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Competition Bill passed by both houses of Parliament-Explained
In a historic and speedy development, the Competition Amendment Bill, 2023 has been passed by both houses of Parliament. This is the first amendment in the Competition Law regime in India after its enforcement in 2009. These changes are expected to increase the ease of doing business, reduce timelines, bring in closer oversight on digital companies and combinations.
Why have these amendments become necessary, what are the key amendments, what is their impact on stakeholders and the way forward?
If we look at the history and journey of the Competition Act in India, although enacted in 2002, it was enforced only in 2009. Since then, with the advent of technology and digitisation, there has been considerable change in the nature of the markets. The Government set up the Competition Law Review Committee (CLRC) in 2018 and based on its report, a new Competition Amendment Bill 2022 was presented before the Parliament on August 5, 2022. It was referred to the Standing Committee on Finance headed by Mr Jayant Sinha, who submitted their report on December 13, 2022. After consideration, the Government brought in this bill which was passed by the Lok Sabha on March 29, 2023 and Rajya Sabha on April 3, 2023.
If we look at the key changes, the following stand out:
- Deal value threshold: Under the existing law, combinations are evaluated based on the thresholds of assets and turnover. However, it had been noticed that there had been many instances, like acquisition of asset-light and low-turnover entities for high deal value, with an eye on data, technology and potential. For example, the acquisition of WhatsApp by Facebook in 2014 for $18 billion, with relatively insignificant assets and turnover, which would not be captured under the existing provisions. In a digital economy, most acquisitions take place for data or business innovations. The Bill proposes to evaluate such deals based on the value of transactions. Accordingly, now the additional criteria of deal value would bring transactions exceeding Rs 2,000 crore under the CCI purview even if the conventional asset and turnover thresholds are not met, if the target entity has a substantial business operation in India.
- Settlement and Commitment: The Bill provides a framework for settlement and commitment for faster resolution of investigations of anti-competitive agreements and abuse of dominant position. This will save time and energy of the parties as also of the CCI, and help bring speedy market corrections. Commitments can be offered at any time after an investigation has been initiated but before the investigation report is issued. Settlements can be offered after the investigation report is issued but before the CCI makes its final decision. It will allow companies, including big-tech to provide commitments to CCI to settle a case, and initiate settlements under the regulations.
- Penalties on global turnover: The Competition Act empowers the CCI to impose monetary penalties on firms engaging in anti-competitive practices. This is usually based on the company’s turnover, and in the case of cartels, additionally on company’s profits. However, there was no clarity regarding the scope of turnover. The new amendment clarifies and expands its scope to include ‘global turnover’. This can, nevertheless, significantly increase the liability of parties, especially of big-tech and MNCs like big automobile firms having global operations. While this may look punitive, it is relevant that CCI assesses it as a percentage of the turnover, based on the circumstances of the case, and mitigating and attenuating factors etc. So, it can act as a deterrent for such companies to stay within law.
- Reduction of timeline for assessment of combinations: In a friendly move and to facilitate faster approval of combinations, the bill seeks to reduce procedural timelines. The new amendment reduces the overall time available for approval from 210 days to 150 days. In addition, prima facia opinion has to be framed within 30 days from the date of receipt of notice, failing which the combination shall be deemed approved. CCI has already introduced the ‘green channel’ route for straightforward cases.
- Exemption from standstill obligations: Combinations would be exempt from standstill obligations to enable sensitive stock market purchases, subject to the final decision in the concerned matter. Also, the penalty for furnishing false information goes up from Rs 1 crore to Rs 5 crore.
- Defining control: Control in the target company is an important factor that affects CCI’s decision while reviewing a case. However, there was no clarity on what would constitute ‘control’. It has now been spelt out that ‘material influence’ would determine the extent of control.
- Enhanced powers of DG: The powers of the Director General would be expanded with no need for permission from the Chief Metropolitan Magistrate for dawn raids. In addition, he would have powers to keep documents up to 360 days and also to summon ‘agents’ of the companies including CA, CS and legal professionals.
- Hub and spoke: The scope of anti-competitive agreements is being increased to include ‘hub and spoke’ agreements other than horizontal and vertical agreements which are anti-competitive in nature.
- Leniency plus: A leniency-plus framework being introduced to incentivise any party in a cartel investigation to provide information on other existing cartels for an additional lighter penalty.
It is hoped that the new changes, along with the regulations in due course, will attune the Competition Law regime with global trends, making the enforcement effective and decisions speedier for faster corrections in the market.
The guest article is authored by Dhanendra Kumar former Chairman, Competition Commission of India, and Executive Director for India at World Bank. With inputs from Research Associate Aditya Trivedi and Intern Soujanya Boxy. Views are personal. The article was penned for Business Standard.
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