was per incuriam. Even if the safeguards available under the Code of Criminal Procedure are not available in ‘pen and ink’, the more the officer of the Directorate of Enforcement resembles a ‘regular police officer’, the more reason there is for accused in a PMLA case to have access to the same, or at least similar, safeguards. The corollary to such a review would be that the issue of analogies to the Code of Criminal Procedure, 1973 require a re-look. This would include the admissibility of incriminating statements under Section 50 of the PMLA, since being named in the ECIR (and having access to it), like being named in the FIR, may be sufficient to claim that the person summoned is an accused, and may invoke the right against self-incrimination.

While the Court spent much time extolling the virtues of the safeguards baked into Sections 17-19 of the PMLA, a requirement to furnish the ECIR would likely also demand a re-look at the manner in which the powers of arrest, search, and seizure, are exercised by the Directorate of Enforcement, since similar safeguards are admittedly insufficient when it comes to the ‘regular police officer’. Even if Sections 17-19 are not reviewed per se, furnishing the ECIR itself would add an additional layer of safeguards – by acting as a condition precedent to the exercise of coercive powers, by fleshing out details of the accusation beyond merely informing an arrested accused that they are suspected of committing an offence under Section 3 of the PMLA, and perhaps most importantly, by providing a meaningful opportunity to challenge coercive actions taken by the Directorate of Enforcement.

Reversal of burden of proof and the presumption of innocence:

The findings in Vijay Madanlal Choudhary on the reversal of burden of proof and the presumption of innocence are based on the ‘seriousness’ of the offence, drawing support from other statutes defining ‘serious offences’ – such as, the Terrorist and Disruptive Activities (Prevention) Act, 1987, the Maharashtra Control of Organised Crime Act, 1999 and the Narcotic Drugs and Psychotropic Substances Act, 1985 – coupled with the compelling state interest in tackling these ‘serious offences’.

It can easily be argued that the so-called ‘seriousness’ of an offence is irrelevant to the burden of proof – which should always be on the prosecution. However, within the framework of the judgment under review, a review of issue of the reversal of burden of proof and the presumption of innocence would in effect be a review of the ‘seriousness’ of the offence of money laundering, and the compelling state interest in tackling the offence.

Knock-on effects of reversing the reversal of burden of proof:

A reversal or dilution of this finding in Vijay Madanlal Choudhary would, within the bounds of the logic of the judgment under review, mean that the offence of money laundering is less ‘serious’ than offences under, say, TADA or the UAPA. Since Vijay Madanlal Choudhary holds that ensuring the ‘effectiveness’ of the PMLA in terms of Parliament’s intent requires that, “and” in Section 3 of the PMLA must be read as “or” to cast the net of the offence as wide as possible, such a reversal or dilution of the ‘seriousness’ of the offence of money laundering would pave the way to review the Court’s interpretation of Parliament’s intent.

The effect of reading “and” as “or” in Section 3 is that the commission of any scheduled offence which results in mere acquisition or possession of proceeds of crime (which include any economic offence, barring a failed attempt) dehors any act or intent to ultimately project the proceeds as untainted immediately results in the commission of the offence of money laundering – without any separate/unique act or intent.

Thus, if the offence of money laundering is found not to merit a reversal of the burden of proof on review and is, therefore, less ‘serious’, this will have a bearing on whether the Court in Vijay Madanlal Choudhary correctly interpreted how wide a net Parliament intended to cast in Section 3 of the PMLA – and whether Parliament genuinely intended that a person who robs a bank be treated at par with a person who robs a bank and uses the funds to finance a Bollywood film – projecting tainted money as untainted.

Consequences of the judgment and the pending review:

Vijay Madanlal Choudhary has done little to change the approach of trial courts and the Directorate of Enforcement in the prosecution of PMLA offences, except for permitting grant of bail to persons who have undergone half the maximum punishment as under-trials, and the abatement of PMLA proceedings where the prosecution of the scheduled offence abates by reason of closure, discharge, acquittal, or quashing.

The Directorate of Enforcement will continue to take its hardline stance that the ECIR is an internal document which need not be shared with the accused, and the High Courts and trial courts will continue to enforce the twin conditions for bail under PMLA, including the reversal of the burden of proof.

The order issuing notice on review, unfortunately, does even less – it is unlikely that the contingent review will translate into litigants securing relief based on a two-line non-speaking order – though litigants will at least try to take advantage of the pending review to avoid adverse orders of a final nature.

The shift in perspective between the Supreme Court bench which decided Vijay Madanlal Choudhary and the bench issuing notice on review seems to have been brought on by a difference of just one member. Since neither of the presiding judges are on the Supreme Court’s current roster, the outcome of the review petition will depend greatly on the third judge before whom the review is ultimately decided.

The difference of one member is far from trivial. As Justice Krishna Iyer’s introductory paragraphs in LIC v. DJ Bahadur (1981) 1 SCC 315 (where he sat as one of three judges) remind us:

“The judicature, like other constitutional instrumentalities, has a culture of national accountability… A court is more than a Judge; a collegium has a personality which exceeds its members. The price a collective process, free from personality cult, has to pay is long patience, free exchange and final decision in conformity with the democracy of judicial functionality. Sometimes, when divergent strands of thought haunt the mentations of the members, we pause, ponder and reconsider because we follow the words of Oliver Cromwell commended for courts by Judge Learned Hand: ‘My brethren, I beseech you, in the bowels of Christ, think it possible that you may be mistaken.’”

A bench is more than the sum of its parts. One can only hope that the learned judges who ultimately decide the review petition, two of whom have already acknowledged that “at least two of the issues” merit review, remain open to the possibility of reviewing more issues than two.

The Competition Commission of India has unconditionally cleared PayU Payments’ acquisition of BillDesk, marking the first time the authority has cleared a deal without extracting any remedies after raising preliminary competition concerns in a show cause notice.

The CCI revealed yesterday that it has cleared PayU’s €4.7 billion acquisition of IndiaIdeas.com, which trades as BillDesk. The merger will create the largest digital payments company in India and one of the 10 largest online payments providers globally. The companies announced the tie-up in August 2021 but filed with the CCI in April.

The CCI raised prima facie competition concerns in a show cause notice in July, warning that the deal would create a company with a market share above 40% in the digital payments sector. The authority sought an explanation as to why it should not launch a detailed Phase II investigation.

But PayU, advised by Nisha Uberoi at Trilegal, subsequently convinced the CCI to approve the deal without any remedies – the first time the authority has done so following a show cause notice.

The CCI has issued over a dozen of these show cause notices during past deal reviews, eventually demanding commitments to resolve its concerns in Phase I or Phase II.

In this case, the authority reportedly met with several rivals and other market participants that expressed concerns about the post-deal market share of the merged company.

PayU and BillDesk submitted in their filing that the deal does not give rise to competition concerns but said the relevant Indian markets are retail digital people-to-merchant payments; online people-to-merchant payments; and risk management for digital payments.

The companies argued that those markets are dynamic and highly competitive – with segments consisting of more than 100 rivals providing similar or substitutable products and services. There are also low switching costs for merchants in those markets, while the various products and services on offer are open and interoperable, the companies said. Finally, pricing, entry and participation in the relevant markets are regulated by the Reserve Bank of India and the Indian government, they argued.

BillDesk is a popular payment gateway in India while PayU parent Naspers has strengthened its position in the digital payments sector “by growing inorganically”, said Vivek Agarwal, a partner at DMD Advocates in New Delhi.

Given that the merger will consolidate the companies’ already leading positions, it was likely to receive detailed scrutiny, Agarwal said.

“However, the CCI’s view has been clear that it does not want to over-regulate digital markets to impede innovation and consumer welfare,” he said.

The authority has been conducting a detailed analysis of mergers in the digital economy based on traditional rules to ensure there are no immediate concerns, Agarwal said.

Given the dynamic nature of these markets, it may be difficult for the CCI to unwind any harm to competition through ex-post enforcement, he said. The authority sometimes asks for undertakings – which are different from remedies – to alleviate any non-price concerns, Agarwal added.

Those undertakings typically look to make sure that companies stick to statements made in their 􀀁lings following approval, especially in areas where there may be competition concerns – such as how the data of the parties would be consolidated and used post-merger, he added.

PayU did not respond to a request for comment.

Counsel to PayU Payments and parent company Prosus
Trilegal
Partners Nisha Uberoi in Mumbai and Gautam Chawla in New Delhi, assisted by Harshita Parmar, Mathew George, Rahat Dhawan, Shivangi Chawla, Aditi Khemani Samriddha Gooptu, Pramothesh Mukherjee, Ishan Arora, Rishi Kauntia, Madhav Kapoor, Akanksha Mathur and Varunavi Bangia

EconOne

Counsel to IndiaIdeas.com (BillDesk)
Shardul Amarchand Mangaldas & Co
Partner Aparna Mehra in New Delhi, assisted by Rahul Shukla and Kshitij Sharma

Counsel to the selling shareholders
AZB & Partners
Partner Bharat Budholia in Mumbai