From abeyance to assurance – Supreme Court keeps a check

The Supreme Court has given a simple but powerful message – doing business in India may be heavily regulated, but regulators remain bound by the rule of law. Investors must always comply with regulations, making complete disclosures, but once an important, economic regulator like the Competition Commission of India (CCI) has approved a transaction, regulatory finality cannot be subject to a ‘do-over’.

The ‘dispute’ between Amazon and the regulator

The case arose from Amazon’s 2019 investment in Future Coupons Private Limited that got approved by the CCI in November 2019 (merely two months from notification). After more than a year, in December 2021, the CCI concluded that Amazon had not properly disclosed the true scope and purpose of the transaction while seeking its approval. In an unprecedented move, the CCI kept its approval in abeyance, directed Amazon to file a fresh notification, and imposed an exceptional monetary penalty. The National Company Law Appellate Tribunal upheld the decision but the Supreme Court has now set aside both those orders.

It would be easy to read the judgment as a setback for the CCI. However, the intention of the Supreme Court does not to dilute the CCI’s mandate: It recognises merger control as a forward-looking regulatory tool requiring the CCI to have sufficient information to examine the substance of a transaction. Neither is the judgment an endorsement for parties to file bare, tactical merger notifications, as inter-connected steps, governance rights, commercial arrangements and transaction rationale must be meticulously disclosed by the parties. The Court has delineated a clear line between rigorous scrutiny and an opaque, open-ended regulatory regime.

Predictability as the benchmark

The value of a transaction approval becomes indeterminate if it can be ordered into suspended animation without a clear statutory basis. The ruling reassures global investors by limiting the CCI to its statutory powers, facilitating long-term strategic planning. The CCI’s “abeyance” order being set aside is therefore significant, as it was held that the CCI could only wield the powers circumscribed under law.

The Supreme Court clarified that while in some cases, a filing may be too incomplete to qualify as valid merger notification, a mere disagreement over description, emphasis or characterisation of details cannot be deemed a failure to notify.

Boundaries have been set, but CCI can still wield its power when needed

By no stretch of imagination has the Supreme Court rendered the CCI toothless in functioning. It has merely emphasised upon the boundaries of its power. While the CCI is empowered to discipline parties for false disclosures / material non-disclosures, it cannot re-assess an approved transaction after the statutory one year ‘look-back’ period from closing has passed.

The decision invites reflection on the appellate architecture for competition law in India. Since the erstwhile Competition Appellate Tribunal merged into the NCLAT in 2017, competition appeals have not received due specialised attention.

The heavy roster of various matters before the NCLAT prevents the benches at the tribunal from meaningfully appreciating competition law matters – some of which languish for years. No specialised bench has expertise in competition law which requires the assessment of nuanced legal and economic arguments by an appellate authority. To achieve regulatory certainty, the need for a specialised competition appellate tribunal must be addressed with at least a dedicated bench at the NCLAT. Appeals would then perhaps not require the Supreme Court to intervene in the manner that it had to in this case.

Is there a lesson here?

For businesses, the takeaway is not to become relaxed about CCI filings, rather quite the opposite. Despite setting aside the CCI’s directives, the judgment raises the importance of providing complete material disclosures while filing notifications. Regulators will scrutinise deals, insist on substance, and indeed reprimand clever non-disclosure, but all within statutory limits.

The judgment also provides useful guardrails for the CCI, emphasizing appreciation of commercial substance of notified transactions, rather than mechanical forms of notification. This may lead to more vigilance by the regulator which has been operating with shared trust. At the same time, a specialised appellate process with the requisite competition law experience could support both effective and timely enforcement and disciplined decision making by the regulator.

By Sonam Mathur, Partner TT&A 

(Shashank Mehrotra, Associate TT&A and Dhruv Dikshit, Advocate contributed to the research for this piece)