Can the Competition Commission of India (CCI), a premier quasi-judicial body that gives its stamp of approvals for big-ticket mergers and decides on important antitrust cases, pass any order without the requisite quorum?
The Independent Sugar Corporation (INSCO), led by billionaire NRI family the Madhvani Group, has dragged CCI to the National Company Law Appellate Tribunal (NCLAT) for passing an order without the requisite quorum.
To pass any order the CCI requires a minimum quorum of three members, including a chairman. But the Central Government has not completed the process of appointing additional members and/ or a Chairperson since October 2022. Instead, it has extended the tenure of the acting chairperson, Sangeeta Verma, until further notice and there is another member Bhagwant Singh Bishnoi.
On April 11, INSCO filed an appeal before the NCLAT stating that CCI rushed with its order in favour of AGI Greenpac in the deal to acquire India’s oldest glass-making company Hindustan National Glass and Industries (HNG). INSCO had earlier won the CCI clearance to acquire HNG when a full quorum of three members existed. But CCI approval was given to AGI by the two-member CCI bench that, too, on condition of modification at a later date.
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Experts say the situation is unprecedented for CCI, which has been hamstrung by a delay in appointments. While the CCI in this particular case has invoked the “doctrine of necessity” – which is sometimes used in acquisition matters, INSCO’s appeal says the doctrine cannot be applied loosely to every case, and even such cases like the present, which requires deeper and more detailed investigation and scrutiny. Also, the hurry in passing the order suggests that actions which would have otherwise not been permitted, are made lawful by necessity, INSCO told NCLAT.
INSCO has told NCLAT that the CCI “cannot justify reasons for invoking the ground of ‘doctrine of necessity’ for granting approval of the proposed combination of HNG-AGI without thorough investigation and enquiry into the effect of such combination on the market, stakeholders and also on the several parties who had already filed objections with the CCI.”
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In order to approve combinations, the CCI requires a minimum quorum of three members, which has not been completed since October 2022.
Further, INSCO said it came to know about the CCI order on AGI-HNG as the share price of AGI started rising after the company informed the stock exchanges about the partial CCI order and yet did not mention anything about the ‘modification’ clause in the order. Also, the appeal on the point of quorum is important since the CCI was examining complaints that stated that India’s container glass market may yet again be monopolised if another large player is allowed to take over HNG. In 2003, HNG itself had turned into a virtual monopoly in the container glass market when it acquired Owens Brockway, units of Larsen and Toubro in 2005, and Haryana Sheet Glass in 2007.
“CCI has granted them approval under Section 31(1) of the CCI Act on 15.03.2023 and that a detailed order is pending. It is only after inspecting the website, it was discovered that the impugned Order was passed subject to certain modifications, which fact was not disclosed by AGI to the stock exchanges. It is pointed out that the partial and selective disclosure to the stock exchanges resulted in an increase in the value of shares of AGI,” INSCO’s appeal to NCLAT says. Following INSCO’s appeal, the CCI put out a detailed order on its website on April 20.
INSCO’s base argument in the appeal is that without the requisite quorum, the CCI could not have determined as to how the AGI-HNG merger leading to a dominant position would result in wiping out competition in the container glass market and adversely affect industry pricing as a result.
“CCI has not only failed to apply its mind as to the obvious appreciable adverse effect that the proposed combination of HNG-AGI would have on competition. HNG already has above 60 per cent dominance in the Indian market in the field of container glass and that AGI has about 20 per cent hold in the same market, but that AGI and HNG have been direct competitors and that a merger of two stalwarts and largest players in the same market shall definitely have a severe impact on the market and would affect product pricing, encourage predatory pricing, encourage cartelisation and severely affect the business of several industries that are dependent on the container glass industry including the food , liquor , pharma , and home decor industry, amongst others, and adversely affect smaller players in the same and different fields that entirely depend on the larger companies for pricing and raw material,” INSCO’s appeal states.
Interestingly, INSCO pointed out that CCI had earlier rejected the application of the proposed combination of HNG-AGI when it was submitted by AGI under Form I and accordingly AGI had to revise its application under Form II of the Combination Regulations, which mandated a much deeper and detailed level of enquiry by CCI as to whether the Proposed Combination of HNG-AGI would cause any appreciable adverse effect on competition.
Reportedly, a resolution plan involving a bid by AGI Greenpac was submitted to the NCLAT on November 5, when the application by AGI to the CCI was not cleared. While INSCO had already secured a CCI nod for its bid and submitted the same to the committee of creditors in 2022. But still, the resolution professional and CoC approved a bid by AGI Greenpac, whose CCI application was pending. Before the CCI approval came, the final resolution plan was already submitted to the NCLT by the officials involved. To acquire HNG, the AGI had offered ₹1,851 crore upfront, ₹5 crore to trade creditors and ₹350 crore deferred payment. INSCO offered ₹1,850 crore upfront cash, ₹50 crore to trade creditors and 5 per cent equity to creditors of HNG.
Usually, the bidder, whose plan is accepted by the resolution professional and CoC should have CCI clearance. On August 25, 2022, Girish Juneja, the Resolution Professional had written to the bidders stating that they should try to obtain a CCI nod before the filing of the final resolution plan.