Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • CapitaLand Limited
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • Bank of America Merrill Lynch
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek Holdings
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • China Ocean Shipping Group Company (COSCO)
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • Royal Ahold (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • Nishimura & Asahi (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Mannheimer Swartling (Stockholm)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Rolf Watter
  • Bär & Karrer AG (Zürich)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

India

INDIAN UPDATE – An Analysis of the Union Budget FY 2016-17

Editors’ Note: Cyril Shroff is the Managing Partner of Cyril Amarchand Mangaldas and a member of XBMA’s Legal Roundtable.  Mr. Shroff is one of the deans of the Indian corporate bar and a leading authority on Indian M&A, with extensive experience handling many of the largest and most complex domestic and cross-border M&A, takeover, banking and project finance transactions in India. This article was authored by Mr. Shroff, SR Patnaik (Partner and National Tax Leader) and Mekhla Anand (Partner) of Cyril Amarchand Mangaldas.
 

Highlights: 

  • The latest issue of the Cyril Amarchand Mangaldas Budget Assayer, a comprehensive analysis of the Union Budget for FY 2016-17, takes a close look at the provisions of the Budget with special emphasis on “Startup India” and “Make in India” initiatives of the Indian Central Government.
  • Despite a slowdown in global growth from 3.4% in 2014 to 3.1% in 2015, the growth of the Indian GDP has accelerated to 7.6% compared to around 6% in the last three years. Inflation has also been controlled to some extent, and the FM has set the fiscal deficit target at an ambitious 3.5 % of GDP, lower than the 3.9% in 2015-16.
  • The Budget focuses on infrastructure development in the agricultural and rural sectors in its pursuit of speedier economic development, and promises various benefits to the small taxpayers and farmers. Focused attention has been paid to employment generation and social welfare including healthcare and affordable housing. The FM has also attempted to address the biggest criticisms of the NDA government in this term, i.e., the lack of attention to the plight of the agrarian sector.
  • The Government has made efforts to deliver on its promise of an investor friendly tax regime. The ghost of ‘legacy cases’ may yet be laid to rest, as the FM offers a chance of settlement in the guise of ‘dispute resolution’ to the companies fighting such cases. As promised, the Budget also contains a slew of proposals aimed at simplification of tax laws and reduction in tax litigation, both on direct and indirect tax front.
  • While the corporate sector is relieved about the deferral of POEM but is apprehensive about the impending GAAR and the proposed phase-out of incentives to businesses, consumers feel burdened by the levy of additional cess on taxable services and on purchase of cars. However, the market sentiment so far has been positive.

Main Article:

The Cyril Amarchand Mangaldas Budget Assayer can be found here.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

INDIAN UPDATE – Controlling ‘Control’ under Indian Takeover Regulations

Editors’ Note: Cyril Shroff is the Managing Partner of Cyril Amarchand Mangaldas and a member of XBMA’s Legal Roundtable.  Mr. Shroff is one of the deans of the Indian corporate bar and a leading authority on Indian M&A, with extensive experience handling many of the largest and most complex domestic and cross-border M&A, takeover, banking and project finance transactions in India.  Anshuman Jaiswal is a Partner with the M&A and corporate advisory practice of Cyril Amarchand Mangaldas with experience of over 12 years.  He has advised various entities across diverse sectors on their corporate transactional and advisory matters. 
 

Executive summary: The following article discusses recent developments around the definition and interpretation of the term ‘control’ under Indian Takeover Regulations and the impact it may have on investments in publicly listed entities in India, including the risk of classification of investment in a publicly listed entity as the acquisition of ‘control’ of such entity.


Main Article:

Controlling ‘Control’

On March 12, 2016, India’s securities markets regulator, the Securities and Exchange Board of India (“SEBI”) published a press release pursuant to its board meeting earlier that day (the “SEBI Press Release”). Amongst other matters, the SEBI Press Release indicated that SEBI would initiate a public consultation process regarding bright-line tests (“BLT”) for determination of the term ‘control’, as defined under the SEBI (SAST) Regulations, 2011 (“Indian Takeover Regulations”).

To those unfamiliar with this issue, there has been considerable debate in Indian corporate legal circles around the interpretation of the term ‘control’ and the risk of classification of investment in a publicly listed entity as the acquisition of ‘control’ of such entity on account of the definition of the term ‘control’ under Indian Takeover Regulations. Whether the genesis of such debate owes its origins to conflicting definitions of ‘control’ by Indian courts and legislators or interpretations of ‘control’ by Indian regulators is moot, but the absence of a clear and exhaustive definition of ‘control’ continues to exist. Recognising this and its impact on deal making and M&A in the public space in India, SEBI has sought to define ‘control’ and initiate a public consultation process.

 

Significance of ‘Control’

Under Indian Takeover Regulations, where (a) an acquirer seeks to acquire substantial shares or voting rights (including and upwards of 25%) in a public listed entity (“Target”) or where an acquirer acquires ‘control’ of a Target; and (b) such acquisition is not exempted under Indian Takeover Regulations (for instance, acquisition in the ordinary course of business by intermediaries or transfer between certain shareholders, etc), then such acquirer is required to make an open offer for the purchase of shares held by the public shareholders of the Target, in the manner set forth in the Takeover Regulations (“Open Offer”). The Open Offer process is detailed and broadly involves notices to be provided to shareholders, minimum number of shares to be acquired by an acquirer, the engagement of a merchant banker, allowing tendering of shares by the shareholders, payment there-for and filing of relevant documents with SEBI during and after the process.

Therefore, and in the context of the current discussion, if an investor’s terms of investment in a Target, including the obtaining of contractual rights that are not available to other shareholders (“Special Rights”), are deemed to be indicative of ‘control’, then the investor is required to undertake an Open Offer, irrespective of (a) the investment being within the said 25% threshold, or (b) the underlying commercial considerations of the transaction at hand, including the percentage of ownership that may be acceptable to the investor, or (c) the implications of being in ‘control’ of an enterprise as opposed to being invested in the said enterprise. This opens up larger questions of relevance and commercial acceptability of an Open Offer to the transaction at hand.

 

The First Approach: ‘Protective’ Special Rights 

As may be expected, the confusion around what constitutes ‘control’, especially in the context of Special Rights granted to an investor, has been impacting deal making and M&A in the public space in India. Based on various industry representations and feedback, SEBI has proposed two approaches to conveniently identifying or ‘bright-lining’, whether there exists ‘control’ in its discussion paper titled “Brightline Tests for Acquisition of ‘Control’ under SEBI Takeover Regulations.”

SEBI’s first proposal is to identify certain Special Rights as protective and exclude them from the purview of ‘control’. The principle enunciated is that where a Special Right is aimed at protecting the investment by an investor or preventing dilution of their stake in the Target or preventing the Target from undertaking a significant change in the current business by the Target, such Special Right would not be construed as ‘control’. An overarching rider to this principle is that the Special Right in question should not limit the Target from conducting its business on a day-to-day basis or from policy making, including by subjecting it to investor approval. Further, SEBI has suggested that these Special Rights not amounting to ‘control’ may be granted subject to: (a) the investment being 10% at the least, (b) the Target setting forth the concepts of materiality and what would be ‘outside the ordinary course of its business’ (see below) and disclosing the same to its shareholders; and (c) obtaining the public shareholders’ approval for grant of the Special Rights.

In this context, SEBI has described certain rights that it deems to be protective in nature and which do not amount to exercise of ‘control’, some of which are set out below:

  1. The right to appoint an observer to the board of the Target (“Board”) by an investor. However, SEBI prescribes that such observer should not have any “participation rights”. Prima facie this would seem to limit an investor from ensuring that its observer is part of the quorum for a valid Board meeting.
  2. If Special Rights are conferred pursuant to a commercial agreement between parties, the same would not amount to ‘control’ if (1) the said commercial agreement is fair and mutually beneficial to the Target and the other party, (2) the Board has approved the commercial agreement and has the right to terminate the said agreement, and (3) the commercial agreement is non-exclusive i.e. it does not restrain the Target from entering into a similar contract with any other party.
  3. Veto rights enjoyed by an investor that would not amount to exercise of ‘control’ over a Target include those pertaining to restricting amendments to the bye-laws of the Target (in so far as such amendments impact the rights of the investors), alteration of the capital structure of the Target, material divestments of assets or subsidiaries, material acquisitions, write off or loans or investments outside the ordinary course of business, any change to the statutory auditors of the Target or indebtedness beyond what is statutorily permissible.


The Second Approach: A Quantitative Test

SEBI has suggested that ‘control’ be determined on the basis of the right to exercise at least 25% of the voting rights of the Target. It has also suggested that, additionally, if an investor is granted the right to appoint the majority of non-independent directors, then such right would be construed as ‘control’ for the purposes of the Indian Takeover Regulations.

 

Balance or Brightline: What Works in the Indian Context 

BLTs have been historically criticised for their inability to appreciate factual nuances and for addressing legal issues in a predictable, convenient and over-simplified manner. A related criticism of a BLT is that on account of its nature, it may not always result in an equitable outcome. Conversely, adopting fine-line tests or balancing tests (“FLTs”), whereby various factors surrounding the matter at hand are examined and then the legal principle applied, may result in the introduction of excess objectivity in ‘control’ determination process. A standalone BLT may be easier to administer but it may not be the best option in the Indian deal making context, given the Special Rights that are typically sought by investors. Similarly, a pure FLT may not be the most effective and efficient manner to determine the existence of ‘control’ on a case-by-case basis. As such, whilst the SEBI initiative to define ‘control’ is welcome and has been long due, it is interesting to see where the consultative process takes the definition of ‘control’.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

INDIAN UPDATE – Phase II Combination Investigations by the CCI

Editors’ Note:  This is contributed by Zia Mody, founding partner of AZB & Partners and a member of XBMA’s Legal Roundtable.  Ms. Mody has led many of India’s most significant corporate transactions, been recognized by Business Today as one of the Most Powerful Women in Indian Business and received the Economic Times Award for Corporate Excellence as Businesswoman of the Year.

Executive Summary: While most merger transactions have been passed by the Competition Commission of India (“CCI”) without conducting a detailed investigation, the CCI has escalated recent combinations to such greater review.  This article examines the procedure of the CCI in relation to so-called Phase II inquiries in proposed combinations and highlights some of the teething issues that may be associated with such inquiries.

Main Article: 

Since the operationalization of the merger control rules in June 2011, the Competition Commission of India (‘CCI’) has reviewed close to 200 transactions (referred to as ‘combinations’) without conducting a detailed investigation, or Phase II inquiry, of a proposed combination. By and large CCI has approved most proposed combinations within 4 to 8 weeks of the receipt of no­tification by the parties. Notably, CCI took significantly longer – 168 days – to review and issue an approval order in respect of Etihad’s proposal to acquire a 24% stake in Jet1. Nonetheless, CCI did not see the need to subject a proposed combination to the detailed scrutiny of a Phase II inquiry.

In the last three months though, CCI has in quick succession, escalated two proposed com­binations to Phase II review. In September 2014, CCI formally announced the opening of a Phase II inquiry of the proposed combination between Sun Pharmaceutical Industries Limited (‘Sun’) and Ranbaxy Laboratories Limited (‘Ranbaxy’) (‘Sun-Ranbaxy Transaction’). On December 5, 2014 CCI approved the Sun-Ranbaxy Transaction, ending the first ever Phase II review initi­ated by it. CCI followed this up with commencing a Phase II inquiry of the combination between Holcim Limited (‘Holcim’) and Lafarge S.A. (‘Lafarge’) (‘Holcim-Lafarge Transaction’) in No­vember 2014. Undoubtedly, CCI has done an excellent job in streamlining the merger control regulations and approving transactions well within the 210 days statutory outer limit prescribed under the Competition Act, 2002 (‘Competition Act’) for approving transactions, however, the procedure on Phase II inquiries though remains a little unclear.

In light of CCI concurrently conducting 2 detailed Phase II inquiries, this article seeks to provide an overview of the procedure followed by CCI in Phase II inquiries and highlights some of the teething issues that may be associated with Phase II inquiries.

General CCI processes regarding combination inquiries

As a general rule, CCI is required to issue a prima facie opinion on whether a proposed combina­tion causes or is likely to cause an appreciable adverse effect on competition (AAEC) in India within 30 calendar days of receipt of a notice. The time taken by the parties to the combination to respond to CCI’s requests for additional information is not counted towards the 30 day period. If CCI reaches the prima facie opinion that a proposed combination does not (or is not likely to) cause an AAEC in India, it issues a formal order approving the proposed combination. Otherwise, CCI issues a notice under Section 29 of the Competition Act (‘Section 29 Notice’) seeking the parties’ view on why a detailed investigation to examine the competitive effects of the proposed combination should not be carried out. If the relevant parties successfully address CCI’s con­cerns, including by way of offering structural remedies or behavioral commitments, CCI does not initiate a formal inquiry and approves the transaction. Conversely, if the CCI is not satisfied by the responses offered by relevant parties, then CCI initiates a formal Phase II inquiry.

The Phase II process

Upon receipt of a response to the Section 29 Notice, CCI may, at its discretion, request its inves­tigative arm, the Director General (‘DG’), to conduct an investigation and submit a report in respect of the proposed combination. Simultaneously and within 7 days of receipt of the report from the DG, or the parties’ response to the Section 29 Notice, CCI is required to direct the par­ties to publish the details of the proposed combination (‘Publication Direction’), which must be complied with, within 10 working days of such a direction. The publication entails providing de­tails of the proposed combination in the format prescribed under the merger control regulations (known as a Form IV). The parties are required to upload a completed Form IV on their respec­tive websites and also publish it in 2 national dailies. CCI also posts the Form IV on its website within 10 days of issuance of the Publication Direction (‘Public Disclosure’).

Pursuant to the Public Disclosure, CCI may invite written objections to the combination from any person affected or likely to be affected due to the proposed combination coming into effect (‘Public Objections’). The Public Objections must be filed within 15 days of the Public Disclo­sure. Subsequent to the receipt of Public Objections, CCI must within 15 working days seek addi­tional information, if it wishes to, from the parties. Again, the parties are offered a 15 day window to submit such additional information to CCI.

After the receipt of additional information requested by CCI from the parties, CCI is required to issue an order either (i) approving the transaction, (ii) disallowing the transaction, or (iii) proposing modifications to the transaction (‘Remedies’). If CCI proposes Remedies, the parties have the flexibility to propose modifications to CCI’s proposed Remedies. CCI may either accept the modification proposed by the parties or compel the parties to accept the Remedies initially identified by it if CCI is not satisfied with the parties’ proposed modification.

The parties are required to carry out the modifications within such time as CCI may prescribe and upon completion of the modifications, the parties need to file a compliance report with CCI.

Indian Experience with Phase II investigations

On December 5, 2014 CCI approved the Sun-Ranbaxy Transaction but ordered the divestment of all tamsulosin and tolterodine products of Sun and six other products marketed by Ranbaxy. The combined market share of Sun and Ranbaxy for the products to be divested are in the range of 90-95%, CCI. The high combined market shares in these eight products appear to be the key reason for the CCI’s decision to require their divestiture.

CCI has stated that the transaction shall not be given effect until the divestments have been en­tered made, in accordance with the orders of CCI.

The Holcim-Lafarge Transaction is still at the Public Disclosure stage. While CCI did not escalate its inquiry to Phase II investigation, on at least on 2 occasions, CCI has required parties to trans­actions in the pharmaceutical sector to modify the terms of their non-compete agreements.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

INDIAN UPDATE – “Options” to Foreign Investors

Editors’ Note: This is contributed by Zia Mody, founding partner of AZB & Partners and a member of XBMA’s Legal Roundtable. Ms. Mody has led many of India’s most significant corporate transactions, been recognized by Business Today as one of the Most Powerful Women in Indian Business and received the Economic Times Award for Corporate Excellence as Businesswoman of the Year.

Highlights:

  • A recent notification of the Securities and Exchange Board of India expressly permitted put and call options in relation to shares of public limited companies, both listed and unlisted.
  • The Reserve Bank of India has clarified that foreign investors can have “optionality” attached to Equity Securities (defined below) so long as such option / right does not assure them of a fixed exit price, provided that other conditions described below are met.
  • With regard to equity shares, such option / right may be exercised: (i) in case of a listed company, at a price not more than the prevailing market price; and (ii) in case of unlisted companies, at a price not exceeding that arrived on the basis of Return on Equity (“RoE”) as per the latest au­dited balance sheet.  The shift of the exit price from a discounted free cash flow method of valuation to a return on equity based valuation could have a negative impact on foreign investors.
  • In case of compulsorily convertible preference shares and compulsorily convertible debentures, the pricing for an exit by way of a put option can be arrived at as per any internationally accepted pricing methods as certified by a chartered accountant or SEBI registered merchant banker.

Main Article:

Introduction

The use of put and call options are commonplace in investment transactions and are one of the means for achieving a potential exit from an investment. Until recently, the Securities Contracts (Regulation) Act,1956[1], did not permit the use of put and call options in investment trans­actions involving public limited companies. This was because private contracts with put and call options were in the nature of derivative contracts which were not in compliance with the SCRA.

The Reserve Bank of India (‘RBI’), India’s apex bank, was also not in favour of the use of put and call options in investment transactions. From an RBI perspective[2], though not expressly prohibited under the foreign exchange regulations, RBI viewed “put” option rights in favour of non residents with a guaranteed exit price as debt masquerading as equity and thought that they should therefore be viewed and treated as external commercial borrowings.

Liberalisation by SEBI

On October 3, 2013, the Securities and Exchange Board of India, (‘SEBI’), India’s capital markets regulator, had issued a notification which inter alia expressly permitted put and call options in relation to shares of public limited companies (both listed and unlisted). This SEBI notification is a good step forward in clarifying SEBI’s position on put and call option contracts, given the uncertainties created previously.

The SEBI notification, however, has some riders attached to it. It has been stipulated that the selling party of a put option must hold the title and ownership of the underlying securities for a minimum of 1 year from the date of entering into the contract. SEBI has also required that the consideration paid on the exercise of any option must be in compliance with the relevant guidelines for pricing as are stipulated by SEBI and RBI, and the contract must also compulso­rily be settled by way of actual delivery. Effectively, the pricing of the “put” option (for transfer from foreign investors to Indian residents) for unlisted companies was linked to the RBI pre­scribed price, which price was a ceiling calculated in accordance with the discounted free cash flow method of valuation (‘DCF’). For listed companies, the price was capped at the preferential allotment price calculated in accordance with the SEBI (Issue of Capital and Disclosure Require­ments) Regulations, 2013, which is essentially the higher of the average weekly high and low clos­ing prices quoted on the stock exchange during the preceding 26 weeks or 2 weeks.

While SEBI took steps to remove some of the uncertainties around “put” / “call” options on securities of public limited companies, the position of RBI still remained unclear in relation to foreign investors. Recently, RBI has released its notification dated November 12, 2013 published in the Official Gazette on December 30, 2013 and circular dated January 9, 2014 on this subject matter (collectively, ‘RBI Circulars’).

RBI’s stand under the RBI Circulars

The RBI Circulars do not consider any equity shares, convertible preference shares or convertible debentures (‘Equity Securities’) carrying “optionality” rights and which assure returns, as eli­gible instruments in the hands of a foreign investor from a foreign direct investment standpoint. Thus, any foreign investment made in any Equity Security cannot carry “optionality” and as­sured returns. Equity Securities carrying “optionality” but no assured returns are valid and eligi­ble but transfer of such instruments are subject to certain conditions set out in the RBI Circulars.

What is meant by “optionality”?

The term “optionality” is not defined under the RBI Circulars. What kind of rights under the shareholders agreement constitutes “optionality” is a matter of interpretation. Based on pre­vious concerns raised by RBI in the context of “put” options, one may infer that “optionality” should include only those rights which grants the foreign investor a right to cause the company or the other shareholders to purchase (or cause the purchase) of Equity Securities held by such foreign investor. In other words an optionality clause should be one which obliges the buyback or purchase of Equity Securities from the foreign investors.

 “Options” which are “disallowed”

The RBI Circulars have provided that Equity Securities which: (a) contain an optionality clause; and (b) which provides a foreign investor with a right to exit at an assured price, will not be regarded as an eligible security and cannot be subscribed to by foreign investors. The guiding principle that RBI has set forth, is that foreign investors should not be guaranteed any assured exit price at the time of making the investment.

What is meant by “assured return”?

The term “assured return” is also not defined under the RBI Circulars. It is not clear whether put options with an agreed return that are subject to, and capped at the price arrived at based on applicable pricing guidelines, particularly where there are no agreed mechanisms to ensure that the agreed price is effectively safeguarded, will constitute “assured return” within the mean­ing of the RBI Circulars. Arguably, a “price assured” which is, subject to it being in compliance with the pricing requirements under the law ought to be treated as a return which is contingent, rather than assured. However, RBI will perhaps need to be convinced with respect to this aspect.

“Options” which are “allowed”

RBI has clarified that foreign investors can have “optionality” attached to Equity Securities so long as such option / right does not assure them of a fixed exit price. In other words, “put” options are possible going forward, so long as such “put” right does not result in an Indian resident pro­viding an assured return to foreign investors. This is however, subject to the following conditions:

i.    Such Equity Securities will be locked in for a minimum period of one year, unless a higher lock-in is prescribed by the exchange control regulations (e.g. certain sectors such as defence and construction development have a minimum lock-in requirement of three years)[3]; and

ii.   Such exit will be subject to pricing guidelines discussed below.

Pricing of equity shares at the time of exit

In terms of the RBI Circulars, such option / right may be exercised: (i) in case of a listed company, at a price not more than the prevailing market price; and (ii) in case of unlisted companies, at a price not exceeding that arrived on the basis of Return on Equity (“RoE”) as per the latest au­dited balance sheet. RoE has been defined to mean profit after tax divided by the net worth, and net worth includes free reserves and paid up capital.

It should be noted that this RoE based valuation will apply only for exit by exercising the “op­tionality” clause.

The shift of the exit price from DCF to RoE based valuation could have a negative impact on foreign investors. The minimum price at which a foreign direct investment can currently be made in unlisted equity shares is determined on the basis of DCF valuation of the equity shares. The DCF valuation takes into account the future performance of the company based on specified variables. A RoE valuation is an indicator of the financial performance of a company during a specified period, and may not convey the actual fair value of the equity shares of the com­pany. While RBI had in its recently issued FAQs on ‘Foreign Investments in India’[4] clarified that the foreign investor can exit at a price which gives an annualized return equal to or less than the RoE as per the latest audited balance sheet, it remains to be seen how the foreign investors will get their return under the RoE based valuation in sectors with a long gestation period like insurance, infrastructure, real estate, etc., or where at the time of exit, the company is a loss making company.

Arguably, the RoE based valuation should not apply in the context of events of default by a resident pursuant to which a non-resident has the right to exit the company, and requires the resident to buy its shares. However, further clarity is awaited on this.

Pricing of compulsorily convertible preference shares and compulsorily convertible debentures at the time of exit

In case of compulsorily convertible preference shares and compulsorily convertible debentures, the pricing for an exit by way of a put option can be arrived at as per any internationally accepted pricing methods as certified by a chartered accountant or SEBI registered merchant banker. The underlying rationale for making this distinction is also unclear since a convertible instrument derives its value from the underlying security i.e. the equity share of a company, the transfer of which (as per the RBI Circulars) needs to comply with a valuation based on RoE method.

What happens to existing contracts?

RBI has further stipulated that all existing contracts will have to comply with the above lock in and pricing conditions to qualify as compliant with exchange control laws. Accordingly, it will need to be assessed whether existing contracts need to be amended or not in order for these contracts to be enforceable. Further, it needs to be assessed if any “put” options with an assured return (issued before the date of the RBI Circulars) can be regarded as eligible securities under the exchange control regulations. In this context determination of what will tantamount to “as­sured return” is important.

 Conclusion

While recognition of options by the SEBI and RBI is a welcome move for foreign investors, there are several areas that will need careful consideration, particularly in the context of the pricing regime proposed for exits that will occur pursuant to exercise of option rights by the foreign investor.


[1] As per Section 18A of the Securities Contracts (Regulation) Act, 1956, derivate contracts are permissible only if entered into on stock exchanges and settled on the clearing house of the recognized stock exchange.

[2] The Department of Industrial Policy and Promotion (“DIPP”), on September 30, 2011, had announced that all investments in securities with ‘in-built’ options will be considered as external commercial borrowings. However, industry uproar resulted in reversing of this position.

[3] The lock-in will apply from the date of allotment of such Equity Securities and accordingly, in case of multi-tranche investments, each tranche of investment would be locked in from the date of its respective allotment.

[4] FAQs on Foreign Investments in India issued by RBI as updated till January 28, 2014.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

INDIAN UPDATE – Unilateral Conduct: The Competition Commission of India’s Enforcement Priorities

Editors’ Note:Cyril Shroff is a member of XBMA’s Legal Roundtable and one of the deans of the Indian corporate bar and a leading authority on Indian M&A, with extensive experience handling many of the largest and most complex domestic and cross-border M&A, takeover, banking and project finance transactions in India.

Executive Summary:

The following article Unilateral Conduct: The Competition Commission of India’s Enforcement Priorities analyses the principles and trends enunciated by the Competition Commission of India (“CCI”) in the abuse of dominance cases dealt with by the CCI to date. 

Main Article: 

Introduction: Legal Framework

The Competition Act, 2002 (“Act”) (as amended) is the principal legislation governing competition law in India. The provisions of the Act dealing with abuse of dominance (the operative provision being Section 4 of the Act), came into effect from 20 May 2009.

The Concept

An abuse of dominance occurs when a dominant entity substantially prevents or lessens competition, by taking advantage of its peculiar position of strength in a particular market. Although an abuse is not defined under the provisions of the Act, Section 4(2) provides a list of abuses which are prohibited.

In India, determination of ‘dominance’ is not a function of any set arithmetical parameters or pedantic norms. Instead, dominance of an enterprise is to be judged by its power to operate independently of competitive forces or to affect its competitors or consumers in its favour. Thus, the test is more qualitative in nature than quantitative, involving  multi-faceted analysis.

Scope of the Act

Section 4 of the Act prohibits an abuse of a dominant position by any “enterprise”[1] or “group”[2]. Therefore, by implication, the concept of collective dominance is not yet envisaged under Section 4 of the Act, although the Competition (Amendment) Bill, 2012 which is currently pending before the Indian Parliament envisages the concept of collective dominance.

Section 4(2) of the Act lists certain acts which are presumed to be an abuse, if the dominant position of the enterprise, indulging in such conduct, is established:

(a)                directly and indirectly imposing unfair or discriminatory conditions or prices (including predatory price) for purchase or sale of goods or services,[3] unless such conduct is adopted to meet the competition;

(b)               limiting or restricting production of goods or services, technical or scientific development;

(c)               indulging in practices resulting in denial of market access in any manner;

(d)               making conclusion of 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 (i.e., tying and bundling); or

(e)               using a dominant position in one relevant market to enter into or protect other relevant market.

Therefore, strict liability is imposed by law, violations are to be adjudged under the ‘per se’ rule and there is no requirement to assess the actual adverse effect on competition in the market, if any. A limited exception to this is available in relation to imposition of unfair or discriminatory condition or price in relation to purchase or sale (including predatory price) where the dominant enterprise may plead that their behaviour was objectively justified in the particular circumstances i.e. that the unfair or discriminatory conditions or prices (including predatory prices) were adopted “to meet competition”.

However, an analysis of the abuse of dominance cases adjudicated by the CCI to date reveals that the CCI has so far avoided delivering orders based on the concept of ‘per se’ illegality by setting very high standards for establishing dominance and defining the contours of the relevant market. In reality, the CCI does embark upon a rule of reason analysis by assessing the strength in the relevant market of the party complained against and thereby determining the effect that any alleged abusive conduct might have on competition in the market.

Interestingly, the Act deals with both: exclusionary as well as exploitative abuses. Unlike some other jurisdictions, purely exploitative conduct, even if it has no exclusionary effect, can and has been scrutinized under the abuse of dominance provisions of the Act (for instance, in the DLF Order). The Act therefore, continues, to perpetuate the legacy of the erstwhile  Monopolies and Restrictive Trade Practices regime by allowing purely exploitative consumer disputes to be litigated within the ambit of competition law.

Stages involved in an Abuse of Dominance Investigation

A dominant position held by an enterprise or a group is not per se prohibited; however, abuse of such dominance by an enterprise or a group attracts the provisions of Section 4 of the Act. The provisions of the Act dealing with abuse of dominance draw heavily from EU jurisprudence on the topic and specifically from Article 102 of the Treaty on the Functioning of the European Union (“TFEU”).
For the purposes of determining whether the enterprise/ group has engaged in an abuse of dominance, the CCI has to undertake a three stage process:

(a)              determination of the relevant market;
(b)              determination of “dominance” in such relevant market; and
(c)               determination of an “abuse” of such dominant position.
We examine these concepts as under:

Determination of a Relevant Market

Dominance of an enterprise can only be established in a defined relevant market. Therefore, determination of the relevant market is critical in abuse of dominance cases. The relevant market is a function of the relevant product market as well as the relevant geographic market.[4]

The “relevant product market” is defined in the Act as a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use.

The “relevant geographic market” is defined as a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighbouring areas.

When assessing the relevant market, the SSNIP test or the “hypothetical monopolist” test is commonly used.[5] There are however, some limitations on the application of the SSNIP test in abuse of dominance cases. The recent trend by parties before the CCI has been to rely heavily on economic evidence by submitting an expert report by an economist.

Establishing Dominance in the Relevant Market

Before applying the vigour of Section 4, the CCI will first ascertain whether an enterprise or group is dominant in the relevant market. While determining dominance, the CCI is required to consider all or any of the factors listed in Section 19(4) of the Act which includes a catch-all factor i.e. “any other” factor which the CCI may consider relevant for the inquiry.[6]

Although market share is generally considered to be an important factor in determining dominance, there are no bright line tests prescribed in the Act or by the CCI in this regard. However, it is not the only factor to be considered. This is evident from two seminal orders passed by the CCI relating to abuse of dominance, referred to below.

(a)    The CCI in the NSE Order held the National Stock Exchange of India Limited (“NSE”) to be dominant based on its overall financial strength and vertical integration in the stock market, despite it having a lesser market share than the informant, MCX-SX. The CCI observed that “due consideration to some important cases from international jurisdictions … as also guidance papers of some other jurisdictions…indicates that authorities have taken a very wide and varied range of market shares as indicators of dominance, going down to 40% in some jurisdictions.  In context of the Indian law, this indicator does not have to be pegged at any point but has to be considered in conjunction with numerous factors given in Section 19(4) of the Act.”[7] The CCI noted that in terms of the prevalent market structure, MCX SX had a market share of 34%, NSE had a market share of 30% and the only other competitor in the market had a share of 36%. As such, the number three player in the market was held to be abusing its dominance based on a complaint filed with the CCI by the number two player in the market.

(b)               Further, in its assessment of dominance in the DLF Order, where the CCI imposed a penalty of Rs. 6300 million on DLF Limited for having violated Section 4 of the Act, the CCI and the Director General (“DG”) took into account various factors other than market share, such as statements issued by DLF Limited in the public domain, vast amounts of fixed assets and capital, turnover, brand value, strategic relationships, wide sales network, etc. The relevant market in this case was narrowly defined to comprise the market for high-end residential apartments in Gurgaon, Haryana, in which DLF had a market share exceeding 55%.

Establishing Abuse

It is important to note that dominance itself or the presence of rightfully earned market power is not frowned upon, but it is the misuse or ‘abuse’ of this dominance that creates a competition law concern which is sought to be addressed by way of specialized legislation which will ensure the existence of a competitive market structure.

The Act does not define “abuse”. However, Section 4(2) of the Act provides a list of conduct which is presumed to be abusive and is therefore prohibited. Some of the conditions generally imposed by enterprises, which may fall squarely within the purview of the Act are excessive pricing, predatory pricing, price discrimination between entities in the same circumstances, granting of rebates under certain circumstances, exclusivity agreements, tying and bundling, refusals to supply, leveraging[8] and unfair price or terms and conditions.[9]

However, unfair and discriminatory conditions imposed in the purchase or sale of goods or services and unfair, discriminatory and predatory pricing may be justified if such conduct is adopted to meet the competition.[10]

However, the category of specific arrangements or agreements which could amount to abuse, as provided in the Act, are not exhaustive and there may be other scenarios where a party may be found guilty of abusing its dominant position, for instance by indulging in resale price maintenance or imposing non-negotiable vertical restraints.

Burden of Proof

The burden of proof to prima facie establish the abuse of a dominant position rests on the informant.[11] In case the CCI is satisfied that there is a prima facie case, it will pass an order under Section 26 of the Act directing the DG office to conduct an investigation into the alleged abuse of dominance. The DG is then required to submit an investigation report to the CCI as regards its findings on the allegation of abuse of dominance. As stated earlier, given that an abuse of dominance is a per se violation, the burden of proof to prove that there has been no abuse of dominance shifts to the enterprise under investigation.
Once ‘abuse’ by a dominant enterprise is established, the Act imposes strict liability on an enterprise abusing its dominant position and does not make any reference to an effects based analysis except a limited defence of actions undertaken to meet competition. However, this limited defence is only available in respect of imposition of unfair or discriminatory prices or conditions and not in relation to any other types of abuses. This approach is contrary to the provisions of EU competition law, where the “objective justification” or the “efficiencies” defence can be submitted as a valid defence for a dominant enterprise to engage in abusive conduct.

Determination of Penalty

If the CCI comes to the conclusion that there has been an abuse of dominance by an enterprise or group, it can pass all or any of the following orders, in terms of Section 27 and Section 28 of the Act:
(a)                direct discontinuance of such abuse of dominance;
(b)               impose penalty to the extent of 10 per cent. of the average of the enterprise’s turnover for the last three preceding financial years;
(c)                order division of the enterprise enjoying dominant position; and
(d)               pass any other order/direction which it deems fit.
There is presently very little guidance on the mitigating and aggravating factors which weigh with the CCI, if at all, at the time of determining the penalty to be levied in a particular case. Apart from the ceiling fine prescribed by the Act in Section 27, there is no guidance on the quantum of fine to be actually levied in different cases.

Thus far, the absolute level of fines imposed in the abuse cases investigated and adjudicated upon by the CCI is hefty and suggests that the CCI is adopting a deterrent approach. Further, given the uncertainty of concepts dealt with by this new law and a general lack of awareness regarding the scope of activities that may attract penalization under this law, the CCI has taken a rather aggressive stand not only in respect of adopting narrow relevant market definitions but also in terms of the headline penalties imposed by it on individual entities.

Recent Trends in Abuse of Dominance cases in India

In the first case decided by the CCI on abuse of dominance i.e. the NSE Order case,[12] the CCI concluded that NSE held a dominant position in the relevant market although at the time of passing of the order, NSE’s market share in the relevant market (i.e. the CD Segment of the securities market) was 30% while the complainant’s market share was 34%. For the purpose of abuse analysis, the CCI developed a concept of ‘unfair pricing’ distinct from ‘predatory pricing’ and termed it as a clear method of leveraging done by NSE of its profits made in other segments to set-off losses in the CD segment. The CCI arrived at the conclusion that NSE was drawing on its economies of scale with the intention to impede future market access to potential competitors and foreclose existing competition, which it deemed completely unfair from a competition law perspective.

In the second case decided by the CCI on abuse of dominance i.e. the DLF Order case[13], the CCI analyzed the unfair terms imposed in the Apartment Buyers’ Agreements (“Agreement”) entered into between the real estate developer DLF Limited (“DLF”) and a society comprising allottees of apartments in a housing complex that was proposed to be constructed in Gurgaon, Haryana, by DLF and based on an extremely refined and niche definition of the relevant market, determined DLF to be in a position of dominance in the relevant market comprising high-end residences in Gurgoan. The CCI rejected DLF’s arguments to the effect that the impugned terms of the Agreement were “industry practice” and concluded that as a dominant enterprise in the relevant market, a greater responsibility was imposed on DLF to ensure the terms offered by them were fair and equitable. The CCI noted that the allottees in this case were clearly ‘captured customers’ who were victims of DLF’s abusive conduct. Accordingly, the CCI imposed a hefty penalty of Rs. 6300 million (i.e. 7% of the average of the annual turnover of DLF for the previous three years ). Thus far, the Indian industry’s understanding of ‘abuse of dominance’ has been restricted to instances of exclusionary conduct like predatory pricing or refusal to deal etc; the DLF Order however explored the exploitative angle in abuse of dominance cases.

The most recent CCI case dealing with abuse of dominance is the case of Surinder Singh Barmi v. Board of Control for Cricket in India[14] (“BCCI case”)[15] in which, on a complaint made by a cricket fan in relation to grant of various rights in the Indian Premier League (“IPL”) , the CCI has found the Board of Control for Cricket in India (“BCCI”) to be guilty of abusing its dominance in the market for organization of private professional cricket leagues/events in India. Interestingly, the relevant market definition considered by the CCI in the present case does not take into account the various individual constituent markets which together create the IPL. For instance, the market for call of media rights, franchise rights, sponsorship rights etc arguably constitute a separate relevant market with respect to the bidders for each such right. This is on account of the fact that the demand side substitution and supply side substitution should be observed from the view point of the customer at each level of the value chain.

However, the CCI held that Clause 9.1(c)(i) of a media rights agreement which provided that BCCI shall not organize, sanction, recognize, or support during the existing Rights period (as defined in the agreement) another professional domestic Indian T20 competition that is competitive to the league, resulted in denial of market access in violation of Section 4(2)(c) of the Act. The CCI has directed the BCCI to delete the said clause from the media rights agreement and has imposed a penalty of Rs. 522 million on BCCI, at the rate of 6% of the average annual revenue of BCCI for past three years. The matter is presently pending before the Competition Appellate Tribunal (“COMPAT”) which has stayed the CCI’s order on grounds of a prima facie case existing in favour of BCCI.

Conclusion

The CCI while aggressively enforcing AOD cases and awarding headline penalties does not seem to discriminate between exploitative and exclusionary conduct. Given the way the Act is drafted, the CCI is even considering effective consumer disputes like DLF within the garb of competition law. It remains to be seen whether the CCI continues to stick to its ‘fairness’ mandate or moves beyond it to focus on pure competition concerns.


[1] An enterprise, as defined under the Act, includes all its divisions, units and subsidiaries.

[2] A group, for the purposes of abuse of dominance cases, means two or more enterprises, which directly or indirectly, are in a position to:
exercise 50% or more of the voting rights in the other enterprise; or
appoint more than 50% of the members of the board of directors in the other enterprise; or
control the management or affairs of the other enterprise.

[3]The CCI considered unfair and discriminatory conduct in the Belaire Owner’s Association v. DLF Limited and HUDA case (“DLF Order”), where the CCI imposed a penalty of Rs. 6300 million on the dominant enterprise.

[4] Section 2(r), read with Sections 2(s) and (t) of the Act.

[5]The Small but Significant Non-transitory Increase in Prices (“SSNIP”) test is widely used by the competition authorities around the world to define the relevant market. Starting with the narrowest possible market definition, if it is profitable for a hypothetical monopolist to increase the price(s) of the product(s) in this narrowly defined relevant market by 5%, substitution away from this class of products is small, so the products in the relevant market do not face significant competitive constraints from products outside it, and the candidate market is therefore the relevant market. If, on the other hand, the increase in price(s) is not profitable because consumers would substitute/switch to products outside the candidate market, the market definition would be extended to include the closest of these substitutes, in order to ensure that any product exercising a competitive constraint on the product(s) in question is included in the market definition.

[6] These factors are:
(a)    market share of the enterprise;
(b)    size and resources of the enterprise;
(c)    size and importance of the competitors;
(d)   economic power of the enterprise, including commercial advantages over competitors;
(e)    vertical integration of the enterprises or sale or service network of such enterprises;
(f)     dependence of consumers on the enterprise;
(g)    monopoly or dominant position whether acquired as a result of any statute or by virtue of being a government company or a public sector undertaking or otherwise;
(h)    entry barriers, including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers;
(i)      countervailing buying power[6];
(j)     market structure and size of market;
(k)    social obligations and social costs;
(l)      relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position having or likely to have an AAEC; and
(m)  any other factor which the CCI may consider relevant for the inquiry.

[7] Paragraph 10.48 of the NSE order.

[8] Using dominant position in one market to enter into or protect the other relevant market is an abuse (for instance, the NSE Order case). Therefore, the existence of dominance and the abusive conduct are not required to be in the same market.

[9] The CCI has elaborated on the concept of “unfair pricing” in the NSE Order, which is distinct from predatory pricing. In the NSE Order, the CCI held that the zero price policy of NSE in the currency derivatives segment of the financial services market is “unfair”. Unfairness, it was held, was required to be determined, not on the basis of cost estimates such as average variable cost, average avoidable cost, long run average incremental cost, etc., but on the basis of the facts of the case, and “in the context of unfairness to the customer, or in relation to a competitor.” The NSE Order specifically notes that the two competitors, i.e., NSE and the MCX Stock Exchange Limited were not “on equal footing” in relation to financial resources.

[10] Explanation to Section 4(2)(a) of the Act.

[11] PDA Trade Fairs v. India Trade Promotion Organisation, Case No. 48 of 2012.

[12] Case No. 13/2009, available at: http://www.Commission.gov.in/May2011/OrderOfCommission/MCXMainOrder240611.pdf

[13] Case No. 19/2010, available at:http://www.Commission.gov.in/May2011/OrderOfCommission/DLFMainOrder110811.pdf

[14] Case No, 61 of 2010, available at:  http://www.cci.gov.in/May2011/OrderOfCommission/612010.pdf

[15] The authors are advising the BCCI in this matter.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

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