Bharti Airtel Limited and Lion Meadow Investment Limited

Page 1 of 16 COMPETITION COMMISSION OF INDIA Ref. No. M&A/03/2021/03/CD 23rd August 2023 In re: Proceedings against Bharti Airtel Limited and Lion Meadow Investment 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 Bharti Airtel Limited: For Lion Meadow Investment Limited: Mr. Rajshekhar Rao, Senior Advocate with Ms. Hemangini Dadwal, Mr. Nitin Nair, Ms. Ruchi Khanna, Ms. Shivangi Pradhan, Mr. Areeb Amanullah, Advocates along with Ms. Shraddha Jha, representative of Bharti Airtel Limited Mr. Arun Kathpalia, Senior Advocate with Mr. Aditya Dhupar, Mr. Gaurav Bansal, Mr. Shivam Jha, Mr. Varun Thakur, Mr. Deepanshu Poddar, Advocates Page 2 of 16 Order under Section 43A of the Competition Act, 2002 1. This order shall dispose of the proceedings against Bharti Airtel Limited (‘BAL’) and Lion Meadow Investment Limited (‘LMIL’) under Section 43A of the Competition Act, 2002 (‘Act’) in relation to acquisition of 20% shareholding in Bharti Telemedia Limited (‘BTL’/‘Target’) by BAL from LMIL (‘Step 1’) and acquisition of 0.664% shares in BAL by LMIL (‘Step 2’) (Hereinafter, Step 1 and Step 2 are collectively referred to as the ‘Transaction’ and BAL and LMIL are collectively referred to as ‘Parties’). Background 2. The Transaction was given effect pursuant to the execution of an Investment Agreement dated 17th February 2021 between LMIL, BAL and BTL. It was consummated on 22nd March 2021. 3. BAL is a public listed company incorporated under the laws of India and engaged in the business of providing telecommunication services. BTL is a public unlisted company incorporated under the laws of India and a subsidiary of BAL. BTL is engaged in the business of distributing multi-channel television programs directly to subscriber premises by using satellite systems in India. The principal activities of BTL consist of setting up, operating and maintaining Direct-to-Home (‘DTH’) Cable through digital and other modes of broadcasting service and includes broadcasting of interactive and personalised content within India. 4. LMIL is a private limited company incorporated under the laws of Mauritius and is primarily engaged in investment holding activities. LMIL is an affiliate of Warburg Pincus LLC (‘Warburg Pincus’). Warburg Pincus is a member-owned private equity firm headquartered in New York, United States of America and acts as a manager to certain private equity funds. Page 3 of 16 5. The Commission observed that the Transaction was not notified and was consummated prior to the approval of the Commission. Subsequently, a letter dated 3rd March 2022 was issued under Section 36(4) of the Act to BAL and Warburg Pincus (‘First Letter’) directing them to furnish information and documents regarding the Transaction in order to assess whether further proceeding is required under Section 20(1) and/or Section 43A of the Act. 6. BAL filed its response to the First Letter dated 30th March 2022 and LMIL filed its response to the First Letter dated 31st March 2022 (Hereinafter, both responses are collectively referred to as ‘First Responses’). As the information provided in the First Responses was incomplete in certain aspects, another letter dated 5th May 2022 was issued to BAL and LMIL (‘Second Letter’) to provide complete information. The responses to the Second Letter were filed by both BAL and LMIL on 19th May 2022 (Hereinafter, both responses are collectively referred to as ‘Second Responses’) [Hereinafter, First Letter and Second Letter are collectively referred to as ‘Letters’, and First Responses and Second Responses are collectively referred to as ‘Responses to the Letters’]. Initiation of proceedings under Section 43A of the Act 7. In its meeting held on 25th July 2022, the Commission considered the Responses to the Letters. The Commission, inter alia, observed that BAL held 80% shareholding of BTL and LMIL held the remaining 20% shareholding in BTL along with various rights in BTL. Considering the rights available to LMIL in the Target prior to the Transaction, it appeared that BAL did not have sole control prior to the Transaction and therefore, benefit under Item 2 of Schedule 1 (‘Item 2 Provision’) of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulation, 2011 (‘Combination Regulations’) was not available to Step 1 of the Transaction. Step 2 of the Transaction was part consideration paid for Step 1 and hence, LMIL was required to notify under Regulation 9(4) of the Combination Regulations. In view of the foregoing, the Commission was of the prima facie view that Step 1 of the Transaction could not avail benefit under Item 2 Provision and Step 2 of the Transaction being interconnected to Step 1, ought to have been notified along with Step 1 as a composite notice and thus, cannot, Page 4 of 16 avail the benefit under Item 1 of Schedule 1 of Combination Regulations (‘Item 1 Provision’). 8. Therefore, the Commission was of the prima facie view that the Transaction was given effect without giving notice to the Commission, thereby leading to contravention of sub- section (2) and (2A) of Section 6 of the Act. Accordingly, the Commission issued a Show Cause Notice (‘SCN’) under Regulation 48 of the Competition Commission of India (General) Regulations, 2009 read with Section 43A of the Act on 4th August 2022. 9. LMIL and BAL filed response to the SCN dated 16th September 2022 and 20th September 2022, respectively, after seeking extension of time, along with a request for oral hearing in the matter. (Hereinafter, both aforementioned responses, are collectively referred to as ‘Responses to SCN’). 10. The Commission heard BAL and LMIL at length on 11th July 2023 and after considering request of the Parties, the Commission granted liberty to the Parties to furnish their written arguments/ submissions latest by 25th July 2023. Accordingly, BAL and LMIL submitted their written arguments on 25th July 2023. Submissions of BAL I. Step 1 of the Transaction benefitted from Item 2 Provision 11. Benefit under Item 2 Provision: BAL submitted that it had a majority shareholding of 80% in BTL prior to the Transaction and therefore, the Transaction meets the first test of the benefit under Item 2 Provision. Further, the exception to the benefit under Item 2 Provision does not apply to the Transaction as there is no transfer from joint to sole control. As per the submissions of BAL, the rights acquired by LMIL in BTL do not qualify as ‘material influence’, let alone joint control. Accordingly, the acquisition of shares by LMIL in BTL did not and cannot be said to have resulted in acquisition of joint control at the time of the Transaction as there was no transfer from joint to sole control by BAL in BTL. Page 5 of 16 12. The test for benefit under Item 2 is that of joint control, not material influence: LMIL could have ‘joint control’ with BAL, only when it had rights similar to BAL, that enabled it to jointly control the affairs and management of BTL. In the present case, LMIL did not have any rights that empowered it to materially influence, in any manner, the affairs, management or operations of BTL. 13. The term ‘control’ has been defined under the Explanation (a) to Section 5 of the Competition Act to include: controlling the affairs or management by (i) one or more enterprises or groups over another enterprise or group; or (ii) one or more groups, either jointly or solely, over another group or enterprise. In other words, an entity must acquire those rights that enable it to exercise control, which at the lowest level includes material influence, over the management and affairs, i.e., operations of the business. Moreover, joint control suggests that not just one entity but two or more entities together, exercise the same or, at least, a similar set of rights over the target. It is not sufficient, for joint control to exist, for an investor to merely hold necessary rights to protect its investment over a few items. The rights must enable it to jointly control the operations, affairs and management of the business. 14. Joint control is a significantly higher threshold than material influence: It has been submitted that the Commission has identified three categories of control: a) De jure control: De jure control or controlling interest means a shareholding conferring more than 50% of the voting rights of an enterprise. LMIL did not have de jure control over BTL, as it did not have more than 50% of the voting rights of BTL, either directly or indirectly, through its group entities. b) De facto control: De facto control implies a situation where an enterprise holds less than the majority of the voting rights, but in practice, controls more than half of the votes actually cast at a meeting. LMIL did not have any de facto control over BTL. c) Material influence: Material influence is the lowest level of control. Even here, it is imperative, that the rights confer material influence over the day-to-day operations and management of the business under explanation (c) to Section 5 of the Competition Act.