India: CCI's Warning Bell For Green Channel Route Seekers

Introduction

In a recent development, the Competition Commission of India (CCI, or, the Commission) has sent out a stern warning to the parties opting for green channel route. This development comes as a timely response to the rising concerns surrounding fair competition and market integrity within the landscape of Indian businesses.

The Competition Law Review Committee Report, 2019, had recommended a type of voluntary mechanism known as Green Channel Route (GCR) for combinations that are unlikely to result in any appreciable adverse effect on competition in the relevant market. Pursuant to this Report, Regulation 5A was added to the Combination Regulations, 2011 by the Competition Commission of India (Procedure regarding the Transaction of Business relating to Combinations) Amendment Regulations, 2019 (Combination Regulations).

Since the enforcement of the Combination Regulations, nearly 25% of all filings with the CCI have been channeled through GCR. This route provides the proposing party a 'bypass' route from the conventional proceedings, allowing them to self-assess the combination, while taking into consideration all relevant factors in a cogent and reasonable manner to determine whether the proposed transaction would fall within the scope of GCR. Notably, the parties to the combination can avail benefit of this facility only if their activities do not appear to exhibit vertical or horizontal overlaps, or complementarity, with the target business.

The CCI's recent warning (discussed hereinafter) highlights a potential misuse of the green channel route by the parties, whereby concerns have been raised regarding the authenticity of information provided and the transparency of the facilitation process.

Analyzing the proposed Combination

The CCI vide its order dated 18.08.2023, has penalized Abu Dhabi Investment Authority and TPG Group (the acquirers that had availed the GCR facility in a transaction to purchase 5% stake in UPL Sustainable Agri Solutions Limited (UPL SAS), an Indian agro-chemical company) for providing false and misleading information and suppressing material facts, relating to the actual scope and purpose of the proposed acquisition.

A combination is presumed to have received a deemed approval under GCR upon filing the merger notice in the prescribed format and acknowledging of its receipt (the combination declaration in Form-I requires the parties to provide accurate and complete information, and comply with the prescribed GCR criteria).

In the instant case, the primary issue of determination was whether or not the proposed acquisition fell within the eligibility criteria of GCR. Based on the factual matrix and the criteria prescribed in Schedule-III of the Combination Regulations, the CCI observed that the combination did not meet the criteria for deemed approval under GCR because the business activities of UPL SAS and SWAL Corporation Limited overlapped with the business activities of one among the acquirer's trust portfolio companies namely, Arysta Life Science India Limited (Arysta). As a result, the CCI determined that acquirers' declarations were factually inaccurate. The acquirers, however, submitted that such overlaps were not relevant as the entities were members of the same business group. The Commission held that the deemed approval under the GCR was based on the objective criteria and did not constitute a matter of discretion by the parties, especially considering Arysta and UPL SAS were engaged in the same business.

In view of the above, the CCI held that any overlap nullifies the parties' eligibility for the green channel but at the same time, further observed that the market shares of Arysta and UPL SAS were not significant enough to raise competition concerns.

CCI's heightened vigilance on Material Disclosures

The Commission plays a crucial role in ensuring fair business practices and preventing monopolistic behavior in the market. It monitors and regulates businesses to promote healthy competition, prevents price-fixing and protects consumers' interests. By enforcing the antitrust laws, investigating anti-competitive practices and imposing penalties where necessary, it helps maintain a level playing field for businesses and fosters innovation and consumer choice.

In several instances, it is perceived that imposition of penalties has been a proportionally reasonable response in the interest of fair play. With respect to merger control, the disclosure of material facts is vital for the CCI to appreciate the commercial and economic contours of a business combination mainly to assess the market impact, prevent monopolies, analyze market behavior, protect consumer interests and ensure fair competition. The Commission's stance is remarkably reflected in numerous matters including its landmark ruling dated 17.12.2021 in Amazon.com NV Investment Holding LLC (Amazon).

In furtherance to the abovesaid order, the CCI revoked its approval for Amazon's acquisition of 49% equity stake in Future Coupons Private Limited owing to non-disclosure of material information and imposed a penalty of INR 2.02 billion on Amazon. Future Coupons Private Limited, by way of an application in March 2021, had claimed that Amazon had misrepresented material facts in respect of an asset transfer involving Future Retail Limited (FRL). Thereafter, the CCI drew attention to discrepancies between various disclosures in the application submitted, along with internal documents relied upon, by Amazon. The CCI observed that such inconsistencies in the information revealed Amazon's ongoing interest in the operations of FRL, which served as a motivation underlying the acquisition. It was held that Amazon violated Section 6(2) of the Competition Act, 2002, read with Regulation 9(4) under the Combination Regulations, considering that it had deliberately overlooked the internal documents, which highlighted the motive underlying the acquisition and impeded the objectives of the applicable legal provisions by failing to disclose the relevant commercial arrangements, as components of the definitive agreement between the parties.

Moreover, on 30.09.2022, the CCI in the proceedings against Trian Partners AM Holdco Limited and Trian Fund Management (collectively, Trian) ordered the acquirers to pay INR 2 million for gun jumping with respect to the GCR filing. After the combination was notified to the CCI for acquisition of shares in Invesco Limited, it was observed that the proposed combination was already executed before informing the CCI. The notice submitted by Trian was accepted by CCI only because there were no overlaps in the activities of both parties. However, the proposed combination was executed prior to its 'deemed' approval, wherein it was discovered that the two founding partners of Trian were already the named directors on the board of Invesco Limited, which fact amounted to suppression of material facts.

It is evident from the Commission's approach that entities cannot salt away any material facts in their submissions. The Commission has been consistent with imposing increased penalties and substantiating its decisions with reasons. Such regulatory attitude not only promotes legal clarity, transparency and deterrence but also contributes to an effective and fair enforcement of competition laws in India and establishes strong precedents for future matters. These factors are equally important for creating a stable legal environment where businesses can anticipate the consequences of their actions.

Concluding Remarks

Importantly, the recent orders by the Commission cast a growing responsibility upon the proposing parties to conduct in a fair manner and not misuse the beneficial mechanisms provided for under the regulatory framework. Accordingly, in the event that even a minor factum of overlap is perceived, the same must be disclosed in the notice, or the normal route of approval should be followed. The CCI's warning to the GCR applicants is a significant step towards fostering a culture of ethical business practices in India. It reinforces the importance of integrity and fair competition, laying the foundation for a more transparent and accountable business landscape in the country. And in turn, the businesses must heed this warning and actively embrace compliant practices to thrive in the evolving market.

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