On August 9, 2023, the CCI imposed a penalty of INR 40,00,000 (approx. US$ 48,000) on Axis Bank Limited (‘Axis Bank’) in relation to its acquisition of 9.91% stake in CSC e-Governance Services India Limited (‘CSC e-Governance’) (‘Axis–CSC e-Governance Acquisition’). ^[1] CSC e-Governance is a special purpose vehicle, established to oversee implementation of the Common Service Centres (‘CSC’) Scheme.^[2]

On November 23, 2020, the transaction was consummated without notifying it to the CCI under Section 6(2) of the Competition Act.

Proceedings under Section 43A

Show Cause Notice: The CCI issued a show cause notice (‘SCN’) to the parties on September 19, 2022, for failing to notify the transaction.

Submissions by Axis Bank: Axis Bank argued that the acquisition is not notifiable under the Competition Act on two limbs: (i)  that there was a bona fide error in assessing the De Minimis Exemption^[3] (‘DME’) applicability – Axis Bank submitted that at the time of deliberation and in-principal approval of the transaction (in 2020), it inadvertently failed to consider CSC e-Governance’s turnover for the financial year 2020 (INR 1095.78 crores) (approx. US$ 131,602,327)  and instead assessed its turnover for the financial year 2019 which stood at INR 919.77 crores (approx. US$ 110,461,491) (i.e., below the DME threshold); and (ii) that the transaction benefits from the Item I exemption – Axis Bank also submitted that the transaction was eligible to benefit from Item 1 of Schedule I of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (‘Combination Regulations’) as: (a) its acquisition fell below the 10% threshold of a minority acquisition; (b) rights exercisable by Axis Bank in CSC e-Governance are those of an “ordinary” shareholder and Axis Bank has no intention to participate in the affairs or management of CSC e-Governance; (c) the right to nominate a director on the CSC e-Governance board is not a specific right because there is no certainty that the nominated person would be appointed to the board; and (d) in any event, the Axis–CSC e-Governance Acquisition is well below the 25% threshold prescribed under the Item 1 threshold.

CCI’s Findings: The CCI noted that the Axis–CSC e-Governance Acquisition was not eligible for the benefit of the DME as both the assets and turnover of CSC e-Governance are higher than the DME threshold. The CCI also rejected the argument of “inadvertence” in Axis Bank’s failure to notify as provisions of Section 43A would be attracted if there is contravention of Section 6(2) of the Act irrespective of the nature of the error. Moreover, as the combined assets as well as the combined turnover of Axis Bank and CSC e-Governance exceeded the threshold prescribed under Section 5(a) of the Act, Axis Bank was required to notify the transaction to the CCI before its consummation.

The CCI also ruled that Axis Bank was not eligible for the Item 1 benefit as Axis Bank had representation on the board of CSC e-Governance and participated in its management or affairs.

Lastly, the CCI emphasized that the investment was aligned with the bank’s focus of looking to expand the outreach to deeper rural geographies and towards priority sector lending. Hence, the acquisition was neither solely as an investment nor could be considered being in their ordinary course of business.

The CCI, weighing the contraventions against mitigating factors such as bona fide error and full cooperation during proceedings, imposed a penalty of INR 40,00,000 (approx. US$ 48,000) on Axis Bank.

^[1]       Proceedings against Axis Bank Limited.

^[2]       CSC Scheme is a project under the Digital India Programme of the Ministry of Electronics and Information Technology (‘MEITY’), Government of India (‘GoI’), to provide access points for the delivery of essential public utility services, social welfare schemes, healthcare, financial, education and agriculture services, and a host of business-to-consumer services to the people in rural and remote areas.

^[3]       De Minimis Exemption exempts those acquisitions from notification where the target enterprise (i.e. the enterprise who’s assets, shares, voting rights or control are being acquired) has either: (a) assets not exceeding INR 350 crores in India, or (b) turnover not exceeding 1,000 crores in India (De Minimis Thresholds) – assessed based on the consolidated audited financial statements of the target entity immediately preceding the year in which the proposed transaction is to take place.