CCI rejects petition against Shopee; CAIT likely to move NCLAT next

In a relief to Singapore-based Sea Ltd, which operates e- commerce platform Shopee, the Competition Commission of India (CCI) has rejected a plea for action against the company over predatory pricing. 

Sea has also been in the eye of the storm as its popular gaming app ‘Free Fire’ was banned along with several Chinese apps. The petition against Shopee, filed by trade association leader and consumer activist Praveen Khandelwal alleging ‘’predatory pricing with the intent of eliminating traditional and small-scale business in the country’’, had added to the concerns of the group.     

Khandelwal, secretary general of the Confederation of All India Traders, had earlier approached the government to ban Shopee for ‘’violating foreign direct investment rules’’. The argument revolved around substantial shareholding by Chinese conglomerate Tencent in the NYSE-listed Sea Group. According to the petition to CCI, Shopee entered India through the back door using a complex structure.

CCI, in its order on March 3, has observed that it does not see any prima facie evidence of contravention of provision 3 and 4 of the Competition Act against Shopee. It has argued that Shopee was a new entrant in the market, which already has many e-commerce players.

Khandelwal said on Friday that CAIT would move the National Company Law Appellate Tribunal (NCLAT) against the CCI verdict.

As for the controversy around Sea Group’s Chinese shareholding, the consumer internet company does not provide any board seat as a right to Tencent. Currently, Tencent holds 18 per cent equity share in the company. In a restatement of its articles of association, which was cleared in an AGM last month, the company's founder Forrest Li would hold 57 per cent of the voting power, up from 52 per cent earlier, despite having only 8 per cent equity share. This effectively ensures him full control over the management and the Sea board. Li is a Singaporean citizen.

Having first invested in the company in 2010, Tencent has slowly diluted its stake. It now has less than a 10 per cent voting share, according to the AGM meeting notice of Sea.   

Analysts say the structure is common in tech companies in the US. It ensures that founders continue to control and manage the company and appoint the board even after various fund raises have diluted their stake. They also say Tencent has a similar stake holding as an investor in Elon Musk’s Tesla and Spotify.

The sudden ban on Free Fire was part of the government’s crackdown on Chinese apps. It triggered a swift response from the Singapore Ministry of Trade and Industry which said this week that it hoped the ban would be resolved ‘expeditiously’.

Media reports say that the ministry also approached the government a week earlier to ask whether the ban was ‘unintentional’ and why it had been imposed given that Sea is headquartered in Singapore.

In its analysts’ call following its financial results, Sea mentioned the impact of the ban on its gaming business. Li said its guidance for the business has taken into consideration the ‘headwind’ factors due to the ban in India and the resulting uncertainty.  

The Sea group has three 100 per cent subsidiaries: e-commerce platform Shopee, digital entertainment business Garena, and financial services business SeaMoney.

In India, it operates the e-commerce and the digital entertainment (gaming) businesses for which it has taken the requisite approvals. A Tencent representative is currently a director on the Sea board, but only by invitation, because of his expertise in the gaming business.

Sea shot into the limelight in India with the success of Free Fire, listed by App Annie as the number one game in terms of consumer spends in India for 2021 and the second highest in terms of downloads.

The e-commerce platform Shopee, launched at the end of last year, also took the e-commerce market by storm by becoming the second most downloaded app after Meesho. It touched over 21 million monthly active users and had 20,000 sellers registered on its platform offering free delivery of long tail products such as fashion, mobiles, and home furniture.