GUARANTEE

ENFORCEME
NT UNDER Banking Law
INSOLVENCY Ashish Mishra
(2017011)
BANKRUPTC
Y CODE
Introduction Guarantee play a pivotal role in any commercial transaction because parties
prefer to be secured if the other party fails to perform its obligation.

Concept of guarantee was introduced and explained under Section 126 of

the Indian Contracts Act.
Major
Acquisitions Whatsapp by Facebook Instagram by Facebook
without
Scrutiny

Youtube by Google Linkedln by Microsoft

Economist has reported that

Alphabet (Google), Amazon,
Apple, Facebook and
Microsoft together spent
more than $31.6 billion
acquiring start-ups
Why Startup Acquistion
not given Due Scrutiny
• Economic Theories –
Startups financially constrained acquisition by Bigger
entity enable finance to further the technological
innovation.
Investor plan their exist through such acquisitions
• Chicago School
False Negative Does more Harm then False Positive
In long run market can accommodate anticompetitve
acquisition but same not possible for wrongful
enforcement curbing fair practice
Why Need • Threat to Prospective Competitions
Competitive Purpose of acquisition of startup can be to
Scrutiny acquire the technology which increase gap
between other competitors
Strategically exclude reveals to accessing
technology
• With frequent acquisition of startups providing
related products and technology Dominant
player Widen the gap with competitor
• Concentration of Market may result in
monopoly
Why Need • Threat to Innovation –
Competitive • Once entity becomes dominant willingness to pay for New Innovation
decreases
Scrutiny • Prominent in Pharma Industry
• Case of Mallinckrodt ARD Inc. case (formerly known as Questcor
Pharmaceuticals, Inc.)
• Questcor enjoyed a monopoly in the category of adrenocorticotropic
hormone (“ACTH”) drugs with its product Acthar
• Synacthen, a synthetic, direct competitor to Acthar was beginning
development for the US market. In an effort to pre-empt potential future
competition, Questcor acquired the US development rights of Synacthen
from Novartis AG
• Questcor did not develop Synacthen thereby prevent a competing product
from emerging in the market.
• FTC argued that “by acquiring Synacthen, Questcor harmed competition by
preventing another bidder from trying to develop the drug and launch it in
the United States to challenge Questcor’s monopoly over ACTH drug
• As a remedial measure, Questcor was also required to grant a license to
develop Synacthen to treat infantile spasms and nephrotic syndrome to a
licensee approved by the FTC.
Why Need • Similar stance by EU Commission in instance where
Competitive GlaxoSmithKline had proposed to acquire Novartis AG’s
oncology business.
Scrutiny • If successful, these drugs would compete with existing
skin cancer treatments in GlaxoSmithKline’s product
portfolio as well as skin cancer treatments marketed by
Roche.
• The merger would not only have led to the abandonment
of Novartis’ current efforts to launch its skin cancer
treatment, but also to the abandonment of the broader
clinical trial program in respect of those drugs.
• Accordingly, the European Commission approved the
merger on the condition that Novartis return its rights
over one of the drugs to its owner and licensor Array
BioPharma Inc. and to divest the other drug to Array
BioPharma Inc. as well.
Why Need • Resulting in Market Barriers
Competitive • Network Effect
Scrutiny • Example – In case of Social media platforms where
consumers prefer platforms having more users.
Like Whatsapp, Instagram, Twitter
• More IOS user supporiting apps developed.
• So, often acquirer acquire similar startups to
increase user pool resulting in concentration of
market.
• Resulting in Entry barrier for new comers
• Taking over adjacent product or servies common
practice. In long run dominance is created
• Horizontal acquisition given more preference thus
these acquisition goes without scrutiny
Problems • Problem with Notification Threshold
faced by • Central Government using its power as provided under
the Competition Act, exempted certain combination from
CCI in preview of Section 5 of the Act. This exception is
generally referred as ‘De-minimus Financial Thresholds’.
Scruitny • Acquisition of an enterprise where value of assets in India
is less than INR 3.5 billion or turnover in India is less than
INR 10 billion is not scrutinized by CCI. Such de-minimus
exceptions are also present in almost all other
jurisdictions in the World.
• Accessing Loss of Prospective Competition
• False Negative more harmful then false positive.
Conservative approach towards enforcement.
• Lack of checks on vertical acquisition- Acquisition of
complementary or adjacent services long run and
continuous acquisitions creates a pool for dominance
Practice in • US
Other • Competition authority should have power to review mergers
ex-ante as well as ex-post (upto 12 months from date of such
Jurisdiction mergers).
and • Certain markets which are highly concentrated need to be
specified and all mergers which raise ‘substantial concern to
Takeaways competition’ in specified market need to be notified to the
competition authorities
• EU checks
• Does the acquirer benefit from barriers to entry linked to
network effects or use of data?
• Is the target a potential or actual competitive constraint
within the technological/users space or ecosystem?
• Does its elimination increase market power within this space
notably through increased barriers to entry?
• If so, is the merger justified by efficiencies?
Recommendations
& Suggestion • The Competition Law Review Committee (2019) –
• Called for focus on acquisition in digital market
• Recommended for additional threshold (a) all deals
exceeding a specified amount and; (b) target company has
turnover exceeding the specified amount must be notified to
the CCI.
• CCI can undertake ex-post study of past acquisition by large
incumbents which it seems have potential effect on
competition in India. This will help in accessing loopholes in
existing regime.
• Second, important attention to be given to digital sector and
complexity attached in regulating it must be acknowledged.
Regular development in term of industry practice as well as
technology must be reviewed periodically by the CCI.
• Third, before introducing any new compliance for the sector
factors related to nascent stage of development and long
and short term effect on commerce must be considered.