Axis Bank Limited

Page 1 of 10 COMPETITION COMMISSION OF INDIA 9th August 2023 Proceedings against Axis Bank Limited under Section 43A of the Competition Act, 2002 CORAM: Ms. Ravneet Kaur Chairperson Ms. Sangeeta Verma Member Mr. Bhagwant Singh Bishnoi Member Appearances during the hearing: For Axis Bank Limited : Mr. Rajshekhar Rao, Senior Advocate with Mr. Sagardeep Rathi, Ms. Alisha Mehra, Mr. Harshil Wason and Mr. Yashraj Samant, Advocates along with Mr. Sapan Siddharth and Mr. Rahul Jain, representatives of Axis Bank Limited Order under Section 43A of the Competition Act, 2002 1. This Order shall dispose of the proceedings under Section 43A of the Competition Act, 2002 (Act) against Axis Bank Limited (Axis Bank) in relation to its acquisition of stake in CSC e-Governance Services India Limited (CSC e-Governance). Transaction and the Parties 2. The transaction under consideration comprised acquisition of 9.91% stake in CSC e- Governance by Axis Bank (Axis–CSC e-Governance Acquisition). The Axis–CSC e- Governance Acquisition was closed on 23rd November 2020. No notice was given to the Commission, under Section 6(2) of the Act, in relation to the Axis–CSC e-Governance Acquisition. 3. It has been submitted that Axis Bank is a banking company and CSC e-Governance is a special purpose vehicle (SPV), established to oversee implementation of the Common Page 2 of 10 Service Centres (CSC) Scheme. CSC Scheme is a project under the Digital India Programme of the Ministry of Electronics and Information Technology (MEITY), Government of India (GoI), to provide access points for the delivery of essential public utility services, social welfare schemes, healthcare, financial, education and agriculture services, and a host of business-to-consumer services to the people in rural and remote areas. Initiation of Proceedings 4. The Commission in its meeting held on 29th December 2021, in order to assess whether further proceeding is required under Section 20(1) and/or Section 43A of the Act, in relation to acquisition of stake in CSC e-Governance by Axis Bank, under Section 36(4) of the Act, directed Axis Bank to furnish certain information and documents within specified time. Axis Bank submitted its response vide communication dated 21st February 2022 (Response I). 5. Upon perusal of the Response I, it was considered necessary to obtain further information from Axis Bank. In response to communication dated 23rd August 2022, Axis Bank submitted further information, vide its response dated 26th August 2022 (Response II). 6. The Commission considered Response I, Response II and other materials available on record. Transaction and its Rationale 7. Axis Bank entered into a Share Subscription Agreement on 4th November 2020 (SSA) with CSC e-Governance for the Axis–CSC e-Governance Acquisition. 8. Article 4.2 of the SSA provides as under: 4.2 On the Closing Date: … 4.2.2. Further, the Investor [i.e., Axis Bank] shall procure and deliver to the Company [i.e., CSC e-Governance] a letter from an identified person, consenting to his/her appointment as director on the board of the Company and such other documents as may be required by the Company for same. … 4.2.4. Upon delivery of requisite documents to the Company in terms of Article 4.2.2, the Company shall include the following agenda in the meeting of the board of director of Page 3 of 10 the Company to be held under Article 4.2.3 [i.e., meeting held for allotment of shares]: (a) To consider the appointment of the person identified in Article 4.2.2 above as a director on the board of director of the Company; and (b) Authorising the company secretary of the Company to make necessary filing with the Registrar of Companies (“ROC”) and to provide certified copies of the resolutions passed pursuant to this Article 4.2.4. (emphasis supplied) 9. It has been submitted by Axis Bank that it proposed the nomination of Mr. Sumit Bali as a director on 1st December 2020. The board of CSC e-Governance appointed him as an additional director in the board meeting dated 28th December 2020, and regularised it in the annual general meeting held on 30th November 2021. Mr. Sumit Bali held directorship in CSC e-Governance from 28th December 2020 to 17th February 2022. Again, on 1st February 2022, Axis Bank proposed the nomination of Mr. Munish Sharda as a director, replacing Mr. Sumit Bali. The board of CSC e-Governance appointed Mr. Munish Sharda as an additional director in the board meeting dated 17th February 2022. It was submitted that Mr. Munish Sharda has been holding directorship in CSC e- Governance since 17th February 2022. 10. With regard to the objective of the Axis–CSC e-Governance Acquisition, it has been submitted by Axis Bank that CSC e-Governance, being a government-backed entity and having a pan-India presence in deep rural areas, would be well positioned for delivery of government-led initiatives towards the financial inclusion of people living in such areas and implementing direct benefit transfer schemes. Further, the investment would also help the bank gain knowledge and expertise towards the financial inclusion through its association with the company. The investment was aligned with the bank’s focus of looking to expand outreach to deeper rural geographies and towards priority sector lending. Further, Axis Bank, in its disclosure made to stock exchanges (viz., BSE Limited and National Stock Exchange of India Limited) on 5th November 2020, stated that the Axis–CSC e-Governance Acquisition is a strategic investment by Axis Bank. Issue of Show Cause Notice 11. The Commission was of prima facie opinion that the Axis–CSC e-Governance Acquisition required a notice by Axis Bank to the Commission in terms of the provisions of Section 6(2) of the Act. Accordingly, the Commission vide its order dated 19th September 2022 (SCN), directed Axis Bank to show cause in writing within 15 days of receipt of the SCN, as to why it should not be held in contravention of the provisions of Page 4 of 10 Section 6(2) of the Act, read with Section 43A thereof, for not notifying the transaction to the Commission. The Commission also allowed Axis Bank to make its submissions on the quantum of penalty which may be levied by the Commission, in the event it is to be held in contravention of the provisions of the Act. The SCN was communicated to Axis Bank, vide communication dated 29th September 2022. Axis Bank furnished its response to the SCN, vide submission dated 14th October 2022. 12. Axis Bank requested for an oral hearing in the matter before the Commission. On 4th July 2023, the Commission heard the submissions and arguments of Axis Bank. Submissions of Axis Bank 13. The contentions of Axis Bank are summarised as follows: Bona fide error in assessing the applicability of the De Minimis Exemption 14. It has been submitted that at the time of deliberation and in-principal approval of the transaction in the year 2020, Axis Bank internally assessed the requirement for a notice under the Act. While doing so, Axis Bank relied upon the financials of CSC e- Governance for the financial year (FY) ending March 2019 (FY 2019). Turnover of CSC e-Governance for FY 2019 stood at INR 919.77 crore which fell below the De Minimis Exemption (i.e., the exemption granted from the provisions of section 5 of the said Act under notification no. S.O. 988(E) dated 27th March 2017 read with notification no. S.O. 1192(E) dated 16th March 2022 issued by the Ministry of Corporate Affairs, Government of India, under Section 54 of the Act) turnover threshold of INR 1,000 crore. Axis Bank, under the bona fide belief that the transaction benefitted from the De Minimis Exemption, commenced with the execution of the SSA and closing of the transaction. However, the consolidated turnover of CSC e-Governance for FY 2020, i.e., INR 1095.78 crore, exceeded the De Minimis Exemption turnover threshold only marginally. Axis Bank inadvertently failed to consider the financials of FY 2020. Axis Bank’s oversight in revisiting the notifiability assessment was also a consequence of the transaction size (i.e., INR 36.38 crore) and insignificance of the transaction to Axis Bank’s broader corporate strategy.