The cat lives (Metlifecare takeover)

I had blogged a few months back about Asia Pacific trying to use the MAC clause to get out of an agreement to buy shares in Metlifecare (Shrodinger’s arrangement). As it turns out, a new agreement was entered into and approved by the court. Some interesting arguments regarding the role of hedge funds came up in litigation regarding the new agreement.

Asia Pacific was set to acquire shares in Metlifecare at $7 per share as set out in a Scheme Implementation Agreement (SIA) prior to the onset of Covid19 and its consequent impact of the economy. Asia Pacific had attempted to use  the MAC clause in the SIA to terminate the agreement. While this matter was still being litigated, Asia Pacific made a new non-binding offer which offered $6 per share. A revised SIA indicating the new offer price was entered into. The earlier litigation was settled as a condition of entering into the new SIA. A shareholders meeting to consider and vote on the new SIA was then convened. The new offer price was still kosher as per the independent audit report which set the price of Metlifecare’s shares in the range between $5.80 and $6.90 per share. The resolution was passed with 90.7% majority and Metlifecare sought the High Court’s approval of the scheme as required by s 236 of the Companies Act.

One shareholder, ResIL opposed the resolution. Although ResIL later withdrew its application, Lang J noted that the court must still consider it while determining the application to approve the SIA. One of the things considered was the Takeover Panel’s no-objection statement. As Lang J said, “the fact that …the Takeovers Panel has independently concluded that Metlifecare provided shareholders with sufficient material to satisfy Takeover Code requirements is obviously a matter of considerable significance in the present context”.

However, ResIl’s arguments with respect to the role played by hedge funds are interesting. REsIl argued that the hedge funds and other foreign institutional investors had acquired shares in Metlifecare after the first Asia Pacific offer was made and were now pressuring the board to accept the offer on the table so as to make a profit on the shares they had acquired. ResIl argued that shareholders were not informed of the role of hedge funds in pressuring the board to agree to the new offer price until the meeting where the resolution to approve the Scheme was put.

The Metlifecare board’s version of what transpired is that although the board came under pressure to enter into the replacement transaction with Asia Pacific from at least one hedge fund shareholder, the hedge funds did not force it to enter into the new SIA. “Rather, the directors unanimously considered it was in the interests of shareholders to consider the new proposal and made the decision to enter into the new SIA for that reason”.

Lang J went on to say that the Scheme booklet (provided to shareholders) need not have contained the level of detail about institutional investors as argued by ResIl. He further says [at 36 and 37]:

It was for shareholders to decide whether to vote for or against the scheme based on their own circumstances and not those of other shareholders. As Mr Arthur points out on Metlifecare’s behalf, in any publicly listed company the aims and aspirations of shareholders will inevitably differ. Some will acquire shares with a view to realising capital gains and/or dividends over time whilst others will hope to sell within the short to medium term. The respective positions of these two groups may be irreconcilable where, as here, an offer is made for the acquisition of all the shares in a company for a cash consideration.

Metlifecare’s shareholders therefore needed to consider their own positions when deciding whether to vote in favour or against the resolution. They did not need to know the identity of the institutional shareholders who had already indicated their support for the scheme or why those shareholders held that view. If individual shareholders were interested in those issues they were free to attend the meeting and to ask questions about them.

ResIl had also “whether the scheme was such that an intelligent and honest business person might reasonably approve it”. The court noted that “an intelligent business person would also have been aware that rejection of the scheme would inevitably cause the company’s share price to fall sharply in the short and medium term”. The price could even fall lower than the share price prior to Asia Pacific’s second offer because the institutional investors would have sold their shares once it was clear that the scheme would fail.

Ironically, as the court pointed out, ResIl was itself not a long term shareholder and had only bought the shares after Asia Pacific’s offer had been announced.

Airline insolvencies in India- Part II

Hitoishi Sarkar*

The COVID-19 pandemic has unarguably impacted the financial stability of the aviation industry immensely. The International Air Transport Association (IATA) predicted losses totaling $84 billion for the aviation industry in 2020. At its low point in April, air traffic ran at 95 per cent below 2019 levels. At the time of writing of this post, almost 23 airlines have collapsed due to COVID-19.

A pertinent issue which has engaged stakeholders across the spectrum is that of refund for flights cancelled due to the pandemic. The issue is incredibly complex from the standpoint of regulators as the rights bargain is challenging to rise up to. For instance, if regulators insist on airlines issuing traditional full refunds to passengers, while it may be a significant reiteration of the supremacy of passenger rights but will also irreparably damage the ability of the aviation industry to recover from the current financial stress.

Several airlines across the world have refused to offer refunds for cancelled tickets and have instead insisted on issuing vouchers to passengers of cancelled flights. As per reliable calculations, U.S airlines alone have issued vouchers to the tune of USD 10 billion to customers. The International Air Transport Associations (IATA) estimates that airlines across the world owe approximately $35 billion to passengers for cancelled flights.

Typically, regulations across jurisdictions often mandate refunds to passengers to customers in such situations with the customer having the discretion to decide whether or not the refund is to be retained in a credit shell. However, airlines have raised concerns about enforcing these regulations while the entire industry struggles to stay afloat. For instance, Airlines for Europe (A4E) and other airline associations in Europe are calling for an amendment to the European Commission’s EC 261 Air Passenger Rights Regulation, that would allow airlines to issue refundable vouchers or delayed reimbursements instead of traditional refunds.

Indian airlines have also resonated similar demands with almost all major airlines issuing credit shells instead of traditional refunds. The issue assumes much more significance for the financially stressed Indian aviation industry, which already operates on paper-thin margins and unreasonably high operating costs.

This post seeks to delineate the Indian regulatory framework with regard to refund of cancelled airline tickets and analyze the recent decision of the Supreme Court of India on this issue through the lens of airline insolvencies. The latter part of this post will also briefly touch upon how regulators elsewhere around the world have dealt with this issue.

The Indian Credit Shell Dilemma

In the wake of the COVID-19 pandemic, most Indian airlines have refused to refund the fare amount to customers for cancelled flights. The reason is comprehensible considering that most Indian airlines have not structured their business models to be able to withstand even regular shocks, such as elevated fuel prices or economic downturns, let alone once-in-a-century events such as the present pandemic. Even major players in the Indian aviation industry are known to have precarious liquidity levels. Thus, there is considerable apprehension that if Indian airlines are forced to offer traditional refunds in these extraordinary circumstances they will be pushed to the verge of bankruptcy as the quantum of funds used in providing refunds will far exceed the revenues from new bookings and thus push several airlines to the brink of insolvency.

The regulations governing refunds for cancelled flights is relatively unambiguous in India. The Directorate General of Civil Aviation (DGCA) which is the primary regulatory body in the field of Civil Aviation in India vide Civil Aviation Requirements (CAR) Section 3 Air Transport Series ‘M’ Part II Issue I mandated that the option of holding the refund amount in a credit shell by the airlines shall be the prerogative of the passenger, and not a default practice of the airline. Likewise, Civil Aviation Requirements Section 3 – Air Transport Series ‘M’ Part IV Issue I also obligates airlines to refund the airfare or to provide an alternative flight in the event of a flight cancellation.

Thus, it is evident that airlines’ present policy of creating credit shells by default instead of offering cash refunds fall foul of the Civil Aviation Requirements (CARs) and is thus unsustainable in law.

What is the catch?

The idea of mandating cash strapped airlines in a developing country to offer full cash refunds in the midst of a pandemic may look quite attractive from the standpoint of the supremacy of passenger rights. However, the wider impacts of such a measure will cause more harm than good.

Prior to the COVID-19 outbreak, India‘s aviation industry’s economic contribution was estimated at $35 billion, supporting 6.2 million jobs and contributing 1.5 per cent to the GDP in India. Even if conservative estimates are to be taken the disruptions in air travel from COVID-19 could reduce about 575,000 jobs and $3.2 billion in GDP supported by the air transport industry in India. Thus, an aggressively pro-passengers rights regulation in these times will only aggravate the already stressed financial situation in the Indian aviation sector. 

It is pertinent to note that if airlines are forced into bankruptcy through refund regulations which do not account for the present extraordinary circumstances, it may lead to cessation of their operations. As we have discussed in our forthcoming chapter, an airline insolvency is far complex than insolvency in other industries. This is for the reason that if an airline turns insolvent and ceases operations, there are several issues that would need the immediate attention of the state machinery. For instance, passengers booked through the airline who may be left stranded due to the cessation of operations would need to be repatriated. Likewise, the issue of providing refunds to passengers who had booked through the airline for travel at a future date will also need to be addressed. The issue of mobility of assets also adds significant complexity to airline insolvencies.

The Supreme Court’s ruling

In Pravasi Legal Cell v. Union of India, a three-judge bench of the Supreme Court of India was called upon to adjudicate on whether the refusal by airlines to offer traditional refunds was arbitrary and violative of the Civil Aviation Requirements.

The Court reiterated that in ordinary course modalities and timelines for a refund on cancellation of tickets are governed by the CARs. However, the Court ruled against strict enforcement of the CARs noting that it would further restrict/reduce their operations and may further jeopardize the possibilities of generation of cash by airlines which can further adversely affect/delay the refund cycle.

After consultation with relevant stakeholders, the Court issued an eight-point direction in its order, thereby effectively carving out a middle ground for all parties. The directions of the Court were as follows:

  1. For tickets booked during the lockdown for travel during that period, the airline shall refund the full amount collected without any cancellation charges.
  2. If tickets have been booked during the lockdown through travel agents, in all such cases full refund shall be given by airlines immediately. The agents shall immediately pass on the amount to the passengers.
  3. In all other cases, airlines will refund the amount to the passengers within 15 days. If due to financial distress that is not possible, then airlines shall provide credit shell to passengers for bookings done personally or through agents, and that shall be used for future bookings before March 31, 2021. Passengers will have the option to utilize the credit shell on any route of their choice or can transfer the credit shell to any person, including the travel agent through whom they have booked the ticket, and airlines shall honor such transfers.
  4. In all cases where credit shell is issued there shall be an incentive to compensate the passenger from the date of cancellation up to June 30, 2020, in which event the credit shell shall be enhanced by 0.5% per month of the fare collected till June 2020. Subsequently, the incentive shall be enhanced by 0.75% per month up to March 31, 2021.
  5. After the expiry of the March 31, 2021 deadline, the amount has to be refunded to the consumer.
  6. In cases where passengers have purchased the ticket through an agent, and credit shell is issued in the name of passenger, such credit shell is to be utilized only through the agent who has booked the ticket. In cases where tickets are booked through agent, credit shell as issued in the name of the passenger which is not utilized by 31st March, 2021, refund of the fare collected shall be made to the same account from which account amount was received by the airline.
  7. Even for international travel, when the tickets have been booked on an Indian carrier and the booking is ex-India[1], if the tickets have been booked during the lockdown period for travel within the lockdown period, immediate refund shall be made.
  8. If the tickets are booked for international travel on a foreign carrier and the booking is ex-India during the lockdown period for travel within the lockdown period, full refund shall be given by the airlines and said amount shall be passed on immediately by the agent to the passengers, wherever such tickets are booked through agents. In all other cases airline shall refund the collected amount to the passenger within a period of three weeks.

Following this, the  Directorate General of Civil Aviation vide circular dated October 7, 2020 issued guidelines mirroring the eight points provided by the Supreme Court. Thus, the Supreme Court’s ruling in Pravasi Legal Cell is a welcome development as it resonates the United Nations Conference on Trade and Development’s (UNCTAD) recommendation to “devise amicable solutions which are acceptable to both the customers and the industry itself.”

How have regulators elsewhere dealt with the issue of refunds?

Several countries have introduced regulatory policies to ensure that consumer rights are not sidelined under the garb of financial stability of airlines and have introduced regulatory measures to ensure that passengers right to refund are not adversely impacted.

For instance, China has established a free ticket exchange policy for all tickets purchased before January 2020. Likewise, the United States warned airlines of their obligation to refund cancelled tickets to consumers.  The European Union has also issued a recommendation to make travel vouchers an attractive alternative to cash reimbursement, allowing for vouchers to be issued with a validity of 12 months after which the reimbursement is actionable.


Covid-19 has highlighted the need to balance various stakeholder interests. However, balancing these interests is significantly more complex in a country such as India with low per capita incomes as not all consumers will be in a position to accept a voucher or a delayed refund. The Supreme Court’s ruling in Pravasi Legal Cell has laid to rest all speculations on how Indian airlines are to pay the estimated sum of Rs 6,000 crores which they owe to passengers as refund payments. The Court’s ruling also serves as a textbook example of how stakeholder interests can be effectively addressed in these extraordinary circumstances.

The pandemic has also brought to light the need for India to think about the position of airline customers in the event of an airline insolvency. As the Jet Airways episode has demonstrated, Indian regulations lack clarity on how repatriation is to be carried out if an airline turns insolvent and ceases operations thereby leaving passengers stranded. However, the scenario is not all gloomy. The Cape Town Convention Bill, 2018 is a welcome development in this regard as once enacted it will override several IBC (Insolvency and Bankruptcy Code, 2016) provisions and account for industry specific complexities associated with airline insolvencies. The enactment of the Bill will significantly ease aircraft financing and leasing in India. Recently, India also amended the Aircraft Act, 1934 which seeks to provide statutory status to the DGCA, the Bureau of Civil Aviation Security (BCAS), and the Aircraft Accidents Investigation Bureau (AAIB).  Thus, there is considerable hope that the Indian regulatory structure will address these concerns in the near future.

See Airline Insolvencies in India – Part I.

[1] “Ex” is a Latin prefix meaning “out of” or “from. “Ex-India” signifies that the flight originates out of/from India.

* Hitoishi Sarkar is an undergraduate student of Law and Arts- Year III, Gujarat National Law University, Gandhinagar.

Does litigation funding amount to abuse of process if the funder has an ulterior motive?

The High Court of New Zealand recently considered this question in Cain v Mettrick [2020] NZHC 2125. The question is an important one in New Zealand where the market for litigation funding is still developing (less than 10 litigation funding companies are currently in play). It is also important because the Law Commission in New Zealand is presently undertaking a review of class actions and litigation funding. Although Cain v Mettrick involves litigation funding in the context of liquidation which is less controversial, the allegations of ulterior motive add an interesting layer of complication and the decision of the High Court offers clarity even though it held that there was no evidence to support the alleged ulterior motive.

As a preliminary step, the Court referred to Waterhouse v Contractors Bonding Ltd [2013] NZSC 89 to note the recognised categories of case that will attract the court’s intervention on abuse of process grounds:

(a) proceedings which involve a deception on the court, or those which are fictitious or constitute a mere sham;

(b) proceedings where the process of the court is not being fairly or honestly used but is employed for some ulterior or improper purpose or in an improper way;

(c) proceedings which are manifestly groundless or without foundation or which serve no useful purpose; and

(d) multiple or successive proceedings which cause or are likely to cause improper vexation or oppression.

The argument in this case was that Mr Meehan (the person in control of the litigation funding entity) has a vendetta against Mr Boult (one of the defendants) and intended to interfere in his election as Mayor for a collateral purpose of influencing Council activity in respect to Mr Meehan’s commercial interests. [21]. Amongst the evidence provided in this regard, mostly consisting of affidavits and depositions, Mr Boult deposed that Winton (company controlled by Mr. Meehan and funding the litigation) has never before been a litigation funder in any normal sense and the funding of this litigation is inconsistent with its business model. [23]. On the other hand, it was argued on behalf of Mr. Meehan that Winton was funding the litigation for a commercial return on its investment. Although Winton had not previously been involved in litigation funding of this kind, it had looked into such opportunities. [28] Mr. Meehan further argued that the funding agreement was entered into by another entity, PLF, to provide anonymity for Winton since he wanted to avoid allegations of favoured treatment by the Council for Winton-related entities and equally to prevent Mr Boult (who was also the mayor of the Queenstown Lakes District Council) negatively influencing consent applications to the Council. [30].

Discussing when an ulterior motive amounted to abuse of process, the court stated that the “plaintiff’s purpose must be shown to be “not that which the law by granting a remedy offers to fulfil, but one which the law does not recognise as a legitimate use of the remedy sought”.” Further, it stated that “where a plaintiff has multiple purposes for bringing an action, including some that might be condemned as a collateral advantage, it will be sufficient that one of those purposes is legitimate”. [31] Citing Broxton v McClelland [1995] EMLR 485, the court stated that “where a plaintiff’s action is funded, the funder’s purposes and motivations will not be attributed to the plaintiff”. [31]. In the current case, the court held that the liquidators were pursuing genuine causes of action to obtain compensation on behalf of the companies in question. [33]. It further held as follows:

They do not seek any advantage beyond that which the law allows. There is no criticism of the manner the proceeding has been conducted (apart from the issue of funding). The Liquidators and PLF have a common commercial interest in seeking the payment of compensation. It is from the success of the proceeding, or a settlement, that PLF will receive the Services Fee. [33]

About Mr. Meehan’s motives, the court simply held that his purpose in funding this litigation was to make a profit. Even if Mr Meehan had “a subordinate purpose that may be achieved as a by-product of the litigation, that is not an abuse of process, nor can such purpose be imputed to the Liquidators to taint this proceeding”. [34]

Airline insolvencies in India – Part 1

While Covid-19 has highlighted the need to balance various stakeholder interests generally, some adversely impacted sectors (like airline companies) might also need to engage with insolvency procedures. In a forthcoming book chapter, I along with Hitoishi Sarkar, have detailed airline insolvency cases in India before and after the IBC and provided an overview of legal developments that can be expected in the area. In a two-part series, we will discuss legal issues and developments regarding airline insolvencies in India. This first part briefs the chapter.

Airline insolvencies are more complex than insolvencies in other sectors because of the international mobility of assets and passenger interests. As has become all too clear in the aftermath of Covid-19, when an airline becomes insolvent, travel tickets that passengers might have paid for become worthless; and there are additional welfare costs when such passengers are stranded abroad. Thus, more specific solutions than what we have under the general insolvency framework might be required.

The Cape Town Convention and the Aircraft Equipment Protocol establish an international legal system for security interests in aircraft equipment and is aimed at easing asset-based financing in the aviation sector. Although the primary aim of these legal instruments is to ease secured asset-based financing in the aviation industry, they also have insolvency-related provisions incorporated into them to deal with situations where the debtor turns insolvent. Though India is a signatory to the Cape Town Convention, there is no local legislation that gives effect to the provisions of the Cape Town Convention, and thus the repossession of the aircraft from India is subject to extant Indian laws. Insolvency proceedings in India, including those in the aviation sector, are governed by the IBC. On 8 October 2018, the Indian government proposed the enactment of the Cape Town Convention Bill, 2018 (Bill), which when enacted will give primacy to the provisions of the Convention on International Interests in Mobile Equipment (Convention) and Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (Protocol). The proposed enactment is designed to override any conflicting provision contained in any other law in force, especially the IBC and its moratorium provisions. This is a welcome change as it will align the Indian position with that of the Convention and Protocol to which India acceded in 2008.

Another area that needs attention is cross border insolvency law. As the Jet Airways case shows, a cross-border framework is important and more so for airline companies. Cross-border insolvency protocols are something that could work on a case to case basis but a legislative framework will provide certainty to both Indian companies and overseas creditors and suppliers working with Indian companies. The Indian government released draft guidelines on this in 2018 and it is expected that this will be an area of ongoing interest in the post-Covid-19 time with corporate insolvencies surging across the world.

The string of pre-IBC cases we discuss in the chapter also speaks to the promise that an informal restructuring regime can bring to the airline insolvency sector. The aviation sector features prominently in the list of  26 sectors selected by the KV Kamath Committee (set up by the RBI to make recommendations on the one-time restructuring of loans hit by Covid). However, as our chapter outlines, a restructuring regime even beyond Covid-19 will be useful generally, and for the aviation industry specifically.

Finally, it would be useful for India to think about the position of airline customers in the event of an airline insolvency. This will be explored in more detail in Part II of this two-part series on airline insolvencies in India.

Smart Women, Stupid Shoes and Antitrust

Unraveling the Link between Workplace Discrimination and Efficiency Concerns

Anik Bhaduri*

            Last year, thousands of Japanese women took to the internet protesting against the policy of wearing high heels at work using the hashtag #KuToo – a reference to the #MeToo Movement, and a pun on the words kutsu (靴, “shoes”) and kutsū (苦痛, “pain”). Over the last few years, similar protests have taken place in a number of countries including the UK, Israel and Canada, usually with a victory for the protesters as the governments amended the laws, and recognized that such policies amount to gender discrimination at the workplace. While there is ample literature on how gender discrimination (as manifested through the heels policy) runs contrary to the idea of dignity and therefore violates constitutional rights, there is a relative lack of understanding on how they violate antitrust laws. There has hardly been an instance of antitrust authorities stepping in to remedy discrimination at the workplace, and it seems too far-fetched to think that it is within their mandate to do so. Recent economic literature, however, seems to suggest that workplace discrimination, and in particular the exclusion of women by the creation of the glass ceiling may be the greatest antitrust concern of all time.

Antitrust in Labour Markets

            Although the precise goals of antitrust have lately been a matter of intense debate, the universally recognized antitrust offences of abuse of dominant position and collusion in the market aim at remedying inefficiency in the markets and securing allocative efficiency. In a perfectly efficient market, the price of a product equals its marginal cost and there is free entry and exit for both buyers and sellers. If a seller charges a price greater than the marginal cost, he/she will be driven out of the market as all buyers will shift to other sellers of the commodity. Similarly, a buyer who refuses to pay the market price cannot purchase the product. In a monopoly, however, the seller can charge a higher price to those who are willing to pay more for the commodity as there is no other seller in the market, leading to losses for the consumers who have to pay more, and making the market inefficient. Accordingly, in most jurisdictions, price discrimination by a monopoly is an antitrust offence. Although there has been little discussion on antitrust enforcement in monopsony markets, academic commentators seem to believe that there is no economic or legal basis why price discrimination by buyers should be outside the purview of antitrust scrutiny.

In a labour market, the employee sells her labour to the employer in exchange of a salary and/or other benefits. Similarly, all those who put in the same amount of labour (in terms of hours/quality) should be compensated in the same manner. However, as there is a fierce competition to get jobs, and women often have a lower bargaining power because of social and cultural norms, they are often compelled to take jobs wherein the marginal cost of labour that they put in exceeds the price that they get in terms of salary and/or benefits. If we assume that the costs incurred by men and women in doing the same job are equal, the wage gap between male and female employees, is a flagrant violation of antitrust law, as the firm’s policy of paying different salaries to two employees for the same work is not conceptually any different from charging different prices to different consumers for the same product.

            There is, however, evidence to believe that the costs faced by women in the labour market are much higher because of the policies and practices followed by employers. The mandatory heels policy is an apt example – heels are often uncomfortable and can reduce productivity at work, and have also been shown to be unsafe and unhealthy. In many jurisdictions, the absence of laws against sexual harassment at work poses a safety threat and operates as a barrier to entry. Women also tend to face very high bargaining costs and search costs while looking for jobs, which makes entry into the market extremely difficult. Women as sellers of labour therefore face the twin obstacles of high costs and low remuneration, which taken together, leads to a massive deadweight loss that hinders entry. According to Chris Pike, the glass ceiling is nothing but a cartel among men in the labour market, and perhaps the most efficient cartel ever, as it is enforced strictly by rigid social, cultural and religious traditions.

Turning heads: Antitrust forays into labour markets

            In recent years, antitrust authorities have begun to focus on labour markets, although they are yet to recognize discrimination as an antitrust concern. The 2016 “Antitrust Guidance for Human Resource Professionals” issued by the US Department of Justice stated that “agreements among employers not to recruit certain employees or not to compete on terms of compensation are illegal” as they amount to per se violations of §1 of the Sherman Act. The Guidance also indicates the willingness of the US authorize to punish ‘poaching agreements’ or “agreements by which a company agrees with another company to refuse to solicit or hire other company’s employees”. The Guidance clarifies that antitrust laws are applicable in the labour markets, and operate with a view to ensuring the welfare of employees and reducing inefficiency in the markets.

            In a similar manner, the Japan Fair Trade Commission published a report entitled “Report of Study Group on Human Resources and Competition Policy”, which aimed to sort out the views on application of competition rules to ensure competition for human resources to facilitate a pleasant environment for individual workers. In India, the Competition Commission of India penalized two film associations for imposing an ‘undeclared ban’ on a director, holding that an agreement between the associations to not work with the director amounted to an anticompetitive horizontal agreement under section 3(3) of the Competition Act.

            Despite the increasing emphasis on antitrust enforcement in labour markets, there has not yet been any antitrust intervention against workplace discrimination, which remains. The increasing awareness on the law and economics of labour market regulation and the recent advances in gender economics, however, indicate that change is on the way. Recently the Canadian Competition Authority and the OECD jointly began a project on making competition policy more inclusive of women, and other authorities may be expected to follow suit. If firms are found guilty of abusing their dominant position as buyers in the labour market, the antitrust authority may impose structural or behavioural remedies aimed at reducing the costs incurred by female employees and bringing them at par with the men, such as the enactment of a policy against sexual harassment, ensuring equal pay and the like. It is high time that antitrust authorities acknowledge the increasing volume of economic literature on remedying discrimination in the labour market, and pay greater attention to the law and economics of labour in making their decisions.


            Throughout her long academic career, Prof. Eleanor Fox has argued that the trade-off between welfare and efficiency is an illusion, and that antitrust laws can simultaneously secure efficient markets and promote social development. The recent antirust emphasis on the reduction of inequality in the labour markets, and the emerging scholarship on the relationship between antitrust and gender seem to be doing just that. There is a lot that antitrust can do to reduce the discrimination against women, and it is by no means confined to the labour markets. The labour markets, however, have been one of the mostly fiercely fought fronts in the long struggle towards equality, and the acknowledgement of a simple labour issue like a mandatory heels policy as an antitrust concern would go a long way.

* Anik is a fourth year student of NALSAR University of Law, India. The author is thankful to Prof. Umakanth Varottil and Dr. Akshaya Kamalnath for their valuable inputs.

Cross border M&A with a side of French style crony capitalism

Cross border M&A is expected to run into cultural and political issues. However, the LVMH Tiffany story is a case of crony capitalism.

LVMH has been in the news for backing out of a merger agreement to buy Tiffany. The agreement was entered into prior to the onset of Covid-19. The initial reason provided by LVMH was that “a succession of events which undermine the acquisition of Tiffany & Co” had caused the board to review the situation. This obviously spoke to the Covid related losses suffered by the luxury sector. The board concluded that it would not be able to conclude the deal by the date set in the merger agreement (November, 2020). However, LVMH later said that it had been directed by the French government to extend the date of acquisition to January, 2021 as a reaction to the threat of taxes on French products in the US.

An extract of the letter from the French government to LVMH says:

In order to support the steps taken vis-a-vis the American government, you should defer the closing of the pending Tiffany transaction until January 6, 2021. I am sure that you will understand the need to take part in our country’s efforts to defend its national interests.

Tiffany’s response was to file a suit in a Delaware Chancery Court against LVMH for using the French government’s letter as a pretext to get out of the deal.

However, the French government publicly clarified that the letter to LVMH was merely a request and not a binding obligation. LVMH was thus left to invoke the now familiar MAE (material adverse event) clause saying that Tiffany’s handling of the pandemic had caused an MAE which would allow LVMH to walk.

Although LVMH has denied soliciting the letter, Harriet Agnew, in an article for the Financial Times suggests that LVMH might have played a part in the letter’s conveniently timed arrival. She points out that Mr Arnault (LVMH’s controlling shareholder) “holds unique sway in France, and his family are close to the Macrons”.  Although this is speculative, it does not sound implausible. Agnew rightly concludes that “it’s hard to shake off the perception that political interventionism and a cosy “who-you-know” capitalism are still the order of the day in France, despite Mr Macron’s attempts to modernise it”.

IBC off the books

Anjali Sharma and Bhargave Zaveri have published an interesting analysis of the functioning of NCLTs in India during the lockdown imposed due to Civid-19 and compared this with the pre-lockdown period and also a period after the lockdown was lifted.

One of their findings provides an interesting insight. As they say in their article:

In the pre-lockdown period, while a large number of hearings were getting scheduled, nearly 82% of these resulted in a next hearing date being given. During the lockdown period, this changed. The disposal rate improved significantly, from 17.9% to 54.5%.

They explain the improvement as follows:

One possibility is that during the lockdown, since the NCLT was hearing urgent matters only, they had to be disposed of. The second is that the pre-lockdown scheduling of nearly 40-50 cases per courtroom per day, was unrealistic. It resulted in a few matters getting actually heard and a next date being given in the remaining. Since the number of hearings getting scheduled during the lockdown period were low, these matters were actually getting the attention of the court, which resulted in an improved disposal rate. Finally, it is also possible that the manner in which courts have dealt with hearings in the lockdown period changed. They were less amenable to allowing re-scheduling.

Their third and final explanation is particularly interesting from the perspective of the role of courts/ tribunals in the effectiveness of India’s insolvency resolution framework. In a previous article, I had noted that part of the failure of India’s Sick Industrial Companies Act (SICA) was due to the tribunals’ and courts’ tolerance of delays. Has the NCLT (the designated adjudicating authority under the IBC) fallen into the same habit? This may not entirely be the case; but if indeed a tendency to tolerate has set in, it should be curbed consciously by the NCLT members. The surge in bankruptcy cases once the suspension of filings under the IBC is lifted will be a strain on the NCLTs and they will do well to caution against unnecessary delays.

Corporate short-termism and social media – Part 4 (Friedman at 50 edition)

It is not a particularly new revelation to say that corporations flying the flag of stakeholderism may not be sincere about it. Since stakeholderism simply means the prioritisation of various stakeholders like consumers, employees, society, etc over shareholders as and when required, it is possible that some corporations are able to point to at least some instances where they have done this. However, when corporations begin to talk of anti-capitalism, that is nothing short of funny. Canadian company Lululemon recently promoted its workshop on “decolonizing gender” with slogans like “resist capitalism”. After some social media outrage over the incongruity of a company that sold pricy clothing hosting events with “anti-capitalism” themes, Lululemon deleted the posts in question. The episode is another example of corporations attempting to play to the gallery (on social media) without putting much thought into possible negative impacts on the company. It also is a cautionary tale for corporations engaging in social issues. They could be hailed by the mob one day and criticised by the same mob another day depending on whether their messaging was properly tuned into what the mob wants to hear.

Friedman, in his (in)famous op-ed fifty years ago, had explained that corporate contributions to charities (even if the purpose was to access tax deductions) was “one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified on its own self-interest”. Corporations have discovered a way to generate goodwill even without contributing to charities. Words are cheaper than charitable contributions, as are words that echo the mob, except when they make a mistake – like Lululemon did.

Although Friedman refuses to call on businessmen to refrain from such double-speak, he says:

If our institutions, and the attitudes of the public make it in their self-interest to cloak their actions in this way, I cannot summon much indignation to denounce them. At the same time, I can express admiration for those individual proprietors or owners of closely held corporations or stockholders of more broadly held corporations who disdain such tactics as approaching fraud….I have been impressed time and again by the schizophrenic character of many businessmen. They are capable of being extremely far-sighted and clearheaded in matters that are internal to their businesses. They are incredibly short-sighted and muddle-headed in matters that are outside their businesses but affect the possible survival of business in general….

…The short-sightedness is also exemplified in speeches by businessmen on social responsibility. This may gain them kudos in the short run. But it helps to strengthen the already too prevalent view that the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces. Once this view is adopted, the external forces that curb the market will not be the social consciences, however highly developed, of the pontificating executives; it will be the iron fist of Government bureaucrats.

While Friedman’s worry about government intervention is not far-fetched (see my post on this here), I also worry about us (customers, employees and the general public). We may be discerning in some obvious cases like this one but we may succumb to the temptation of cheering companies that are echoing out thinking, in words, without checking to see if corresponding actions are forthcoming. Social media has amplified our voices but we should be open to listening to some alternate views that may alert us to such insincere messaging by companies.


While the corporate purpose debate is certainly not new, the most recent point of ignition has been the 2019 statement from the Business Roundtable about the purpose of the corporation. Parallelly, the UK corporate governance code has been amended to reflect new expectations from companies; and in Australia, the ASX Corporate Governance Principles were amended with similar themes. In a forthcoming article, I have compared the recent edition of the corporate purpose debate in the US, UK and Australia and argue that rather than creating a big shift to stakeholder-centric governance, these developments, at least in the UK and Australia, signify a focus on corporate culture and the relationship of company management with employees.

In the US, as Bebchuk and Tallirata and some others rightly argue, the statement from the Business Roundtable does not reflect a genuine change of approach. Bebchuk and Tallarita found that the companies whose CEOs were signatories to the Business Roundtable’s 2019 statement on corporate purpose had not amended their corporate governance guidelines to include stakeholder welfare. On the contrary, they find that many of those companies’ corporate governance guidelines contain strong endorsements of the shareholder primacy principle. However, in a recent post, Medland and Taylor argued that the statement should not be dismissed but should rather be seen as a recognition from businesses that their behavior is under public scrutiny and evaluation. Even if this is the case, the Business roundtable statement seems to be a recognition in words alone. Since the authors of the statement are the CEOs of companies, such recognition would only be useful if those companies backed up the statement with corresponding actions.

UK and Australia have more interesting developments on corporate purpose. For one thing, these developments have been initiated by regulatory bodies rather than CEOs making a statement. For another, they seem to emphasize internal corporate culture which is then expected to also flow into how companies interact with external stakeholders.

The UK’s Corporate Governance Code, 2018 (“Code”) embraced the idea of corporate purpose. It says that the board is responsible for setting the company’s purpose. Although purpose is not defined in the Code, the role of the board has been defined broadly to include “promot[ing] the long-term sustainable success of the company, generating value for shareholders and contributing to wider society”. While no hierarchy is specified, shareholder value is mentioned before the much vaguer concept of contributing to society. So, corporate law has not been shaken out of its mould. However, the Code then stipulates that “the board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned” and that “all directors must act with integrity, lead by example and promote the desired culture.” “Culture” is not defined, but the Code goes on to say that “the board should ensure that workforce policies and practices are consistent with the company’s values and support its long-term sustainable success” and that “the workforce should be able to raise any matters of concern”. Thus, corporate purpose should not only be a goal with regard to the company’s external stakeholders but also be relevant to how the company’s workforce operates at various levels and how employees are taken care of.

Australia has had similar developments. The 4th edition of the ASX Corporate Governance Principles and Recommendations does not mention the phrase corporate purpose. However, Principle 3.1 says that a listed company should articulate and disclose its values. Further, the commentary to Principle 3.1 echoes some of the ides regarding corporate purpose in the UK Code. It says:

A listed entity’s values are the guiding principles and norms that define what type of organisation it aspires to be and what it requires from its directors, senior executives and employees to achieve that aspiration. Values create a link between the entity’s purpose (why it exists) and its strategic goals (what it hopes to do) by expressing the standards and behaviours it expects from its directors, senior executives and employees to fulfil its purpose and meet its goals (how it will do it).

Thus, corporate purpose is not only the reason for the existence of the company but also its goals; and then achieving those goals in accordance with ethical standards the company sets for its senior executives and employees.

Commentators in the US are right to conclude that, since the law and incentives that company boards and executives are subject to have not changed, the Business Roundtable statement by itself cannot transform company law. However, in the UK and Australia, there is a more esoteric idea that is part of the corporate purpose developments. This idea is focused on a company’s purpose, not only in terms of why it exists but also of how it conducts itself both externally and internally. Rather than simply saying that stakeholder interests should be prioritised, there are specific exhortations about culture and values. The UK Code and Australia’s ASX principles are both soft law instruments that require companies to undertake some soul-searching to comply with the Code and the principles, and then make relevant disclosures. This process will be useful if companies understand that complying with these soft law mechanisms and making disclosures are not an end in itself but rather a means to an end. That end would be the prevention of egregious scandals which is ultimately in the interests of both shareholders and other stakeholders.

Two sides to the “social licence to operate” idea

The 4th edition of the Australian Securities Exchange Corporate Governance Principles and Recommendations (‘ASX Corporate Governance Draft Revisions’) has an interesting piece of history. The draft version made reference to a company’s culture and ‘social licence to operate’. The relevant principle stipulated that listed companies “should instil and continually reinforce a culture across the organisation of acting lawfully, ethically and in a socially responsible manner”. The commentary to the principle said that a listed company’s “social licence to operate” was “one of its most valuable assets” and that such “licence can be lost or seriously damaged if the entity or its officers or employees are perceived to have acted unlawfully, unethically or in a socially irresponsible manner”. However, per comments received during the consultation period, the words “social license” was omitted from the final version of the 4th edition of the ASX Corporate Governance Principles.

Despite this, companies understand that the community in which they operate is an important stakeholder at a time when social media amplifies community voices directly or indirectly. Rio Tinto, after blowing up a 46,000-year-old sacred Aboriginal shelter in Western Australia knew enough to apologise to the indigenous peoples affected “for the distress the event caused”. Further, when its CEO was faced with calls to resign because he had not read the archaeological report (commissioned by the company in 2018) which pointed out that the site was of the “highest archaeological significance in Australia”, the company’s board decided to address the matter differently. The company board, after a review, announced that the CEO and some other executives who were involved would lose a chunk of their bonus payments. While clawbacks from executive compensation for misconduct and other decisions that harmed various stakeholders (and hence the company and its shareholders) are a good idea, Rio Tinto clearly used it as a way to signal that they care about the community and in fact were attempting to renew their “social licence”.

When we accept this bonus clawback as a positive outcome, it is important to recognise that the converse situation where a company attempts to generate community support to oppose a law is the other side of the same coin. I blogged recently about Google writing an open letter to the Australian public in response to Australia’s proposed News Media Bargaining Code under which tech giants like Google and Facebook would be required to pay for news content failing which they could be faced with penalties worth millions of dollars. The open letter warned that warned that Google would be forced to provide Australians with a “dramatically worse Google Search and YouTube” because of the proposed law. A little later the MD for Facebook Australia and New Zealand followed suit by writing that they “will reluctantly stop allowing publishers and people in Australia from sharing local and international news on Facebook and Instagram”. Facebook’s update further adds:

The ACCC presumes that Facebook benefits most in its relationship with publishers, when in fact the reverse is true. News represents a fraction of what people see in their News Feed and is not a significant source of revenue for us. Still, we recognize that news provides a vitally important role in society and democracy, which is why we offer free tools and training to help media companies reach an audience many times larger than they have previously. 

Facebook products and services in Australia that allow family and friends to connect will not be impacted by this decision. Our global commitment to quality news around the world will not change either. And we will continue to work with governments and regulators who rightly hold our feet to the fire. But successful regulation, like the best journalism, will be grounded in and built on facts. In this instance, it is not.

This, just like Google’s letter, is a direct appeal to the public or the relevant community (in this case, the entire Australian public). The tech giants in this case are also using the “social licence” but in this case it is to their advantage.