In a recent order clearing the three-way deal between Reliance Industries (RIL), the Network18 group and ETV, CCI said “…considering these facts, it is evident that control of IMT (Independent Media Trust) rests with RIL. In view of the foregoing, RIL is considered the acquirer of control over target companies, which, in turn, results in indirect acquisition of control over Network18 and TV18.”
The CCI order has put focus on the appointment of Reliance Industrial Investments and Holdings (RIIH), a fully-owned subsidiary of RIL, as the ‘protector’ of IMT. Under trust law, a protector is a person appointed under the trust deed to direct or restrain the trustees in relation to their administration of the trust. IMT will hold RIL’s investments in the Network18 group, according to the deal inked in January.
Earlier, Network18 had said in a filing with the Securities and Exchange Board of India (Sebi) that Nilrab Media, jointly owned by Network18 Managing Director Raghav Bahl and his wife, Ritu Kapur, would be the trustee of IMT.
However, as protector of the trust, RIIH would have the power to remove and appoint the trustees of IMT, thus giving the former’s parent, RIL, an indirect control of the media group itself, the CCI order said.
“In terms of the trust deed establishing IMT, RIL is the exclusive beneficiary of IMT. Further, RIIH, a wholly-owned subsidiary of RIL, is designated as the protector in the trust deed. The protector is authorised to remove the trustees at any time, and, upon such removal, it is lawful for the protector to appoint other person(s) as trustees,” the order said.(Click here for chart)
The CCI order came after the parties intimated the details of the deal through a notice in March. According to the order, “it has also been stated in the notice that the commission may construe RIL, being sole beneficiary of IMT, is acquiring the target companies and indirect control over Network18, TV18 and Equator Trading.” The notice disclosed a series of acquisitions that were interconnected and/or interdependent on each other and had the ultimate intended effect of RIL acquiring control over the Network18 group. The commission has considered all these acquisitions as one composite transaction.
In response to an email sent to Bahl, the Network18 legal head, Kshipra Jatana, said: “We would clarify that in the current transaction, RIL or IMT is not acquiring any control whatsoever in Network18 or TV18.”
According to Jatana, “in evaluating the effects of a transaction on competition and consumer interest, CCI is bound to take the most conservative view and test the case. In fact, that’s why, under the Competition Act, an “acquisition” of an enterprise includes acquiring “convertible security” (without voting rights) of the enterprise and even such an acquisition has to pass through the test of evaluation of appreciable adverse effect on competition. Thus, the Competition Act contains deeming acquisition in a sense. This is at variance with other statutes that recognise acquisition only when there is actual acquisition of voting rights or control”. She added: “Thus, to interpret the CCI order without the context of its statutory provisions would be incorrect interpretation. The order covers specific provisions of the Competition Act and a different interpretation would be wrong.”
An email sent to an RIL spokesperson did not elicit any response. In a press release announcing the deal in January, RIL had said: “Mr Raghav Bahl and his team will continue to have full operational and management control of both the firms. The investments in these media properties are being made by RIL through an independent trust that will have eminent individuals as trustees, preserving the management, operational and editorial independence of these firms.”