THE COMPETITION (AMENDMENT) ACT, 2023: A PROGRESSIVE REGULATORY FRAMEWORK

The Amendment Act 2023 is a progressive step towards a competition regulatory framework for achieving fair play and competition in the market

The Competition Act, 2002 (“Act”) was enacted to promote and sustain competition in markets, protect the interest of consumers, and ensure freedom of trade for market participants in India. However, since the Act came into force, Indian markets have grown significantly and there have also been changes in the way businesses operate with the emergence of digital internet-based companies and new-age markets involving technology.

In 2019, the Ministry of Corporate Affairs (“MCA”) constituted the Competition Law Review Committee (“CLC”) and suggested several amendments to the Act. Accordingly, the Competition (Amendment) Bill, 2022, (“Amendment Bill 2022”) was introduced after reviewing the recommendations proposed by the CLC. Based on the consultation of stakeholders and the recommendations of the Joint Parliamentary Standing Committee, the Competition Amendment Bill 2023 (“Amendment Bill 2023”) was introduced. The Amendment Bill 2023 was unanimously passed by both houses of the Indian Parliament in April 2023 and received presidential assent on 11 April 2023. The Amendment Bill is now called the Competition (Amendment) Act, 2023 (“Amendment Act 2023”). The Amendment Act will come into force when notified in the official gazette.

Key Amendments

There are several amendments introduced by the Amendment Act 2023. Some of the key changes introduced by the Amendment Act 2023 are:

1. Introduction of deal value threshold: A new threshold has been introduced for the notification of transactions. Parties will now have to notify a transaction to the Competition Commission of India (“CCI”) if:

(i) the deal value of the transaction is more than 2,000 crores, and

(ii) the target enterprise has “substantial business operations in India.

The term ‘value of transaction’ includes “every valuable consideration, whether direct or indirect, or deferred for any acquisition, merger or amalgamation”.

However, what constitutes “substantial business operations” is yet to be clarified. It is expected that the CCI will issue regulations in this regard after consultation with stakeholders.

2. Standard of control: The definition of the term “control” has been amended to mean “the ability to exercise material influence, in any manner whatsoever, over management or affairs or strategic commercial decisions”.

This is the minimum threshold for control. Accordingly, more transactions would fall under the preview of merger review by the CCI as a result of this amendment.

3. Shorter merger control review period: For regulation of combinations, the Amendment Act 2023 provides for shorter timelines for the review of combinations by the CCI:

(i) The period within which the CCI is required to form its prima facie opinion on a ‘combination’ has been reduced from 30 working days to 30 days. If the CCI does not form a prima facie opinion within 30 days, the combination shall be deemed to be approved.

(ii) The maximum period for the review of combinations by the CCI has been shortened from 210 days to 150 days.

It is questionable whether this amendment will be effective in increasing the efficiency of the CCI as the CCI is already overburdened and shortening the timelines may result in the CCI consequently asking the concerned parties for more of the specified submissions and documentation within a shortened timeline.

4. Introduction of Settlement and Commitment Framework: A settlement and commitment mechanism has been introduced to close investigations quickly for violations relating to vertical agreements and abuse of dominance by an enterprise. The Amendment Act 2023 provides that enterprises facing investigations relating to anti-competitive vertical agreements under Section 3(4) of the Competition Act, or abuse of a dominant position under Section 4 of the Act may settle such proceedings or offer commitment(s) to the CCI, by submitting an application.

Application for Settlement: An application for ‘settlement’ may be submitted by an enterprise at any time after the receipt of the report of the Director General (“DG”) report but before the CCI passes a final order.

The CCI may, after taking into consideration the nature, gravity and impact of the contraventions, finalise such settlement proposal, on payment of such amount by the applicant or on such other terms (including implementation and monitoring of the proposed settlement) as may be specified in regulations issued by the CCI.

Application for Commitment: An offer of ‘commitments’ may be submitted by an enterprise at any time after the CCI has initiated an investigation but before the receipt of the DG’s report.

The CCI may, after taking into consideration the nature, gravity and impact of the alleged contraventions and effectiveness of the proposed commitments, accept the commitments offered on such terms and the manner of implementation and monitoring as may be specified in the regulations issued by the CCI.

While considering an application for settlement or commitment, the CCI is required to provide an opportunity to the concerned enterprise, the DG, and/or any other party to submit any objections and suggestions. The CCI will also have the power to reject the settlement or commitment if it believes that it is not appropriate.

An appeal cannot be filed before the National Company Law Appellate Tribunal against any order passed by the CCI concerning settlement and commitment. The CCI may revoke an order passed under these provisions in certain circumstances, including where there is incomplete disclosure by the parties.

Interestingly, cartels have been excluded from the provisions of settlements and commitments.

5. Penalties: While imposing a penalty for abuse of dominant position by any person or an enterprise, the CCI may impose a penalty that shall be not more than 10% of the average turnover or income for the last three preceding financial years of such person or enterprise which is a party to such agreement or has abused its dominant position.

However, while calculating penalties for abuse of dominant position, by each producer, seller, distributor, trader or service provider included in that cartel1 the CCI may impose a penalty of up to three times its profit for each year of the continuance of such agreement or ten per cent of its turnover or income.

The term “Turnover” has been defined as “global turnover derived from all the products and services by a person or an enterprise”.

6. Summoning Powers of the Director General: The Amendment Act 2023 provides that the DG may examine on oath, any of the officers and other employees and agents of the party being investigated, about the affairs of the party being investigated, with the prior approval of the CCI. The definition of the term ‘agent’ has been incorporated to include “any person acting or purporting to act for or on behalf of such person, and includes bankers, and persons employed as auditors and legal advisors by such person”.

Thus, greater summoning powers have been granted to the DG.

7. CCI to issue guidelines: The Amendment Act provides that the CCI may publish guidelines on the appropriate amount of any penalty for contravention of provisions of the Competition Act. Such guidelines will be considered by the CCI while imposing penalties and the CCI will be required to provide reasons in case of any divergence from such guidelines.

Conclusion

The Amendment Act 2023 is a progressive step towards a competition regulatory framework for achieving fair play and competition in the market. Once the Amendment Act is notified, the CCI

will have greater enforcement powers. There will be an increase in the number of transactions to be caught under the merger control jurisdiction of the CCI. In addition, entities will have higher penalty risks and will have to increase their compliance measures to avoid liability.

1 As per Section 2 (c) of the Act, “cartel” includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.