In July 2019, the Competition Law Review Committee put out a report[1] (“Report”) recommending several revisions to the Competition Act, 2002 (“Act”). On August 5, 2022, the Competition (Amendment) Bill, 2022 (“Proposed Bill”) was introduced in the Lok Sabha to capture some of the recommendations made in the Report, many of which were made in response to the prevailing market scenario to better meet the objectives of the Act.

1. Introduction of a Deal Value Threshold.

Under the existing law, certain combinations[2], based on the (i) asset value, and (ii) turnover, are regulated and subject to scrutiny of the Competition Commission of India (“CCI”). The Proposed Bill seeks to add a third criteria: deal value.

This change will require combinations where the value of the transaction exceeds a sum of INR 2,000 crore to seek approval from the CCI if either party to the transaction has “substantial business operations” in India. The value of the transaction includes all consideration, whether direct or indirect, or deferred for any acquisition, merger, or amalgamation. What constitutes “substantial business operations in India”’ is to be notified by regulation.

Introduction of this third criteria would bring high-valued transactions within the purview of the CCI regardless of the traditional indicators captured under the present regime (i.e., turnover and asset value). This change will affect combinations where valuations are based more on potential future earnings or strategic potential which is a common trend in the technology sector today[3]. This change will likely affect other fast-growing industries as well, for instance the health and medicine sector, when it comes into force.

It remains to be seen how this recommended change will coexist with the de minimis exemption[4] which was recently extended until 2027.[5]

2. Revised Timeframe for CCI Review.

Presently, under Section 6(2A) of the Act, a combination cannot be consummated before the lapse of 210 days from the date of notification of the combination to the CCI or pronouncement of an order by the CCI allowing the combination, whichever occurs earlier. The Proposed Bill shortens this period to 150 days. However, the CCI is permitted to extend this period by an additional 30 days if a party to the combination requests additional time to furnish information or remove defects in their notice to the CCI. [6]

3. Open Market Acquisitions.

Presently, the Act requires an acquirer to notify and seek approval from the CCI if an acquisition meets the requirements of a combination under the Act and no exemption exists for open market acquisitions. That is to say that the acquirer cannot acquire any shares or pay any consideration in a proposed combination pending approval from the CCI under any circumstances (including combinations involving open market acquisition of shares listed on a stock exchange and hostile acquisitions).[7]

The requirement to seek the CCI’s approval prior to acquisition of open market shares (i.e., shares listed in a public stock exchange) creates serious functional difficulties for an acquirer due to the volatile nature of the equity market. This difficulty is enhanced by the fact that the acquirer’s intention to acquire is made public. Hence, an acquirer may suffer a potential penalty for gun jumping or miss an opportunity to acquire publicly available shares at a fair and opportune price.[8]

However, in a noteworthy change, the Proposed Bill allows an acquirer to file a notice for the stock market purchases after purchases are made.[9] This is subject to certain conditions: (i) notice of the acquisition is filed with the CCI within the timeline prescribed under the regulations, and (ii) the acquirer does not exercise any ownership or beneficial rights or any interest in the shares/ convertible securities so acquired until the CCI approves the acquisition[10].

4. Inclusion of Technology-Focused Professionals in the CCI.

Addition of the term “technology” to Sections 8(2) and 9(1) now specifically permit the appointment of technology experts to the CCI.

5. Hub and Spoke Cartels.

The Act as it presently stands expressly acknowledges only vertical and horizontal[11] cartelization.[12] However, the Proposed Bill recommends expressly expanding the ambit of the Act to regulate Hub and Spoke Cartels[13] by inserting the following proviso in Section 3, “Provided further that an enterprise or association of enterprises or a person or association of persons though not engaged in identical or similar trade shall also be presumed to be part of the agreement under this sub-section if it actively participates in the furtherance of such agreement.”.[14] The effect of the amendment is that the facilitator will be considered to be part of the cartel and therefore liable.

6. Settlements and Commitments.

The Proposed Bill recommends the introduction of a settlements and commitments framework for potential offenses under the Act.[15] This is being recommended by the addition of two sections to the Act, i.e., Sections 48A and 48B, for settlement[16] and commitments[17] respectively. Settlements and commitments may be applied for on payment of a fee. Procedures for commitments and settlements, as well as the fee payable for commitment and settlement applications, are to be prescribed by regulations.

7. Introduction of a Limitation Period for Filing Information on Anti-Competitive Agreements and Abuse of Dominant Position.

By a proposed amendment to Section 19 of the Act, the Proposed Bill recommends the introduction of a three-year time limit, commencing from the date on which the cause of action arises, for information to be submitted to the CCI in relation to anti-competitive agreements and abuse of dominant position. However, the CCI is permitted to condone delay if it believes that there has been sufficient cause for the delay.[18]

8. Expansion of the Director General’s Power under the Act.

The Proposed Bill recommends removal of reference to and applicability of Section 240 and 241 of the Companies Act, 1956 in relation to powers of the Director General. In its place, the Proposed Bill recommends insertion of certain additional powers of the Director General for investigations under Section 41 of the Act.[19] These include: (i) requiring the cooperation maintenance, submission and assistance of all employees and agents[20] in relation to information, books, papers, other documents and records of, or relating to, the party, (ii) the power to retain any information, books, papers, other documents and records by the Director General for a period of up to 180 days at a time (however, the Director General may order resubmission), (iii) the power to examine, under oath, the employees and agents[21] of a party under investigation, and (iv) the power to seek a search and seizure[22] order by application to the Chief Metropolitan Magistrate, Delhi[23] and seek assistance of the police to carry out the order so granted[24].

9. Changes to the Leniency Regime.

The Proposed Bill also makes changes to the leniency regime of the Act by proposing an amendment to Section 46 of the Act.[25] Noteworthy changes include empowerment of the CCI to impose a lesser penalty if a party makes a full, true, and vital disclosure in relation to another cartel that it is involved in, aside from making a full, true, and vital disclosure of the cartel presently being investigated[26].

 

 

[1] Available at: https://www.ies.gov.in/pdfs/Report-Competition-CLRC.pdf

[2] Combinations under the Act presently include mergers or amalgamations and acquisitions. See Section 5 of the Act.

[3] Facebook/Meta’s acquisition of WhatsApp and Microsoft’s acquisition of LinkedIn are specifically cited in the Report.

[4] The Notification S.O. 988(E) dated March 29, 2017 [Available at: https://www.cci.gov.in/combination/legal-framwork/notifications/details/9/0] exempts from scrutiny transactions where the assets of the target in the transaction are less than INR 350 crores or if it has turnover of less than INR 1,000 crores. This is often referred to as the ‘de minimis exemption’.

[5] Notification S.O. 988(E) dated March 29, 2017 was recently extended by Notification S.O.1192(E) dated March 16, 2022 [Available at: https://www.cci.gov.in/combination/legal-framwork/notifications/details/15/0] for a further term of five years.

[6] See in Section 6(2A), as amended by Section 7(b) of the Proposed Bill.

[7] See, the Supreme Court’s verdict in SCM Solifer Limited v. Competition Commission of India [(2018) 6 SCC 631], where the Supreme Court rejected the claim of an acquirer who held shares in escrow and did not exercise any rights in the shares. The Supreme Court held that this action is gun jumping since the Act does not contemplate the possibility of a post-facto notice thereby denying the CCI it’s opportunity to assess whether the proposed combination could cause any appreciable adverse effect on competition.

[8] The issue is discussed on page 141 of the Report.

[9] See Section 6A to be inserted into the Act by Section 8 of the Proposed Bill.

[10] This would include voting rights and the receipt of dividend.

[11] Put simply, horizontal cartels are cartels that are formed by competing enterprises, while vertical cartels are cartels formed between enterprises situated at different levels of production chain.

[12] While it is debatable whether Section 3(1) of the Act already addresses the concept of hub and spoke cartels, the Report recommended its specific inclusion in the Act while referring to the implications of Section 3(3) of the Act. See page 60 of the Report.

[13] These cartels are understood to be a hybrid arrangement having characteristics of both vertical and horizontal cartels but not strictly meeting characteristics of either. Usually, a hub and spoke cartel is formed when a facilitator (the “hub”, which is usually a vertical component in the production chain) creates an arrangement with horizontal competitors (the “spokes”) which leads to indirect coordination between competitors. This form of cartelization is usually difficult to identify and prove due to its indirect structure.

[14] See Section 4 of the Proposed Bill.

[15] See Section 35 of the Proposed Bill.

[16] Which may be offered after receipt of the Director General’s report under Section 26(4) of the Act, but before a final order has been passed. See Section 35 of the Proposed Bill.

[17] Which may be offered from initiation of an enquiry under Section 26(1) of the Act, but before receipt of the Director General’s report issued under Section 26(4) of the Act. See Section 35 of the Proposed Bill.

[18] See Section 14 of the Proposed Bill.

[19] See Section 26 of the Proposed Bill.

[20] Per the explanation under Section 41(12) as proposed by Section 26 of the Proposed Bill: “agent”, in relation to any person, means, 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.

[21] Ibid.

[22] Search and seizures are required to be conducted in line with the Code of Criminal Procedure as per Section 41(12) as proposed by Section 26 of the Proposed Bill.

[23] If the Director General has reasonable grounds to believe that information, books, papers, other documents or records of, or relating to, any party or person, may be destroyed, mutilated, altered, falsified or secreted.

[24] Unlike that which is voluntarily submitted to the Director General, information, books, papers, other documents or records seized may be retained by the Director General for as long as necessary, but is required to return the same after the investigation is concluded. See Section 41(11) as proposed by Section 26 of the Proposed Bill.

[25] See Section 33 of the Proposed Bill.

[26] See Section 46(4) as proposed by Section 33 of the Proposed Bill.