The Government of India introduced the Competition Act (the Act) in 2002, with the vision to promote and support market competition, safeguard the interest of consumers, and ensure equality of trade. With the change in market conditions, increase in litigation, and the rise of digital markets, the need to revisit the law and introduce relevant changes has existed for years. On March 29, 2023, the highly anticipated Competition (Amendment) Bill, 2023 was passed by the Lok Sabha and on April 3, 2023, by the Rajya Sabha. The Bill has now come into effect after receiving assent from the President on April 11, 2023. It introduces an array of reforms and changes to the decades-old competition law to ensure that it adheres to India's current economic fundamentals and matches the pace of global anti-trust practices. This article discusses the key amendments brought by the Competition (Amendment) Act, 2023 (hereinafter the Amendment Act).
Deal Value Threshold
Under the Act, a person or enterprise cannot enter into a combination, i.e., mergers, acquisitions, or amalgamations, which may result in an appreciable adverse effect on competition. This includes any transaction involving cumulative assets of over INR 1000 crore, or cumulative turnover of more than INR 3000 crore (around US$ 366 million). The Amendment Act has expanded the definition of combinations to include transactions that have a value of more than INR 2000 crore (around US$ 244 million). Further, transactions where an enterprise has "substantial business operations in India" will also have to be notified.
Time Frame for Approval of Combinations
Earlier, the Competition Commission of India (CCI) had a period of 210 days for the approval of combinations. Now, the Amendment Act has reduced this period to 150 days. Further, the prima facie opinion on such transactions needs to be provided by the CCI within 30 days, after which, such combinations will be deemed as approved.
Definition of "Control"
For classification of combinations, the term "control" was defined under the Act as "control over the affairs or management by one or more enterprises over another enterprise or group". Now, the Amendment Act has amended this definition to "the ability to exercise material influence over the management, affairs, or strategic commercial decisions". However, the factors that may constitute "material influence" have not been clarified by the Amendment Act.
Definition of "Relevant Market"
The Amendment Act has amended the definition of "relevant product market" to cover 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. Previously, two products or services were considered to be part of the same relevant market if it was regarded as interchangeable or substitutable by the customer.
Further, the Amendment Act provides for two additional factors that may be used by the CCI to identify a "relevant product market". These factors include:
- costs associated with switching demand or supply to other goods or services.
- categories of customers.
For the determination of a "relevant geographic market," the Amendment Act adds the following two factors:
- characteristics of goods or nature of services.
- costs associated with switching supply or demand to other areas.
Penalty for False Statement or Omission
Earlier, the penalty for making false statements or omission to submit material information was INR 1 crore (around US$ 122,000). Under the Amendment Act, this penalty has been increased to INR 5 crore (around US$ 608,000).
Penalty on Global Turnover
The Amendment Act grants CCI the power to impose a penalty of up to 10% of the global turnover of the enterprise, including sales derived from products or services that are not related to the relevant product or relevant market. The Amendment Act upends the mandate laid down by the Supreme Court in the Excel Corp case under which, the calculation of penalty was based on the "relevant turnover" of an enterprise.
Powers of Director General
Under the Act, the Director General (DG) was appointed by the Government of India. However, the Amendment Act has transferred this power to the CCI, giving it more control over the erstwhile disjoined DG. Additionally, the Amendment Act assigns more powers to the DG to summon agents of a company, conduct investigations/ dawn raids, seek information from all parties involved under an investigation, and seek relevant documents in furtherance of the same.
Settlements and Commitments Framework
The Amendment Act has introduced the mechanism for settlements and commitments, allowing parties to apply to the CCI to settle their disputes or make certain voluntary commitments in matters relating to anti-competitive vertical agreements and abuse of dominance. However, such a mechanism will not be available in cartel cases.
Settlements may be considered once the Investigation Report is submitted by the DG, but the final order is yet to be passed by the CCI. Commitments may be considered any time after the initiation of an investigation before its completion in the form of the DG's investigation report. Further, no appeal will be allowed against the order of the CCI to adopt a settlement or commitment.
Scope of Anti-Competitive Agreements
The Amendment Act has widened the scope of anti-competitive agreements to cover entities that are not engaged in identical or similar trade but are part of a "hub and spoke" cartel arrangement. It also covers entities that participate or intend to participate in the facilitation of anti-competitive horizontal agreements under such agreements.
Limitation for Filing of Complaints
No complaints shall be entertained by the CCI unless they are filed within three years from the date on which the cause of action arises. However, the CCI may entertain complaints beyond this period if the entity provides sufficient cause resulting in such delay.
Deposit on Penalty for Appeals
Under the Amendment Act, an appellant will have to deposit 25% of the penalty amount to file an appeal before the National Company Law Appellate Tribunal (NCLAT) against the orders passed by CCI.
Use of IPRs as a Defence
Under the Act, the Intellectual Property Rights of an entity in Copyright, Patents, Trade Marks, and Designs can be used as a defence in matters relating to anti-competitive agreements (Section 3 of the Act). Such defence is, however, not available in matters of abuse of dominant position. The Amendment Act has not altered this stand, and entities cannot cite protection of their IPRs as a defence in cases relating to unfair/discriminatory pricing, predatory pricing, condition in the purchase or sale of goods or services, limitation/restriction of production of goods, technical or scientific development relating to goods or services to the prejudice of consumers, denial of market access to other players or any other abuse of dominant position as described under Section 4 of the Act.
Conclusion
While the Competition (Amendment) Act, 2023 has been welcomed with mixed reactions, the reforms introduced are expected to speed up mergers and acquisitions and reduce uncertainties for the parties involved. It is also expected to enable prompter resolution of enforcement proceedings, expand the scope of penalties under the competition law, and supplement the "ease of doing business" and anti-competitive efforts when it comes to participation of Indian players in global markets.
The complete Competition (Amendment) Act, 2023 can be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
