Insolvency Law – Multidisciplinary Case Studies Important Questions

Insolvency Law – Multidisciplinary Case Studies Important Questions

Insolvency Law – Multidisciplinary Case Studies Important Questions

Question 1.
The official Liquidator of Vasudha LTD. receives a notice for a trade creditor of the Company that the Tribunal has passed a decree in its favour, relating to the dues for services rendered to Vasudha LTD. and that the amount specified in the Tribunal decree should be paid first, prior to the clearing of dues of workmen. The same is opposed by the workmen. Advise the official Liquidator suitably; with reference to provisions of the Companies Act, 2013.
Answer:
According to Section 326 (Overriding preferential payments) of the Companies Act 2013, the dues of the workmen and the dues of the secured creditors are to be treated at same footing. Both these dues are to be discharged on priority over all other dues of the company.

Section 326 is overriding (means above) all other provisions and states clearly that workmen’s dues and debts due to secured creditors shall be paid in priority to all other debts. Hon’ble Supreme Court has also confirmed this in UCO Bank 1994 that provisions of Section 326 of the Companies Act, 2013 will override all other claims of the creditors.

Question 2.
Instable Fertilizers LTD. has been continuously incurring losses the company mortgaged its machinery to MR. BULLY one of its creditors on 1st September, 2009 relating to outstanding of ₹ 15 lakhs due to him. The other creditors of the company filed a petition for winding up the Company on 19th December, 2009. The company was ordered to be wound up on 30th April, 2010. Discuss whether the Official Liquidator can declare the transaction of mortgage with Mr. Bully as invalid.
Answer:
This relates to Section 328 of the Companies Act, 2013 (Fraudulent ) preference) of the Companies 2013. According to Section 531, a transaction will be treated as invalid if all the following conditions are satisfied:

  • Transaction relates the property of the company.
  • It occurred within 6 months before the start of winding-up of company.
  • There was no pressure relating to transaction.
  • The main motive was to give preference to one creditor over other, creditors.

When the Tribunal orders winding-up of company, the effective date of commencement of winding up is not the date of order of the Tribunal but the , date when the petition for winding up was presented to the Tribunal. Thus in the current case, the winding up will be deemed to have commenced on 19th December, 2009 on which other creditors filed the petition.

Let us examine the above conditions in the current case:

  • Transaction relates the property of the company. This is true as machinery was mortgaged which is property of the company.
  • It occurred within 6 months before the start of winding up of company. This is true because the date of transaction is 1st September, 2009 which is within 6 months from the date of winding up of company i.e. 19th December, 2009.
  • There was no pressure relating to transaction. This is true as the 1 transaction was a voluntary act of the company and there was no pressure on the company.
  • The main motive was to give preference to one creditor over other creditors. This is true as the company gave preference to Mr. Bully over other creditors.

Conclusion: The official liquidator can declare the mortgage of machinery to Mr. Bully as invalid and void.

Question 3.
At the time of winding up of SIMON HOTEL LTD. (SHL),a supplier of .company named MKG LTD., presents to the official liquidator, a Tribunal decree in their favour ordering payment of certain sum. The claim of MKG LTD. is that they should be paid in preference over the claims of the workmen for their dues. The same is not accepted by the workmen. Examine the validity of the rival claims in the light of the provisions of the Companies Act, 2013.
Answer:
Preferential dues during winding up proceedings:
The situation given in the question is covered by the provisions of Section 326 (Overriding Preferential Payments) of Companies Act, 2013. The ‘effect of combined reading of these sections is that the workmen of the company become secured creditors by operation of law to the extent of the workmen’s dues and are entitled to proportional payment along with other, secured creditors.

If there is no secured creditor, in such an event, to the extent of workmen’s dues, the workmen of the company become unsecured preferential creditors under Section 326 the object of Section 326 is to ensure that the:

  • Workmen should not be deprived of their legitimate claims in the event of the liquidation of the company.
  • The assets of the company would remain charged for the payment of workmen’s dues, and
  • Such charge will be pari passu (means in proportion, proportionally) with the charge of other secured creditors.

There is no other statutory provision overriding the claim of the secured creditors except the said Section 326. Thus, the law is very much clear in this respect and the Honble Supreme Court of India held in the case of UCO Bank [(1994) 81 Comp. Case 780] that the provisions of Section 326 of the Companies Act, 2013 will override all other claims of the creditors even where a decree has been passed by a Tribunal.

In view of the above stated legal position, the contention of the-workmen of SUMON HOTEL LTD. is valid and the Official Liquidator will have to pay their dues as provided in Section 326 of the Companies Act, 2013.

Question 4.
Rose Garden Ltd. was incurring continuous losses and its financial position went bad to worse. Black Stone (Private) Ltd., a trade creditor, issued notice under Section 271 of the Companies Act, 2013 for winding up of Rose Garden Ltd. on the ground that Rose Garden Ltd. was unable to pay its debts. After some time, Black Stone (Private) Ltd. being an operational creditor filed a petition before the Adjudicating Authority to initiate insolvency process under the Insolvency and Bankruptcy Code, 2016. Demand Notice and copy of invoice were not served to Rose Garden Ltd.

since a notice was earlier issued for winding up. All other formalities were complied with. The Adjudicating Authority initiated Insolvency Resolution Process by admitting the application and appointed Resolution Professional. After complying required formalities, the Adjudicating Authority issued orders for moratorium and other relief within the stipulated time. Being aggrieved by the order of Adjudicating Authority, Rose Garden Ltd. (Corporate debtor) filed an appeal before NCLAT under the Insolvency and Bankruptcy Code, 2016. Determine will the Company succeed in its appeal?
Answer:
1. After the commencement of corporate insolvency resolution a claim period for 180 days is declared, during which all suits and legal proceedings etc. against the Corporate Debtor are held in abeyance to give time to the entity to resolve its status. It is called Moratorium Period [Section 14].

2. So as per Sec. 14 of the code, all the proceeding by the corporate debtor shall be keep in abeyance.

3. In this case, adjudicating authority issued an order for moratorium. So as ‘ moratorium period is started no proceeding can be initiated by the Corporate Debtor. So here, Rose Garden Ltd. wants to file an appeal before NCLAT. Since, moratorium period is already started so Corporate Debtor will not succeed in its appeal.

Question 5.
As on March 31,2018, the audited balance sheet of M/s Sharp Industries Limited, revealed total assets of ₹ 1 Crore. M/s Sharp Industries Limited, in the capacity of a Corporate Debtor, filed an application on July 1, 2018 with the Adjudicating Authority for initiating a fast track corporate insolvency resolution process. Explain under the provisions of Insolvency and Bankruptcy Code, 2016 the following :
(i) Whether the application made by M/s Sharp Industries Ltd. for initiating a fast track corporate insolvency resolution process is admissible?
(ii) The time period including the extension of time period, if any, within which the fast track corporate insolvency resolution process shall be completed?
Answer:
1. The Insolvency and Bankruptcy Code, 2016 provides that any corporate debtor with the assets and income below a level as may be notified by the Central Government can make application for conducting fast track insolvency resolution process. In this regard, Notification issued by Central Government vide Notification No. 5.a 1911 (E) dated 14th June, 2017 provides that an unlisted public company with the total assets as reported in financial statements of the immediately preceding financial year, not exceeding rupees one crore can apply for fast track insolvency resolution process.

(i) Here, M/s. Sharp Industries Ltd. having total assets of ₹ 1 crore have applied for conducting fast track insolvency resolution process. So, in light of above provisions and notification M/s. Sharp , Industries Ltd. can apply for corporate insolvency resolution process.

(ii) The fast track insolvency resolution process shall be completed within a period of ninety days from the insolvency commencement date. However, adjudicating Authority may extend time period for fast track corporate insolvency resolution process. The aggrieved may make an application to the Adjudicating Authority and it is satisfied that the fast track corporate insolvency process cannot be compelled within a period of ninety days, it may, by order; extend the duration of such process to a further period which shall not be exceeding forty-five days.

The extension of the fast track corporate insolvency resolution process under this Section shall not be granted more than once.

Question 6.
XY Ltd. filed a petition under Insolvency and Bankruptcy ; Code, 2016 with NCLT against DF Ltd. (Corporate Debtor) and the petition was admitted. There were only three financial creditors including XY Ltd. During the Corporate Insolvency Resolution process, the Corporate Debtor settled the claims of all the 3 financial creditors. Whether such settlement agreement could be termed as a valid resolution plan? Also discuss whether a financial creditor in respect of whom there is no default can file an, application before Adjudicating Authority (NCLT) for initiating corporate insolvency resolution process. Discuss.
Answer:
1. As per Insolvency and Bankruptcy Code, 2016, where any petition was admitted. The corporate debtor shall not required to make any settlement at its own. The resolution process as initiated by NCLT shall be followed. So, settlement agreement as initiated by XY Ltd. a corporate debtor at its own after admission of petition is not valid.

2. As per Section 59 of the Insolvency and Bankruptcy Code, 2016, a corporate person who intends to liquidate itself voluntarily and has not committed any default may initiate voluntary liquidation proceedings under the provisions of this Chapter V of Part II of the code.

Question 7.
Continental Rubber Limited is a supplier of raw materials to Smooth Latex Limited. It filed a petition before the NCLT for the recovery of ₹ 10,00,000 from Smooth Latex Limited. Smooth Latex Limited, the Corporate Debtor, has other financial creditors to the extent of ₹ 1,50,00,000 and they also joined together and filed petitions to NCLT. The Corporate Debtor has a total of 40 financial creditors and 2 operational creditors. Further, all the financial creditors are having equal voting rights/shares.

Notice was issued on 151 August, 2018 for the conduct of the first meeting to be held on 5th August, 2018 at a common venue. The meeting was attended by all 40 financial creditors and 2 operational creditors.

A resolution was passed to appoint Mr. TK as a Resolution Professional. 25 of the financial creditors voted in favour of the resolution and 10 voted against the resolution and 5 financial creditors and 2 operational creditors abstained from voting. Decide whether the resolution passed is valid? In the light of the provisions of Insolvency and Bankruptcy Code, 2016 read with rules framed thereunder, explain the requirements of issue of notice and quorum for the conduct of the meeting.
Answer:
As per provisions of Insolvancy and Bankruptcy Code, 2016 a meeting of creditors shall quorate if members of the committee of creditors representing at least 33% of Voting rights are present either in person or by audio video means.
Resolution passed in the meeting of committee of creditors shall be approved by a majority of not less than 75%.
Here, Total No. of Creditors = 42
Creditors Present = 42
So, required quorum is present.
Majority required for resolution = 21
Voted Creditors in favor = 25
So, required majority is present
So, resolution in the meeting of committee of creditors is validly passed. Notice of the meeting of committee of creditors shall be required to be sent to following persons.
(a) Members of Committee of Creditors.
(b) Members of the Suspended Board of Directors or the partners of the corporate persons, as the case maybe,
(c) Operational Creditors or their representatives if the amount of their aggregate dues is not less than 10% of debt.

Question 8.
A multiproduct company catering to applications in diverse sectors had borrowed from various financial institutions including Kundan Bank Ltd. A corporate debt restructure plan (CDR) was framed between 19 lenders and the company in 2014 and a master restructuring agreement (MRA) was made by which funds were to be infused by the creditors and certain obligations were to be met by the debtors. The aforesaid restructuring plan was implementabie over a period of 2 years. On 07-12-2016 Kundan Bank Ltd.

made an application in which it was stated that the company being a defaulter within the meaning of the Insolvency and Bankruptcy Code, 2016, the insolvency resolution process ought to be set in motion. To this application, a reply was filed by means of an interim application on behalf of the company by the erstwhile Directors. It was claimed that there was no debt legally due in as much as vide two notifications issued under the Maharashtra Relief Undertakings (Special Provision Act), 1958 (hereinafter referred to as the Maharashtra Act), all liabilities of the appellant and remedies for enforcement thereof were temporarily suspended for a period up to 18-07-2017.

The company made a second application on 16-1-2017. It pleaded that owing to non-release of funds under the MRA, it was unable to pay back its debts. Will the company succeed in its contentions? Give reasons in support of your answer.
Answer:
On a bare reading of the judgement of Innovative Industries Ltd. Vs /C/C/ Bank & another, it seems that the case involved more adjudication on grounds related to Constitutional Law than on the Code. This case related to the first-ever application filed for initiating insolvency proceedings under the new Code. The Court was cognizant of the fact and hence wanted to settle the law so that all ‘Courts and Tribunals take notice of the paradigm shift in the Law’.

The case involved contradictory provisions in the Code and a State law of State of Maharashtra, Maharashtra Relief Undertakings (Special Provisions) Act, 1958. This state law provided for overtaking of industries by the state by declaring therr. ‘relief undertakings’. Such overtaking can be done through government notifications to that effect under the Act. This is done to protect employment of the people who are working in such an undertaking.

The Code instead provides for overtaking of an undertaking’s business by an ‘Insolvency Professional’ through a committee of creditors. In the instant case, insolvency application was filed against Innoventive Industries Ltd. which later claimed to be a relief undertaking under the Maharashtra Act. This brought the two legislation on a collision course, for the simple reason that enforcement of one will hinder the enforcement of the other.

Supreme Court dealt with the constitutional law doctrine of repugnancy. This doctrine stems from the operation of Article 254 of the Constitution. As per this doctrine, whenever central and state laws are framed on the same subject and are contradictory to each other, it is the central law which prevails and the state law is rendered void.

A plain reading of Article 254 gives an impression that if both central and state governments frame laws on a same entry under the concurrent list, only then the Central law will prevail. In the instant case, however, the laws even though coming in conflict with each other, were framed under different entries of the concurrent list. This involved an adjudication by the Supreme Court on this point. The National Company Law Tribunal (NCLT) had ruled that Innoventive Industries Ltd. can’t claim any relief under Maharashtra Act.

It also decided that there is no repugnancy between the two laws, as they operate in different fields. The appeal to the Supreme Court, hence involved two major questions. One was. whether the petitioner can seek relief under the Maharashtra Act at the cost of the Code. The second was, whether both the laws are repugnant to each other.

Invoking a lot of international cases, especially of the Commonwealth countries and previous Judgments of the Supreme Court, the bench ruled that there is indeed repugnancy between the two laws. The court held that even if the two legislations are framed on different entries of the concurrent list, the Central law will always prevail if it comes in conflict with the State law. The State law, therefore was held inoperable to the extent that it was in contradiction to the Code.

The court delved into great detail of the provisions of the Code and held it to be intended as an ‘exhaustive legislation by the Parliament, to cover the whole field of its operation. In such instances involving an exhaustive law. even though the State law may not be in strict violation of the code, it will even then be rendered inoperative to give way to implement the exhaustive law on the point.

Question 9.
(a) Alkaline Private Limited is a chemical manufacturing company, which had availed many bank loans and other facilities to fund its operations. The company has not been able to repay the loan and interests thereon to the banks due to its dwindling sales and other cost/labor issues. Over a period, as the company was not repaying its loans, its account was classified as Non-Performing Asset (NPA) by the banks.

Various negotiations with the banks did not materialize and the banks-initiated proceedings under Insolvency and Bankruptcy Code, 2016 (IBC) against the company. The Company is of the view that IBC does not have constitutional validity and accordingly, it appealed in court of law. Will the Company succeed?
Answer:
The present case is similar to the case of the Swiss Ribbons Pvt. Ltd. v. Union of India [SC] Writ Petition (Civil) No. 99 of 2018 [Decided on 25/01/2019], In Swiss Ribbons Pvt. Ltd. case the Supreme Court observed that ‘the Insolvency and Bankruptcy Code, 2016 (the Code) is a legislation which deals with economic matters and, in the larger sense, deals with the economy of the country. Earlier experiments, as we have seen, in terms of legislations having failed, ultimately led to the enactment of the Code.

The experiment contained in the Code, judged by the generality of its provisions and not by so-called crudities and inequities that have been pointed out by the petitioners, passes constitutional muster. To stay experimentation in things economic is a grave responsibility, and denial of the right to experiment is fraught with serious consequences to the nation.

We have also seen that the working of the Code is being monitored by the Central Government through Expert Committees that have been set-up in this behalf. Amendments have been made in the short period in which the Code has operated, both to the Code itself as well as to subordinate legislation made under it. This process is an ongoing process which involves all stakeholders, including the petitioners.

In the working of the Code, the flow of financial resource to the commercial sector in India has increased exponentially as a result of financial debts being repaid. Approximately 3300 cases have been disposed of by the Adjudicating Authority based on out-of-court settlements between corporate debtors and creditors which themselves involved claims amounting to over INR 1,20,390 crores.

Eighty cases have since been resolved by resolution plans being accepted. Of these eighty cases, the liquidation value of sixty- three such cases is INR 29,788.07 crores. However, the amount realized from the resolution process is in the region of INR 60,000 crores, which is over 202% of the liquidation value. This shows that the experiment conducted in enacting the Code is proving to be largely successful. The defaulter’s paradise is lost. In its place, the economy’s rightful position has been regained.’

Based on the above ruling of the Apex Court, it can be concluded in the given case that the constitutional validity of Insolvency and Bankruptcy Code, 2016 cannot be challenged.

Hence, the company will not succeed.

Question 10.
A Kerala based company had a cement unit in Salem in the State of Tamil Nadu. Unit became Sick and the Company was not in position to pay wages to its labours. The workers approached Labour Court. Labour Court passed an award in favour of workers. In the meantime, a lender in Kerala attached Company’s properties and sold in public auction. Workers filed writ before Kerala High Court seeking deposit of 50% of their dues by the lender. Single Judge overruled the jurisdiction issue in favour of workers. Lenders preferred an appeal before Division Bench and the same was allowed by the Bench.
Aggrieved by the decision, workers appealed before Supreme Court. Will they succeed?
Answer:
The present problem is similar to the case of Cement Workers Mandal v. Global Cements Ltd. (HMP Cements Ltd) & Ors [SC] Civil Appeal No.5360 of 2010. The short question, which arises for consideration in this appeal, is whether the Division Bench was justified in holding that the Special Civil Appeal (SCA) filed by the appellant was not maintainable for want of territorial jurisdiction of the High Court.

The Supreme Court held that the Division Bench erred in not noticing Article 226(2) of the Constitution of India while deciding the question arising in this case. In other words, the question as to whether the High Court has territorial jurisdiction to entertain the appellants petition (SCA) or not, should have been decided keeping in view the provisions of Article 226(2) of the Constitution read with Section 20 of the Code of Civil Procedure, 1908 (for short, “CPC”).

Article 226(2) of the Constitution further empowers a High Court to issue any order, directions or writ as provided in clause (1) of Article 226 of the Constitution in such writ petition notwithstanding that seat of such Government or the Authority or the residence of such person against whom the writ petition is filed does not fall within the territories of the “A” High Court but falls in the territories of the “B” High Court.

In the light of these three reasons, we are of the view that the part of the cause of action as contemplated in Article 226 (2) of the Constitution has arisen within the territorial jurisdiction of the High Court for filing the petition (SCA) to claim appropriate reliefs in relation to such dispute against respondent No. 1 Company.

In our considered opinion, the expression “the cause of action, wholly or in part, arises” occurring in Article 226(2) of the Constitution has to be read in the context of Section 20(c) of CPC which deals with filing of the suit within the local limits of the jurisdiction of the Civil Courts.

In the light of the foregoing discussion, we are of the view that the appellants petition (SCA) was maintainable in the High Court in as much as the part of the cause of action to file such petition did accrue to the appellant herein (petitioner) within the territorial jurisdiction of the Gujarat High Court. In these circumstances, the SCA was required to be decided on merits by the Gujarat High Court.

In view of the foregoing, the appeal will succeed in the given case.

Multidisciplinary Case Studies CS Professional Notes

Competition Law – Multidisciplinary Case Studies Important Questions

Competition Law – Multidisciplinary Case Studies Important Questions

Question 1.
(i) An arrangement has been made among the Cotton producers that the cotton produced by them will not be sold to mills below a certain price. The arrangement was in writing but it was not intended to be enforced by legal proceeding. Examine whether the above arrangement can be considered as an agreement within the meaning of Sec. 2(b) of the Competition Act 2002.

(ii) The Central Government has formed the opinion that Mr. CBM (A member of the competition commission of India) has abused his position which may be prejudicial to public interest as a member of the commission. Examine the powers of the Central Government in this regard.
Answer:
Provision;
As per Sec. 2(b) of the Competition Act, 2002, ‘agreement’ includes any arrangement or understanding or action in concert

  • whether or not, such arrangement, understanding or action is formal or in writing; or
  • whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings.

Present Case :
In the given case, the understanding reached among the manufacturers of cotton to control the price of cotton shall amount to an ‘agreement’ as defined u/s Sec. 2(b) although such an understanding is in writing but not intended to be enforced by legal proceedings.

(ii) Provision:
Sec. 11 (2) of the Competition Act, 2002, empowers the CG to remove the chairperson or any member of the CCI in certain cases. One of the ground mentioned in Sec. 11 (2) is ‘where he has so abused his position as to render his continuance in office prejudicial to the public interest as a member’. However the member may be removed only if, on a reference made by the CG, the Supreme Court has conducted an enquiry and reported that the member ought to be removed on such grounds.

Present Case:
Accordingly in the given case the CG has power to remove Mr. CBM.

However following procedure should be adopted :

  • The CG shall make a reference to Supreme Court.
  • The Supreme CcuT shall order to hold an enquiry.
  • The enquiry shall be held in accordance with the procedure prescribed by the Supreme Court.
  • The Supreme Court may then order for removal of the member.

Question 2.
(i) In a proceeding before the Competition Commission of India involving two Pharmaceutical companies, the plaintiff requested the presiding officer to call upon the services of experts from the pharmaceutical sector to determine the truth of the allegations levelled by it against the respondent. The respondent opposed the request on the ground that such action cannot be taken by the Competition Commission. You are required to state with reference to the provisions of the Competition Act, 2002, whether the contention of the respondent is tenable.

(ii) The Central Government has formed as opinion that Mr. CBM (a member of the Competition Commission of India) has acquired such financial interest that it may affect prejudicially his functions as a member of the Competition Commission and it wants to remove him from his office. You are required to state with reference to the provisions of the Competition Act, 2002, whether the Central Government can do so and if yes, how ?
Answer:
Provision:
Sec. 36 (3) of the Competition Act, 2002 empowers the Commission to call upon the experts from the fields of economics, commerce, accountant, international trade or from any other discipline to assist the Commission in the conduct of any inquiry before it. As per Regulation 54 of the Competition Commission General Regulations, 2004, made by the Commission u/s 14 of Competition Act, 2002, it may draw up a panel of such experts.

Present Case:
Therefore, in the given case, the contention of the respondent is not correct. The Commission has the power to call upon the services of experts from the pharmaceutical sector to determine the truth of the allegations levelled by the Plaintiff against the respondent.

(ii) Provision:
Please refer 2007 – Nov [2] {C} (c) (ii) on page no. 321 Present Case :

In the given case, the Central Government has the power to remove Mr. CBM. However, following procedure must be adopted for his removal:

  • The CG shall make a reference to Supreme Court.
  • The Supreme Court shall order to hold an enquiry.
  • The enquiry shall be held in accordance with the procedure prescribed by the Supreme Court.
  • The Supreme Court may then order for removal of the member.

Question 3.
Vasudha Foot wear Ltd. is of the view that XYZ Co. Ltd., is abusing its dominant position in the footwear industry. It wishes to lodge a compliant against XYZ Co. Ltd., before the Competition Commission. Briefly elucidate the factors which the commission will consider to ascertain whether XYZ Co. Ltd., is enjoying a dominant position in the footwear industry.
Answer:
Dominant position of an enterprise: The Competition Commission while inquiring whether the enterprise XYZ Company enjoys a dominant position or not under Section 4 of the Competition Act, 2002 will take the following factors into account:

  1. market share of the enterprise;
  2. size and resource of the enterprise;
  3. size and importance of the competitors;
  4. economic power of the enterprise including commercial advantages over competitors.
  5. Vertical integration of the enterprises or sale or service net work of such enterprises.
  6. Dependence of .consumers on the enterprises.
  7. Monopoly or dominant Dosition whether acquired as result of any statute or by virtue of being a Government company or a public sector undertaking or otherwise.
  8. Entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of entty, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or services for consumers.
  9. Countervailing buying power.
  10. Market structure and size of market.
  11. Social obligations and size of market.
  12. Relative advantage, by way of contribution to the economic development, by the enterprise enjoying a dominant positive having or likely to have an appreciable adverse effect on competition.
  13. Any other factor which the commission may consider relevant for the inquiry.

Question 4.
Mr. Raj Behari retired as a Member of Competition Commission of India (CCI) on 31st October, 2008. He was offered the post of Chief Executive in M/s. LSD Ltd. which was earlier a party in the proceedings before CCI. Can he join the company with effect from 1st November, 2009?
What will be the position if Mr. Raj Behari joins Oil & Natural Gas Commission Ltd., a Government Company with effect from 1st April, 2009? ONGC was also earlier a party in the proceedings before CCI.
Answer:
Provision : According to Sec. 12, of the Competition Act, 2002 the Chairperson and other Members shall not, for a period of two years from the date on which they cease to hold office, accept any employment in or be connected with the management or administration of any enterprise which has been a party to a proceeding before the Commission under this Act.

However, nothing contained in this section shall apply to any employment under the Central Government or a State Government or local authority or in any statutory authority or any corporation established by or under any Central, State or Provincial Act or a Government Company as defined in Sec.2(45) of the Companies Act, 2013.

Present case :
(i) In the present case, HLL Ltd. is an enterprise which has been a party to any proceeding before the Commission. Mr. MKP ceased to be a member on 31st March, 2007. Therefore, Mr. MKP cannot join HLL Ltd. upto 31st March, 2007 (i.e. upto 2 years of cessation of his office of member).

(ii) LIC is a corporation established by a Central Act, and so the restriction on employment of Chairman or a Member shall not apply where appointment is made in LIC. Therefore, Mr. MKP can join LIC.

Present Case :
In the present case, M/s LSD Ltd. is an enterprise which has been a party to any proceeding before the Commission. Therefore, Mr. Raj Behari cannot join M /s LSD Ltd. upto 31st October, 2010 (i.e., upto two years of cessation of his office of member).

Oil & Natural Gas Commission Ltd. is a Government company as defined in Sec. 2(45) of the Companies Act, 2013 and so the restriction on employment of Chairman or a Member shall not apply where appointment is made in Oil & Natural Gas Commission Ltd. Therefore, Mr. Raj Behari can join Oil & Natural Gas Commission Ltd. W.e.f 1st April, 2009.

Question 5.
The Central Government on the recommendation of selection committee appoints Mr. Ramesh aged 56 years as Member of the Competition Commission of India to be effective from 1st January, 2010. State with reference to the provisions of Competition Act, 2002 the term for which he will be appointed and whether he can be reappointed as such and also if he resigns after two years whether the vacancy can be filled up by the Chairman of the Commission.
Answer:
Terms of office of chairperson and other Members [(Sec. 10(1) of the Competition Act, 2002)] –

  • The chairperson and other members shall hold the office for a tenure of 5 years.
  • They shall also be eligible for re-appointment.
  • They shall hold the office upto the age of sixty five years.

Filling of Vacancies [Sec. 10(2)] – A Vacancy caused by :

  • resignation
  • removal
  • death or
  • otherwise

of the chairperson or any other member shall be filled by making fresh appointments in accordance with the rules framed by the Central Government in this behalf Under Sec. 9

Present Case – Keeping the above provision in mind. Mr. Ramesh can be appointed as member of the commission for a term of five years as he is aged fifty six years on 1st January, 2010. He can also be reappointed but his reappointment will be only up to the age of sixty five years. If Mr. Ramesh resigns as member after working for two years the resulting vacancy can be filled up by fresh appointment approved by the Selection Committee and the Chairman has no power to fill up the vacancy on his own.

Question 6.
Attempt:
Hon’ble Justice Mr HCJ, a retired High Court Judge, attained the age of 61 years on 31st December 2011. The Central government appointed him as the chairperson of the Competition Commission of India with effect from 1st January 2012. State, with reference to the provisions of the Competition Act, 2002, the term for which he may be appointed as chairperson of the Competition Commission of India. Whether he can be reappointed as such and till when he can remain as chairperson of the Competition Commission of India?
Answer:
Provision:
Tenure of Chairman of Competition Commission of India [Sec. 10]

  • The Chairperson and every other Member shall hold their offices for a term of five years from the date on which he was appointed.
  • The Chairperson and every other Member shall be eligible for reappointment.
  • The Chairperson or any other member shall not to hold office after he has attained the age of sixty five years.

Present Case :

  • Mr. HCJ can be appointed as Chairperson for a term of four years since at the time of appointment he has not attained the age of sixty five years.
  • Mr. HCJ is of sixty one years. On attainment of age of sixty five years, Mr. HCJ shall have to vacate the office of Chairperson, and he shall not be reappointed as Chairperson.

Question 7.
The Competition Commission has served notice on VIPUL PAINTS LTD. to look into alleged contravention of certain provisions. The company wants to object to the same on the ground that the same was consequent to a complaint made by the State Government, which is not in order. Advise the company suitably.
Answer:
If provisions of Section 3(1) or 4(1) of the Competition Act, 2002 are not followed, the Competition commission can initiate an enquiry into the matter on its own (suo moto means on its own, without any request) or on receipt of any complaint from public. It can start enquiry on contravention of Section 3(1) or 4(1) of the Competition Act, 2002 if:

  • It has received any complaint from any person, consumer, consumer association or trade association etc. Required fees should be paid with the complaint.
  • The Central Govt, or any State Govt, has asked for such enquiry.

In the present case, Vipul Paints should not object to the notice of Competition commission on the grounds that the complaint was made by State Govt. All State Governments have power to make complaint to the Commission.

Question 8.
The Central Government, without referring the matter to the Supreme Court of India for inquiry, removed a member of the Competition Commission of India on the ground that he has become physically or mentally incapable of acting as a member. Decide, under the provisions of the Competition Act, 2002, whether removal of the member by the Central Government is lawful?
Answer:
Removal of Member of CCI – As per Sec. 11 (2) of the Competition Act, 2002, the CG is empowered to remove, by an order member of the CCI from his office if such member has become physically or mentally incapable of acting as a member.

Restrictions – As per Sec. 11 (3), of the same Act the CG has to make a reference to the Supreme Court of India under the two conditions :

  • Where the member has acquired such financial or other interest as is likely to affect prejudicially his functions as a member.
  • Where a member has abused his position as to render his continuance in office prejudicial to the public interest.

Present Case – Thus, under present circumstances under Sec. 11 (2) and Sec. 11 (3), the action of CG is in order and removal of member is valid. Approval of Supreme Court is not required.

Question 9.
Bombay Textiles Limited and Gujarat Textiles Limited marketing their products in India propose to be amalgamated. The enterprise created as a result of the said amalgamation will have assets of value of three hundred crore rupees anti turnover of one thousand crore rupees. Examine whether the proposed amalgamation attracts the provisions of the Competition Act, 2002? (4 marks) [CA Final P-4 (Old Syllabus)]
Answer:
Sec. 5 deals with combination:
Revised Thresholds:
On March 4, 2016, the Central Government issued notifications pertaining to the statutory thresholds in the purposes of “combinations” under Section 5 of the Competition Act, 2002 (“Act”).
1. Increase in thresholds: Pursuant to Notification No. S.O.675(E) dated March 4, 2016, the value of assets and the value of turnover has been enhanced by 100% for the purposes of Section 5 of the Act. Accordingly, the revised thresholds for notification to the Competition Commission of India (“Commission”) are.
Competition Law – Multidisciplinary Case Studies Important Questions 1

2. Increase in thresholds of De Minimis Exemption: Pursuant to Notification NO. S.0.674(E) dated March 4,2016 acquisitions where enterprises whose control, shares, voting rights or assets are being acquired have assets of not more than ₹ 350 crores in India or turnover of not more than ₹ 1,000 crore in India, are exempt from Section 5 of the Act for a period of 5 years. Accordingly, the revised thresholds for availing of the De Minimis exemption for acquisitions are:

3. Definition of Group: As per Notification No. S.O. 673(E) dated March 4,2016, the exemption to the “group” exercising less than fifty percent, of voting rights in other enterprise from the provisions of Section 5 of the Act under Notification No. S.O. 481 (E) dated March 4, 2011, has been continued for a further period of 5 years.

Present Case:
In the present case, the proposed amalgamation of Bombay Textiles Limited and Gujarat Textiles Limited will not attract the provisions of the Competition Act, 2002 as they have assets of value of three hundred crore rupees and turnover of one thousand less than the specified under the provisions.

Question 10.
A truck manufacturing company proposes to enter into distributorship agreements requiring the dealers not to sell trucks of other manufacturers and also not to sell the trucks outside the territory assigned to them. Examine with reference to the Provisions of the Competition Act, 2002 whether the proposed agreements will be considered as Anti competitive Agreements and void in case the company entered into such agreements.
Answer:
Anti-Competitive Agreements Provision:
Under Sec. 3 of the Competition Act, 2002 any agreement amongst enterprises of persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of service, shall be a void agreement if it causes or is likely to cause an appreciable adverse effect on competition. According to the problem, there are two conditions given in the agreement, which fall under the following stages:

(i) Exclusive Supply Agreement: Includes any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods or services other than those of the seller or any other person.

(ii) Exclusive distribution agreement: Includes any agreement to limit, restrict or withhold the output or supply of any goods or services or allocate any area or market for the disposal or sale of the goods or services.

Present Case :
In view of the above provisions of the Competition Act, 2002 validity of the clauses of the agreement as given in the question can be determined as follows:

Part (i) of the question restricts the dealer to deal in the goods of other manufacturers. This is a exclusive separate agreement u/s 3(4) of the Act. Hence, the proposed agreement is anti-competitive and void.

Part (ii) of the question restricts the dealers not to sell the goods outside the territory assigned to them. This is a Exclusive Distribution Agreement u/s 3(4) of the Act. Hence, the proposed agreement is anti competitive and void.

Question 11.
MNO Tyres Limited is in the business of manufacture of automotive tyres : for the past one year. To increase its market share, the company has decided to reduce the prices of tyres. The cost structure of the passenger car tyre is as under:

  • Cost of production five thousand rupees per tyre
  • Selling price six thousand rupees per tyre

The company started selling tyres five thousand and two hundred rupees per tyre and the other tyre manufacturers made a complaint to the Competition Commission of India stating that MNO Tyres Limited is guilty of predatory pricing having the effect of reducing the competition or eliminating the competition. Advise MNO Tyres Limited as to the meaning of predatory pricing and whether the company can be said to have indulged in the said practice having regard to the provisions of the Competition Act, 2002.
Answer: :
Provision:
Sec. 4 (2) (a) of the Competition Act, 2002 prohibits abuse of dominant position by any enterprise or group. Abuse of dominant position is ‘ considered if an enterprise or a group directly or indirectly, imposes unfair or discriminatory:

  • condition in purchase or sale of goods or services; or
  • price in purchase or sale (including predatory price) of goods, or service.

“Predatory price” means the sale of goods or provision of services, at a price which is below the cost, as may be determined by regulations, of production of the goods or provision Of services, with a view to reduce competition or ! eliminate the competitors.

Present Case:
According to the provisions given under Sec. 4(2)(a) of the Competition Act, , 2002, MNO Tyres Ltd. cannot be said to have indulged in predatory pricing as the revised selling price (five thousand and two hundred rupees per tyre) is more than its cost of production (five thousand rupees per tyre).

Question 12.
(i) The mango producers in Lucknow have entered into an arrangement among them whereby they have decided not to sell the mango below certain price. This arrangement has been made in writing but not intended to be enforced by any legal proceedings. Referring to the provisions of the Competition Act, 2002, examine whether the said arrangement shall fall within the jurisdiction of the term ‘agreement’ within the meaning of the said Act.

(ii) The coconut producers in Tirunelveli (Tamil Nadu) have formed an association to control the production of coconuts. Referring to the provisions of the Competition Act, 2002, examine whether the said association to control the production of coconuts shall fall within the jurisdiction of the term ‘Cartel’ under the provisions of the said Act.
Answer:
Provision:
As per Sec. 2 (b), ‘agreement’ includes any arrangement or understanding or action in concert.

(i) Whether or not such arrangement, understanding or action is formal or in writing or
(ii) Whether or not such arrangement or understanding or action is intended to be enforceable by legal proceedings.

Present Case:
In the give case, the understanding reached among the mango producers in Lucknow amount to an ‘agreement’ as defined under Section 2 (b) not with standing the fact that:

  • Such an understanding is not in writing and
  • Such an understanding is not intended to be enforced by legal proceedings.

Hence, mango producers in Lucknow are said to be in agreement with the meaning of said Act, if they are not intended to be enforced by legal proceedings. It is a Horizontal Anti Competitive Agreement.

(ii) Provision:
The given problem relates to Sec. 2 (c) of the Competition Act, 2002. As per Sec. 2 (c). ‘Cartel’ includes 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.

Present Case:
In the given case, the association that has been formed is falls within the definition of ‘Cartel’ as given under sec. 2 (c) of the Competition Act, 2002. Since the above conditions are satisfied coconut producers in Tirunelveli (Tamil Nadu) are said to be in term ‘Cartel’ under the provisions of the said Act.

Question 13.
(i) Shyam & Co. is engaged in the manufacture of cement. It sold the goods initially below the cost price for a year and slowly, its other competitors went out of the market. Thereafter, the enterprise changed its strategy and sold the goods above its cost price and made substantial profits. Examine the action, if any, which may lie against this enterprise under the Competition Act, 2002.

(ii) Bombay Textiles Limited and Gujarat Textiles Limited marketing their products in India propose to be amalgamated. The enterprise created as a result of the said amalgamation will have assets of value of ₹ 300 crore and turnover of ₹ 1,000 crore. Examine whether the proposed amalgamation attracts the provisions of the Competition Act, 2002.
Answer:
As per Sec. 4 of Competition Act, 2002, it is prohibited to abuse the dominant position by any enterprise or group. Where after inquiry the Commission finds that any agreement referred to in Section 3 or action of an enterprise in a dominant position, is in contravention of Sec. 3 or Section 4, as the case may be, it may pass all or any of the following orders, namely:

1. direct any enterprise or association of enterprises or person or association of persons, as the case may be involved in such agreement, or abuse of dominant position, to discontinue and not to re-enter such agreement or discontinue such abuse of dominant position, as the case may be;

2. impose such penalty, as it may deem fit which shall be not more than ten per cent of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to such agreements or abuse:

Provided that in case any agreement referred to in section 3 has been entered into by a cartel, the Commission may impose upon each producer, seller, distributor, trader or service provider included in that cartel, a penalty of up to three times of its profit for each year of the continuance of such agreement or ten per cent of its turnover for each year of the continuance of such agreement, whichever is higher;

3. direct that the agreements shall stand modified to the extent and in the manner as may be specified in the order by the Commission;

4. direct the enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of costs, if any;

5. pass such other order or issue such directions as it may deem fit: Provided that while passing order under this section, if the Commission comes to a finding, that an enterprise in contravention to section 3 or section 4 of the Act is a member of a group as defined in clause (b) of the Explanation to section 5 of the Act, and other members of such a group are also responsible for, or have contributed to, such a contravention, then it may pass orders, under this section, against such members of the group.

Present Case:
In the given instance, Shyam and Co. abused its dominant position by imposing predatory price of goods. Action against this enterprise shall lie in Sec 27 of the Competition Act, 2002.

(ii) Section 5 deals with combination of enterprises and persons. The amalgamation of enterprises shall be a combination of such enterprises if the enterprise created as a result of the amalgamation, as the case may be, have either in India, the assets of the value of more than ₹ 1,500 crores or turnover more than ₹ 4,500 crores.

Therefore, in the above case the proposed amalgamation of Bombay Textiles Limited and Gujarat Textiles Limited will not attract the provisions of the Competition Act, 2002 as they have assets of value of ₹ 300 crore and turnover of ₹ 1,000 crore which are less than specified under the provisions.

Question 14.
CTVN and Channel 10 telecasted Mahabharat TV serial in dubbed form in Bangla language in the State of West Bengal. The co¬ordination committee comprising film and TV entities in the State banned the telecast of the dubbed version of the serial contending that it was affecting the TV and film industry of the State.
CTVN and Channel 10 intend to contest the ban before the Competition Commission of India.
Discuss whether:
(i) Activities in which the co-ordination committee indulged can be treated as ‘agreement’ for the purposes of section 3 of the Competition Act, 2002 and the Co-ordination Committee would be covered by the definition of ‘person’ under 2(l) of the Act?

(ii) The act of banning of the TV serial amounts to violation of the provisions of section 3(3)(b) of the Competition Act, 2002?
Answer:
(i) The given case is similar to the case of Competition Commission of India v. Co-ordination Committee of Artists and Technicians of W.B. Film and Television & Ors [SC], Civil Appeal No. 6691 of 2014 [Decided on 07/03/2017].

An agreement referred to in Section 3 of the Competition Act, 2002 has to relate to an economic activity which is central to the competition law. Economic activity refers to any activity consisting of offering products in a market regardless of whether the activities are intended to earn a profit. The “agreement” or “concerned practice” is the means through which enterprise or association of enterprises or person or association of persons restrict competition.

The functional approach and the corresponding focus on the activity, rather than the form of the entity may result in an entity being construed an enterprise when it engages in some activities, but when it engages in others. Non-profit making organizations or public bodies may of turn operate in their charitable or public activity but may be construed an undertaking when they engage in commercial activities. Coordination Committee, which is engaged in activities which are not charitable. It is engaged in economic activities on behalf of the film and TV artists. In action in banning the dubbed TV serial amounts to an “infringement” under the Competition Act, 2002.

The Commission Committee, which may be a “person” as per Section 2(1) of the Competition Act. 2002. is not undertaking any economic activity by itself. But the Commission Committee is an association of enterprises (constituent members) and these members are engaged in production, distributions, and exhibition of films. Thus the Commission Committee amounts to an “enterprise” or the kind of ‘association of persons’ as per the Section 3 of the Act.

(ii) The act of the Commission Committee deprives the consumers of exercising their choice. Its act definitely caused harm to consumers by depriving them from watching the dubbed serial on TV channel. It also hindered competition in the market by barring dubbed TV serials from exhibition on TV channels in the State. Such acts or conduct also limit supply of serial clubbed in Bangla which amounts to violation of the provisions of Section 3(3)(b) of the Competition Act, 2002.

Question 15.
‘Q Cars’ was a radio taxi service provider, which was offering customer discounts and royalty programmes, etc., M group was a competitor-who alleged that owing to its dominant position, ‘Q Cars’ group has devised certain abusive practices which inter alia include unreasonable discounts amounting to abysmally low/predatory pricing to consumers etc., to adversely affect and oust its competitor from the relevant market.

It was also alleged that under its business arrangement, ‘Q Cars’ was giving whole trip-amount received from the passengers to the respective taxi drivers along with additional incentives in order to get them attached exclusively with the ‘Q Cars’ network. It also alleged that ‘Q Cars’ enters into exclusive contracts with taxi owners in violation of provisions of Competition Act, 2002, whereby the taxi drivers are restrained from getting attached on to any other competing ‘radio taxi operator’ network. Has ‘Q Cars’ contravened the provisions of the Competition Act, 2002?
Answer:
The present case is similar to the case of Meru Travel Solutions Pvt Ltd v. Uber India Systems Pvt. Ltd & Ors [CCI] Case No. 96 of 2015 [Decided on 10/02/2016] wherein the Competition Commission of India held that the definition of relevant geographic market in the radio taxi services market has been dealt with by the Commission in many previous cases. The Commission was of the view that the relevant geographic market in that case would be “Delhi”.

The Commission held – “It has considered the TechSci research report and it is a matter of fact that Uber Group was not interviewed during the collection of data in the TechSci report. Evidently, there are glaring differences in the data and results depicted by the two research reports i.e. research report and TechSci report; casting a serious doubt on their authenticity and neutrality. The conflicting results indicate that either the data relied upon in the said reports is not accurate or the data has been selectively collected and relied upon to reach some predetermined results.

Therefore, despite the Informant’s attempt to discredit the results of the research report, the Commission is apprehensive in drawing conclusions with regard to the market share of UBER on the basis of such contradictory research reports. Hence, despite the deficiencies observed above, a conclusion may be drawn from a combined reading of both these research reports that there exists stiff competition, at least between OLA and UBER, with regard to the radio taxi industry in Delhi. Further, both the research reports have acknowledged the presence of other major players in the market, apart from UBER and OLA. Further, the fluctuating market share figures of the various players show that the competitive landscape in the relevant market is quite vibrant and dynamic.

Based on the foregoing discussion, the Commission is of the view that the radio taxi services market in Delhi is competitive in nature and UBER does not appear to be holding a dominant position in the relevant market. Since Uber group does not seem to be dominant in the relevant market, there is no need to go into the examination of its conduct in such relevant market.

Based on the aforesaid, the Commission is of the view that no case of contravention is made out against Uber Group.” Applying the conclusion of the above case, it can be concluded that ‘Q Cars’ has not contravened the provisions of Competition Act, 2002.

Questions:

  • Whether the Appellant is in order requesting the CCI of recall the investigation?
  • Whether CCI has enherent powers to recall/review its investigation orders in exercise of powers u/s 26(1) of the Act?
  • Whether any provision of the Act indicates that an order u/s 26(1) cannot be reviewed or recalled?
  • Whether writ petition filed against CCI order directing investigation is maintainable?

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