By - King Stubb & Kasiva on April 10, 2023
The Competition Act, 2002 is the primary legislation in India governing competition law. Its main objective is to prevent anti-competitive practices, promote competition, and protect the interests of consumers. The Competition Commission of India (CCI) is the regulatory authority tasked with enforcing the provisions of the Act. The Competition (Amendment) Bill, 2023 seeks to further strengthen the provisions of the Act. The proposed amendments would expand the definition of anti-competitive agreements, including hub-and-spoke agreements, and introduce a new concept of "platform neutrality" to prevent abuse of dominance by digital platforms.
The Competition (Amendment) Bill proposes to change the criteria for the evaluation of combinations, shifting the focus to the value of transactions rather than the turnover of the parties involved. This is intended to provide a more accurate assessment of the impact of mergers and acquisitions on the competition. The Competition (Amendment) Bill also seeks to reduce the time limit for approval of combinations from 210 days to 150 days, with the possibility of further extension for complex cases. This is intended to speed up the approval process and reduce the uncertainty and costs associated with delays.
Finally, the Bill proposes the introduction of a settlement and commitment framework, allowing parties to resolve cases through voluntary commitments and avoid litigation. This is expected to reduce the burden on the CCI and promote greater efficiency in the enforcement of competition law.
Competition Amendment Bill 2022(CAB22) proposes to introduce a new "Deal Value" threshold, which would require transactions above a certain value to seek approval from the Competition Commission of India (CCI) if the parties involved have substantial business operations in India. As per this proposal, any transaction with a deal value of more than INR 2,000 crore (approximately USD 242 million) would require CCI approval. On the other hand, Competition Amendment Bill 2023(CAB23) proposes to limit the requirement of substantial business operations in India to the target entity only, and not the acquirer.
This means that if the target entity has substantial business operations in India, the transaction would require CCI approval regardless of whether the acquirer has such operations or not.It is important to note that these are proposed amendments and may or may not be implemented in the future. However, if implemented, these amendments would have significant implications for businesses operating in India and seeking to engage in mergers and acquisitions. The proposed change in the Competition Act of India is being welcomed as it addresses the ambiguity of CAB22 of not clarifying whether the acquirer, the target, or both parties were required to have substantial business operations in India for a transaction to require CCI approval.
Under CAB22, a purchaser with a large Indian presence making an offshore acquisition of an entity with no local nexus in India had to seek prior approval from the CCI, while an offshore purchaser acquiring an entity with substantial business operations in India may not have needed the CCI approval. CAB23 clarifies that it is the target that needs to have substantial business operations in India, regardless of the purchaser's India presence. This clarification is seen as a positive step towards providing more clarity and certainty in the Indian M&A market.
CAB22 initially proposed to reduce the timeline for the CCI to form a prima facie opinion on a combination's effect on competition (Phase I review) from 30 working days to 20 calendar days. However, CAB23 proposes to increase the timeline to 30 calendar days instead of the current working day timeline. Although this still means a reduction from the present timeline, it is seen as a positive step towards reducing the burden on the understaffed CCI. The outer timeline of 150 days for an overall review, including Phase II, remains unchanged from CAB22.
This timeline is expected to be achievable given the CCI's expertise in handling complex merger control cases within reasonable timeframes, and considering the limited number of cases that have gone into Phase II proceedings. Overall, the proposal is seen as a welcome move towards streamlining the merger control process in India.
CAB23 proposes to clarify that the calculation of monetary penalties for anticompetitive conduct will be based on the global turnover of the infringing parties, instead of turnover in India alone. This proposed amendment is not included in CAB22 and was not recommended by the Standing Committee, making it a surprise addition. The proposed amendment could have significant implications for large conglomerates with diverse business operations, as a breach of competition laws by a small division in India could result in massive penalty exposure based on the conglomerate's global turnover.
This proposal conflicts with the Supreme Court's judgment in Excel Crop Care, which held that only the turnover derived from the business in which the contravention has been found should be considered for the calculation of penalties. Overall, this proposed amendment is unexpected and could have significant implications for businesses operating in India.
CAB23 proposes to expand the scope of Section 3(3) of the Competition Act, which prohibits cartels, to include non-competitors who actively participate in coordinating cartel activities among competitors, such as hubs in hub and spoke cartels. This proposal goes even further to include non-market participants who may not have actually participated in cartel activities but only intended to participate. The Standing Committee had recommended finding non-competitors in breach only in cases where it is proven that they intended to actively participate in furtherance of the agreement. However, this recommendation has been disregarded and the proposed change expands the provision's scope to even include non-competitor market participants who intend to participate.
The proposed change appears to align with cartel provisions that also prohibit intent to cartelize by rival firms. The proposal would subject facilitators and hubs to the same standards as those applied to competitors.
CAB22 had proposed a settlement mechanism for a charged party to negotiate with the CCI after the DG had submitted its investigation report. CAB23 clarifies that aggrieved parties will be allowed to file compensation claims after settlement orders by the CCI, in line with the suggestions of the Standing Committee. However, this clarification could discourage a party from seeking settlement negotiations with the CCI since a settlement application would essentially mean an admission of guilt, which could lead to reputational and financial losses. Nonetheless, the amendment is in line with the principles of equity and justice since it provides for the restitution of victims of anticompetitive conduct.
CAB22 suggested giving powers to the DG to examine 'agents' including legal advisors, bankers, and auditors of a company under oath. However, CAB23 proposes to limit the applicability of this provision to only the legal advisors employed by the parties to the investigation. This clarification has been appreciated as it addresses concerns about violating the attorney-client privilege by allowing external legal advisors to be questioned by the DG.
In conclusion, the proposed amendments to the Competition Act, 2002 through the Competition (Amendment) Bill, 2023 aim to strengthen the provisions of the Act and keep up with the changing economic landscape. The introduction of the "platform neutrality" concept, the expansion of the definition of anti-competitive agreements, and the changes in criteria for the evaluation of combinations are expected to prevent abuse of dominance by digital platforms and provide an accurate assessment of mergers and acquisitions' impact on competition.
The proposed settlement and commitment framework would also promote greater efficiency in the enforcement of competition law. However, some proposals, such as the calculation of monetary penalties for anticompetitive conduct based on the global turnover of the infringing parties, could have significant implications for large conglomerates with diverse business operations. Overall, the proposed amendments are a step towards streamlining the merger control process and providing more clarity and certainty in the Indian M&A market while promoting fair market practices and protecting the interests of consumers.
The Competition Act of 2002 required amendments due to changes in economic activities, such as the emergence of start-ups and the growth of the digital economy, as well as the need to enhance the ease of doing business. Additionally, the expansion of new-age businesses resulted in companies with significant valuation and market influence evading the Competition Commission of India's merger regulations, as they did not meet the asset and sale-based financial criteria for obtaining CCI clearance. Furthermore, a novel approach was necessary to correct market distortions, given that penalties imposed by CCI often ended up in courts, having an adverse impact on consumers.
The proposed amendments to the Competition Act entail several changes. Firstly, the bill seeks to expand the regulatory ambit of CCI to transactions exceeding ₹2,000 crores, irrespective of whether they meet the conventional merger regulation criteria based on assets and sales. Secondly, it recommends the introduction of more stringent penalty provisions based on the global sales of corporations as a means of increasing deterrence. Thirdly, it proposes the implementation of a "leniency plus" program aimed at encouraging entities under cartel investigation to divulge information on other cartels. Lastly, it aims to expedite the CCI clearance process for mergers and acquisitions, reducing the maximum time frame from 210 days to 150 days.
Two Parliamentary committees have recommended the introduction of a Digital Competition Bill to monitor the digital economy, where businesses can achieve rapid growth, influence the market, and create entry barriers for smaller firms. This proposed legislation is expected to include guidelines for large digital economy companies, outlining what they should and should not do to prevent market tipping behaviour.
PRS Legislative Research, ‘Report of the Standing Committee on Commerce: Competition (Amendment) Bill, 2022’ (January 2022)
<https://prsindia.org/files/bills_acts/bills_parliament/2022/SC%20Report_Competition%20(A)%20Bill,%202022.pdf> accessed 6 April 2023.
Competition (Amendment) Bill, 2022 (passed by Lok Sabha), accessed April 6, 2023, http://22.214.171.124/BillsTexts/LSBillTexts/PassedLoksabha/185C_2023_LS_E3312023105854AM.pdf.
Excel Crop Care Ltd. v. Competition Commission of India, (2017) 8 SCC 47.
Competition Act 2002, s 3(3), <http://legislative.gov.in/sites/default/files/A2003-12.pdf> as accessed on 6th April 2023.