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INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ORDINANCE, 2018

The President on 07th June, 2018 gave assent to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018. As recommended by the IBC Committee, homebuyers have been recognised as financial creditors. This gives them due representation in the Committee of Creditors (CoC) and makes them an integral part of the decision making process, said a government statement detailing the ordinance-led changes.

It will also enable home buyers to invoke Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016 against errant developers. Another major beneficiary would be Micro, Small and Medium Sector Enterprises (MSME), which form the backbone of the Indian economy as the biggest employer, next only to the agriculture sector. Recognizing the importance of MSME Sector in terms of employment generation and economic growth, the Ordinance empowers the Government to provide them with a special dispensation under the Code. The immediate benefit it provides is that, it does not disqualify the promoter to bid for his enterprise undergoing Corporate Insolvency Resolution Process (CIRP) provided he is not a willful defaulter and does not attract other disqualifications not related to default. It also empowers the Central Government to allow further exemptions or modifications with respect to the MSME Sector, if required, in public interest.

The ordinance has also permitted the withdrawal of an insolvency application but only if approved by 90 percent vote share of the CoC. The withdrawal is permissible only before publication of notice inviting Expressions of Interest. No withdrawal will be permitted after the commercial process of EoIs and bids commences, said the statement. In order to encourage resolution versus liquidation, the CoC voting threshold has been brought down to 66 percent from 75 percent for all major decisions such as approval of resolution plan, extension of insolvency period etc. The voting threshold for routine decisions has been reduced to 51 percent. The ordinance also attempts to bring more clarity by laying down mandatory timelines, processes and procedures for corporate insolvency resolution process.

The existing Section 29(A) of the IBC, 2016 has also been fine-tuned to exempt pure play financial entities from being disqualified on account of NPA. Similarly, a resolution application holding an NPA by virtue of acquiring it in the past under the IBC, 2016, has been provided with a three-year cooling-off period, from the date of such acquisition. In other words, such NPA shall not disqualify the resolution application during the currency of the three-year grace period.

Finally, corporate debtors who want to themselves trigger insolvency will need shareholders approval via special resolution. The above mentioned changes are expected to further strengthen the Insolvency Resolution Framework in the country and produce better outcomes in terms of resolution as opposed to liquidation, time taken, cost incurred and recovery rate.

COMPETITION COMMISSION OF INDIA FLIPKART-WALMART DEAL

In a representation on May 24, 2018 Swadeshi Jagran Manch (SJM) had asked the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce, to look into the alleged irregularities in various aspects including Foreign Direct Investment (FDI) policy norms, competition and taxation issues in the deal that saw Walmart acquiring home grown e-commerce company Flipkart. The Confederation of All India Traders (CAIT), one of the largest traders’ bodies in the country, filed a petition with anti-trust regulator Competition Commission of India (CCI), objecting to the Walmart - Flipkart deal on the ground that the buyout creates an uneven playing field for sellers.

The merger of Walmart and Flipkart will give rise to unfair practices like predatory pricing, deep discounts, and loss funding, said CAIT, which claims to represent around 70 million traders across the country. Earlier this month, All India Online Vendors Association (AIOVA), which represents more than 3,000 online sellers, approached CCI with a similar objection alleging that Flipkart is using its dominant position to provide “preferential treatment” to a few sellers.

The complaints from CAIT and AIOVA come at a time when Walmart has applied for a CCI approval for its $16-billion acquisition of 77% stake in Flipkart.

The Walmart-Flipkart combine will become a dominant entity in India, and the acquisition is likely to cause appreciable adverse impact on competition in offline and online markets, the traders’ association added. It asked for the deal to either be blocked or modified.

CCI has never blocked any transaction; at best the regulator has directed parties to undertake structural remedies. Going by precedent, it's unlikely that the CCI will block the deal merely on CAIT’s complaint, Gautam Shahi, an advocate practicing competition law said.

Since the starting point of any CCI assessment is the relevant market, CAIT has stated that the regulator should look at offline and online markets separately. Within that, both business-to-business and business-to-consumer markets in India should be looked at, the association has contended.

In the business-to-consumer or B2C market, the complaint said, the CCI should define the market narrowly, that is, in terms of specific products and not a broad scope of all products. For instance, CAIT's complaint says that Flipkart has a market share of 60 percent in the online e-commerce space - including mobiles and fashion - which it sees as achieved through predatory pricing, exclusive arrangements and preferential treatment. Pointing to potential competition concerns, the CAIT complaint stated that Walmart has had a history of predatory pricing in other jurisdictions like Germany, Japan and Mexico. It's quite likely that Flipkart will give preference to Walmart's inventory, the complaint contended. And CAIT believes this would leave offline retailers with two choices - either exit the market or sell their goods on Flipkart in spite of the discriminatory terms. Flipkart’s data on customer preferences and Walmart's deep pockets will also become entry barriers for new players.

Finally, the deal will result in high vertical integration, the complaint said. This is because Walmart will cover the wholesale end with its products and Flipkart would provide marketplace and logistics support.

7 June 2018
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