Advancing Competition Jurisprudence In India :CCI Order On Walmart-Flipkart Deal

The entry of Wal-Mart in India has always been the subject matter of sufficient debate, primarily from a foreign direct investment (FDI) perspective. Of course, it also made excellent fodder for a sufficiently polarising debate on the threat to, and the protection of, smaller domestic retailers in India. Predictably, the proposed combination worried various stakeholders in the markets where Wal-mart and Flipkart are active or deal with commercially, many of whom made representations to the CCI expressing their concerns. In this backdrop, the order of the Competition Commission of India(CCI) approving Wal-Mart’s the acquisition of majority shareholding in Flipkart is worthy of commendation, as it avoids conflation of issues and succinctly sets out the law.

Aside from being an objectively well-reasoned order on the evaluation of the acquisition itself, the reason why this order is worth noting is that it provides a demarcation of the CCI’s role between (a) assessing the competition concerns arising from a combination (merger, amalgamations or acquisition) under Sections 5 and 6 of the Competition Act, 2002 (Competition Act /Act) and (b) assessing competitions concerns arising from behavioural conduct of entities (under Sections 3 and 4 of the Competition Act), which may exist independent of the combination. In doing so, it clearly lays out the basic premises of the economic analyses of combinations, including the ‘how’ and ‘why’.

The order explains that the mandate for the CCI under Sections 5 and 6 of the Competition Act is to check whether the combination has a negative impact on competition in the market. The purpose of this is to verify the “extent of competition that would be lost solely as a result of the proposed combination.” The ‘loss of competition’ is what the regulation of combinations in fact revolves around. In case of a combination between competitors engaged in producing or providing the same or similar goods or services, the reduction in the number of effective competitors is the fear. In case of a combination between entities in different stages or the production chain, the fear is market foreclosure (exclusion from the upstream or downstream markets, as the case may be) leading, once again, to an appreciable reduction in competition. The CCI rightly states that the competition assessment of a combination involves analysis of two counterfactual market scenarios, i.e., with and without the combination. This analysis may be conducted in terms of, inter alia, the factors under Section 20(4) of the Competition Act, which serve as indicators ofthe competitive landscape in the market, which include “market share, barriers to entry, extent of vertical integration, extent of competition likely to remain after the combination, etc.”

Most importantly, the CCI clarifies that in carrying out this exercise, the duty of the CCI is not to address the pre-existing conditions that are not attributable to the combination. In other words, while wearing the hat of a combination regulator under the mandate of Sections 5 and 6, it is not the job of the CCI to inquire into the practices of the individual parties to the combination which may otherwise be anti-competitive under Sections 3 or 4 of the Act. The CCI would only regulate such things which would arise as a consequence of a combination – such as increased concentration in whole or part of the market that may reduce effective competition, which may in-turn also reduce incentives to innovate in products, services or prices.It is an ex-ante analysis of the potential impact on the market. The role of the CCI as a combination regulator is not the same as its role prohibiting anti-competitive agreements and abuse of dominance, which is primarily an ex-post analysis of specific conduct or agreements.Indeed, the parameters for their assessment too, are distinct, which is apparent from Sections 3, 4, 19 and 20 of the Competition Act, as well as volumes of literature available on globally understood tenets of competition law and economics. It goes without saying that as a combination regulator, it is not the agreement forming the basis of the combination that is assessed from a Section 3 perspective by the CCI, but as mentioned above, an analysis of the two counterfactual market scenarios is what begs consideration in the face of the combination. It is for finally providing this much-needed clarity in Indian competition jurisprudence, in a pithy manner, that the order merits a place in text-books as ‘Competition Economics and Law 101’. Whilst the order is, of course, not a binding precedent, it is most definitely instructive in this context, and would serve as useful guidance from an expert body for even superior tribunals and courts in India.

The CCI also held that whilst some of representations made to it raised questions of anti-competitive vertical restraints and may merit assessment by the CCI under the Competition Act, such assessment would not be under its mandate while evaluating a combination. This would leave open the option to persons making such representations to file an appropriate informations(complaints) under Section 19(1) of the Competition Act – i.e., the appropriate mode of invoking the jurisdiction of the CCI for conduct governed by Sections 3 and 4.Interestingly, in paragraph 15 of the order, the CCI holds that there is no bar on it from examining such issues under the relevant provisions of the Act at any point. This gives the impressions that the CCI may, if it thinks fit, even take suo moto cognizance and initiate an inquiry. It would be unsurprising if we see orders of the CCI in the near future in this regard, either initiating investigation(s) under Section 26(1) of the Act, or disposing the case(s) under Section 26(2) finding no prima facie case against Flipkart and/or Wal-mart.

A majority of the representations made to the CCI, however, suggested a lack of understanding of the purpose and scope of the Competition Act and of the CCI as a competition authority. As the order notes, most of them raised concerns under the FDI policy of India and other areas which have no nexus to either competition law or to the consequences of the proposed combination in the competitive landscape of the markets where Wal-mart and Flipkart operate. The CCI rightly held that such issues must be raised before the appropriate regulatory / enforcement authority.

After nine years of Sections 3 and 4 of the Competition Act being in force, and seven years of combination provisions (Sections 6 and 7) being operative, it is apparent that even now, there is insufficient awareness and understanding of competition law and economics. The slew of orders under Section 26(2) of the Act where informations have been dismissed for not raising any competition concerns is demonstrative of this fact (often, these cases raise consumer, or purely contractual issues). The representations discussed in the order, too, betray such lack of understanding. The extra mile travelled by the CCI in writing this order, therefore, will hopefully take things a long way in advancing competition jurisprudence in India.

Anandh Venkataramani is an Advocate practising in New Delhi.

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