Changes to the Competition Act 2002

Changes to the Competition Act, 2002

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The Competition (Amendment) Act, 2023 (“Amendment Act”), which seeks to amend certain provisions of the Competition Act, 2002 (“Competition Act”) received the assent of the President of India on April 11, 2023.

KEY CHANGES

The key changes to the Competition Act are as follows:

  • Deal Value Thresholds – Transactions of a value of more than INR 2,000 crore (Rupees Two Thousand Crore) and where the target has ‘substantial business operations’ in India, will require prior approval of the Competition Commission of India (“CCI”);
  • Derogation from stand-still requirements in case of open offers and stock exchange purchases – The Amendment Act provides that implementation of open offers and stock exchange purchases will not be subject to standstill requirements and gun-jumping provisions under the Competition Act, subject to certain conditions;
  • Shortened timelines for review of ‘combinations’ – The time period within which the CCI is required to form its prima facie opinion on a ‘combination’ has been reduced from 30 working days to 30 days;
  • Definition of ‘Control’ – The Amendment Act amends the definition of ‘control’ to include ‘material influence’;
  • Introduction of ‘settlement’ and ‘commitment’ – The Amendment Act introduces provisions for settlement and commitments for enterprises facing investigations relating to anti-competitive vertical agreements or abuse of dominance, subject to certain conditions;
  • Expansion of penalty for cartel and abuse of dominance cases based on the global turnover of an enterprise – The Amendment Act prescribes that the penalty in such cases is to be calculated on the basis of the ‘global turnover derived from all the products and services’ of an enterprise; and
  • Exchange of Information between Government Departments and the CCI – The Amendment Act provides that the CCI may enter into information sharing arrangements with any statutory authority or Government Department.

The changes are described in detail below:

Introduction of ‘Deal Value Thresholds’

The Amendment Act introduces ‘deal value thresholds’ to additionally include transactions (involving an acquisition of any control, shares, voting rights or assets of an enterprise, merger or amalgamation) of a value exceeding INR 2,000 crore (Rupees Two Thousand Crore), provided that the target has ‘substantial business operations in India’.

The Amendment Act states that the term ‘value of transaction’ includes “every valuable consideration, whether direct or indirect, or deferred for any acquisition, merger or amalgamation”.

Derogation from stand-still requirements in case of open offers and stock exchange purchases

The Amendment Act provides that provisions relating to standstill requirements and gun jumping will not apply to the implementation of (i) an open offer, or (ii) an acquisition of shares or securities on a regulated stock exchange from coming into effect, provided that:

  • the notice of such an acquisition is filed with the CCI within such time and in such manner as may be specified by the regulations issued by the CCI; and
  • the acquirer does not exercise any ownership or beneficial right or interest in such shares or convertible securities including voting rights and receipt of dividends or any other distributions (except in accordance with the regulations issued by the CCI in this regard) until the CCI approves such an acquisition.

Shortened timelines for review of ‘combinations’

The Amendment Act provides for shortening of the timelines for review of combinations by the CCI:

  • the time period within which the CCI is required to form its prima facie opinion on a ‘combination’ has been reduced from 30 working days to 30 days. If the CCI does not form a prima facie opinion within 30 days, the combination shall be deemed to be approved; and
  • the maximum period for review of combinations by the CCI has been shortened from 210 days to 150 days.

Definition of ‘Control’

Presently, the definition of ‘control’ under the Competition Act does not specify a substantive test. Orders of the CCI provide guidance for parties on the manner of assessing control for the purposes of the Competition Act. In its previous orders, the CCI has also taken a view that the ability to exercise ‘material influence’ over another enterprise constitutes ‘control’ for the purposes of the Competition Act.

The Amendment Act formally widens the definition of ‘control’ under the Competition Act to include “the ability to exercise material influence, in any manner whatsoever, over the management or affairs or strategic commercial decisions” of another enterprise or group.

Introduction of ‘settlement’ and ‘commitment’

The Amendment Act provides that enterprises facing investigations relating to anti-competitive vertical agreements under Section 3(4) of the Competition Act, or an abuse of dominant position under Section 4 of the Competition Act may settle such proceedings or offer commitment(s) to the CCI, by submitting an application (in writing) in the following manner:

  • Settlement – An application for ‘settlement’ may be submitted by an enterprise at any time after the receipt of the Director General of the CCI’s (“DG”) report (pursuant to the DG’s investigation) but before the CCI passes a final order.The CCI may, after taking into consideration the nature, gravity and impact of the contraventions, finalise such settlement proposal, on payment of such amount by the applicant or on such other terms (including implementation and monitoring of the proposed settlement) as may be specified in regulations issued by the CCI.
  • Commitment – An offer of ‘commitments’ may be submitted by an enterprise at any time after the CCI has initiated an investigation but before the receipt of the DG’s report.
    The CCI may, after taking into consideration the nature, gravity and impact of the alleged contraventions and effectiveness of the proposed commitments, accept the commitments offered on such terms (including implementation and monitoring of the proposed commitments) as may be specified in the regulations issued by the CCI.

While considering an application for settlement or commitment, the CCI is required to provide an opportunity to the concerned enterprise, the DG, and/or any other party to submit any objections and suggestions. The CCI will also have the power to reject the settlement or commitment if it is of the opinion that it is not appropriate.

No appeal will lie to the National Company Law Appellate Tribunal (“Appellate Tribunal”) against any order passed by the CCI under the provisions relating to settlement and commitment. The CCI may revoke an order passed under these provisions in certain circumstances, including where there is incomplete disclosure by the parties.

Increase in penalties for cartel and abuse of dominance cases based on the global turnover of an enterprise

Section 27 of the Competition Act states that a party in contravention of provisions relating to anti-competitive agreements, or an abuse of dominant position may be subject to a financial penalty of an amount up to a maximum of 10% of the average turnover for the three preceding financial years of such party. Further, in case of a cartel, each party to such cartel may be fined up to three times of its profit for each year of the continuance of such cartel or 10% of its turnover for each year of the continuance of such cartel, whichever is higher.

While the Supreme Court in Excel Crop Care[1] had ruled that the penalty in such cases must be calculated based on the ‘relevant turnover’ of the entity (i.e., the turnover of the relevant product or service in respect of which a violation has been found, and not the total turnover), the Amendment Act now provides that the penalty is to be calculated on the basis of the “global turnover derived from all the products and services” of an enterprise.

The manner of determining turnover or income under the Explanation to Clause (b) of Section 27 of the Competition Act will be specified in regulations issued by the CCI.

Exchange of Information between Departments of Government and the CCI

The Amendment Act provides that the CCI may, for the purpose of discharging its duties or performing its functions under the Competition Act, enter into a memorandum or arrangement with any statutory authority or a department of the Government.

This amendment may enable the CCI to exchange information regarding investigations or ‘combinations’ with other statutory authorities.

OTHER CHANGES

Other changes in the Amendment Act include:

Merger Control

  1. Definition of the ‘relevant product market’ from a supply side perspective:
    The Amendment Act amends the definition of the ‘relevant product market’ to include supply side substitutability (in addition to consumer-side substitutability) i.e., a ‘relevant market’ may be defined with reference to the supply-side as well. The definition of ‘relevant product market’ has accordingly been amended to include a market comprising all those products or services “the production or supply of which are regarded as interchangeable or substitutable by the supplier, by reason of the ease of switching production between such products and services and marketing them in the short term without incurring significant additional costs or risks in response to small and permanent changes in relative prices”.
  2. Calculation of turnover:
    The Amendment Act clarifies that the term ‘turnover’ will include turnover certified by the statutory auditor based on the last available audited accounts of the company in the financial year immediately preceding the financial year in which the notice is proposed to be filed with the CCI, and shall exclude the following: (i) intra-group sales, (ii) indirect taxes, (iii) trade discounts, and (iv) all amounts generated through assets or business from customers outside India.
  3. Change to penalty for gun-jumping:
    Currently, the penalty for gun-jumping may extend to one percent of the total turnover or the assets, whichever is higher of the relevant ‘combination’.The Amendment Act provides that the penalty for gun-jumping may extend to one percent of the total turnover or the assets or, value of the transaction, whichever is higher of the relevant ‘combination’.
  4. Increase in penalty for making a false statement or omission to furnish material information:
    The penalty for such violations has been increased from Rupees One Crore to Rupees Five Crore.
  5. CCI’s order declaring a ‘combination’ as void ab initio will be appealable to Appellate Tribunal.
  6. Appearance of experts before the Commission:
    The Amendment Act clarifies in Section 35 of the Competition Act that a party may call upon experts from the fields of economics, commerce, international trade or from any other discipline to provide an expert opinion in connection with any matter related to a case.

Anti-Competitive Agreements & Abuse of Dominance

  1. Timelines for filing a complaint with the CCI: Currently, the Competition Act does not prescribe a timeline for filing a complaint with the CCI. The Amendment Act provides that the CCI shall not entertain a complaint unless it is filed within three (3) years from the date on which the cause of action has arisen. A delay in filing a complaint or a reference may be condoned under certain circumstances.
  2. Widening the scope of Section 3 of the Competition Act to include participation or an ‘intention’ to participate in an anti-competitive agreement by enterprises: Currently, Section 3 of the Competition Act provides that any agreement between enterprises engaged in identical or similar trade of goods or provision of services (i.e., competitors), which determines purchase or sales prices, limits or controls production, supply, etc. shall be presumed to have an appreciable adverse effect on competition in India.
    The Amendment Act widens the scope of Section 3 of the Competition Act to include participation or an ‘intention’ to participate in such anti-competitive agreements (even if such participant is not a competitor of the remaining parties). This amendment has been introduced to cover cartels, where the hub (i.e., the organiser or facilitator) communicates with one or more spokes (i.e., competing enterprises) and causes sharing of information between competitors.
  3. Widening the scope of anti-competitive agreements under Section 3(4) of the Competition Act to include ‘any other agreement amongst enterprises or persons’ at different stages or levels of the production chain: This amendment is aimed at expressly bringing agreements which may not fit within the categorisation of either a horizontal or a vertical agreement, under the purview of Section 3(4) of the Competition Act.
  4. Power of the DG to examine legal advisers: The Amendment Act provides that the DG may examine on oath, any of the officers and other employees and agents of the party being investigated, in relation to the affairs of the party being investigated, with the previous approval of the CCI. The definition of the term ‘agent’ is anyone acting or purporting to act for or on behalf of such person, and includes bankers, and persons employed as auditors and legal advisors by such person.
  5. CCI to issue guidelines. The Amendment Act provides that the CCI may publish non-binding guidelines with respect to the various provisions of the Competition Act (or the rules and regulations made thereunder) either on a request made by a person, or on its own motion.
    The CCI will also publish guidelines on the appropriate amount of any penalty for contravention of provisions of the Competition Act. Such guidelines will be considered by the CCI while imposing penalties and the CCI will be required to provide reasons in case of any divergence from such guidelines.
  6. The Amendment Act also directs a mandatory deposit of 25% of the penalty for filing an appeal with the Appellate Tribunal.

[1] Excel Crop Care v. Competition Commission of India, 8 SCC 47 (2017), judgement dated May 8, 2017, paragraph 93 page 109.


This update has been authored by Simran Dhir (Head of Competition), Akshat Kulshrestha (Counsel) and Anuja Agrawal (Associate). They can be reached at sdhir@snrlaw.in, akulshrestha@snrlaw.in and aagrawal@snrlaw.in respectively, for any questions. This update is intended only as a general discussion of issues and is not intended for any solicitation of work. It should not be regarded as legal advice and no legal or business decision should be based on its content.