Competition panel dismisses CUTS plea against PVR-INOX merger

Business Line, September 14, 2022

The Competition Commission of India (CCI) has dismissed a plea filed by Consumer Unity & Trust Society (CUTS) challenging PVR- INOX merger as anti-competitive.

CUTS, a public policy research and advocacy group, had in July filed an information before CCI against the proposed combination of PVR Limited (PVR) and INOX Leisure Limited (INOX), alleging that their entering into anti-competitive agreement would cause an appreciable adverse effect on competition (AAEC) for the ‘exhibition of films in multiplexes and high-end single-screen theatres in different cities’.

It maybe recalled that CUTS had averred in the information that the proposed transaction is exempted from merger notification requirement as it qualified for the de minimus exemption. It claimed that, had it not been due to the unprecedented outbreak of the Covid-19 pandemic, which lowered the turnover of the target enterprise (INOX) to less than ₹1,000 crore in FY21, the proposed transaction would mandatorily have had to be notified for approval from CCI.

CUTS claimed that the combined entity will become the largest player in the Film Exhibition Industry, operating 1,546 screens in 341 commercial properties across 109 cities of India, resulting in a significant market share in most relevant markets leading to even more consolidation with four players only, viz. Combined Entity (PVR-INOX), Cinepolis, Miraj Cinemas and Carnival Cinemas.

CCI, however, rejected the plea noting that apprehension of likelihood of AAEC by an entity which is yet to take form cannot be a subject matter of inquiry/investigation under Section 3 or 4 of the Competition Act, 2002 which prohibit anti-competitive practices.

Section 3 of the Act provides for examination of likelihood of AAEC arising of conduct in terms of an agreement, not a likelihood of conduct itself.

“This kind of an assessment is ex-ante, which can be undertaken by the Commission in appropriate cases, when legal requirements for such examination are attracted in the first place. Therefore, the Commission is of the view that conduct, much less of an anti-competitive nature, is found to be missing in the present case for an analysis from the standpoint of provisions of Section 3 or 4 of the Act. 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 provisions of the Act”, said CCI in its order.

Experts’ mixed reactions

This CCI ruling has evoked mixed reactions amongst competition law practitioners. One competition law expert told BusinessLine: “It is surprising that CCI has taken such a narrow interpretation of the law and thereby curtailed its own powers and jurisdiction in such matters. The issue that the new entity is yet to be formed is immaterial for looking into an agreement between two existing entities (PVR and INOX). In fact, the law specifically empowers CCI to look into not only agreements which cause, but also those agreements which are likely to cause appreciable adverse effect on competition in the markets. The ruling has deprived CCI opportunity to look into similar instances in future. In fact, from the experience of non-notification of acquisition of WhatsApp by Facebook (Meta) due to non-trigger of thresholds and consequent lack of opportunity by CCI to look into that transaction, there was a compelling case for CCI to have taken a broader view which would have enabled it look into non-notifiable transactions besides being consistent with the legislative mandate”.

Another expert, however, had a different take on the issue: “CCI has taken a very pragmatic view, else all non-notifiable mergers would have been thrown at CCI for examination under antitrust side, which is essentially an ex-post exercise. This would have created uncertainty amongst stakeholders in the markets, hindered inorganic growth, slowed down M&As besides affecting FDI flows in Indian markets”.

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