Rethinking Public Interest in India’s Merger Control

-by Kashika Jain, IInd year law student at Rajiv Gandhi National University of Law, Punjab

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Introduction

At the forefront of preserving effective competition is an effective merger control. Merger remedies form a vital component of such regime. These remedies involve modifications that allow transactions to proceed, while neutralizing their anticipated anticompetitive effects. The Competition Commission of India (CCI) is the regulatory authority empowered to review mergers and acquisitions. A suspensory regime under the Competition Act, 2002 (“the Act”) stipulates that transactions exceeding the prescribed thresholds, provided they do not benefit from any exemption, must be notified to, and obtain the approval of, the CCI before completion. The investigation carried out involves an assessment of whether such transaction is likely to cause an Appreciable Adverse Effect On Competition (AAEC). Section 20(4) of the Act delineates the factors to be given due regard, such as level of competition in the market, extent of such competition likely to sustain, extent of barriers of entry, availability of substitutes, market share, vertical integration, etc. On the basis of this assessment, the CCI may, if unsatisfied, disapprove the transaction, or propose modifications to the transaction. Although the provisions of the law focus on alleviating purely competitive concerns, it appears that public interest can sometimes play a role in such merger remedies.

An Overview of CCI’s Approach So Far

No combination has been prohibited to date, but around 30 transactions have been approved conditional to certain remedies, which may be structural, non-structural, or hybrid. These can include behavioural remedies, such as in the leading case of Schneider Electric. In the face of likely AAEC, the proposed divestments were argued to be unviable and disproportionate, and the transactions were allowed on the basis of amendments to its distributorship agreement that dilute exclusivity, commitments in relation to R&D, adoption of a specified price mechanism, etc.

In several CCI cases, modifications have been allowed that be seen as serving the public interest. For instance, in Google LLC’s acquisition of Bharati Airtel’s shares, a modification to the extent of securing consumers’ data was made. Further, the combined entity in Bayer AG’s merger with Mansanto Company is required to grant access to India’s agro-climate data free of charge to government institutions to create public good. Whether such considerations involving data privacy, labour protection and environmental impact that are not overtly integrated into the merger control framework should, or can be, recognized or not, is the central question raised by this article.

Public Interest: A Tool with Untapped Potential

Integration of public interest considerations into merger control has been a matter of contention across several jurisdictions. South Africa makes a compelling case for inclusion of provision for public interest: they have used this law to promote inclusive economic development and to protect vulnerable communities from the adverse effects of corporate consolidation. Section 12A(1A) of the South African Competition Act allows the tribunal to assess whether the merger can be justified on grounds of public interest, which include effect on employment andability of small businesses to compete.  Notable cases include: where, the Commission blocked the proposed acquisition of Burger King South Africa by a private equity fund, ECP Africa, on the basis that the merger would lead to a reduction in the shareholding of historically disadvantaged persons in the target firm, from more than 68% to 0%. Further, in the case of Kansai’s acquisition of Freeworld, merger remedy involved a commitment by Kansai to not retrench any Freeworld employees for three years.

Such considerations weigh heavier in developing jurisdictions than developed jurisdictions because of the greater role of government’s policy in supporting strategic sectors that alignwith other national economic and social goals in order to meet the developmental needs of the citizens. For emerging economies like India, where inequality remains a significant challenge, integrating public interest considerations into merger control may help ensure that competition law serves the larger goals of economic development and social equity.

Public Interest: A Pandora’s Box Better Left Unopened

Adoption of such policies come with their own set of caveats, to be explored subsequently. The OECD Roundtable Discussion on public interest considerations outline key problems that might arise, a brief overview of 3 such issues shall follow. The first concern regards the definition of public interest, or rather its lack. Considerable variation depending on evolving economic and socio-political context excludes the possibility of a universal definition or an exhaustive list, leading us into the second concern, regarding who decides what is in public interest, and if a competition authority is competent for the same. Thirdly, even if such a charge was delegated, balancing the competition and public interests tightrope may only lead to further complications. Summarily, the challenges to delimiting scope of public interest cannot be tackled without threats to transparency and legal certainty.

Further, in context of India’s antitrust framework in particular, the question of whether such discretion would be an overreach arises, and rightly so, given there is no formal provision legitimizing the same for CCI to be given such discretion under the present framework. Implementation of a framework that does provide for such an exemption would require trade-offs to be made to goals of driving foreign investment and ease of doing business.

The Semantics of Public Interest

A new direction involves a return to the definition of public interest, which although in flux, cannot be understood as being incongruent to consumer welfare. A closer examination of the Act reveals that its objectives are not limited to purely competition concerns: the preamble emphasizes promotion and sustaining of competition, as well as protection of consumer interests and promotion of economic development, or in other words, public interest. Further, factors u/S.20(4) include innovation and economic development, empowering the CCI to exercise some degree of discretion to evaluate non-competitive factors. The vested interests of the Act thus fall within the very ambit of public interest.

It is therefore contended that the modifications proposed by the CCI so far are well within its mandate, and such an interpretation must not be discouraged. Cases such as Reliance’s acquisition of a local cable network was allowed on the condition that consumers will not face extra charges,and any cost of change in equipment due to technical realignment will be borne by the parties themselves; or an Airline merger where beneficial effects of merged such as better scheduling and options for consumers from Tier-II and Tier-III cities were taken into consideration, cannot be said to have been decided outside the purview of the enacted framework.

Conclusion

In light of the arguments discussed so far, the author advocates for the continuation of a broad interpretation of the AAEC factors, taking goals of consumer welfare and economic development in tandem. The CCI must continue to utilize merger remedy as a tool to protect the interests of the consumer, health of the competition and economic development of the country. At the same time, while  a policy similar to the one conceived by South Africa might align with India’s developmental goals, entrusting the CCI with protection of stakeholders beyond the consumers might prove to be an idealist’s endeavour in the long run. Thus, the exclusion of such considerations is recommended. Additionally, sectoral regulators and other government departments can play an active role in reviewing mergers and addressing concerns that fall outside the CCI’s jurisdiction through the process for raising objections as provided under Section 29(3). This underutilized provision empowers the relevant stakeholders to give a representation, ensuring that their interests are protected from any potential ill-effects of the transaction in question. A nuanced approach will ensure that merger control in India remains effective, fair, and aligned with the country’s broader economic and social objectives.