Other BriefingsIndia’s Competition (Amendment) Bill, 2022: Proposed Changes to the Antitrust Regime
India is set to make changes to its antitrust regulation. The Competition (Amendment) Bill, 2022 aims to bring in more flexibility, agency, and accountability to the country’s antitrust regulator – Competition Commission of India. The bill is currently with the Parliamentary Standing Committee on Finance. Many of the proposed changes will fast track the M&A approval process in India and reduce scope for litigation. The Bill expands the scope of anti-competitive agreements and provides increased penalties for non-compliance, while also decriminalizing various offences.
The Competition (Amendment) Bill, 2022, recently approved by the Union Cabinet, has been tabled in the Indian Parliament for the monsoon session. The Bill, which seeks to amend the Competition Act of 2002, hopes to bring in more flexibility, agency, and accountability to India’s antitrust watchdog – the Competition Commission of India (CCI).
The new bill intends to broaden the scope of anti-competitive agreements, fast-track approvals for mergers and acquisitions (M&A), and reduce litigation. It also seeks to increase the severity of punishments for offences under the competition law. For example, the bill reportedly proposes to reduce the overall time limit for approving M&As to 150 days from 210 days.
Below is a list of the changes proposed by the Competition (Amendment) Bill, 2022.
Modifications to several definitions under the Competition Act
Control
For classification of combinations, the Act defines control as control over the affairs or management by one or more enterprises over another enterprise or group. The Bill modifies the definition of control as the ability to exercise material influence over the management, affairs, or strategic commercial decisions.
Group
The Bill defines a group as two or more enterprises where one enterprise is directly or indirectly, in a position to:
- Exercise 26 percent or such other higher percentage as may be prescribed, of the voting rights in the other enterprise; or
- Appoint more than fifty percent of the members of the board of directors in the other enterprise; or
- Control the management or affairs of the other enterprise.
Value of transaction
It includes every valuable consideration, whether direct or indirect, or deferred for any acquisition, merger, or amalgamation.
Anti-competitive agreements
As per the Act, anti-competitive agreements include any agreement related to production, supply, storage, or control of goods or services, which can cause an appreciable adverse effect on competition in India. Any agreement between enterprises or persons, engaged in identical or similar businesses, will have such adverse effect on competition (AAEC) if it results in the following:
- Directly or indirectly determining purchase or sale prices
- Controlling production, supply, markets, or provision of services
- Directly or indirectly leading to collusive bidding
The Bill expands the definition of anti-competitive agreements by adding that the 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.
Relevant product market
The Act defines relevant product market as products and services that are considered substitutable by the consumer. The Bill widens this to include the production or supply of products and services considered substitutable by the suppliers.
Combinations to be regulated on basis of transaction value
As per section 5 of the Competition Act, 2002, a combination includes the following:
- 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 direct or indirect control of another enterprise engaged in identical business; or
- Merger or amalgamation between or amongst enterprises, that cross the following financial thresholds:
- Cumulative assets of more than INR 10 billion; or
- Cumulative turnover of more than INR 30 billion, subject to certain other conditions.
The existing competition law stipulates that the combinations crossing the above-mentioned threshold will be subject to CCI scrutiny and approval.
The new Competition (Amendment) Bill expands the definition of combinations to include transactions with a value above INR 20 billion. It means that companies looking to acquire control, shares, voting rights, etc. must seek the approval of CCI, if the value of the transaction exceeds INR 20 billion.
Additionally, it must be noted that the earlier clause requiring a notice of combination to be given to the CCI within 30 days of the trigger event (that is, within 30 days of the board resolution/execution of agreement) has been scrapped and the notice has to now be given before consummation of the combination.
The Bill also introduces a new Section 29A to allow CCI or the party to the combination to make suitable changes or modifications, in case the CCI flags the combination to potentially cause an appreciable adverse effect on competition (AAEC). This will ensure no AAEC occurs within the timelines given under the section.
Modifications in time limit for approval of combinations and other filings
Under the existing law, a combination can be effectuated only after the expiry of 210 days from the date on which notice is given to the CCI, or after the CCI has passed an order approving the combination. The new Bill seeks to reduce this approval time limit to 150 days.
Similarly, a limitation period of three years has been prescribed for filing information on anti-competitive agreements and abuse of dominant position before the CCI, with the CCI allowing exceptional cases based on sufficient cause and after recording its reasons for condoning delays.
Settlement and commitment framework to decrease litigation
The Competition Act provides that the CCI may initiate proceedings on grounds of:
- Anti-competitive agreements
- Abuse of dominant power, which includes:
- Discriminatory conditions in the purchase or sale of goods or services
- Restricting production of goods or services
- Indulging in practices leading to the denial of market access
The 2022 Amendment Bill expands the role of CCI by empowering it to close inquiry proceedings in such cases, if the enterprise offers settlement (may involve payment), or commitments (may be structural or behavioral in nature).
Decriminalization of offences, increase in penalties
The Bill changes the nature of punishment for certain offences from imposition of fine to penalty.
The Bill also prescribes an increase in penalty for anti-competitive and anti-consumer practices to INR 50 million from INR 10 million and provides a mechanism to incentivize parties during the probe with lesser penalties if they share information helpful in the investigation.
Qualification and appointment of CCI officials
- Director General of CCI: Under the existing law, the central government has the powers to appoint a Director General to CCI. The Bill amends this to empower the CCI to appoint the Director General, with prior approval of the government.
- Members of CCI: As per the existing law, the chairperson and members of CCI should have professional experience of at least 15 years in fields such as economics, competition matters, law, management, and business. The Bill expands this to include experience in the field of technology.
- Restrictions proposed on accepting jobs after leaving the CCI: The Bill also proposes to restrict the acceptance of employment by the chairperson and members of the CCI for two years after their date of leaving office / retiring from the CCI.
Proposal to ease transactions involving open offers or acquisition of shares through regulated stock exchanges
The central government has proposed waiving the requirement for CCI approval for transactions that involve open offers or shares acquisition through regulated stock exchanges. This would ease doing business significantly, boosting the M&A landscape. As things stand, the Competition Act, 2002 does not permit parties to acquire shares or pay any consideration in a proposed combination that has not yet been approved by the CCI.
Speaking to The Hindu Business Line, the chairperson, CCI, Ashok Kumar Gupta clarified: “In line with the international best practices, the proposed amendments seek to establish a special framework for market purchases. Under this framework, parties can conduct market purchases without prior notification and approval of CCI. However, they subsequently shall give notice to CCI within the specified time and shall not exercise any ownership or beneficial rights or interest in such shares till the approval of CCI”.
This article was originally published on August 10, 2022. It was last updated August 18, 2022.
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