The Bill seeks to amend the Competition Act, 2002, which gives the Competition Commission of India (CCI) its powers to prevent practices that harm competition and the interests of consumers.
The Bill was presented in the parliament in August 2022 and was referred to the Standing Committee on Finance for examination. The Committee presented its report in December 2022 and the Bill was represented in the parliament with few changes in February 2023. The lower house (Lok Sabha) of the parliament passed the Bill on March 29.
We have summarised and analyzed an earlier version of the Bill in detail here. The final version of the Bill retains the key features. We also held a discussion last year on how the Bill will affect startups which you can watch here.
Why does this matter: The Competition (Amendment) Bill, 2023, is the most significant change to the Competition Act in the last 20 years. It aims to bring the competition regime up to speed with the changes in how businesses operate currently, especially in the digital markets. It incorporates many of the changes proposed by the Competition Law Review Committee. The Bill, however, doesn’t bring a major overhaul to the competition regime, which has been left to the newly established Digital Competition Law Committee to deliberate upon.
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Key features of the Competition (Amendment) Bill, 2023
Changes to how combinations (mergers and acquisitions) will be reviewed by CCI
- Mergers and acquisitions exceeding ₹2000 crores in value must be notified: If the value of any merger or acquisition exceeds Rs. 2,000 crores ($250 million), it would require CCI approval, provided that the party which is being acquired or amalgamated has “substantial business operations in India,” which will be defined by CCI. Earlier, combinations needed to be notified to the CCI only if the parties involved had assets or turnover exceeding a certain threshold; the value of the deal was not considered. The deal value threshold has been presumably included to cover “killer acquisitions” wherein startup companies that are not doing well financially are acquired by large companies. Examples include Facebook’s acquisition of WhatsApp and Instagram. The deal value threshold will be periodically reviewed and updated by the government based on multiple factors.
- Reduction in the time limit for assessment of combinations: The Bill reduces the overall time CCI has to approve merger and acquisition requests as well as the time companies have to respond to objections made by CCI. CCI needs to form its initial (prima facie) opinion in 30 days or else the combination is deemed to have been approved. The overall time limit for the assessment of combinations will be reduced to a period of 150 days from 210 days.
- Objections to combinations by CCI and proposal of modifications: If CCI thinks that a combination is likely to harm competition, it will state the objections to the parties identifying the appreciable adverse effect on competition, and then, direct the parties to explain why such a combination should be allowed to take effect. If the parties believe that the competition issues can be eliminated by suitable modifications, they may submit an offer of appropriate modifications. If the CCI finds the proposed modifications satisfactory, it may approve the combination. If not, the combination will not be allowed, or CCI can propose a scheme to be implemented by the parties to address the concerns.
Broadening the scope of anti-competitive agreements (Section 3 of the Competition Act, 2000)
- Covering hub-and-spoke cartels: Entities who are not engaged in identical or similar trade, shall also be presumed to be part of an anti-competitive agreement under Section 3(3) if they participate or intend to participate in the furtherance of such agreement. This covers parties who facilitate anti-competitive horizontal agreements, even if they are not part of the agreement. This is presumably to cover hub-and-spoke cartels—where individuals or organizations that don’t directly participate in the production or supply of goods or services, such as trade associations and consultants—facilitate collusion by acting as intermediaries.
- Covering sellers: The phrase “exclusive supply agreement” has been replaced with “exclusive dealing agreement” to cover the selling side, and not just purchasing side when looking at exclusive agreements. For example, if Microsoft prohibits its vendors from selling Google products, that could be considered an anticompetitive agreement as well.
- Covering sales of goods and services: Anticompetitive conduct like “tie-in arrangement,” “refusal to deal,” “resale price maintenance,” and “exclusive distribution agreement” have all been redefined to cover goods and services, and not just goods.
- Covering indirection restrictions: The “resale price maintenance” definition has been redefined to cover “any direct or indirect restriction”, not just an agreement.
- Modification to AAEC factors: Under the factors used by CCI to determine whether an agreement has an appreciable adverse effect on competition (AAEC), the Bill modifies two factors to widen the scope:
- “foreclosure of competition by hindering entry into the market” to “foreclosure of competition”
- “accrual of benefits” to “accrual of benefits or harm”
Changes to penalties
- Penalty based on income or global turnover: The Bill empowers CCI to pass orders in relation to anti-competitive agreements and the abuse of dominant position, by imposing a penalty that can be up to 10% of the average income or turnover for the last three preceding financial years. Additionally, the turnover will be the global turnover and not just the turnover in India. Earlier, the penalty could only be based on the “relevant turnover,” which was understood to mean domestic turnover. Also, income could not be used for calculating penalties.
- Increase in penalty for combination misrepresentation: In case any party makes a false statement or omits material information when seeking approval for a combination, a penalty of up to ₹5 crores can be imposed by CCI, which is higher than the earlier upper limit of ₹1 crore.
- Liability of company and people in charge: There is a liability for both the company and the people in charge, unless the contravention was committed without the person’s knowledge or if the person had exercised all due diligence to prevent the commission of such contravention.
- Power to impose a lesser penalty: There are more criteria under which a lesser penalty may or may not be imposed by CCI. For example, there will be a lesser penalty for parties in an ongoing cartel investigation if they disclose information regarding other cartels.
- Recovery of legal cost: CCI can recover the legal costs or other losses in addition to penalties, which shall be credited to the Consolidated Fund of India.
Introduction of a new settlements framework and changes to how appeals work
- Settlements and Commitments Framework: If entities are found to engage in anticompetitive agreements or abuse of dominance, they can propose a settlement for the alleged contraventions at any time after the Director General presents their report and before the CCI passes an antitrust order. Entities can also propose commitments in respect of the alleged contraventions at any time after a prima facie order is passed by the CCI and before the Director General presents their report. CCI can accept or reject the proposed settlement or commitments. This new framework is expected to provide an incentive for companies to settle with CCI rather than go to court.
- Deposit before filing an appeal: The appellate tribunal will not entertain an appeal from any company unless the company deposits 25 percent of the amount of penalty imposed by CCI. This additional requirement is expected to prompt companies to scrutinize their decision to appeal.
Changes to the composition and workings of the Competition Commission of India (CCI)
- Members must have experience in technology: CCI is now required to have members from the field of technology. Those on the selection committee must also have knowledge of and experience in the field.
- Further investigation by Director General: If, after consideration of the investigation report of the Director General, the Commission believes that further investigation is required, it may direct the Director General to carry out the same and to submit a supplementary report.
- Restriction on employment of Chairperson and other Members in certain cases: The Chairperson and Members of the Commission cannot be employed by any enterprise which is or has been a party to a proceeding before the CCI for a period of 2 years from the date of ceasing the office.
- Arrangements between CCI and other government bodies: CCI can enter into a memorandum or arrangement with other departments of Government or statutory bodies. Earlier, the Act did not have a provision to allow arrangements between CCI and other government bodies.
- More grounds on which statutory authorities may request an investigation: The Bill broadens the grounds on which the statutory authorities may suo motu make a reference to the Commission “on any issue that involves any provision of this Act or is related to promoting the objectives of this Act.” The Bill also allows CCI to make a reference suo motu to another statutory authority on any issue that involves provisions of an Act whose implementation is entrusted to that statutory authority.
Changes to the role and workings of the Director General
- CCI has powers to appoint Director General: CCI can now appoint the Director General with prior approval of the Central Government. Earlier, the power to appoint a DG rest only with the Central Government. This provision was criticized as it makes CCI the judge, jury, and executioner in cases it investigates.
- More investigative powers to the Director General: The DG has more powers to carry out an investigation such as giving the power to demand all records of a company that is under investigation, examine company officials under oath, obtain assistance from the police, request seizure of information, etc.
Changes in relevant market definition
- Covering supply-side substitutability: The Bill modifies the “relevant product market” definition to look at substitutability on the supply side as well. The earlier definition only considered two products or services to be part of the same relevant market if it is regarded as interchangeable or substitutable by the consumer. The new definition considers two products as part of the same relevant market even if the production or supply of the two is regarded as interchangeable or substitutable by the supplier.
- Two more factors that CCI can consider for determining “relevant product market”: The Bill adds the following two factors to the existing list of six factors that CCI uses to identify “relevant product market”:
- costs associated with switching demand or supply to other goods or services
- categories of customers
- Two more factors that CCI can consider for “relevant geographic market”: Among the factors CCI will use to determine the “relevant geographic market,” the following have been added:
- characteristics of goods or nature of services
- costs associated with switching supply or demand to other areas
Changes to rule-making powers
- Government’s rule-making powers: The Bill provides certain additional rule-making powers to the central government, which will be allowed to issue notifications addressing the value of the assets or turnover in case of mergers and acquisitions, the percentage of voting rights to determine “group” entities, the criteria of combinations, etc.
- CCI’s rule-making powers: The Bill provides CCI certain additional powers to frame regulations, including the manner of determination of substantial business operations in India, the form and fee for notice for combination, the time and manner for filing the notice of acquisition, the manner of determining turnover or income, the amount of any penalty for any contravention of the provisions of this Act, etc.
- Transparency in the issuing of new regulations and guidelines: The Bill inserts new sections that provide a process for transparently issuing regulations and guidelines. CCI will have to publish draft regulations and seek public comments before issuing any regulations and publish a general statement of its response to the public comments.
Other proposed changes
- Limitation date on complaints: CCI will not entertain any complaint beyond the period of three years from the date of cause of action unless it is satisfied with the reasons given by the parties.
- Calling upon experts: A party under investigation can call upon experts from the fields of economics, commerce, international trade, or any other discipline for their opinion in relation to a case before the Commission. Earlier, only officers of the company or chartered accountants, or legal practitioners could appear.
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