Introduction


On 03.04.2023 the Competition (Amendment) Bill, 2022 (‘Bill’) was passed by the Indian Parliament, and the same received Presidential assent on 11.04.2023, thereby, making it the Competition (Amendment) Act, 2023 (‘Amendment Act’). The Bill was first tabled before the Lok Sabha on 05.08.2022 and was subsequently referred to the Parliamentary Standing Committee on Finance, which released its 52nd and 53rd reports on 13.12.2022, and 19.12.2022 respectively.

The Amendment Act brings overarching changes to the Competition Act, 2002 (‘Principal Act’) with an aim to streamline the working of the Competition Commission of India (‘CCI’) with international best practices.


Key Changes in the Amendment Act – Hits and Misses:


i. Settlement and Commitment Mechanism: Undoubtedly, the most notable change in the Amendment Act is the institution of the framework concerning the settlement and commitment mechanism in case of vertical agreements and abuse of dominance. By way of such enabling provision, parties can approach the CCI to either ‘settle’ their accrued alleged liabilities and in return benefit from a considerable reduction in the penalty amount; or voluntarily undertake certain commitments including ceasing and desisting from the alleged conduct and promising to undertake suitable corrective measures.

 

The provision concerning settlement shall be considered post the submission of the investigation report by the Director General (‘DG’), whereas any proposed commitments shall be considered after the prima facie order of investigation issued by the CCI, and before the submission of the investigation report by the DG. It is pertinent to note that no appeal shall lie against such orders/decisions of the CCI. This does pose a bit of a question surrounding whether the informant would be permitted to appeal or not if it is not satisfied with the agreements being arrived at between the party and the regulator.

 

ii. Expanding the scope of the cartel: The Amendment Act widens the scope of the anti-competitive horizontal agreements to include the parties which are not directly engaged in identical or similar trade. The underlining reason for bringing in such a provision is to affix liability on the facilitators i.e., associations of the cartels and the parties engaged in the ‘hub and spoke’ arrangements between the supplier and the distributor at different levels of supply or distribution chains.


iii. Deal value threshold: In another note-worthy development, the Amendment Act introduces the ‘deal value’ thresholds for transactions (a) where the deal value of the transaction is above INR 2,000 Crore (USD 244 million), and (b) the target has ‘substantial business operations in India’.


Presently, the regulator has been assessing mergers and acquisitions based on assets and turnover thresholds, as prescribed under the Principal Act. The changes have been brought in to counter the inefficacy of the market regulator to scrutinize transactions in the digital and infrastructural space, where the assets and/or turnover value was below the thresholds specified. While this is a welcome move, CCI will have to carefully define ‘substantial business operations in India’ and be cautious of the material impact of such transactions on the market.


iv. Leniency Plus: A leniency applicant can now avail the benefit of a greater reduction in penalty in both the existing cartel and the subsequent cartel in case it makes true and vital disclosures of the latter cartel. The amendment is in line with the decisional practice of the CCI in granting the leniency plus. This shall aid the CCI in uncovering the existence of new cartels and shall also incentivise the parties to make vital disclosures in lieu of an additional reduction in the penalty.


v. Relaxation in open market purchases: The merger control regime placed severe constraints on transactions involving open market purchases which have been felt in several cases in the past and this issue has been raised even before the Supreme Court in SCM Solifert Limited v. CCI, (2018) 6 SCC 631. Given the nature and the price sensitivity issues concerning the transaction, a mandatory requirement to intimate the CCI and delay the consummation, shall in all possibility render the transaction unviable. In a much-needed development, the Amendment Act relaxes the standstill obligations undertaken before the stock exchange, provided: (a) notice of the acquisition is filed with the CCI as may be prescribed in the regulations, and (b) the acquirer has not exercised any beneficial rights or interest in the securities until the same is approved by the CCI. This would go a long way in uncomplicating the modalities involved in open market purchases which trigger a CCI notification requirement.


vi. Penalty to be calculated on the global turnover: Under the newly launched framework, CCI has been empowered to impose a penalty based on the global turnover of the enterprise for contravention of the provisions of the Principal Act. However, in accordance with the decision of the Supreme Court in Excel Corp v. CCI, (2017) 8 SCC 47, the basis of penalty calculation was on the ‘relevant turnover’ and not ‘total turnover’. This came as a total shock as it was expected the law would now explicitly refer to turnover as relevant turnover.

 

At present there seems to be some inconsistency regarding the formulation of the quantum of turnover for the imposition of penalty on the enterprise. To break away from the inconsistency, the CCI would need to resort to detailed penalty guidelines or there is a possibility of this amendment being challenged.


vii. Deposit of 25% of the penalty for Appeal: The Amendment Act mandates a deposit of 25% of the penalty amount imposed by the CCI, for the appeal to be entertained by the National Company Law Appellate Tribunal. This is likely to create substantial financial agony for the companies in terms of increased costs in filing appeals.

 

Conclusion


The Amendment Act has proposed several overarching changes to fine-tune the working of the market regulator and lock horns with the fleeting changes in the digital space. The changes are in line with the government’s ‘ease of doing business’ initiative. For instance, the approval timeline has been brought down to 150 days from the earlier 210 days. While this is great from the perspective of the industry but the risk of notices being invalidated remains very high since the timeline has been truncated.

The changes are indeed in the right direction, however, the CCI will have to step up and do away with the shortcomings with appropriate regulations to provide substance to the proposed changes. Some of the key changes like that of the Settlement and Commitment mechanism and the anomaly surrounding the ‘deal value’ threshold shall require a well-thought-out strategy from the market regulator.


Authored by: Kanika Chaudhary Nayar, Partner and Sayan Panda, DSK Legal