The Competition Act (“Act”) was passed in the year 2002 to prevent the deals and transactions vitiated by:
- Anti-competitive market practices
- Anti-competitive agreements
- Abuse of dominant position.
To prevent the practices and agreements mentioned above, the act establishes the Competition Commission of India (“CCI”). But this two-decades-old law has somehow lacked in effectively scrutinizing the deals in the era of technological advancement, growing numbers of start-ups, and the emergence of artificial intelligence as factors other than price has become more important. Therefore, the central government introduced the competition amendment bill 2022 in the Lok Sabha in august after a report suggesting necessary changes submitted by the Competition Law Review Committee.
This article discusses the changes in the competition act that the new amendment act seeks to bring to it.
Changes that the Competition Amendment Bill (“Bill”) seeks to introduce are as follow:
1. Deal value threshold: The bill seeks to introduce the “deal value threshold” of INR 2000 crore, which means any combination valued more than the threshold limit will come under the scrutiny of the CCI. Currently, as per Section of the Act to determine whether a combination requires the approval of CCI, the value of assets and turnover of the company in India must be INR 2000 cr. and INR 6000 cr. respectively, and in the case of companies with worldwide operations, the values of assets must be INR 1000 cr. and INR 3000 cr. respectively.
2. Timeline for reviewing combinations: The bill seeks to bring down the timeline for reviewing the combination by the CCI. The bill suggests that the maximum period for reviewing a combination become 150 days, which currently is 210 days, and where the CCI has to form a prima facie opinion of a combination the time limit has been reduced from 30 to 20 days.
3. Definition of control: The bill introduces the definition of control as “the ability to exercise material influence, in any manner whatsoever, over the management or affairs or strategic commercial decisions” of another enterprise or group.” Currently, the Act defines the term ‘control’ as including “controlling the affairs or management by:
- one or more enterprises, either jointly or singly, over another enterprise or group;
- one or more groups, either jointly or singly, over another group or enterprise.
The CCI in some of its previous orders has held that control means “the ability to have material influence over another enterprise”. This can be better understood by looking at the CCI’s view in the UltraTech Cement Limited/ Jaiprakash Associates Limited case. In this case, the CCI held that the term control includes “material influence” and the presence of the factors which gives an enterprise ability to influence the affairs and management of the enterprise. Those factors could be special rights, shareholding, board representation, etc. So, the definition of control under the new amendment bill seems to be on the lines of the above judgment of CCI.
Also, in the Jet-Etihad deal case, the Securities and Exchange Boards of India(SEBI) laid down two tests to determine whether the acquirer (Etihad) obtains joint control over the target (Jet) under the transaction document. Those two tests are:
- The acquirer obtains the right to appoint the majority of directors to the board of the target company.
- The acquirer obtains control over the management or policy decisions of the company.
SEBI applied both tests and observed that Etihad did not obtain joint control over Jet as it will only be able to appoint two directors out of twelve resulting in no control over the policy decisions of Jet.
The definition of control under the bill becomes important because currently it is being decided on a case-to-case basis. It will help the experts in structuring such a deal in the future. Determining whether a deal would result in control over the target company by the acquirer also becomes important because the SEBI takeover code requires the acquirer to make an open offer to the shareholders of the target company if it obtains such control.
4. Introduction of settlement and commitment: The new amendment provides a scope of settlement to the parties facing an investigation on charges related to:
- Anti-competitive vertical agreement u/s 3(4)
- Abuse of dominant position u/s 4.
It allows the parties to settle either by commitment or settlement in the following way:
- Settlement: An application for it can be given to the CCI at any time after the director general (DG) of CCI has submitted its report on the investigation but prior to the final order of CCI
- Commitment: The parties can offer commitment at any time after the initiation of the investigation by the CCI but before the receipt of the report from the DG.
The CCI may accept the settlement or commitment after considering the nature and gravity of the case. The commission also has the power to implement and monitor the settlement. It can, before approving the proposed settlement or commitment, provide an opportunity to the DG, parties to the case, and other appropriate parties to submit their objection and suggestion to the settlement. If the commission rejects the settlement, the parties cannot file an appeal before the National Company Law Appellate Tribunal(NCLAT) against the order of CCI passed under the provisions related to the settlement.
5. Exchange of information: The bill provides for the exchange of information between CCI and other departments of the government.
6. Decriminalization of crimes: The bill decriminalizes certain offences by converting the punishment from fine to penalty. The bill also allows parties to have reduced punishment if they help the investigation by providing any beneficial information.
So, these are some significant changes that the new amendment bill seeks to make in the two-decades-old competition law of India.
Analysis of the other key changes
The Competition Act was enacted to restrict parties from gaining an unfair market advantage through various types of combinations such as mergers, amalgamations, acquisitions, and so on. Combinations of this type were required to obtain CCI clearance when they met the mandated limitations of just the asset and turnover thresholds, but the amendment added a notification requirement based on deal value, i.e. the Deal Value Threshold (DVT). Prior to the amended legislation, parties were only obligated to inform the CCI when the asset and turnover-based thresholds were exceeded. With the new addition of the criterion being deal value-based, the authorities can now scrutinize such corporate combinations that might otherwise avoid scrutiny.
The new Amendment also proposes a new framework for settlement and commitment mechanisms, which would relieve the parties of the time-consuming litigation and other procedures. This suggested approach would also reduce the amount of anti-competitive vertical agreements and abuse of dominance cases.
The new amendment states that the CCI may engage into an arrangement with any statutory authority of the Government in order to discharge its responsibilities or exercise its powers under the Competition Act. This modification may allow the CCI to share information about investigations or mergers with other statutory agencies. This will aid CCI’s enforcement of the Competition Act of 2002. The end result will benefit customers in general and promote fairness and inclusivity. The involvement of the statutory body would function as a deterrent to the parties from violating the provisions of the act
It has also been proposed that the CCI may provide non-binding guidelines on the different provisions of the Competition Act in response to a request from a person or on its own initiative. The CCI will also issue guidelines on the appropriate amount of any penalty for violating Competition Act provisions.
The changes introduced in the bill are new in the field of Competition Law. Reforms such as the addition of Deal Value Thresholds, the mechanisms of settlement in case of violations, and Mechanisms for resolving certain Competition Act violations are all practical and much-needed improvements to the Indian competition law framework. The new modifications should allow the Commission to better oversee some areas of the New Age sector and make its operations more effective. The suggested reforms are obviously required; nonetheless, they are heavily reliant on rules issued by the Commission subsequently. Furthermore, the government must acknowledge that market dynamics are always changing, therefore legislation must be revised on a regular basis to suit the changing times.
(This post has been authored by Lovesh Mamnani and Biprojeet Talapatra who are second-year students of law (three-year LLB) at the Campus Law Centre, University of Delhi.)