India: In A Significant First, The Competition Commission Of India Sets Aside A Combination Approved Under The Green Channel Route

On August 18, 2023, the Competition Commission of India, for the first time set aside a combination it had approved under the green channel route. As such, the Competition Commission of India imposed a total penalty of INR 55 lakhs (approximately USD 67,073) on Platinum Jasmine A 2018 Trust and TPG Upswing Ltd. for: (a) making false statements in their merger notification; and (b) gun-jumping. INDUSLAW's Avimukt Dar Unnati Agrawal, Yash Lahoty, Swapnil S, and Hrishav Kumar analyse the instant order.

1. INTRODUCTION

1.1. On August 18, 2023, the Competition Commission of India ("CCI") imposed a total penalty of INR 55 lakh (approximately USD 67,073)¹ on Platinum Jasmine A 2018 Trust ("Platinum Trust") and TPG Upswing Ltd. ("TPG Upswing")² (Platinum Trust and TPG Upswing are hereinafter collectively referred to as "Acquirers") for: (i) making false and incorrect statements in their merger notice filed with the CCI, under the green channel route ("GCR") ("Notice"); and (ii) gun-jumping³. As such, on December 20, 2022, the Acquirers had filed the Notice in relation to the acquisition of 5% shareholding of UPL Sustainable Agri Solutions Limited ("UPL SAS") by the Acquirers through the Upswing Trust ("Acquirer Trust"), subsequent to internal reorganization⁴ (hereinafter referred to as the "Combination").

2. BACKGROUND ON GCR

2.1. In August 2019, the CCI amended the CCI (Procedure in regard to the transaction of Business relating to Combinations) Regulations, 2011 ("Combination Regulations"), and introduced an automatic system of approval for combinations through the GCR.⁵ A merger notice may be filed under the GCR, in cases where the parties do not exhibit any existing or potential overlaps in their business activities.⁶ Under the GCR, a combination is deemed to have been approved upon filing the merger notice in the prescribed format and acknowledgement thereof. Accordingly, the combination is required to be notified in Form I along with declarations confirming that the proposed combination: (i) satisfies the GCR criteria and is not likely to cause any appreciable adverse effect on competition; ("GCR Declaration") and (ii) the information provided by the notifying parties is: (a) not false or misleading; and (b) correct and complete to the best of their knowledge, belief, and all estimates ("Notice Declaration") (GCR Declaration and Notice Declaration are hereinafter collectively referred to as "Declarations"). However, in the event the CCI subsequently finds that the combination does not qualify for the GCR, or the Declarations were incorrect, it may declare such deemed approval and the merger notification to be void ab initio and examine the filing in accordance with the provisions of the Competition Act, 2002 ("Act").⁷

3. CCI's INQUIRY

3.1. Based on the information submitted in the Notice, the CCI prima facie observed that the Combination did not satisfy the criteria for approval under the GCR since the business activities of the UPL SAS and SWAL Corporation Limited ("SWAL")⁸ (UPL SAS and SWAL are hereinafter collectively referred to as "Target"), exhibited overlaps with the business activities⁹ of one of Acquirer Trust's portfolio company, i.e., Arysta LifeScience India Limited ("Arysta")¹⁰. Hence, according to the CCI, the Declarations submitted by the Acquirers appeared to be false in material particular.

3.2. Accordingly, the CCI issued a show cause notice to the Acquirers to demonstrate why : (i) the Notice should not be declared void ab initio; (ii) the Acquirers should not be penalized for: (a) gun jumping; and (b) making statements in the Notice which are false in material particular, including the Declarations; and (iii) the Acquirers should not be directed to furnish a fresh merger notice in relation to the Combination.

4. SUBMISSIONS BY THE ACQUIRERS

4.1. The Acquirers made the following submissions:

1. Overlapping enterprises belonging to the same group: The Acquirers submitted that Arysta and the Target belonged to the UPL group and were, in principle, two arms of the same group selling the same products. Thus, there was no requirement to map overlaps between two enterprises belonging to the same group.
2. No change in the competition landscape: The Acquirers submitted that the formulated crop protection products ("FCPPs") sold by Arysta to the Target were in the nature of intra-group sales. Therefore, there was no change in the competitive landscape of the market of FCPPs on account of the Combination.
3. Consumer perception: The Acquirers submitted that the Target and Arysta were treated as the same brand/enterprise both internally (within the companies) and externally (by third parties). Even, the CCI in its decisional practice has clarified that in determining whether two enterprises are competitors (or not), significant reliance must be placed on consumer perception, i.e., whether the end consumers of such products and services perceive the two enterprises/brands as competitors or not.¹¹
4. Plans for gradual cessation of third-party sales by Arysta: The Acquirers submitted that: (i) Arysta was in the process of ceasing third-party sale of FCCPs in India¹² which was not its primary business;¹³ and (ii) the decision to discontinue third-party sales, in 2019, had been taken independently on account of purely commercial reasons, much before the Combination was consummated; (iii) Arysta had significantly diminished third-party sales of FCCPs over the last three financial years. In view of the above, the Acquirers contended that cessation of third-party sale of FCCPs in India renders any overlap concerns academic.
5. Minor overlaps: The Acquirers submitted that, in the past, the CCI had been liberal while examining transactions filed under the GCR mechanism and had approved combinations even though the combinations exhibited minor overlaps since such combinations have no impact on the market.

5. FINDINGS OF THE CCI

Ineligibility of GCR facility

5.1. The CCI, at the outset, observed that the factors submitted by the Acquirers were inconsequential in the determination of eligibility for the GCR facility. At most, these factors may warrant consideration in a detailed assessment of the likely effect of a combination on competition in India. As such, if any overlap (direct/indirect) exists between the business activities of the parties to the combination, their respective group enterprises, and/or their portfolio enterprises, then such a case is ineligible for the benefit of the GCR facility.

5.2. Citing the above reasons, the CCI observed that there appeared to be an overlap between the activities of the Acquirer (through Arysta) and the Target. Accordingly, it concluded that: (i) the Combination did not satisfy the GCR criteria and was void ab initio; (ii) the Declarations submitted by the Acquirers were false in material particular; and (iii) the Acquirers were liable for gun-jumping since the Combination had already been consummated¹⁴.

Penalty

5.3. In view of the above, the CCI imposed a penalty of: (i) INR 50 lakh (approximately USD 60,975)¹⁵ for submitting Declarations that were false in material particular, under Section 44 the Act;¹⁶ and (ii) INR 5 lakh (approximately USD 6097)¹⁷ for consummating the Combination before the CCI approval, under Section 43A of the Act,¹⁸ on the Acquirers (to be paid jointly and severally). Interestingly, for the first time, the CCI held a combination notified through GCR to be void ab initio. Moreover, the CCI highlighted that the GCR is a trust-based mechanism based on self-assessment and correct declaration. Thus, it is incumbent upon the parties availing the GCR facility to observe utmost good faith since "subjecting ineligible combinations for the GCR facility would erode and strike at the very basis of this trust based regulatory mechanism and undermine the sanctity of its framework." Further, the CCI clarified that going forward any disregard to the conditions for availing the GCR facility would be dealt with seriously with attendant consequences.

Detailed assessment of the Combination

5.4. Based on the details furnished by the Acquirer, vide the written submissions, the CCI observed that the activities of Arysta and Target exhibited overlaps in relation to seven product segments¹⁹. However, the market share of both Arysta and Target was not significant to raise any competition concern. Accordingly, the CCI approved the Combination.

6. QUICK VIEW

6.1. Since the introduction of the GCR regime in 2019, approximately 25% of all merger filings made to CCI have been through the GCR²⁰, which bears testimony to the growing popularity of the regime. However, the instant order is of particular importance as it is the first instance where the CCI has: (i) imposed a penalty due to non-adherence to the qualifying conditions of the GCR; and (ii) set aside a combination approved through the GCR.

6.2. Thus, it appears that the CCI is coming into its own as a mature regulator by taking stringent action against the notifying parties for not adhering to the qualifying conditions for availing of the GCR in letter and spirit. This order will serve as a warning bell for the notifying parties, who must exercise caution and ensure that the qualifying criteria are met before making merger filings through the GCR.

Footnotes

1. Converted at 1 USD = INR 82.

2. Combination Registration No. C-2022/12/995, Platinum Trust/TPG Upswing, order dated August 18, 2023, available at: August 18, 2023, available at: https://www.cci.gov.in/combination/order/details/order/1310/0/orders-section43a_44.

3. The Indian merger control regime is mandatory and suspensory; therefore, if a combination (or a part thereof) is notifiable to the CCI, the parties cannot consummate the combination or any part thereof prior to receiving approval of the CCI or until the lapse of 210 days from the date of notification of the combination. The act of the parties to consummate a notifiable transaction (in full/ part) without prior approval of the CCI (or until the lapse of 210 days from the date of notification) is popularly referred to as 'gun-jumping'.

4. As a condition precedent to the Combination, the UPL group proposed to undertake internal reorganization of the crop protection business (except manufacturing) and agri-tech/farm services business of UPL Limited ("UPL") ("Restructured Businesses"), which, inter alia, involved the following steps: (i) UPL SAS will become a direct (previously indirect) wholly owned subsidiary ("WOS") of UPL; (ii) SWAL Corporation Limited and Nurture Agtech Private Limited ("Nurture") (previously, WOSs of UPL) will each become WOSs of the UPL SAS; and (iii) transfer of the Restructured Businesses to the UPL SAS and Nurture. Further, it was envisaged that Nurture will acquire Adarsh Farm Services from UPL.

5. Available at: https://egazette.gov.in/WriteReadData/2019/210553.pdf.

6. For instance, the following conditions are required to be fulfilled in order to file a merger notification under the GCR: (i) the parties do not manufacture similar or identical or substitutable goods (horizontal overlaps); (ii) the parties are not involved in any activity relating to production, supply, sale and distribution of goods that belong to different levels of the production chain (vertical overlaps); and (iii) the parties are not involved in any activity relating to production, supply, sale and distribution of goods which act as complementary to each other (complementary overlaps).

7. Regulation 5A of Combination Regulations.

8. As mentioned above in footnote 7, UPL SAS and SWAL are WOSs of UPL. However, as part of the internal reorganization, SWAL will become the WOS of UPL SAS.

9. While the Target is engaged in the business of manufacturing and distribution, and marketing and sale of formulated crop protection products to third parties in India, Arysta is engaged in the business of manufacturing and distribution of formulated crop protection products, inter alia, to the Target along with making sales to third parties.

10. The CCI observed that Arysta is the subsidiary of UPL Corporation Ltd. in which the Acquirer Trust holds a stake of 22.2%.

11. Suo Motu Case No.03 of 2017, Anticompetitive conduct in the Dry-Cell Batteries Market in India Vs. Panasonic Corporation & others, order dated January 15, 2019, available at: https://www.cci.gov.in/antitrust/orders/details/747/0. Godrej and Boyce Manufacturing Co. Limited ("Godrej"), in relation to allegations of cartelization, contended that its relationship with Panasonic Energy India Co. Limited ("Panasonic") was a "buyer-supplier relationship". Therefore, the agreement entered between them was a vertical agreement and not a horizontal agreement. However, rejecting Godrej's contention, the CCI observed that from the demand side perspective (consumers' point of view), Godrej and Panasonic were competitors in the market of distribution and/or sale of dry cell batteries in India.

12. Arysta submitted that: (i) it has significantly reduced employees responsible for third-party sales and marketing of FCPPs in India; and (ii) by the end of 2023, Arysta will not have a marketing or sales team for its FCPP business in India.

13. Arysta submitted that: (i) it only undertakes such third-party sales because of certain regulatory reasons or surplus capacity; and (ii) it does not even have an independent distribution network of its own in India and instead relies on UPL SAS' distributors.

14. The CCI, based on the information available in the public domain, observed that the Combination was consummated on or before February 17, 2023.

15. Converted at 1 USD = INR 82.

16 Section 44 of the Act, inter alia, provides that if any person, being a party to a combination makes a sta.tement which is false in any material particular, or knowing it to be false, such person shall be liable to a penalty which shall not be less than INR 50 lakhs, but which may extend to an amount prescribed therein.

17. Converted at 1 USD = INR 82.

18. Section 43A of the Act provides that if any person or enterprise fails to give notice to the CCI under Section 6(2) of the Act, the CCI shall impose on such person or enterprise a penalty which may extend to 1% of the total turnover or the assets, whichever is higher, of such a combination.

19. For instance: (i) Adjuvants; (ii) Fungicides for various fruits, vegetables, grains, etc.; (iii) Insecticides to control termites and vector control; and (iv) Bio-Stimulants for crops, fruits, etc.

20. Available at: https://www.thehindubusinessline.com/economy/25-of-filings-made-to-cci-are-via-green-channel-route-sangeeta-verma/article66789576.ece.

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