Shaping A New Era: Overhauling India's Antitrust Landscape With The Competition (Amendment) Bill, 2022
On April 3, 2023, the Rajya Sabha approved the Competition (Amendment) Bill, 2022, which is aimed at modernizing the existing anti-trust law that has been in place for two decades, in order to align it with the evolving economic landscape. The Bill was initially presented to Parliament in August 2022 and was subsequently referred to the Standing Committee on Finance for evaluation....
On April 3, 2023, the Rajya Sabha approved the Competition (Amendment) Bill, 2022, which is aimed at modernizing the existing anti-trust law that has been in place for two decades, in order to align it with the evolving economic landscape. The Bill was initially presented to Parliament in August 2022 and was subsequently referred to the Standing Committee on Finance for evaluation. The committee submitted its report in December 2022, following which the Bill was reintroduced with certain amendments in February 2023. On March 29, the Lok Sabha successfully passed the Bill.
The objective of the Competition (Amendment) Bill, 2022 is to introduce greater adaptability, effectiveness, and responsibility to the Competition Commission of India, which serves as the country's antitrust regulator. The Bill proposes several changes that will expedite the approval process for mergers and acquisitions in India and minimize the potential for litigation. It broadens the scope of anti-competitive agreements and imposes higher penalties for violations, while also decriminalizing certain offenses.
The proposed amendments to the Competition Act of 2002, as outlined in the new Competition (Amendment) Bill, aim to introduce greater flexibility, agency, and accountability to the Competition Commission of India (CCI), which serves as the country's antitrust watchdog.
The bill aims to expand the scope of anti-competitive agreements, streamline the approval process for mergers and acquisitions (M&A), and reduce litigation. It also seeks to enhance the penalties for offenses under the competition law. For instance, it proposes to reduce the overall time limit for approving M&As from 210 days to 150 days, according to reports.
Below are several notable features of the legislation:
- The proposed amendments to the Competition Act, 2002, in the Bill aim to establish regulations for mergers and acquisitions that are determined by the transaction value. Transactions exceeding Rs 2,000 crore will require approval from the CCI (Competition Commission of India). Additionally, the Bill aims to shorten the timeline for the CCI to issue an order on such transactions from 210 days to 150 days.
- The Bill broadens the definition of entities that can be considered as participants in anti-competitive agreements. Presently, only enterprises or individuals involved in similar businesses can be held liable. However, the Bill extends this to encompass enterprises or individuals who may not be engaged in similar businesses as well.
- The Bill establishes a framework for settlement and commitment to expedite the resolution of investigations pertaining to anti-competitive agreements and abuse of dominant position.
- The Bill reclassifies certain offenses under the Act as civil penalties instead of fines, thereby decriminalizing them. These offenses pertain to non-compliance with orders from the CCI (Competition Commission of India) and directions from the Director General related to anti-competitive agreements and abuse of dominant position.
The Competition Act of 2002 was established with the aim of promoting and maintaining competition in markets, safeguarding consumer interests, and ensuring trade freedom for market participants.[1] It also instituted the Competition Commission of India (CCI) to eradicate practices that could negatively impact market competition. The Act prohibits enterprises from engaging in anti-competitive agreements that could substantially harm competition in India, or abusing their dominant position. Similarly, individuals and enterprises are prohibited from engaging in combinations that may result in or are likely to result in a significant adverse effect on competition in the relevant market in India. Combinations, which include acquisitions, mergers, or amalgamations of one or more enterprises, must be notified to the CCI for approval if they meet specified thresholds based on assets or turnover.
Since the implementation of the Competition Act, the Indian markets have experienced significant growth.nThis has been accompanied by changes in business practices, including the rise of digital, internet-based companies and new-age markets driven by technology.nIn 2018, the Ministry of Corporate Affairs established the Competition Law Review Committee to ensure that the Competition Act aligns with India's economic fundamentals. During its deliberations, the Committee observed that certain market practices are not adequately addressed by the existing regulatory framework. In 2019, the Committee released its report, which included recommendations for amendments to the Act and changes to the regulatory structure in relation to market competition. Subsequently, the Competition (Amendment) Bill, 2022, was introduced after considering the recommendations of the Competition Law Review Committee. The Bill aims to expand the scope of anti-competitive agreements, introduce evaluation of combinations based on transaction value, shorten the time limit for approval of combinations, and introduce a settlement and commitment framework to reduce litigation.
Proposed Modifications to Definitions in the Competition Act: An Overview of the Bill:
The Bill proposes modifications to several definitions under the Competition Act, including those related to control, group, and value of transaction. Control, which is currently defined as control over the affairs or management by one or more enterprises over another enterprise or group, would be modified to refer to the ability to exercise material influence over the management, affairs, or strategic commercial decisions.
The Bill also introduces a new definition of group, which would encompass situations where one enterprise, either directly or indirectly, has the ability to exercise 26 percent or a higher percentage as prescribed, of the voting rights in another enterprise, appoint more than fifty percent of the members of the board of directors in another enterprise, or control the management or affairs of another enterprise.
The definition of value of transaction would be expanded to include every valuable consideration, whether direct or indirect, or deferred, for any acquisition, merger, or amalgamation.
In relation to anti-competitive agreements, which currently refer to agreements related to production, supply, storage, or control of goods or services that can cause an appreciable adverse effect on competition in India, the Bill maintains the same definition. However, it clarifies that any agreement between enterprises or persons engaged in identical or similar businesses would be considered to have an adverse effect on competition (AAEC) if it directly or indirectly determines purchase or sale prices, controls production, supply, markets, or provision of services, or leads to collusive bidding.
Further, The Act defines the relevant product market as products and services that consumers consider interchangeable. However, the Bill expands this definition to also include products and services that suppliers consider interchangeable in terms of production or supply.
Regulation of combinations to be determined by transaction value:
As per Section 5 of the Competition Act, 2002, a combination is defined as the acquisition of control, shares, voting rights, or assets of an enterprise by a person, acquisition of control of an enterprise where the acquirer already has control of another enterprise engaged in the same business, or merger/amalgamation between enterprises that cross certain financial thresholds, such as cumulative assets or turnover exceeding INR 10 billion or INR 30 billion, respectively, subject to certain conditions. The existing competition law requires combinations crossing these thresholds to undergo scrutiny and approval by the Competition Commission of India (CCI).
The new Competition (Amendment) Bill expands the definition of combinations to include transactions with a value exceeding INR 20 billion. This means that companies seeking to acquire control, shares, voting rights, etc. must obtain approval from the CCI if the transaction value exceeds INR 20 billion.
Furthermore, the previous requirement of providing a notice of combination to the CCI within 30 days of the trigger event has been eliminated. Instead, the notice must now be given prior to the consummation of the combination.
The Bill also introduces a new Section 29A, allowing the CCI or the parties involved in the combination to make suitable changes or modifications in case the CCI identifies the combination as potentially causing an appreciable adverse effect on competition (AAEC). This aims to prevent any AAEC from occurring within the specified timelines under the section.
Amendments to the timeframe for approval of combinations and other submissions:
As per the current legislation, a combination can only be completed after 210 days have passed from the date of providing notice to the CCI, or after obtaining approval from the CCI through an order. The new Bill aims to reduce this time limit for approval to 150 days.
Likewise, the existing law sets a three-year limitation period for submitting information to the CCI regarding anti-competitive agreements and abuse of dominant position. However, the CCI may allow exceptions in cases where there is sufficient cause and reasons for delays are recorded.
Implementation of a framework for settlement and commitment to mitigate litigation:
As per the Competition Act, the CCI has the authority to initiate proceedings based on various grounds, including anti-competitive agreements and abuse of dominant power. The latter encompasses discriminatory conditions in buying or selling goods/services, restricting production, and engaging in practices that deny market access.
The 2022 Amendment Bill expands the role of the CCI by granting it the power to close inquiry proceedings in such cases if the enterprise offers settlement (which may involve payment) or commitments (which may be either structural or behavioral in nature).
Elimination of criminal sanctions, enhancement of penalties:
The proposed Bill modifies the type of punishment for specific offenses, replacing fines with penalties. Furthermore, the Bill mandates an increase in penalties for acts of anti-competitive and anti-consumer practices, raising the amount from INR 10 million to INR 50 million. Additionally, the Bill introduces a mechanism to incentivize parties under investigation by offering reduced penalties if they provide valuable information during the probe.
Criteria and appointment of officials in the CCI:
- Director General of CCI: Currently, the authority to appoint the Director General of CCI rests with the central government. The proposed Bill seeks to amend this by granting the power of appointment to the CCI, subject to prior approval from the government.
- Members of CCI: As per the existing law, the chairperson and members of CCI are required to possess a minimum of 15 years of professional experience in areas such as economics, competition matters, law, management, and business. The Bill expands this requirement to also include expertise in the field of technology.
- Restrictions on post-employment: The Bill also proposes to impose restrictions on the chairperson and members of the CCI regarding their acceptance of employment for a period of two years after leaving office or retiring from the CCI.
Proposal to facilitate transactions related to open offers or acquisition of shares through regulated stock exchanges:
The proposed amendment by the central government aims to eliminate the need for CCI approval in transactions involving open offers or shares acquisition through regulated stock exchanges. This would result in a significant ease of doing business and could potentially boost the M&A landscape. Currently, under the Competition Act, 2002, parties are not allowed to acquire shares or pay any consideration in a proposed combination that has not been approved by the CCI.
In conclusion, the Competition (Amendment) Bill, 2022 marks a significant step towards shaping a new era in India's antitrust landscape. The proposed amendments aim to streamline and strengthen the competition law framework, address emerging challenges in the digital economy, enhance transparency, and promote ease of doing business. The key changes in the Bill, including the expansion of the definition of combinations, modifications in time limits for approvals, settlement and commitment framework, decriminalization of offences, and changes in the qualification and appointment of CCI officials, reflect a progressive approach towards modernizing India's competition law regime. If enacted, the Bill has the potential to foster healthy competition, encourage innovation, protect consumer interests, and promote a level playing field for businesses. However, as with any legislative reform, careful implementation and monitoring will be crucial to ensure the intended outcomes are achieved. Overall, the Competition (Amendment) Bill, 2022 signals a significant shift towards strengthening India's antitrust framework and positioning the country for a new era of competition regulation.
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