On August 5, 2022, the Competition (Amendment) Bill, 2022 (the “Bill”), to amend the Competition Act, 2002 (the “Competition Act”), was introduced in the Indian Parliament. The timing of approval of the Bill, and its coming into effect, is uncertain at present.
The key changes proposed by the Bill include:
- introduction of ‘deal value thresholds’ pursuant to which ‘large-value’ transactions will require the approval of the Competition Commission of India (“CCI”);
- relaxations for implementation of open offers and stock exchange purchases;
- shortened timelines for review of ‘combinations’;
- amendment of the definition of ‘control’ to include ‘material influence’;
- introduction of ‘settlement’ and ‘commitment’ to resolve investigations in respect of anti-competitive vertical agreements and abuse of dominance; and
- facilitation of exchange of information between departments of the Government of India and the CCI.
Please see below a detailed description of the changes proposed by the Bill.
Introduction of ‘deal value thresholds’
The Bill introduces ‘deal value thresholds’, pursuant to which transactions of a value exceeding INR 2,000 crore will require the prior approval of the CCI, provided that the parties to such transaction have “substantial business operations in India” (“Deal Value Thresholds”).
The term ‘value of transaction’ is stated to include “every valuable consideration, whether direct or indirect, or deferred for any acquisition, merger or amalgamation”. Further, the term “substantial business operations in India” is likely to be clarified in regulations issued by the CCI.
The text of the Bill read with the report of the Competition Law Review Committee (which formed the basis for many key changes proposed in the Bill) indicates that the Target Exemption (applicable to transactions where the assets of the target are of a value of INR 350 crore or less, or turnover is INR 1,000 crore or less) may not be applicable to transactions which exceed the Deal Value Thresholds.
Derogation from stand-still requirements in case of open offers and stock exchange purchases
The Bill proposes that open offers, and acquisitions of shares or securities on a regulated stock exchange may be implemented prior to the receipt of the CCI’s approval, provided that:
- the notice of such an acquisition is filed with the CCI in accordance with 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 acquisition.
Shortened timelines for review of combinations
The Bill proposes a 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 20 days; and
- the maximum period for review of combinations by the CCI has been shortened from 210 days to 150 days.
However, the Bill also provides that where a party to a combination requests additional time to furnish relevant information or remove defects in the CCI notification, the CCI may grant such additional time up to a maximum of 30 days.
Definition of ‘control’
The Competition Act currently does not include a qualitative test for ‘control’ and defines the term ‘control’ as including “controlling the affairs or management by— (i) one or more enterprises, either jointly or singly, over another enterprise or group; (ii) one or more groups, either jointly or singly, over another group or enterprise.”
In certain of its previous orders, the CCI has taken the view that the ability to exercise ‘material influence’ over another enterprise constitutes ‘control’ for the purposes of the Competition Act. In its order in UltraTech Cement Limited/ Jaiprakash Associates Limited, dated 10 April 2015, the CCI held as follows: “in competition law practice, control is considered as a matter of degree” and ‘control’ includes “material influence” which is the lowest level of ‘control’ and implies presence of factors which give an enterprise ability to influence affairs and management of the other enterprise including factors such as shareholding, special rights, status and expertise of an enterprise or person, board representation, structural/financial arrangements etc.”
In accordance with the above, the Bill amends 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 Bill proposes that enterprises facing investigations relating to (i) anti-competitive vertical agreements under Section 3(4) of the Competition Act, or (ii) abuse of dominant position under Section 4 of the Competition Act, may settle such proceedings or offer commitment(s) to the CCI 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 in respect of its investigation into the relevant matter, but before the CCI passes a final order; and
- Commitment: an offer for ‘commitment’ may be submitted by an enterprise at any time after the CCI has initiated an investigation, but before receipt of the DG’s report.
The CCI may, after taking into consideration the nature, gravity, and impact of the alleged contraventions (and, in case of commitments, their effectiveness), accept the settlement or commitments proposed, on such terms (including implementation and monitoring of the proposed settlement or commitments) as may be specified in 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 other parties (as appropriate) to submit 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 in the circumstances”.
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.
Exchange of information between departments of Government and the CCI
The Bill 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 proposed by the Bill include:
Definition of the ‘relevant product market’
The CCI carries out its competition assessment within the framework of a ‘relevant market’, which comprises of a ‘relevant product market’ and a ‘relevant geographic market’.
The Bill proposes to amend the definition of the ‘relevant product market’ to include ‘supply-side substitutability’ (in addition to ‘consumer-side substitutability’). The amended definition will 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”.
CCI to issue guidelines
The Bill proposes 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.
The Bill requires a mandatory deposit of 25% of the penalty for filing an appeal with the Appellate Tribunal.
Other changes relating to provisions in respect of notification and approval of combinations by the CCI
The Bill clarifies that the term ‘turnover’ will include turnover certified by the statutory auditor of the relevant enterprise, based on the last available audited accounts in the financial year immediately preceding the financial year in which the notification for approval is 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.
Penalty for gun-jumping
Currently, the penalty for gun-jumping (i.e., penalty for non-furnishing of information on combinations) may extend to one percent of the total turnover or the assets, whichever is higher of the relevant combination. The Bill proposes 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.
Penalty for making a false statement or omission to furnish material information has been increased from INR 1 crore to INR 5 crore.
An order of the CCI declaring a combination as void ab initio will be appealable to Appellate Tribunal.
Appearance of experts
The Bill proposes to clarify 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.
Other changes relating to Anti-Competitive Agreements and Abuse of Dominance
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 Bill proposes that complaints shall be required to be 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: (i) if the CCI is satisfied that there was ‘sufficient cause’ for not filing the information or the reference within such period; and (ii) after the CCI has recorded reasons for condoning the delay in filing.
‘Active participation’ in anti-competitive agreements
Currently, Section 3(3) of the Competition Act prohibits anti-competitive agreements 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, markets, etc.
The Bill proposes to widen the scope of the Competition Act to include ‘active participants’ to such anti-competitive agreement (even if such persons are not competitors of other parties). This amendment is proposed to cover ‘hub and spoke’ 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.
Section 3(4) of the Competition Act to cover ‘any other agreement’
This amendment is aimed at bringing agreements which may not fit within the categorization of either a horizontal or a vertical agreement, under the purview of section 3(4) of the Competition Act. This could be relevant in the context of digital markets which may include linkages and arrangements that may not fit strictly into the existing classification of agreements envisaged under section 3(4) of the Competition Act.
Officers and employees of the party under investigation
The Bill proposes that all officers, employees, and agents of a party which are under investigation shall have a duty to:
- preserve and produce all information, books, papers, other documents, and records of, or relating to, the party which are in their custody or power to the DG; and
- provide all assistance in connection with the investigation to the DG.
The Bill also proposes that the DG may examine, on oath, any officer, employee or agent of the party being investigated, in relation to its affairs, with the previous approval of the CCI.
The term ‘agent’ is defined in relation to any person, as “any one acting or purporting to act for or on behalf of such person, and includes the bankers and legal advisers of, and persons employed as auditors by, such person.”
Specific provision to withdraw leniency applications
The Bill proposes to permit a party to withdraw an application for lesser penalty or leniency in the manner and within such time as may be specified by the regulations issued by the CCI. However, the DG and the CCI shall be entitled to use any evidence submitted by such party in its application for lesser penalty, except for the concerned party’s admission of the violation of the provisions of the Competition Act.
Given that the monsoon session of the Parliament has been adjourned, the Bill is now expected to be taken up for consideration in the winter session of the Parliament.
The Bill introduces certain new concepts into the field of Indian competition law, including Deal Value Thresholds, the changes to the definition of ‘control’, and mechanisms to settle certain violations of the Competition Act. It also provides for practical and much-needed updates to the Indian competition law regime, including relaxations for implementation of stock exchange purchases, proposed publication of guidelines for fines, and reduction of timeframes for CCI’s approval.
To increase the ease of doing business in India within the regulatory framework of the Competition Act, the CCI will need to provide timely guidance on the various concepts introduced in the Bill, and work together with all stakeholders to implement it.
This update has been authored by Simran Dhir (Head of Competition), Akshat Kulshrestha (Associate) and Samali Verma (Associate). They can be reached at firstname.lastname@example.org, email@example.com and firstname.lastname@example.org, 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.
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