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Rediff.com  » Business » Trade watchdog seeks explanation on Jet, Etihad pact

Trade watchdog seeks explanation on Jet, Etihad pact

December 12, 2013 18:43 IST

EtihadHaving cleared Rs 2,060-crore (Rs 20.6-billion) deal between Jet Airways and Etihad, fair trade watchdog CCI is seeking explanations from the two carriers to ascertain whether they failed to provide information on certain commercial pacts that could raise anti-competition concerns.

The deal, involving Abu Dhabi carrier Etihad's purchase of 24 per cent stake in Naresh Goyal-led Jet Airways, was approved last month by the Competition Commission of India.

Meanwhile, this clearance has been challenged in the Competition Appellate Tribunal (Compat) by national carrier Air India's former Executive Director Jitendra Bhargava, while BJP leader Subramanian Swamy has written to capital market regulator Securities and Exchange Board of India asking Etihad to be considered a 'person acting in concert' with Jet's current promoters for this deal.

While Bhargava's appeal was yet to be listed for hearing by the Compat, CCI Chairman Ashok Chawla today said that the two carriers have been issued show-cause notices on a separate issue relating to their certain commercial agreements.

While clearing the deal with majority vote, the CCI on November 12 had said in its order that the clearance would have no bearing on proceedings for possible penal action for non-furnishing of information by the parties.

"The majority has already approved the merger but on whether some things happened before they filed the application, which could be a possible area for penalty being imposed, that we have issued a show cause notice," Chawla said.

The notice was issued few days back and one hearing has already taken place.

"We have heard the parties. . . A decision will be taken by the Commission on whether those aspects on which there were commercial agreements before they came to the Commission whether those were integral parts of the proposal which should have come to the Commission or not.

"(If) they were and were prematurely handled, then there is a provision in the law and then we see what happens on that," Chawla told reporters here on the sidelines of Delhi Economics Conclave.

According to a Commission official, seeking explanation from the carriers may not have any impact on the clearance to the deal.

Meanwhile, Bhargava has filed an appeal against the CCI approval saying the proposed combination would have adverse effect on competition in India.

Bhargava has also contended that CCI failed to conduct a detailed inquiry into the deal.

The CCI majority order, passed by Ashok Chawla and four members, said that the proposed combination is not likely to have appreciable adverse effect on competition.

However, one CCI member in his dissenting order had observed that the deal could have adversely competition in international air travel market.

In his appeal, Bhargava has said that CCI failed to effectively carry out a 'appreciable adverse effect on competition' assessment and "placed all passengers and indeed the entire airline industry into a grave risk of suffering irreparable damage and permanently eliminating competition".

"If the proposed combination is permitted to be completed in its present form...air passengers are likely to be deprived of airline choices on key routes, pay higher prices and have fewer options on aircraft, timings and service quality," it added.

In addition, other airline companies would be foreclosed from competing effectively in certain markets thus eroding profitability and leading to their exit from the industry altogether, according to the appeal.

Meanwhile, Swamy, in his letter to Sebi, said the regulator should decide that Etihad is considered as ‘Person Acting in Concert’ with the promoters and must be required to come out with a public offer so that the minority shareholders' interest is protected."

In the absence of the public offer, the deal must be considered by Sebi as null and void until such compliance is effected by both Etihad and Goyal, Swamy has said.

The deal, announced in April, had faced various regulatory hurdles earlier.

In a statement, Jitender Bhargava said CCI's order approving Jet-Etihad deal on the basis of an Investment Agreement, Shareholders' Agreement and a Commercial Co-operation Agreement as executed on April 24, 2013 ‘is bad in law, fraught with inconsistencies and issued without a proper analysis of the market conditions’.

According to him, the appeal in the Compat would be heard on December 19.

He said that if the proposed combination is permitted to be completed in its present form, without conducting any further analysis into its possible anti-competitive effects, air passengers are likely to be deprived of airline choices on key routes and, have fewer options on flights, timings and service quality, among others.

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