The role of CCI in Mergers and Acquisitions

SYNOPSIS

The Competition Commission of India (CCI) ensures fair market competition by regulating mergers, preventing anti-competitive practices, and safeguarding consumer interests. It approved Walmart’s Flipkart acquisition, despite later concerns over pricing practices, while revoking Amazon’s Future Coupons deal for misrepresentation. These cases highlight CCI’s role in maintaining transparency and accountability under the Competition Act, 2002.

Exploring CCI's Impact on Mergers and Acquisitions: Regulatory Influence and Business Strategy.

The role of CCI in mergers and acquisitions

The Competition Commission of India (CCI) is a governmental organization that has been established under the Competition Act, 2002. Its primary responsibility is to:

• Ensure that businesses compete on an equal footing.

• Safeguard consumers' interests.

• Ensure freedom to trade for all.

The CCI achieves this by:

• Preventing anti-competitive agreements among firms.

• Preventing dominant firms from abusing their market power.

• Screening mergers and acquisitions that could harm competition.

The CCI also gives suggestions to the government regarding competition matters and raises awareness among people regarding fair competition. On a basic level, the CCI aims to make the playing field equal in the market, which favours consumers and supports India’s economy.

CCI’s Approval of Walmart’s Flipkart Acquisition

Walmart purchased a 77% stake in Flipkart in May 2018, the biggest e-commerce acquisition. The Competition Commission of India (CCI) examined the transaction to evaluate competition issues. It scrutinized horizontal and vertical overlaps but did not find any notable anti-competitive risks since Walmart was functioning in B2B wholesale and Flipkart was acting as a marketplace with no inventory holding. Even after CCI approval, trader associations complained of predatory pricing, favoritism to certain e-tailers, and evasion of FDI policy. CCI held that these were beyond its merger review jurisdiction. Critics felt that CCI adopted a narrow legalistic approach and lost the chance to impose conditions for fair competition. Although CCI proposed that these issues may be considered under independent provisions, it failed to order an investigation. This resulted in difficulties before the National Company Law Appellate Tribunal (NCLAT) regarding whether CCI had properly addressed the larger concerns for India’s e-commerce space.

CCI’s Suspension of Amazon-Future Coupons Deal

The Competition Commission of India (CCI) on December 13, 2021, cancelled Amazon’s 2019 agreement with Future Coupons on the grounds of misrepresentation and withholding of information. Amazon had picked up a 49% holding in Future Coupons, which indirectly provided it with a 4.81% holding in Future Retail, an important Indian retail player. Although Amazon had claimed that the investment was grounded on business opportunities of Future Coupons, internal reports suggested that the real intention was to establish a presence in India’s retail sector and secure strategic dominance of Future Retail. CCI reasoned that Amazon’s withholding of its real intention amounted to a breach of regulatory faith under the terms of the Competition Act, 2002. Therefore, Amazon was required to submit “true and complete information” in 60 days, thereby putting the deal on hold. The order also influenced Future Group’s subsequent takeover by Reliance Retail, with both parties fighting long legal cases in Indian as well as global courts.

Conclusion

CCI sanctioned Walmart’s Flipkart buyout by evaluating competition risks and merger regulation compliance. On the contrary, CCI revoked Amazon’s Future Coupons transaction for misrepresentation, imposing transparency and accountability in mergers under the Competition Act, 2002, emphasizing its role in overseeing fair competition and corporate disclosures.

Harsh Raj