Monday, 23 November 2015

Diwali Bonanza by the Government: Red Carpet for Foreign Investors


The government of India, on the eve of Diwali, announced foreign direct investment (FDI) related reforms in 15 sectors. The proposed reforms have come in background of major political setback which the NDA led government faced in Bihar and are seen as a statement by the government that irrespective of such setbacks, the government will continue on its path of development. The reforms aim to rationalize and simplify the foreign investment and provide a strong sign of development to the foreign investors.

A formal official notification for the proposed changes is awaited and desirable as the present changes need clarity.  

Construction Development Sector

The real estate sector has been facing slowdown for 3-4 years now and to revive the sector the Government has done away with the requirement of minimum built up area of 20,000 square meters of the target project and minimum capitalization of USD 5 million.

Further, government has relaxed the conditions of exit in as much as for an investor to exit, it will have to either service a lock in period of 3 years or may exit once the trunk infrastructure (road, water supply, drainage etc) are completed. However, in case where the exit is by way of transfer of shares from a non resident to a non resident, without involving any remittance from out of India, the above conditions will also not apply.

One of the prohibited activities for foreign investment has been real estate business, which has been defined to mean dealing in land and immovable property with a view to earning profit without any development. It has been further clarified that earning of rent/income on lease of property not amounting to transfer will not amount to real estate business.

It is however not clear as to whether a company owning developed properties whose gross revenue only consists of rental from the properties will be able to accept foreign investment, since the same does not fall within the definition of 'construction projects' although the same has been removed from the definition of 'real estate business'.

Further, 100% foreign investment has been allowed in companies involved in management and operation of townships, malls, shopping complexes and business centres. In such cases, the foreign investor may assume control of the investee company subject to a lock in period of 3 years and provided the property is not transferred for a lock in period of 3 years. 

Defense Sector

Currently, foreign investment up to 49% is allowed in the Defence Sector under the approval route with a sublimit of 24% for portfolio investment and investment by foreign venture capital investors (“FVCIs”). Further, approval of the Cabinet Committee on Security is required to go beyond 49%.
With government expecting a flurry of development in the defense sector, the government has permitted foreign investment up to 49% under automatic route without any sublimit for portfolio investment and investment by FVCIs i.e. portfolio investment and investment by FVCIs will be allowed up to permitted automatic route level of 49%. Further, in the case the foreign investment is in excess of 49%, the same will be considered by Foreign Investment Promotion Board (“FIPB”).

The reforms in the defense sector are a welcome move. The defense sector is anyways subject to industrial license under the Industries (Development & Regulation) Act, 1951. Obtaining the said license is itself a robust and time consuming process. Further, the requirement of obtaining FIPB approval, for investments up to 49%, was an additional step to be complied with. With the liberalization of the sector, for investment up to 49%, no prior approval of FIPB would be required and thus resulting in reduction of an additional step, providing administrative ease to the investors.

Private Sector Banking

Similar to the defense sector, in private sector banking FDI up to 74% is permitted (49% under automatic route and approval route beyond 49% and up to 74%) with a sublimit of 49% for portfolio investment. The government has now permitted full fungibility for foreign investment in private banks i.e. no sub limits for portfolio investments.      

The reforms have been embraced by the private sector banks which had already exhausted the limit of maximum 49% investment by FPI’s. The banks were forced to look into alternate ways of raising funds. However, with the reforms, such private sector banks will have headroom to substantially increase FPI holdings.  

Retail and E-commerce

It has been clarified that a manufacturer in India will be permitted to sell its product through wholesale or retain, including through e-commerce, without any approvals.

Although merely a clarification, it poses a question as to whether a manufacturer having foreign investment will itself have to own and operate an e-commerce website or it can do through its subsidiary/group company also. 

The extant FDI policy on companies involved in single brand retail trading mandates that in case the foreign investment is beyond 51%, sourcing of 30% of the value of goods purchased would be done from India and reckoned from the date of receipt of FDI i.e. beginning 1st April of the year during which the first tranche of FDI is received. The government has now specified that the aforesaid sourcing shall be reckoned from the opening of the first store. Further, for ‘state-of-art’ and ‘cutting-edge technology’, sourcing norms may be relaxed with government approval.

The government has also permitted the entities, which have permission to undertake single brand retail trading, to undertake retail activity through e-commerce.

Further, under the extant FDI policy, products are required to be sold under the same brand internationally and non-resident entities are permitted to undertake single brand retail trading either as owner of the brand or legally tenable agreement with the brand owner. The government has now clarified that the said requirements will not be applicable in case of FDI in Indian brands.

Under the extant FDI policy a wholesale/cash & carry trader cannot open retail shops to sell to the consumer directly. The government has now permitted a single entity to undertake both the activities of single brand retail trading and wholesale cash and carry trading provided that conditions/requirements under the FDI policy with respect to wholesale cash & carry trading and single brand retail trading are complied with separately.

FDI in LLPs

For limited liability partnership entities engaged in sectors where foreign investment is permitted under automatic route and without any conditions, no prior government approval is now required for accepting foreign investment. Similar reform has been extended for downstream investment by LLPs into a company or LLP.

Companies owned and controlled by Non Resident Indians (“NRI”)

Pursuant to press note 7 of 2015, dated June 3, 2015, investments made by NRIs on non-repatriation basis were to be treated at par with domestic investments made by residents.

Pursuant to the reforms, the special dispensation is extended to companies, trusts and partnership firms, which are incorporated outside India but are owned and controlled by NRI’s.  Such entities owned and controlled by NRIs will be treated at par with NRI’s for investment in India and by virtue of press note 7 of 2015, it may be stated that this will also be treated at par with domestic investments by residents.

Other major changes

(A) 100% FDI, under automatic route, has been allowed in tea / coffee / rubber / cardamom / palm oil & olive oil plantations;
(B) Infusion of foreign investment into an Indian company which does not have any operations and any downstream investments will not require any approval, for undertaking activities which are under automatic route and which have no FDI-linked performance conditions, regardless of the amount or extent of foreign investment.
(C) Currently, FIPB considers proposals having total foreign equity inflow up to Rs. 3000 crore and proposals above Rs. 3000 crore are considered by Cabinet Committee on Economic Affairs. In order to achieve faster approvals on most of the proposals, it has been decided that the threshold limit for FIPB approval may be increased to Rs.5000 crore.

The changes seem to be in line with the ‘Make in India’ initiative launched by the government and, overall, are pulsating and will help India to enhance its position as favourable investment destination. While, the detailed press note is still awaited, it is expected that the aforesaid reforms should result in flurry of investments especially in Construction Development Sector, Defence Sector, Private Sector Banking and Single Brand Retail Trading. It is however to be mentioned that the changes seem to have been made in a haste and need lot of clarity to ensure the compliance and certainty.  



   

Thursday, 12 November 2015

Firm Updates

Alpha Partners promoters two of its Senior Associates, Sumit Roy and Puneet Upneja, to Associate Partner level.

Sumit has been with the firm for 3 years and is part of litigation practice of the firm. Puneet is part of the corporate and transactional team of the firm with a specific focus on Banking and Finance.

THE COMMERCIAL COURTS, COMMERCIAL DIVISION AND COMMERCIAL APPELLATE DIVISION OF HIGH COURTS ORDINANCE, 2015

INTRODUCTION
The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Bill, 2015 was brought into force through the promulgation of the ordinance on 23rd of October, 2015. The same has been re-drafted in view of the recommendations made by the Law Commission of India in its 253rd Report which provides for the constitution of Commercial Courts, Commercial Division and Commercial Appellate Division in the High Courts for adjudicating commercial disputes claiming a specified value of not less than Rs 1 crore. The term “commercial dispute” has been given a very wide scope in the definition clause. It includes ordinary transaction of merchants, bankers, financier, traders, exports or imports of merchandise or service, carriage of goods, transaction related to aircrafts, distribution and licensing agreements, agreement for sale of goods, insurance, re-insurance, commercial disputes as notified by Central Government, etc.
The Ordinance aims to promote economic growth by simplifying procedure of redressal of commercial disputes and thereafter improving the faith of investors and business houses in the India judicial system. The establishment of Courts and benches solely for the adjudication of such disputes will also reduce the time taken during litigation.
KEY PROVISIONS OF THE ORDINANCE
     I.        Definitions

The ordinance provides for various essential provisions coupled with some important definitions.

a.    Commercial dispute: A commercial dispute is defined to include any dispute related to transactions between merchants, bankers, financiers, traders, etc. Such transactions deal with mercantile documents, partnership agreements, intellectual property rights, insurance, etc.

b.    Commercial courts: As per the Ordinance, Commercial courts, equivalent to district courts, may be set up in all states and union territories, by the state governments after consulting with their respective high courts.

c.    Commercial Divisions in high courts: Commercial divisions may be set up in those high courts which exercise ordinary original civil jurisdiction, that is, the High Courts of Delhi, Bombay, Calcutta and Madras. They are to be set up by the respective state governments after consulting with their high courts. Such bench shall consist of a single judge, nominated by the Chief Justice of the High Court.

d.    Commercial appellate divisions: Commercial appellate divisions may be set up in all high courts to hear appeals against: (i) orders of commercial divisions of high courts; (ii) orders of commercial courts; and (iii) appeals arising from arbitration matters that are filed before the high courts. The chief justice of the High Court shall nominate such judges of the High Court who have prior experience in dealing with commercial disputes to be appointed as judges in appellate divisions.

   II.        Constitution and Jurisdiction of Commercial Courts

a.    Constitution- The state government may, in consultation with the High Court constitute such number of commercial courts at a district level as it may deem necessary. However, no commercial court shall be constituted where the High Court has ordinary original civil jurisdiction. The judges of commercial courts shall also be appointed by the State Government after consultation with the Chief justice of the High Court from the cadre of Higher judicial services in the state.

b.    Jurisdiction of commercial courts and commercial division of high courts: The commercial courts shall entertain all suits related to commercial disputes wherein the value of the subject matter shall not be less than 1 crore or such higher value as may be notified by the Central Government.

c.    Jurisdiction in case of Arbitration Matters: In case the subject matter of an arbitration is a commercial dispute of specified value (i.e. Rs 1 crore or above) and any application or appeal has been filed in the High Court, the same shall be heard and disposed by the Commercial Appellate Division of such High Court. This shall also include any application or appeal that has been filed at the original side of the High Court. This provision applies to all arbitration proceedings irrespective of if it is an international commercial arbitration or not. However, if any appeal or application arising out an arbitration which would ordinarily lie before the principal civil court of original jurisdiction in a district shall now be filed before the commercial court in the district having jurisdiction over such arbitration.

d.    No such suit, application or petition shall be entertained by the commercial court or the commercial division in respect of which the jurisdiction of the civil court is expressly or impliedly barred under any other for the time being in force.

 III.        Calculation of Specified Value (i.e Valuation of the subject matter)

a.    In case the relief sought is for recovery of money, the money sought to be recovered including the amount of interest shall be taken into account for determining such Specified Value.

b.    In case the relief sought relates to movable property or to a right therein, the market value of the property as on the date of filing the suit shall be taken into account for determining such Specified Value.

c.    In case the relief sought pertains to immovable property or to a right therein, the market value of the property as on the date of filing the suit shall be taken into account for determining such Specified Value.

d.    In case the relief sought pertains an intangible right, the market value of the said rights as estimated by the Plaintiff shall be taken into account for determining such Specified Value.

e.    In case any counter claim is raised in any suit, the value of the subject matter of the commercial dispute in such counter claim as on the date of the counter claim, shall be taken into account. ]

f.     In case of Arbitration: The total value of the claim and counter claim shall be the basis of determining if such arbitration is subject to the jurisdiction of  a Commercial court or commercial division.

 IV.        Appeals and Transfer of Pending Suits

a.    Appeals to the commercial appellate division must be made within a period of 60 days of the order of the Commercial Division or Commercial Court. The commercial appellate division shall dispose of such appeals within a period of 6 months from the date of filing of the appeal.

b.    Transfer of pending suits: All suits of a value of Rs 1 crore or more that are pending in the high court shall be transferred to the commercial division after it is constituted. Similarly, suits currently pending in the district courts, with a value of Rs. 1 crore or more would be transferred to the commercial court. However, a suit will not be transferred if a final judgment on the matter is pending.

   V.        Amendments to the provisions in Code of Civil Procedure for the purpose of this ordinance.

The Schedule to the Ordinance provides for certain amendments to the provisions of the CPC for the purpose of trial of a suit in respect of a commercial dispute. Following are some of the amendments:-

·         At the time of institution of suits under Section 26 of CPC, affidavit has to be filed under Order VI, Rule 15A so as to keep a record of the various commercial disputes filed.
·         The Court has the discretion to determine cost under Section 35 of CPC to decide which party will be liable to pay the cost, the quantum of cost and when the cost has to be paid. The term “costs” has also been widened to include fees and expenses incurred by witnesses, legal fees and any other expense incurred in connection with the proceeding.
·         Section 35A (2) has been omitted.

·         After the expiry of the first 30 days provided to the defendant to submit written statement, the court has the discretion to grant to the defendant a maximum extension of one hundred and twenty days from the date of service of summons to file their written statement in Order V, Rule 2 and also in Order VIII, Rule 1.
·   
      A separate form has been provided in Rule 3A of Order VI for pleading in Commercial Courts. Further Rule 15A has been added for the verification of pleadings in such courts.

·      Rule 2A has been added to Order VII which provides for seeking of interest under Section 34 in commercial disputes.

CONCLUSION

The Commercial Courts, Commercial Division and Commercial Appellate Division of High Court Ordinance, 2015 has created a separate section in the Indian Judicial system for the adjudication of commercial disputes falling within its ambit. The primary objective of the Ordinance is the speedy disposal of matters which are commercial in nature. Procedural law has also been amended as well as created to cater solely to commercial disputes in order to facilitate the smooth functioning of Commercial Courts. The Ordinance is a boon for those investors and businessmen who have been stuck in litigation due to the long pendency of matters before courts which deal with matters related to diverse fields of civil law. 

PREVENTION OF SPORTING FRAUD BILL, 2013

In a country where a sport is considered as sacred as a religion, match fixing or spot fixing has lead to disappointment and disenchantment of a number of such people. Fraud in the form of match-fixing is one of the biggest threats to sports in the 21st Century. Keeping in view the recent incidents of spot fixing in Cricket tournaments  were brought to the public’s attention, Government of India began the discussion on Prevention of Sporting Fraud Bill, 2013, herein after referred to as “the Bill”.
The Prevention of Sporting Fraud Bill, 2013 penalises not only the players and other such rookies involved but also such organizations and companies who sponsor or own sporting teams. It aims at developing and adopting a code of conduct for players as well as for the management and related staff of the sport through a zero tolerance policy to corruption in sports.
With respect to offences committed by companies, every person who, at the time when the offence was committed, was in charge of and was responsible to the company shall be deemed to be guilty of the offence and will be punished accordingly. The key provisions of the Bill are:
i)             In case of manipulation of the sports result, irrespective of whether the outcome is actually altered or in case of failure to perform to one’s full potential for economic or other advantage, one can be fined Rs. 10 Lakh or five times the economic benefit derived, whichever is greater, and imprisonment up to five years.
ii)           In case of disclosure of inside information which can be used for financial gain or betting or manipulation of event or omission to inform the appropriate authority of any of the abovementioned acts would lead to a fine of Rs. 5 lakh or three times of the benefit so derived, whichever is greater, and imprisonment upto three years.

In case a person attempts to commit the above mentioned offences, he will be punished in the same manner as if the offence was committed.

Companies involved in sports in the form of sponsors as well as owners are obligated to report the development and implementation of fraud risk management policy as per Section 134 of the Companies Act, 2013. Such companies are often exposed to risks like use of illegal performance enhancing drugs by players or embedding such drugs in a rival player’s medication, bribery and corruption of key selectors, inappropriate behaviour such as cheating and violation of rules of the games, corporate espionage where agents are often used to spy on rival teams, etc.

The Bill mandates the team sponsors to undertake an integrity due diligence of the support staff hired to work with the players, monitor financial transactions of the team and conduct education programs for players and company employees explaining the obligation to this statute and the concerned sports authority.

A numbering of companies have adopted their own set of conduct rules. However, with the introduction of the Bill, it will become compulsory for all such companies to monitor their players as well as staff and reduce fraud risk by adopting such measures to mitigate them.

Let’s Go Crazy - Copyright-wise

STEPHANIE LENZ V. UNIVERSAL MUSIC CORPORATION
United States Court Of Appeals for The Ninth Circuit Decided On 14.09.2015

SUBJECT: Copyright Law, Fair Use
The law on copyright provides the legal framework not for the protection of the traditional beneficiaries of copyright, the individual author, composer or artist but also for the investment required for the creation of work by the major cultural industries, the publishing, film, broadcasting and recording industries and the computer and software industry. The Copyright Act grants to the owner of the copyright, a number of exclusive rights with respect to the reproduction of the work which enables the owner to obtain financial benefits out of his work. The owner of a copyright is entitled to issue license for the use of its copyright. Any use of this work without the permission of the copyright owner amounts to infringement. However there are certain exceptions to infringement, one of them being fair use or fair dealing. Fair use or fair dealing is the permitted use of a work which is a copyright of another for research or private use, criticism or review or for reporting of current event in the newspaper or in a cinematograph film or my means of a photograph. 
Brief Facts
1.        On the 7th February 2007, Stephanie Lenz, the Plaintiff, uploaded a 29 seconds long home video by her YouTube user profile of her two young children in the family kitchen dancing to the song Let’s Go Crazy by Prince, a music artist. Lenz titled her video as “ ‘Let’s Go Crazy’ #1. ”

2.        Universal Music Corporation, the Defendant, was the publishing administrator responsible for enforcing Prince’s copyrights. Universal assigned one Sean Johnson of their legal department review and evaluate the video of Lenz. Johnson reviewed the video and evaluated that the said video embodied a composition by Prince and stated in his report that the song was recognizable in a significant portion of the video or was the focus of the video. Universal, after being satisfied by Johnson’s report that the song of Prince was the focus of the video, decided that the video should be in the takedown notification list to be sent to YouTube of more than 200 videos. This notice was sent as per the requirements of 17 U.S.C.  § 512 (c)(3)(A)(v) of the Digital Millennium Copyright Act or DMCA which also included the “good faith belief”.

3.        After the receipt of the takedown notification, YouTube removed the said video uploaded by Lenz and send her a mail dated 5th June 2007, notifying her of this removal. Lenz attempted to restore the said video by sending a counter notification to Universal as per § 512(g)(2)(B) of the DCMA on 7th June 2007. Once this notification was placed before Universal by YouTube, Universal protested against the reinstatement of Lenz’s video as Lenz has failed to properly acknowledge that her video amounted to an infringement of Copyright due to the focus of the video being on the song Let’s Go Crazy and that neither she nor YouTube were granted license to reproduce, distribute, publically or otherwise exploit the composition.

4.        Another counter-notification was sent by Lenz dated 27th June 2007 which resulted in the reinstatement of the video by YouTube in mid-July.

5.        Lenz filed the above action and made tortuous interference claims and requested for declaratory relief on 24th July 2007 which was dismissed by the district court. A Second Amendment Complaint was filed by her on 18th April 2008 for misrepresentation of her video as an infringement. Universal’s motion to dismiss the action was denied by the district court. 

6.        The district court held that Universal and other copyright owners must consider “fair use” before issuing takedown notifications of DMCA. It declined Universals claim of dismissing Lenz’s claims of misrepresentation and held that it was a matter of law and several other claims made by Lenz.

Issues for Consideration

The main issues for consideration were:-

1.        Whether summary judgment should be granted in the present case?

2.        Whether the home video made by Lenz amounts to fair use and does her claim for misrepresentation stands?

3.        Whether Universal Music Corporation exercised good faith at the time of taking sending the takedown notification to YouTube with respect to Lenz’s home video?

Decision of the Court
1.        The parties cross motion to grant a summary judgment in this case was denied for action under DMCA alleging that the Defendants violated 17 U.S.C. § 512(f) by misrepresenting in a takedown notification that the Plaintiff’s home video constituted an infringing use of a portion of a composition by artist Prince.

2.        The Court held that the copyright holders have to consider “fair use” before sending a takedown notification diligently. If the copyright holder fails to do so, it raises a question triable before a court of law regarding the intention of such holder.

3.        The Court further stated that the view of a copyright holder is that a particular work does not amount to fair use cannot be disputed by anyone else other than such a holder themselves provided that they formed such an opinion in good faith. The holder has to prove that the impugned work is not fair use in good faith and thus was not authorised by law to be reproduced.

4.        The doctrine of wilful blindness has to be used  in order to determine whether a copyright holder knowingly misrepresented that it had a good faith belief about the work not being one of fair use.

5.        In the present matter the court held that no wilful blindness took place on the part of the Defendants because the Plaintiff was unable to prove that the Defendants subjectively believed that there was a high probability that the video constituted fair use. However, nominal damages were granted to the Plaintiff as the takedown of the impugned video resulted in misrepresentation under § 512(f) of DCMA.

Fair Use v. Fair Dealing

Fair Use is the exception of using a copyright work under the American Copyright Law, DMCA whereas Fair Dealing is the exception, provided under the Copyright Act, 1957, pari materia to fair use.

Fair use is when a copyright is used by reproduction in copies or phonorecords, for the purpose of criticism, comment, news reporting, teaching, scholarship or research. The purpose or character of such use cannot be a commercial in nature but can be for non-profit educational purposes as per § 512 of DMCA.

Fair dealing of a copyright work take place for the purpose of research, private use, criticism, review, reporting of the same in the form of current events in newspaper, magazine or periodical or broadcast or in a cinematograph film in the form of a photograph as per section 52(1) of the Copyright Act, 1957.

MR. MOHIT MANGLANI vs M/s FLIPKART INDIA PRIVATE LIMITED & Ors. - COMPETITION COMMISSION OF INDIA DECIDED ON 23.04.2015

SUBJECT- E-COMMERCE
In a move that might have far reaching consequences towards creating transparency and accountability in the legal system, fair trade regulator, Competition Commission of India (CCI) is probing whether certain resale price arrangements between manufacturer and e-retailers violate competition norms.  Such is done to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets.

Brief Facts
1.   Mr. Mohit Manglani (the Informant) had filed a complaint under Section 19(1) (a) of the Competition Act, 2002(“the Act”) against various e-commerce/portal companies (Opposite Parties) for their alleged contravention of the provisions of Section 4 of the Competition Act, 2002.

2.   It was alleged by the Informant that these e-commerce websites have been indulging in anti-competitive practices in the nature of “exclusive agreements” with seller of goods/services. The Informant stated that owing to such practices, the consumer was left with no option in regards to terms of purchase and price of the goods and services and was bound to either purchase the product as per the terms of the website or opt not to purchase the product in totality.

3.   The Informant further alleged that the e-portal/e-commerce websites and product sellers enter into ‘exclusive agreements’ to sell the selected products exclusively on selected portal to the exclusion of other e-portals or physical channels. The conditions which the portals decides are non-negotiable for a consumer who intends to buy the products. Further, the supply is controlled by the e-portal with whom the exclusive arrangement has been made thereby creating an impression of scarcity.

4.   The Informant stated that Section 3(1) read with Section 3(4) of the Act are fairly applied on ‘exclusive agreement’ and ‘restrictive/unfair business practice’ of these e-portals. By slowly destroying players in physical market and creating product specific monopoly leading to manipulation of price, control of production and supply, imposing terms and conditions detrimental to interests of consumer, such agreements distort fair completion in the marketplace.

5.   It was also stated that each e-portal i.e. the Opposite Party has 100% market share for the product in which it is exclusively dealing and which in turn leads to dominance. It was further contented that the relevant market has to be defined in context of a particular product in question and the dominance be seen accordingly.

6.   It was contended that an e-commerce portal’s business is that of a market place model where the supplier is the owner of the products which are sold through online retail portals and the customer making such purchase is the end purchaser of the product.  Therefore the e-commerce websites merely act as a platform that brings the two sides together for simplifying the transaction.

7.   It was contented that exclusive agreement is not in violation of Section 3(4) of the Act as there is no appreciable effect on competition (AAEC) in the relevant market. It was also contended that given the wide range of products, availability of substitutes, and consumer preferences, no single manufacture is able to exercise market power to cause any competition concern.

8.   All Delhi Computers Traders Association (ADCTA) submitted that the e-commerce websites have engaged in unfair trade practices and introduced illegal black money as FDI in such business. It was contented that OPs have adopted the practice of purchasing the goods from the distributors on 21 to 30 days credit and then subsequently selling products at prices lower than the purchase price. ADCTA further submitted that OPs impose conditions like quantity restrictions, purchase of goods by the end of consumers only for personal use and re-sale etc. It was alleged that the OPs have also indulged in practices like predatory pricing in abuse of their dominant position under provisions of section 4(1) and 4(2) of the Act.


Issue for Consideration
The main issue for consideration was:-
Whether the practice of entering into exclusive agreement for sale and purchase of goods by way of e-commerce is violating the provisions of Section 3(1), 3(4) (b) & (c) and Section 4(a) (i), 4(b) (i) and 4(b) (ii) of the Competition Act, 2002 and have an appreciable adverse effect on competition (AAEC) in India.

 Decision of the Court
1.   The Commission analyzed the material available on record and heard the parties. As observed by the Commission, the Informant was primarily aggrieved by the exclusive distribution arrangements between the manufacturers and OPs which, as per the Informant, leave the consumer with no option but to accept the onerous terms/price as imposed by the exclusive online seller i.e. OPs

2.   The Commission further considered various factors laid down under Section 19(3) of the Act such as:
a.    Creation of barriers to new entrants in the market;
b.    Driving existing competitors out of the market;
c.    Foreclosure of competition by hindering entry into the market;
d.   Accrual of benefits to consumers;
e.    Improvements in production or distribution of goods or provisions of services;
f.     Promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services to assess the effect of such exclusive arrangement between manufacturers and e-portals.

3.     Further the Commission observed that online distribution channel by the OPs provide an opportunity to the consumer to compare the price as well as the pros and cons of the product. Also it provides the option of delivery right at their convenience .Therefore it does not appear that the exclusive arrangement between manufactures and e-portals lead to AAEC in the market.

4.     The Commission further observed that every product of OPs cannot be considered as a relevant market in itself, therefore, it was stated in the order that e-portal acts as a separate relevant product market or as a sub-segment of the market for distribution. Therefore the Commission while adjudicating upon the present dispute, did not dwell into the question of abuse of dominance by the OPs as raised by the Informant and ADCTA. Further, it does not appear that because of these exclusive agreements any of the existing players in the retail market are getting adversely affected, rather with new e-portals entering into the market, competition seems to be growing

 The Commission opined that no case of contravention of provisions of either Section 3 or Section 4 of the Act is made out against the OPs, therefore the matter is closed under the provisions of Section 26(2) of the Act.