2023 (8) TMI 620 - AT - Companies Law

Anti-Competitive agreements - abuse of dominant position - scheme of merger by absorption of the Inox with PVR was sanctioned and the appointed date of the scheme was fixed mutually as 1st January, 2023 - alleged contravention of the provisions of Section 3(1) of Competition Act, 2002 - Appellant has vehemently argued that the Commission has committed an error on the ground that actual conduct is not being shown whereas the word used in Section 3(1) of the Act is likely which mean something which is probable or something which might well happen as it conveys the sense of probability as distinguished from a mere possibility. HELD THAT - Section 3(1) deals with the anti competitive agreements whereas Section 5 of the Act talks of combination which says that the acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises . It is apparent that both PVR and Inox have now become a single entity after merger and the effect of a combination as defined under Section 5 of the Act which is regulated by Section 6 of the Act has nothing to do with Section 3(1) of the Act which deals with the anti-competitive agreements in which both the entities retain their separate identities even after the agreement is entered into unlike the merger of two entities which takes effect of a combination in terms of Section 5 of the Act. It has come in the order itself that since the merger of PVR and Inox was not falling within definition of Section 5 because of the issue of threshold, therefore, the information under Section 19(1)(a) has been filed by the Appellant alleging the contravention of Section 3(1) of the Act despite knowing that both entities have become one and do not fall within the definition of Section 3(1) of the Act. Thus, in view of this matter, the application by itself is not in accordance with law for the purpose of initiating action under Section 19(1)(a) of the Act. As regards, Section 4 of the Act is concerned, it is pertaining to abuse of dominant position for which the Commission has rightly observed that even if the proposed transaction is concluded (merger), dominance per se is not anti-competitive and it is only the conduct which falls within the provisions of Section 4 of the Act. The Commission has also further observed that post facto, if any matter of abusive conduct under the provisions of the Act is brought, or comes to the notice of the Commission, the same may be examined at that stage in terms of the provision of the Act - Which means a liberty has been given to the Appellant or the same even be exercised suo motu by the Commission if it comes to its notice that the dominant position has been abused but until and unless there is any such allegation which prima facie prove the conduct, the action under Section 4 could not also be taken. There are no merit in the present appeal and the same is hereby dismissed.

Summary

Issues Involved:
1. Alleged contravention of Section 3(1) of the Competition Act, 2002.
2. Applicability of Section 4 of the Competition Act, 2002.
3. Distinction between anti-competitive agreements and combinations under the Act.

Summary:

Issue 1: Alleged contravention of Section 3(1) of the Competition Act, 2002

The appeal was filed against the order dated 13.09.2022 by the Competition Commission of India (CCI), which dismissed an application by Consumer Unity & Trust Society (CUTS) under Section 19(1)(a) of the Competition Act, 2002, alleging that PVR Limited and INOX Leisure Limited had entered into an anti-competitive agreement likely to cause an appreciable adverse effect on competition (AAEC). The Informant contended that the merger of PVR and Inox would create a dominant entity in the film exhibition industry, leading to reduced consumer choice, higher prices, and other adverse effects. The Commission observed that the information was based on apprehension and not on any specific agreement that resulted in AAEC. The Commission found no prima facie case under Section 3 or 4 of the Act, as the merger did not fall within the definition of an anti-competitive agreement but rather a combination regulated by Section 6 of the Act.

Issue 2: Applicability of Section 4 of the Competition Act, 2002

The Informant argued that the combined entity would be dominant and likely to abuse its position. However, the Commission observed that dominance per se is not anti-competitive; only conduct can be scrutinized under Section 4. The Commission noted that any post-merger abusive conduct could be examined if brought to its notice, but no prima facie case was made for action under Section 4. The Tribunal agreed with this observation, stating that the mere potential for dominance does not warrant action without evidence of abusive conduct.

Issue 3: Distinction between anti-competitive agreements and combinations under the Act

The Respondents argued that the merger was a combination under Section 5, not an anti-competitive agreement under Section 3. The Tribunal noted that the merger had been sanctioned by the NCLT, and both entities had become a single entity, falling under the definition of a combination. The Tribunal emphasized that Section 3 deals with agreements where entities retain separate identities, while Section 5 and 6 regulate combinations where entities merge into one. The Tribunal concluded that the application under Section 19(1)(a) for contravention of Section 3(1) was not maintainable, as the merger did not constitute an anti-competitive agreement.

Conclusion:

The Tribunal dismissed the appeal, finding no merit in the arguments presented by the Appellant. The merger of PVR and Inox was deemed a combination, not an anti-competitive agreement, and no prima facie case was established under Sections 3 or 4 of the Competition Act, 2002.