India: Corporate & Commercial Monthly Newsletter May 2023

The Competition (Amendment) Act, 2023

On April 11, 2023, the Competition (Amendment) Bill received the assent of the President of India, after being passed by both the Lok Sabha and the Rajya Sabha. While the Competition (Amendment) Act, 2023 (Amendment Act) has since been notified, the date for its enforcement is yet to be notified.

Key aspects:

• Scope of anti-competitive agreements: The amendment to Section 3(4) of the Competition Act, 2002 (Principal Act) has significantly enlarged the scope of anti-competitive agreements to now include indirect collusion. Now therefore, enterprises or persons not engaged in the trade of identical or similar businesses shall be presumed to be part of such agreements in case they participate or intend to participate in furtherance of such agreements. Further, the term 'exclusive supply agreement' has been replaced with 'exclusive dealing agreement' with the aim to cover acquisition and supply of all kinds of goods and services by an enterprise during the course of its business cycle.
• Change in the definition of relevant product market: The definitions of the term 'relevant product market' (as mentioned in Section 2(t) of the Principal Act) has been amended to factor in interchangeability and substitution of products and services, their prices and intended use, and the ease of switching production between such goods and services in the short term without significant additional costs or risk, and without risk of permanent change in relative prices.
• Mandatory notification of acquisition: Amendment to Section 5 of the Principal Act makes it mandatory to disclose to the Competition Commission of India (CCI) all transactions where an enterprise/company having substantial business operations in India is either acquired or merged with other enterprises, resulting in the value of shares, control or voting rights being transferred, to exceed INR 2,000 crore.
• Imposition of penalties:
  • As a result of amendment to Section 44 of the Principal Act, the limit for imposition of penalty for misrepresentation in disclosures made to the CCI in furtherance of proceedings inquiring into anticompetitive practices has been increased to INR 5 crore from INR 1 crore.
  • As per amendment to Section 27(b) of the Principal Act, the penalty which the CCI can impose upon concluding the enterprises' involvement in anticompetitive activities has been increased to up to 10% of the global turnover of such enterprise. The Supreme Court of India had in the case of Excel Crop Care v. CCI¹ expounded the 'doctrine of proportionality', holding that the penalty of 9% on aggregate turnover imposed by the Competition Appellate Tribunal (COMPAT) for anti-competitive behavior was disproportionate since the anti-competitive practice had taken place only in relevant product and a relevant geographic market, and therefore the penalty should have been imposed on the turnover from that specific market rather than being on the entire turnover. In light of this amendment, the doctrine of proportionality shall loose its applicability for prospective cases involving anti-competitive activities.
• Other significant change:
  • The introduction of Sections 48A, 48B and 48C in the Principal Act has brought in a mechanism to settle inquiries into restrictive trade practices and abuse of dominant position. The enterprises being investigated can propose a settlement to the CCI. The CCI may, after considering the nature, gravity, and impact of the contravention, either agree to the proposal for settlement or reject the proposal altogether. This decision of the CCI shall not be subject to appeal, however.
  • An option has been availed to the enterprises involved in mergers and acquisitions to make requisite modifications in the schemes for merger and acquisition if the CCI is of the opinion that it has an appreciable adverse effect upon competition.
  • The Amendment introduces Section 29A to the Principal Act under which, if after investigation into a combination, the CCI is of the opinion that the combination is likely to have an appreciable adverse effect on competition (AAEC), then the CCI shall issue a statement of objection to the enterprises involved, which shall be answerable by the enterprises within 25 (twenty-five) days of date of receipt of the statement. Against the objections, the enterprises involved may jointly submit an offer incorporating appropriate modifications to the combination thereby eliminating the AAEC as pointed out by the CCI.
  • In case the CCI does not accept the modifications, it shall within 7 days of receipt of the said modifications, communicate its reasons for holding so and shall allow the parties a time up to 12 days from receipt of the communication to suggest revised modifications. CCI has also been conferred with power to suggest appropriate modifications to the combination proposed.

Foreign Trade Policy, 2023

On March 31, 2023, the Foreign Trade Policy 2023 (FTP) was notified in exercise of powers conferred under Section 5 of the Foreign Trade (Development & Regulation) Act, 1992 and has come into force with effect from April 1, 2023.

Key aspects:

• Duration of FTP: In a shift from the preceding Foreign Trade Policies, the FTP has no end date and subsequent revisions in the FTP shall be done as and when required and shall not be linked to any date².
• Online approvals without physical interface: The FTP aims for automatic approval of various permissions under the FTP based on process simplification and technology implementation and reduction in processing time, and immediate approval of applications under automatic route for exporters. Now processing time for some permissions is to be as low as one day.
• Reduction in charges for Micro, Small and Medium Enterprises (MSMEs): Application user charges have been brought down for MSMEs for advance authorization and Export Promotion Capital Goods (EPCG) Schemes, which will benefit 55-60% of exporters who are MSMEs.
• Export promotion initiatives: Status holder export thresholds have been reduced to enable more exporters to achieve higher status and reduce transaction cost for exports³.
• Merchanting trade reform: With an aim to boost merchanting services from India, merchanting trade of restricted and prohibited items under export policy would now be possible. Merchanting trade involves shipment of goods from one foreign country to another foreign country without touching Indian ports, involving an Indian intermediary. This will be subject to compliance with RBI guidelines, except for goods/items covered in the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) and Special Chemicals, Organism, Materials, Equipment and Technologies (SCOMET) list⁴.
• Rupee payment to be accepted under FTP schemes: In a step towards internalization of Rupee invoicing, payment and settlements of exports and imports is permissible in Indian Rupees in accordance with RBI's circular on International Trade Settlement in Indian Rupees dated July 11, 2022. FTP benefits have been extended for rupee realization through special vostro accounts⁵.
• Towns of Export Excellence (TEE): Four new towns of Faridabad, Mirzapur, Moradabad and Varanasi, have been designated as TEEs with an objective to develop and grow these export production centers. Recognized associations of units will be provided financial assistance under Market Access Initiative Scheme, which is an export promotion scheme, on priority basis, for export promotion projects for marketing, capacity building and technological services. Common Service Providers, who are service providers certified by the DGFT or Department of Commerce, in these areas shall be entitled for authorization under EPCG scheme. Through this scheme such units can get financial assistance to visit various trade exhibitions/fairs for exploring more marketing avenues⁶.
• Facilitation of e-commerce exports: All benefits accorded by the FTP are to be extended to e-commerce exports. The value limit for exports through courier is increased to INR 10 lakh from INR 5 lakh per consignment⁷.
• EPCG scheme: The Prime Minister Mega Integrated Textile Region and Apparel Parks (PM MITRA) scheme has been added as an additional scheme eligible to claim benefits under CSP (Common Service Provider) EPCG Scheme. Products classified as Green Technology, such as Battery Electric Vehicles (BEV), various types of vertical farming equipment, recycling and wastewater treatment systems, rainwater harvesting systems and filters, and green hydrogen, will now qualify for a reduction in their Export Obligation requirements, which are obligations to export product or products covered by authorization or permission in terms of quantity, value or both, as may be prescribed or specified by the regional or competent authority.
• Special one-time Amnesty Scheme for default in export obligations: A one-time Amnesty Scheme to address noncompliance in export obligations by advance authorization and EPCG authorization holders has been introduced where all pending cases of default in Export Obligation of authorizations mentioned can be regularized by the authorization holder on payment of all customs duties exempted in proportion to unfulfilled export obligation and maximum interest is capped at 100% of such duties exempted. No interest is payable on the portion of Additional Customs Duty and Special Additional Customs Duty. The scheme is available for a limited period, up to September 30, 2023⁸.
• Emphasis on streamlining SCOMET licensing procedure: Recent policy changes have been introduced such as general authorizations for export of certain SCOMET items to streamline licensing of these items to make export of SCOMET items globally competitive9 . There is a focus on simplifying policies to facilitate export of dual-use high-end goods/technology such as UAV/drones, cryogenic tanks, etc. A robust export control system in India would provide access of dual-use high end goods and technologies to Indian exporters while facilitating exports of controlled items/technologies under SCOMET from India.

The FTP has multiple new components which include trade facilitation to effectively reduce time and costs to obtain export permissions, facilitation of e-commerce exports and, most importantly, promoting merchanting trade and stimulating greater settlement of trade in INR to make it a global currency. The above stated developments are admirable, and an effective implementation should be envisioned by the Central Government in line with its vision to boost the country exports to USD 2 trillion by 2030.

MCA | Amendment Rules 2023 to the Indian Accounting Standards

The Ministry of Corporate Affairs (MCA) issued a notification on April 1, 2023 announcing the Companies Indian Accounting Standards Amendment Rules, 2023 effective from April 1, 2023. These changes are in line with the recommendations of the Institute of Chartered Accountants of India (ICAI) and the International Financial Reporting Standards (IFRS), and are part of the government's efforts to align the Indian accounting standards with international accounting standards, and to improve the quality and transparency of financial reporting in India.

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Footnotes

1. (2017) 8 SCC 47

2. Para 1.01 of the FTP

3. Para 1.26 of the FTP

4. Para 2.39 of the FTP

5. Para 2.52 (d) of the FTP

6. Para 1.23 of the FTP

7. Para 9.05 of the FTP

8. https://content.dgft.gov.in/Website/dgftprod/cdb6b9a7-fd65-4265- b8a8-bd1ee12c0f91/PN.%202%20dated%2001.04.2023%20English.pdf

9. Para 10.08 (ix) & (x) of the FTP

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