The Government of India (GoI) introduced the Competition (Amendment) Bill, 2022 (2022 Bill) on 5 August 2022 in Lok Sabha to overhaul the competition law in India. The 2022 Bill was referred to the Parliamentary Standing Committee on Finance (Committee) for its examination. The said Committee deliberated on the same, and suggested several changes and made a number of recommendations in its Report of 13 December 2022. While some of these suggestions have been incorporated in the Competition (Amendment) Bill, 2023 (2023 Bill), unfortunately many concerns still exist and/ or new challenges emanate from the proposed changes.
Penalty on Global Turnover:
Under the existing framework of the competition law, the Competition Commission of India (CCI) is empowered under Section 27(b) of the Competition Act, 2002 (Act) to impose a penalty which may be up to 10% of the average turnover for the last three preceding financial years in cases pertaining to violation of vertical agreements and abuse of dominance. In cases of cartel and bid rigging/collusive bidding, the penalty may be imposed up to three times of the profit or up to 10% of its turnover for each year of continuance of cartel, whichever is higher. The turnover and profit are as reflected in books of accounts.
In May 2017, the Supreme Court, in Excel Crop decision1, settled the interpretation of the term 'turnover' confining it to "relevant turnover" as opposed to "total turnover".
The 2023 Bill, however, proposes to empower the CCI to impose penalty on the 'global turnover' derived from all products and services of the party contravening the provisions of Section 3 and Section 4 of the Act. The linking of penalty with global turnover is perhaps in the wake of practices followed in European Union (EU), United Kingdom (UK), Germany and France where the competition authorities have the power to impose penalties on the worldwide turnover of the infringing parties2. While the proposed amendment seeks to bring parity in penalty provisions with that of matured jurisdictions, however, such a proposed amendment is likely to affect in-bound investment in India. The Multinational Corporations (MNCs) are likely to be hurt more, in case they are found to be on the wrong side of law. Such a move also goes against the founding principle of antitrust law that it is based on "Effect Based Approach" and also goes against 'multiple products business' entities as violation of law in one product market will trigger penalty on all business segments of that entity. If this change is given effect, enterprises generating turnover from multiple product lines in different markets will have to pay massive penalties even if the contravention committed is only in one of the markets. Further, the 2022 Bill also proposed to incorporate proviso after Section 53B of the Act which will require the parties to deposit 25% of the penalty amount as a condition precedent to get their appeal entertained by the Appellate Tribunal i.e., National Company Law Appellate Tribunal (NCLAT). It is believed that such a mandatory pre deposit condition is likely to be more onerous for the aggrieved parties who are contemplating to avail of statutory right of appeal. While deposit of part penalty under the Consumer Protection Act is acceptable, however, it is not justifiable under the Competition Act especially when both or all parties to enquiry are engaged in an economic activity.
Hub and Spoke Cartels:
The 2022 Bill also proposes to introduce a significant change under horizontal agreements which seeks to cover association of persons, or vertical enterprises even if they are not engaged in similar trade. The 2022 Bill proposes that such associations of enterprises or enterprises in vertical relationship shall be presumed to be part of the horizontal agreement if there is active participation by the said enterprises or persons, in furtherance to such collusive agreement. The Bill also proposes to clamp the liability on the parties who are not competitors and do not operate at the same level, but act as a facilitator or provide the platform in exchanging the commercially sensitive information amongst the competitors. In simple words, hub and spoke cartels would include facilitators such as verticals of competitors or trade associations, as perpetrators of "collusion/coordination".
The 2023 Bill seeks to clarify the scope of the proposed amendment by replacing the words 'active participation' with 'participates or intends to participate'. In other words, the parties though not actively participating in the cartel but have an intention to do so will also be caught in the revamped competition regime. The proposed amendment fails to elaborate the parameters to assess the 'intention to participate' which hopefully would be elucidated either in the Regulations or by way of "FAQs" by the CCI.
Settlements and Commitments:
The 2022 Bill proposed to introduce 'settlement mechanism' for parties in vertical agreements and/ or abuse of dominance enquiries. However, the Parliamentary Committee extended its scope and recommended the inclusion of 'cartels' as well into the said mechanism. The benefit of "Settlement Mechanism" is twofold namely (i) reduced litigation; and (ii) unlike "penalty", the settlement claim is permissible as deduction in the "Profit & Loss" Account of the delinquent party and consequently less burdensome for contravening parties consistent with "Ease of Doing Business' approach. The 2023 Bill has also proposed that victims of contravention be allowed to file application for award of compensation in line with the provisions enshrined under Section 53N of the Act after CCI has handed down its settlement order. Such a change is likely to discourage the charged parties to come forward and opt for this scheme as parties going under settlement mechanism have to pay the 'settlement claim' as well as the 'compensation claim' almost simultaneously.
Applicability of 'Deal Value' Thresholds to Target entities in India:
The existing framework of the Act prescribes threshold in terms of aggregate value of "assets or turnover" and the parties qualifying one of the test, is mandated to notify the transaction to the CCI, if, no exemption from notifying the transaction is available, in terms of "De Minimis" notification or covered in one or more of the exemption categories carved out in Schedule I of the Combination Regulations, 2011.
The 2022 Bill had proposed an additional 'deal value' threshold whereby, any transaction breaching the deal value of INR 2000 crores would also require notification to the CCI if any party to the transaction has "substantial business operations in India". The 2023 Bill seeks to clarify that substantial business operations are to be seen of the Target Entity only. The pitfall of this change is that more number of transactions would require notification to CCI and await its approval before consummating the transaction. This is inconsistent with the Government mandate of "Ease of living". This will also increase the workload of CCI and become onerous especially when in the new dispensation, the CCI would require to take prima facie view in 30 calendar days instead of 30 working days. Furthermore, many a times 'deal value' threshold may also be illusory. Recently HSBC acquired SVB for £1 (assuming that the other two thresholds are not breached), this transaction will also not be notifiable to the competition regulator. The need is to empower the CCI to call for details for examining any merger/acquisition which CCI may deem fit and proper. In US, Federal Trade Commission (FTC) is empowered to ask parties to the transaction to furnish details of any merger for examination from the lens of competition3.
Shortening the timeline for CCI to form its prima facie view:
The CCI under the existing framework is required to approve a transaction notified under Section 6(2) of the Act within two hundred and ten (210) calendar days from the date of receiving the notice from the parties. However, the 2022 Bill proposed to shorten this timeline to one hundred and fifty (150) calendar days, with an additional thirty (30) calendar days to be given in case of furnishing of other relevant information or removing defects in the notice already filed. Furthermore, the 2022 Bill proposed to reduce the timeline for formation of prima facie opinion as to whether a transaction causes or is likely to cause appreciable adverse effects on competition in India (AAEC) from thirty (30) working days to twenty (20) calendar days.
The 2023 version of the amendment bill seeks to rationalize the timelines. It proposes that the CCI will form its prima facie opinion in 30 calendar days instead of 30 working days. Optically, it looks good but does not seem to have a substantial relevance as more than 90% of merger notices have been approved in less than 30 days of filing a notice. There is however, no change in maximum timeline for approval of combinations which will continue to be "210 calendar days".
Appointment of Director General and its powers:
Currently, the power to appoint the Director General (DG) vests in the Central Government. The 2022 Bill proposed that the CCI shall have the power to appoint the DG subject to the approval of the Central Government. The 2022 Bill also proposed to expand the DG's investigation powers, including the power to summon agents (including bankers, legal advisors, and auditors) of the concerned enterprise and examine them under oath. This wide enhancement of the DG's powers to examine practicing advocates has not been endorsed by the Parliamentary Committee as it goes against the sacrosanct 'attorney-client privilege' and as being inconsistent with the provisions of the Evidence Act, 1872 and Bar Council of India Rules. As a response, the 2023 Bill rightly limits this power by narrowing it down to the examination of in-house legal advisors only. The DG office is already financially dependent on CCI as, all expenses of the DG Office are being defrayed from the "Competition Fund" which is maintained by the CCI. The appointment of DG by the CCI is disheartening (at least optically) as it is likely to affect the "expected impartiality and independence of the investigation arm". Further, since, June 2011, not a single merger case (out of more than 1100 cases looked into by the CCI) has been referred to DG for scrutiny/ investigation. In the interest of decentralization, to ensure optimal utilization of resources and to build all round investigation skills of office of DG, prudence suggests that the acquisition/merger cases may also be referred by CCI to the office of the Director General for investigation and mandating DG to file report for consideration of CCI.
Conclusion
While there is immense need for and usefulness of overhauling the law so that the CCI can continue to effectively and efficiently control and regulate the newer practices of traditional markets and also succeed in disciplining anti-competitive practices of tech giants, the proposed additional amendments in 2023 Bill significantly expand the mandate and enlarge the powers of the CCI. It is hoped that with the revamping of the law, the CCI will continue to adhere to the principle that "innocent ought not be punished and violator ought not be spared".
Footnotes
1. Excel Crop Care Ltd. v. CCI, (2017) 8 SCC 47
2. Regulation 23(2) of European Council Regulation 1/2003 states that for each undertaking and association of undertakings participating in the infringement, the fine shall not exceed 10 % of its total turnover in the preceding business year
3. https://www.ftc.gov/news-events/topics/competition-enforcement/merger-review
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