VOL III                                                      ISSUE NO. 16                                April 17, 2018          

In This Issue

India: CCI penalizes leading Airline Companies for cartelization

cbecThe Competition Commission of India vide its recent judgement seeks to prevent cartelization which hampers the fair market practices. Fixation of price by the market players prevents healthy competition thereby affecting the consumers eventually.

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India: Liquidity Enhancement Schemes in Commodity Derivative Contracts

sebiSEBI has decided to permit LES in commodity derivatives contracts subject to the conditions and requirements as stipulated for LES in Equity Cash and Equity Derivatives segments in 2014.

 

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India: Calcutta High Court upholds the constitutionality of the provisions of IBC, 2016

Calcutta High Court The Hon’ble Calcutta High Court recently upheld the validity of Section 7, 8 and 9 of the Insolvency and Bankruptcy Code, 2016 and held that the classification made by the Insolvency and Bankruptcy Code, 2016 amongst the creditors of a cooperate debtor is based on reasonable differentia.

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India: How to obtain gaming license in India?

online-gamingThe Nagaland Online Game of Skill Act verifies the licensed game to be a game of skill.

 

 

 

 

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India: CCI penalizes leading Airline Companies for cartelization

 

ipb.jpg

 

Source : www.cci.gov.in

 

With the aim of ensuring honest and fair trade practices, the Competition Act, 2002 (hereinafter referred to as the “Act”) was enacted. The Competition Commission of India (hereinafter referred to as “Commission”) regulates and ensures that no unfair competitive practices prevail in the Indian market.

 

The Act defines a “cartel” to include an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services.

 

The Commission vide its judgement[1] dated March 7, 2018, elaborately discussed that cartelization occurs usually in a clandestine fashion being hidden or secretive without leaving behind any documentary evidence. Therefore, the existence of such anti-competitive practices are required to be inferred from the circumstantial analysis devoid of any plausible explanation.

 

Brief facts

 

Jet Airways, IndiGo, SpiceJet (hereinafter referred to as “airlines”) were levying Fuel Surcharge (hereinafter referred to as “FSC”) at a uniform rate thereby constituting the act of cartelization covered under the provisions of the Act. The levy of FSC was the extra charge linked to fuel prices which had been uniformly increased in the past even without a corresponding increase in the fuel prices. It was alleged that this uniform increase in FSC by the airlines was done in collusion which was not only detrimental to the interests of freight companies but also adversely affected the consumers as higher costs are invariably passed on to the ultimate consumers.

 

Judgement

 

The Commission held that the collusive conduct of the airlines in increasing the FSC uniformly has directly or indirectly fixed the freight rates and thus, contravenes the provisions of Section 3(3)(a) read with Section 3(1) of the Act. Penalties of INR 398,100,000, INR 94,500,000 and INR 51,000,000 were imposed on the airlines in furtherance to the said contravention.

 

 

Ratio

 

The Commission opined that the oligopolistic structure of the market is conducive for a coordinated and concerted behaviour. The low cross elasticity of demand of air cargo services coupled with high entry barriers, common intermediaries (cargo agents) result in a channel for sharing of information amongst the players and presence of trade associations, makes the coordination amongst the players easier.

 

The contention of the airlines that FSC was only a minor component of the total freight charge and there would be no incentive to cartelize on FSC, was rejected by the commission which held that significant portion i.e. nearly 20-30% of the freight revenue of the airlines was generated from FSC.

 

The Commission observed that the airlines implemented FSC at the same rate of INR 5 per kg at the same time and the said charges were revised by all of them in nearly the same time span. It was noted further that irrespective of the factors taken into consideration for varying FSC, the change in FSC rate remained the same which the airlines failed to justify. The Commission held that this coordinated course of action relating to change of prices ensures prior elimination of all uncertainty as to each other’s conduct regarding the essential elements of that action, such as the amount, subject-matter, date, etc.

In the light of the observed facts, the Commission held that as the airlines are operative at the same level of the production chain, their contravening practices fall under following provisions of the Act:

 

Section 3 (3) (a) of the Act recognizes any agreement between enterprises/ persons or associations of enterprises/ persons including cartels, engaged in identical or similar trade of goods or provision of services, which directly or indirectly determines purchase or sale prices as anticompetitive.

 

Section 3 (1) of the Act prohibits enterprises/ persons or associations of enterprises/ persons to enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.

 

Conclusion

 

Price competition in a market encourages an efficient supply of output/ services by companies. Any company is free to change/ revise its prices taking into consideration the foreseeable conduct of its competitors. However, the association of enterprises/ persons aiming for collective profits disturbing the market regulators by way of cartelization are not permitted as per the Act, the same being against the healthy growth of competition.

 

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[1]In Re: Express Industry Council of India and Jet Airways (India) Ltd., IndiGo Airlines, SpiceJet Ltd., Air India Ltd., Go Airlines (India) Ltd. [Case No. 30 of 2013]

 

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India: Liquidity Enhancement Schemes in Commodity Derivative Contracts

 

sebi

Source: www.sebi.gov.in

 

 

Background:

 

The Securities and Exchange Board of India (hereinafter referred as ‘SEBI’) vide circular[1] dated March 26, 2018, has prescribed guidelines for Liquidity Enhancement Schemes (hereinafter referred as ‘LES’) in Commodity Derivative Contracts.

 

Requirements stipulated in Equity Cash and Equity Derivatives segments:

 

SEBI has decided to permit LES in commodity derivatives contracts subject to the conditions and requirements as stipulated for LES in Equity Cash and Equity Derivatives segments vide SEBI Circular dated April 23, 2014.[2]

 

Additional requirements:

 

In addition to the conditions and requirements as mentioned in the above circular, the following conditions shall apply to LES in commodity derivatives contracts:

  1. LES shall not be applicable for commodities classified as ‘Sensitive Commodity’ by the Commodity Derivatives Exchange(s).

  2. If there is at least one exchange where the average daily turnover in Options or/and Futures on similar underlying commodity is more than or equal to INR 200 crore for agricultural and agri-processed commodity, and INR 1000 crore for non-agricultural commodity during the last six months, then no other exchange is eligible to launch LES on the same derivative product, unless the exchange where the product is liquid, has itself also launched a LES on the said product.

  3. LES shall not be permitted for such schemes which incentivize brokers based on activation of Unique Client Codes, number of trades or open interest.

  4. In furtherance of the above points, SEBI has also asked the exchanges to put in place a mechanism to ensure that the LES does not create artificial volumes, does not take away liquidity form the market, is not manipulative in nature and shall not lead to misspelling of the product in the market.

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[1]Available at: https://www.sebi.gov.in/legal/circulars/mar-2018/guidelines-for-
liquidity-enhancement-schemes-les-in-commodity-derivatives-contracts_38419.html.

[2]

Available at: https://www.sebi.gov.in/legal/circulars/apr-2014/revised-guidelines-for-liquidity-
enhancement-scheme-in-the-equity-cash-and-equity-derivatives-segments_26747.html

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India: Calcutta High Court upholds the constitutionality of the provisions of IBC, 2016

 

Logo-of-Bar-Council

Source : www.calcuttahighcourt.nic.in

 

 

Background:

 

The Hon’ble Calcutta High Court on February 2, 2018, upheld the validity of Section 7, 8 and 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as ‘IBC 2016’ or ‘the Code’) in the case of Akshay Jhunjhunwala & anr. v. Union of India . [1]

 

Petitioner’s contention:

  1. The Petitioner’s major contention was that amongst corporate debtors, IBC 2016 differentiates between a financial creditor and an operational creditor which is unjust and without any rational or intelligible basis.

  2. A financial creditor has a right to be in the Committee of Creditors (hereinafter referred as ‘COC’), however, an operational creditor does not have any say in the Committee of Creditors even if its claim may be much more than that of the financial creditor.

  3. The Code does not empower the adjudicating authority to look deeply into the validity of a financial creditor’s claim. However, a deeper scrutiny is exercised for an operational creditor’s claim. The claims of a financial creditor should be scrutinized as much as the claims of an operational creditor are scrutinized.

Respondent’s contention:

  1. The competence of Parliament has not been called upon in question.

  2. Claims of financial creditors are uncontested in nature unlike the claims of operational creditors which may require further adjudication. (Reference made to Supreme Court decision in the matter of Innoventive Industries Limited wherein no irregularity was noted by the Hon’ble Court in the distinction between financial and operational creditors).

 

  1. An operational creditor also has a right to participate in the meeting of Committee of creditors when its claim is in excess of 10% of the total liability of the corporate debtor. This limit is set to ensure operational creditors with very small claims do not interfere with the expeditious resolution of disputes.

  2. Mere possibility of abuse of a legislation provision should not be a ground for striking the same down as ultra vires to the Constitution of India.

Judgment:

 

The Court held that:

  1. A financial creditor means a creditor whose claim arises out of a transaction in liquidity entered into by such creditor with the company whereas an operational creditor on the other hand is a creditor whose claim arises out of a normal business transaction that such creditor may have had with the legal entity.

  2. A secured or unsecured or statutory creditor is reclassified as financial or an operational creditor under the Code. A creditor of a Company when involved in an insolvency proceeding of a company under the Code does not lose the character of being either a secured or unsecured or statutory creditor, of such company as the case may be.

  3. Classification amongst similarly situated persons is permissible if the classification is based on reasonable differentia. If the classification is on reasonable differentia it does not offend the principle of equality. The classification made by the Insolvency and Bankruptcy Code, 2016 amongst the creditors of a cooperate debtor is based on reasonable differentia and therefore, not unconstitutional in nature.

  4. An operational creditor is not ousted in its entirety from coming into the committee of creditors. An operational creditor does not have a voting right in the event it is in the committee of creditors.

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[1]W.P. No. 672 of 2017 in the Calcutta High Court. Available at: http://judis.nic.in/Judis_Kolkata/All/list_new2_v1.asp?
Jud_Pdf_Name=WP_672_2017_02022018_J_241.pdf&Court_Id=1.

 

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India: How to obtain gaming license in India?

 

Parliament

 

 

Games are the source of recreational activities that engage some sort of skill of the player which may be physical strength or mental capabilities. Created for our entertainment the rules and conditions of play may vary for each game. In order to increase the thrill in the game, they may be played for real money. It is at this stage that they are often confused with gambling activities. However, The Apex Court recognizes the games where success depends on substantial degree of skill and despite the existence of an element of chance there is requirement of application of skill, are not “gambling[1] :

 

LEGISLATION GOVERNING GAME OF SKILL

Although betting/ gambling remain the matters of exclusive jurisdiction of the applicable State legislature, there are hardly any state laws which clearly classify a game to be a game of skill. With a pragmatic approach to deal with the difficulties posed by the lack of appropriate regulation, the Government of Nagaland has passed the Nagaland Prohibition of Gambling and Promotion of Online Games of Skill Act, 2015 (hereinafter referred to as “Nagaland Act”) and Rules, 2016 (hereinafter referred to as “Rules”). The license issued under the Nagaland Act and Rules ensure the fact that a particular online game is a game of skill and not an act of gambling.

 

APPLICABILITY

 

The license issued in accordance to the Nagaland Act and Rules is valid for the operation of the game throughout India except in the states expressly prohibiting betting/ wagering of any sort i.e. Assam, Odisha, Telangana and Gujrat.

 

OBLIGATIONS FOR THE APPLICANT

 

The Applicant willing to obtain the license for game of skill are required to fulfill the following obligations as per the Nagaland Act and Rules namely:

  • Applicants should have no criminal history;

  • Controlling stake of the applicant should be in India;

  • Operations of the applicant including technology support platforms, software serves should remain within the territorial limits of India;

  • Applicant should submit the application to the Director of State lotteries, Nagaland along with the application fees of INR 50,000/-.

CONCLUSION

 

In the progressive view, the Nagaland Act and Rules accord legal protection to the games of skill being played with involvement of stakes, the Nagaland Act. It certainly entails advantages to the entrepreneurs involved in the business of gaming.

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[1]State of Bombay v. RMD Chamarbaugwala[ A.I.R., 1957 S.C. 699] - held by the Apex Court of India

 

 

 

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