The PVR-Inox Merger under the lens of CCI

By Sanya Suman

Introduction

The craze for movies in India has increased rapidly in the past few decades. People love watching their favorite stars on the big screen and movie theatres are places where people go to watch films for entertainment. There are some major movie theatre chains in India but two of them are in the huge limelight these days. The two are PVR and INOX. The reason behind this limelight is that the two major Indian multiplex chains are going to be merged soon in 2023 hopefully before the next financial year starts.

The PVR-INOX Merger is going to be the biggest amalgamation in the entertainment and media industry. The Companies Act, of 2013 defines a merger as a combination of two or more entities into one. This time, INOX is getting merged with PVR to become a single entity and will be called PVR INOX now.

Why did they decide to Merge?

Though people love watching movies on the big screen Indian multiplexes saw a major downfall in profits as soon as the pandemic and later the lockdown hit the country. People were forced to stay inside their homes. Schools, shops, railways, and cinema theatres were in a state of abeyance. People were not allowed to move out of their houses as a result, India saw a sudden downfall in the GDP and those affected were the big movie theatres as well.

But people may think that this situation would have been improved after the lockdown and other restrictions were lifted. Things would have become the same as they were before but it did not happen. Once people were locked inside their houses, they had no entertainment support save their mobile phones, PCs, and TV screens. This was the time when OTT platforms like Netflix, and Prime emerged as a major source of entertainment for people within the comfort of their homes. A major chunk of the population was attracted to these OTT platforms because of their cheap, fresh, new, and easily available entertainment services. So, now when restrictions were lifted, not everyone wanted to put the effort into going to movie theatres and watching the same old content for entertainment. They were more attracted to the new web series, movies, etc. This halted the profits earned by multiplexes. PVR-INOX a sufferer of the same, decided to merge and here they are with the biggest amalgamation in the entertainment industry.

After Effects of the Merger

Presently, PVR alone operates 871 screens across 181 properties in 73 cities and INOX operates 675 screens across 160 properties in 72 cities. The combined entity will have 1,646 screens across 341 properties in 109 cities which will become one of the biggest multiplex chains in the country. The combined entity will be named PVR INOX Ltd. The branding of

the existing screens would remain the same as PVR and INOX but the new screens opened after the merger would be PVR INOX Ltd.

Why the Consumer Unity and Trust Society Petition?

Antitrust means preventing or controlling trusts or other monopolies and so to promote fair competition. In India, anti-competitive market practices are governed by the Competition Act, 2002. The Act prohibits anti-competitive agreements, and abuse of dominant position by enterprises, and regulates combinations (mergers, amalgamations, and acquisitions) intending to ensure that there is no adverse effect on competition in India. The Competition Commission of India is the fair-trade regulator of Indian companies.

An Indian non-profit organization Consumer Unity and Trust Society (CUTS) moved a complaint to the Competition Commission of India under sections 3/4 of the Competition Act, 2002 stating that the proposed merger between the two entities would have anti-competitive effects on the film exhibition industry and asked for a detailed probe against the two merging entities.

Section 3(1) of the Competition Act, 2002 states that “No enterprise or association of enterprise or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India”. This means the section prohibits any type of agreement between two or more entities in respect of the given domain which is likely to harm overall competition within India in that domain. The provision is to forbid any entity or group of entities to create a monopoly in the Indian market. The objective of this provision is to maintain fair competition in the Indian market. According to Section 20 of the Competition Act, 2002, the CCI has the power to inquire into any combination that is likely to cause Appreciable Adverse Effects on Competition (AAEC) in India within 1 year from the date of the combination.

The non-profit organization complained to the CCI against the merger of PVR – INOX under section 3(1) of the Competition Act. But, the CCI in September 2022 ordered that likelihood of Appreciable Adverse Effects on Competition (AAEC) by an entity that is yet to take form cannot be a subject matter of inquiry/investigation under sections 3 or 4 of the companies act. So, CCI rejected the plea on the face of it taking into consideration that the two entities have not merged yet and only the likelihood of adverse effects of the merger cannot be a subject matter of inquiry under the CCI Act, 2003.

The PVR-Inox Case

The informant (CUTS) claimed that PVR-INOX is entering into an anti-competitive agreement under section 3(1) of the Competition Act, 2002. This agreement would lead to

them having a dominant position in the relevant market (film exhibition industry) thus violating section 4 of the Competition Act which is an abuse of a dominant position. The CCI noted that the present case filed by the Informant is based on an apprehension that the PVR and INOX merger will result in the new entity being the largest player in Film Exhibition Industry. This entity, as per the Informant, will be dominant in terms of Section 4 of the Act under owning 1646 multiplex screens out of 3200 multiplex screens (approx.) in India. The Informant contends that the Proposed Transaction is likely to cause AAEC in the relevant market and create barriers for entry given the limited availability of space at key locations for opening multiplexes by new players, the high capital expenditure required to outfit an operating space, the onerous regulations, and the long-drawn process of getting approvals as well as economies of scale.

The court observed that even for Section 3(1) to get attracted, there must be, firstly, an agreement between two or more parties, and secondly, the agreement should be of the nature which may result in an AAEC or a likelihood thereof. A case cannot be made out in the facts and circumstances of the present case merely on an apprehension that the agreement may give rise to conduct in the future which would thereafter cause AAEC in the market.

In the case of Satyen Narendra Bajaj v. PayU Payments Pvt. Ltd., the commission held that the act prohibits abuse of a dominant position by an enterprise, the mere existence of dominant position, without any prima facie evidence of its abuse, is not recognized as anti- competitive conduct in the scheme of the Act. To establish a prima facie case for intervention, abuse of a dominant position cannot be based on a mere existence or potential to achieve dominance in the market. Hence, the commission concluded that the mere likelihood of AAEC by an entity that is yet to take form cannot be a subject matter of inquiry or investigation under sections 3 or 4 of the Act.

Effects of CCIs Decision

The non-profit organization CUTS not satisfied with the order of CCI, challenged the order before the National Company Law Tribunal Appellate (NCLAT). NCLAT is the appellate tribunal against any direction issued or direction made or passed by the CCI under section 53A of the Competition Act, 2002. Under section 53B of the Competition Act, 2002, the Central Government or the State Government or a local authority or enterprise, or any person, aggrieved by any direction, decision, or order referred to in clause (a) of section 53A may prefer an appeal to the Appellate Tribunal.

The merger has been approved by all the shareholders, creditors, and board members of both companies. Furthermore, the entities did not have to take any approval for the merger from CCI as it did not surpass the threshold limit prescribed by the CCI. Under the competition law, only deals above the threshold limit are required to take the approval of the CCI. If the NCLAT orders in favor of the merging entities then India would administer the biggest multiplex chains the country ever had.