Competition Law Amendment Bill 2022: A
possible gamechanger
The Competition
(Amendment) Bill, 2022 (“Bill”) was introduced in the Lower House of the
Indian Parliament (Lok Sabha) on August 5, 2022. The Bill seeks to “carry out certain essential structural
changes in the governing structure of the Competition Commission of India
and changes to substantive provisions to address the needs for new age
markets”. Post the early adjournment of the Monsoon Session of
the Parliament, the Bill has been referred to the Standing Committee of Finance for
further review. The Bill is likely to be tabled and debated further in the
Parliament’s upcoming Winter Session.
Many of the proposed
amendments, such as introduction of deal value thresholds, modification of the
definition of relevant market to include supply-side considerations, are in
keeping with the recommendations of the Competition Law Review
Committee (CLRC).[1]
Other changes, such as the timeline for notification to the Competition
Commission of India (“CCI”), and inclusion of material influence within
the meaning of ‘control’, are already part of the decisional practice in India.
The amendments, if passed, would add further clarity to the decisional practice
of the CCI. The proposed amendments relate to both merger regulation and
anti-trust enforcement in India.
A summary of the key
amendments proposed in the Bill, is set out below:
A. Merger Control
1.
Introduces
Deal Value Thresholds for Mergers under Section 5 of the Indian Competition Act,
2002 (the “Act”): Under
the Act as it stands, a ‘combination’ (that is, acquisition of assets, control,
shares or voting rights, merger amalgamation or demerger), subject to certain
exceptions, needs to be mandatorily notified to the CCI, if the combined assets and turnover figures of the combining parties cross
certain threshold values.
The Bill proposes to add a new test to determine whether a transaction will be a combination under the Act i.e., deal value thresholds (DVT). Under the Bill, a combination involving acquisition of control, shares or voting rights, merger or amalgamation, will require notification to the CCI if: (i) its global deal value exceeds INR 20 billion; and (ii) the party or parties involved in the transaction have “substantial business operations in India.” The Bill provides that contours of “substantial business operations in India,” would be provided by regulations, which are yet to be issued by the CCI. Further, the Bill says that the “value of transaction” will include every valuable consideration (direct, indirect or deferred) provided for in any merger, acquisition or amalgamation. In our view, these amendments will have a significant impact on the Indian merger regulation and bring transactions into the fold of the Act that had been previously excluded for not having met the requisite asset or turnover thresholds. Quite often, due to the nature of acquisitions in the digital economy, deal values are high despite low turnovers and asset-light balance sheets of the parties concerned.
Expands the definition of ‘Control’ to include ‘material influence.
As per section 5 of the Act as it stands, the term “control” includes 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.
The Bill modifies the definition of control to read - “as the ability to exercise, in any manner, material influence over the management, affairs or strategic commercial decisions by:
(i) either one or more
enterprises over another enterprise or group, singly or jointly; or
(ii) one or more groups over
another group or enterprise, either singly or jointly.”
As said above, the CCI’s decisional practice already includes “material influence” within the fold of control.[2] In our view, the amendment would formalise the decisional practice and add much-needed clarity.
3.
Reduces
Timelines for Review
Merger
regulation in India, like in other jurisdictions such as the EU or the US,
requires that combinations should be notified prior to their being given
effect. The proposed combination can be given effect only either on (a) the CCI’s
approval, or (b) expiry of a period of 210 days from the date of
notification to the CCI, whichever is earlier.[3] The
Bill proposes to reduce the extant standstill period from 210 days to 150 days,
which may be extended by 30 days in case a party to the combination requests
the CCI for additional time to provide any relevant information or remove any
defects in its filings. Consequentially, the Bill also proposes shortening of
timelines in various phases of the CCI’s review.
Furthermore,
the Bill also reduces the timeline for CCI’s review in Phase 1 for CCI’s prima facie order, to 20 calendar days
from the extant 30 working days.
These proposals, in our view, are a welcome move that are in furtherance of the Indian Government’s Ease of Doing Business policy. Practically speaking, these changes place a higher responsibility on the notifying parties to provide comprehensive information to the CCI and reduce the number of follow up questions from the CCI.
4.
Formally
recognises modifications proposed by Parties at prima facie stage:
The Bill, by way of a new section 29A formally recognises voluntary modifications proposed by parties where the CCI is of the preliminary view that the combination may result in an adverse impact on competition in the relevant market. It may be noted that CCI has accepted modifications voluntarily undertaken by the combining parties in the past.
5.
Exception
from Standstill Obligations for Stock Market Purchases:
The Bill proposes to exempt combinations
from the standstill obligations under Section 6(2A) of the Act, if the
combinations involve:
a. an
open offer; or
b. an
acquisition of shares or securities, through a series of transactions on a
regulated stock exchange.
The Bill allows the acquirer, in the above cases, to acquire shares without first obtaining CCI’s approval. However, prior to the approval, the acquirer cannot exercise any ownership or beneficial rights or voting rights or receive dividends or any other distributions.
In our view, this amendment would enable acquirers to purchase shares on recognised stock exchanges without the fear of breaching CCI’s suspensory regime for merger regulation. In the past, CCI has imposed penalties on acquirers for undertaking market purchases without taking CCI’s approval first.[4] Also, in the case of open offers, both SEBI and CCI would be able to play their respective roles in parallel and without waiting for the other.
6. Brings unreported combinations identified by CCI’s suo moto investigation within the ambit of penalty provisions for failure to notify the CCI in the prescribed manner
The Bill proposes to formally bring unreported combinations identified by the CCI in suo moto investigations, under the preview of penalty provision for failure to notify in the prescribed manner.[5] The quantum of penalty has been slightly modified to take into account the DVT and now is - upto 1% of the total turnover or assets or the value of transaction of such a combination.
Even though the CCI by its decisional
practice has extended penalty provision on unreported combinations by necessary
implication, the amendment can add further clarity on the issue.
7.
Enhances
upper limit of penalty for Making False Statement or Omission to Submit
Material from INR 10 million to INR 50 million
The Act additionally provides for certain penalties on combining parties in the event the party either: (i) makes a materially false statement, or a makes a knowingly false statement; and/or (ii) omits or fails to state any material particular, which such party knows to be material. The extant Act provides the CCI discretion to determine the penalty within the range of INR 5 million and INR 10 million. The Bill, however, increases the upper limit to INR 50 million from INR 10 million
B.
Anti-trust enforcement
8.
Introduces Limitation Period for information:
In a significant change, the Bill introduces a limitation period of three years (from the date on which cause of action arose) to file information with the CCI. However, the CCI is empowered to condone delays.
9.
Introduces
the concept of res judicata (albeit in a limited sense):
The Bill vests discretion in the CCI to decline to entertain an
information, if the information is based on same or similar facts and the
issues raised in the information have been addressed in a previous order issued
by the CCI. In its decisional practice, the CCI has abstained from imposing
penalties where violators have already been penalised in similar circumstances.
10.
Expands
the meaning of cartelising parties to include facilitators:
Under the extant Act, any
agreement between enterprises or persons, engaged in identical or similar
businesses, is presumed to have adverse effect on competition if it
relates to price fixing, controlling production, supply, markets, or provision
of services, or if directly or indirectly leading to collusive bidding.
By way of a significant change, the Bill adds that enterprises or persons not engaged in identical or similar businesses shall be presumed to be part of such agreements, if they actively participate in the furtherance of such agreements.
11.
Broadens
the scope of vertical anti-competitive agreements under section 3(4):
The language of section 3(4) relating to vertical arrangements has been widened to include in its ambit all arrangements between persons and enterprises, and not just those between firms at different stages of the supply/distribution chain.
12.
Introduces
‘Settlements’ and ‘Commitments’:
In a significant move, the
Bill proposes the introduction of two new sections for - (i) settlements (which
may involve payment of money), or (ii) commitments (may be structural or
behavioural in nature). A settlement application can be moved by a party
against whom an inquiry relating to section 3(4) i.e., an anti-competitive vertical
arrangement, or section 4 i.e., abuse of dominance, has been launched, at any
time after the submission of the report of the Director General (‘DG’) but
before a final order is passed by the CCI. On the other hand, a proposal for
commitments relating to anti-competitive conduct relating to vertical
arrangements and abuse of dominance can be made after initiation of the investigation, but prior to the submission of the DG’s report.
These amendments are a welcome move as they have the potential to change the enforcement landscape significantly and may encourage parties to be more transparent and significantly reduce anti-trust litigation.
13.
Expands
the DG’s Powers:
The Bill makes important structural
alterations to the office of the Director General, the investigative arm of the
CCI. The DG will now be appointed by the CCI, subject to approval by the
Central Government. The Bill proposes to allow the DG to retain information
requisitioned by the DG during the investigation for up to 360 days. Apart from
summoning and examining officers, employees, etc. of an enterprise under
investigation on oath, the Bill expressly allows the DG to examine ‘agents’ on
oath. ‘Agents’ include bankers, legal advisors, and auditors of a company under
investigation. The inclusion of legal advisors is an interesting change, which
is likely to come in conflict with statutorily recognized lawyer-client
privilege in India.
C.
Others
14.
Parties
need to deposit 25% of Penalty before appealing to the NCLAT:
In a significant change, the Bill imposes a pre-deposit of 25% of the penalty imposed by the CCI, in order to file an appeal before National Company Law Appellate Tribunal (NCLAT). This is a significant change and is likely to raise the stakes as far as litigation is concerned. Earlier, the decisional practice of the NCLAT was to require a 10% deposit of penalty, and only as a condition of stay of recovery proceedings and not as a pre-condition for filing the appeal.
15.
Issuance of Guidelines:
In a long-awaited development,
the Bill contemplates that the CCI will publish guidelines as to the appropriate amount of any
penalty for any contravention of provisions of the Act.
As said earlier, the Bill, if passed in the present form, would be a game changer for Competition Law in India. As we await parliamentary assent for the Bill, it is imperative that the Bill is studied and debated in detail by all stakeholders.
[1] See Ministry of Corporate Affairs, ‘Report of
Competition Law Review Committee’ (2019) available at https://ies.gov.in/pdfs/Report-Competition-CLRC.pdf
[2] For instance, see Ultratech-JAL (C-2015/02/246), section 44 Order dated 12 March 2018. In this Order, the CCI
was of the view that all degrees and forms of control together constitute
control. The CCI also discussed the various gradients of control that may be
exercised over an entity, ranging from the 'material influence' to 'de facto/de jure' control.
[3] Section 6(2A) of the Act
[4] See: SCM/MCFL (Combination registration no. C-2014/06/175) and Zuari/MCFL (Combination registration no.
C-2014/06/181)
[5] That is, section 43A of the Act.