Detailed Analysis of the Competition (Amendment) Act as passed by Lok Sabha

Research & Advisory (Corporate Laws)

Table of Contents

Introduction

1. Reduction of time limit for approval of combinations from 210 days to 150 days

2. Deal Value Threshold; Transaction value above Rs 2000 crore will require CCI’s approval

3. Scope of the definition of ‘relevant product market’ has been enhanced

4. Decriminalisation of certain offences under the Act

5. Definition of the term ‘party’ added

6. Expand the powers of the Director General for investigating contraventions under the Act

7. Mandatory deposit of 25% of amount levied by CCI prior to filing an appeal to Appellate Tribunal

8. Amended norms allow the use of intellectual property rights as a defence in cases of anti-competitive agreements 

9. Intimation about combinations to be made before Consummation of the combination; replacing earlier prescribed timeline of 30 days

10. Presumption to be part of the anti-competitive agreements in certain cases

11. Proposal to compute penalties on the basis of global turnover

12. Recovery  of  legal  costs  along  with  penalties  by  Commission  should  also  be credited to Consolidated Fund of India

13. Definition of “Control” modified to include material influence over management, affairs, or strategic commercial decisions

14. Submission of information after 3 years cannot initiate an Inquiry into certain agreements and dominant positions

Conclusion

Introduction

The Competition Act, 2002 was enacted to promote and sustain competition in markets, protect the interest of consumers, and ensure freedom of trade for market participants. It established the Competition Commission of India (CCI) to eliminate practices having adverse effect on market competition. The Competition (Amendment) Bill, 2023, was introduced after reviewing the recommendations proposed by the Competition Law Review Committee.  The Rajya Sabha also passed the same on 03^rd April, 2023 without any debate. The bill received the assent of the Hon’ble President of India on 11^th April, 2023 to become the Competition (Amendment) Act, 2023 (Amendment Act).

The amendment act seeks to broaden the scope of anti-competitive agreements, provide for the evaluation of combinations based on the value of transactions, reduce the time limit for approval of combinations, and introduce a settlement and commitment framework to reduce litigation. The amended norms are discussed in this article.

1. Reduction of time limit for approval of combinations from 210 days to 150 days

Existing Provision

As per section 6(2A) of the Competition Act, 2002, any combination shall not come into effect until 210 days have passed from the day on which the notice of the combination has been given to the Commission (CCI) or the Commission has passed an order, whichever is earlier.

Amended Provisions

The amended section 6(2A) of the Competition Act, 2023 reduces the maximum time limit for approval of combinations from 210 days to 150 days. Thus, the CCI would have a maximum of 150 days from the date of notice of the combination to approve the combination or to pass an order.

Impact

This will significantly reduce the waiting period for the approval of combinations. This would provide more expeditious approvals for combinations while ensuring a fair and transparent competition process.

2. Deal Value Threshold; Transaction value above Rs 2000 crore will require CCI’s approval

Existing Provision

Section 5 of the Competition Act, 2002 deals with the Regulation of Combinations. The amendment act has amended section 5 of the Act by inserting a new clause that expands the scope of the CCI’s regulatory authority over combinations.

Amended Provision

The new clause states that the value of any transaction related to the acquisition of control, shares, voting rights or assets of an enterprise, merger or amalgamation that exceeds Rs. 2000 crore would require approval from the CCI.

Further, this provision would apply only if the enterprise being acquired, taken control of, merged or amalgamated has substantial business operations in India, as specified by the regulations.

Impact

This change is likely to have significant implications for large-scale mergers and acquisitions in India. By requiring CCI’s approval for transactions that exceed Rs 2000 crore threshold, the amendment seeks to ensure that such transactions do not result in anti-competitive practices and promote fair competition in the market.

3. Scope of the definition of ‘relevant product market’ has been enhanced

Existing Provision

As per section 2(t) of the Competition Act, 2002, “relevant product market” means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use.

Amended Provision

The amendment act expands the definition of relevant product market to include the perspective of suppliers. The revised definition includes all those products or services that are regarded as interchangeable or substitutable by the consumers as well as those whose production or supply is regarded as interchangeable or substitutable by suppliers.

Further, it will ease the process of switching production between products or services and marketing them in the short term without incurring significant additional costs or risks in response to small and permanent changes in relative prices.

Impact

This will provide a more comprehensive and inclusive definition of the relevant product market, which will help to promote fair competition and prevent anti-competitive practices. Also, the inclusion of the supplier’s perspective will help to address the issues that may arise from changing market conditions and technological advancements.

4. Decriminalisation of certain offences under the Act

Existing Provision

Section 43 of the Competition Act, 2002 deals with provisions related to the penalty for failing to comply with directions of the Commission and Director General. As per section 43, if any person fails to comply, without reasonable cause, with a direction given by the Commission or Director General, such person shall be punishable with a fine which may extend to Rs. 1 lakh for each day during which the failure continues, subject to a maximum of Rs. 1 crore, as determined by the Commission.

Amended Provision

 The amendment act decriminalize offences by changing the nature of punishment from imposition of fines to civil penalties.

Impact

The amended provisions change the nature of punishment for certain offences from the imposition of fines to penalties.  These offences include failure to comply with orders of CCI and directions of the Director General with regard to anti-competitive agreements and abuse of dominant position.

5. Definition of the term ‘party’ added

Existing Provision

Section 2 of the Competition Act, 2002 provides various definitions for the terms used in the Act. The amended norms insert a new clause defining the term ‘party’ under section 2 of the Act.

Amended Provision

As per the definition, the term “party” would include a consumer or an enterprise or a person or an information provider, or a consumer association or a trade association, or the Central Government or any State Government or any statutory authority, as the case may be.

The term shall also include an enterprise or a person against whom any inquiry or proceeding is instituted and any enterprise or person impleaded by the Commission to join the proceedings.

Impact

The amended definition of the term ‘party’ aims to bring more clarity and inclusivity in the scope of the Act. By including a wide range of entities, the definition seeks to ensure that all relevant parties are covered under the Act. Thus, the Commission can take appropriate action against anti-competitive practice, thereby promoting fair competition in the market.

6. Expand the powers of the Director General for investigating contraventions under the Act

Existing Provision

Section 41 of the Competition Act, 2002 deals with the powers of the Director General to investigate contraventions. It states that the Director General shall, when so directed by the Commission, assist the Commission in investigating any contravention of the provisions of this Act or any rules or regulations made thereunder. Also, the Director-General shall have all the powers as are conferred upon the Commission under section 36 of the Act.

Amended Provision

The amended section 41 of the Act, expands the powers of the Director General (DG) for investigating contraventions under the Act. Some of the powers are as follows –

(a) The Director General may require any person to furnish information or produce such books, papers, documents or records before it or any person authorised by it in this regard if the furnishing of documents is relevant or necessary for the purposes of the investigation.

(b) The Director General may keep any information, books, papers, records or documents in custody for a period of up to 180 days before returning them to the person who produced them.

(c) The Director General may examine on oath, any of the officers, employees, and agents of the party being investigated with the previous approval of the Commission or any other person in relation to the affairs of the party being investigated. The examination must be recorded in writing and shall be read over to or by, and signed by, the person examined and may thereafter be used in evidence against it.

(d) The Director General may make an application to the Chief Metropolitan Magistrate, Delhi for an order to seize information, books, papers, other documents or records if they have reasonable grounds to believe that such documents may be destroyed, mutilated, altered, falsified, or secreted.

(e) The Director General may make a requisition for the services of any police officer or officer of the Central Government to assist in the investigation and it shall be the duty of these officers to comply with such a requisition.

(f) If the Director-General makes an application to the Chief Metropolitan Magistrate, for an order to seize information, books, papers, other documents or records, the Magistrate may authorize the Director-General to enter and search the place where the documents are kept, with the necessary assistance, and seize any relevant documents for the purpose of the investigation.

(g) The Director General must keep in his custody, such information, books, papers, and records seized for such period not later than the conclusion of the investigation as they consider necessary. After the investigation is concluded, the Director General would be required to return the seized documents to the party or person from whose custody or power they were seized and inform the Chief Metropolitan Magistrate of the return.

Impact

The amended provisions would significantly enhance the powers of the Director General for investigating contraventions under the Competition Act, 2002. These changes would enable the Director General to conduct more effective and thorough investigations, and to collect and preserve evidence more effectively.

7. Mandatory deposit of 25% of amount levied by CCI prior to filing an appeal to Appellate Tribunal

Existing Provision

Section 53B of the Competition Act, 2002 grants the right to appeal to the Appellate Tribunal to any person including the Central Government or the State Government, local authority, or enterprise who is aggrieved by a decision or order made by the Commission.

Pursuant to section 53B (2) of the Act, every appeal must be filed within a period of 60 days from the date of receipt of a copy of the direction or decision or order made by the Commission. The appeal must be made in the prescribed form and must be accompanied by the requisite fee.

Amended Provision

As per the amended section 53B (2) of the Act, a new proviso has been added  mandating the deposit of 25% of the amount levied by the CCI prior to filing an appeal against a CCI order.

The proviso states an appeal by a person required to pay any amount in terms of an order of the Commission, shall not be entertained by the Appellate Tribunal unless the appellant has deposited 25% of that amount as directed by the Appellate Tribunal.

Impact

The amended provisions would discourage unnecessary appeals and is likely to bring changes in the way appellants approach the appeal process and may have a significant impact on the efficiency of competition law cases in India.

8. Amended norms allow the use of intellectual property rights as a defence in cases of anti-competitive agreements 

Existing Provision

Presently section 3(5) of the Competition Act, 2002 prescribes that nothing contained in this section shall restrict the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under—

(a) the Copyright Act, 1957 (14 of 1957)

(b) the Patents Act, 1970 (39 of 1970)

(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of 1999)

(d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999)

(e) the Designs Act, 2000 (16 of 2000)

(f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000).

Amended Provision

As per the amended provisions a new ground of the non -applicability

“any other law for the time being in force relating to the protection of other intellectual property rights.”

Has been added.

Impact

The amended norms would expand the scope of protection for intellectual property right holders.  Therefore, it can be used as a defence.

9. Intimation about combinations to be made before Consummation of the combination; replacing earlier prescribed timeline of 30 days

Existing Provision

Presently, as per section 6 of the Competition Act, 2002 any person or enterprise proposing to enter into a combination, shall give notice to the Commission, disclosing the details of the proposed combination, within 30 days of approval of merger or amalgamation or execution of any agreement.

Amended Provision

As per the amended norms, the intimation shall be made after any of the following (i.e., approval of merger or amalgamation or execution of any agreement), but before consummation of the combination.

Impact

Earlier, there was a standard timeline of 30 days for notifying the CCI. Now, the same has been amended and will depend upon the circumstances of the case. This change is expected to bring flexibility to the timeline for notifying the CCI as it will now depend upon the circumstances of each case.

10. Presumption to be part of the anti-competitive agreements in certain cases

Existing Provision

Section 3 of the Competition Act provides for the prohibition of certain anti-competitive agreements.

Under the Act, anti-competitive agreements include any agreement related to the production, supply, storage, or control of goods or services, that can cause an appreciable adverse effect on competition in India.  Any agreement between enterprises or persons engaged in identical or similar businesses will have such adverse effect on competition if it meets certain criteria.

These include:

(a) directly or indirectly determining purchase or sale prices,

(b) controlling production, supply, markets, or provision of services, or

(c) directly or indirectly leading to collusive bidding.

Amended Provision

The amended norms introduce an additional provision stating that an enterprise or association of enterprises or a person or association of persons though not engaged in identical or similar trade shall also be presumed to be part of such anti-competitive agreements if they participate or intends to participate in the furtherance of such agreements.

Impact

As per the amended norms, now it would be presumed that enterprises or persons not engaged in identical or similar businesses shall also be deemed to be part of the anti-competitive agreements, if they actively participate in the furtherance of such agreements.

11. Proposal to compute penalties on the basis of global turnover

Existing Provision

Section 27(b) of the Competition Act, 2002 empowers the commission to impose such penalty, as it may deem fit which shall be not more 10% of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to anti-competition agreements or abuse.

Amended Provision

The amended norms insert an explanation in section 27 as follows:

For the purposes of this clause, “turnover” means global turnover derived from all the products and services by a person or an enterprise.’

Impact

A clarification is provided to the definition of turnover for the calculation of penalties imposed on persons or enterprises found to have engaged in anti-competitive agreements or abuse. As per the amended norms, the computation of penalty based shall be based upon the global turnover, which will result in higher penalties for global multi-product companies.

12. Recovery  of  legal  costs  along  with  penalties  by  Commission  should  also  be credited to Consolidated Fund of India

Existing Provision

As per section 47 of the Competition Act, 2002, all the sums realised by way of penalties under the Act must be credited to the Consolidated Fund of India.

Amended Provision

The amended norms expand the scope of funds that will be credited to the Consolidated Fund of India. In addition to the penalties, the Commission will also include recovery of legal costs as part of the funds to be deposited in the Consolidated Fund of India.

Impact

The amendment ensures that all amounts collected by the Commission, whether in the form of penalties or legal costs are deposited in the Consolidated Fund of India. This change is expected to  promote greater accountability and transparency in the collection and management of funds.

13. Definition of “Control” modified to include material influence over management, affairs, or strategic commercial decisions

Existing Provision

For the classification of combinations, Section 5 of the Act defines control as follows:

“Control” includes controlling the affairs or management by—

(a) one or more enterprises, either jointly or singly, over another enterprise or group.

(b) one or more groups, either jointly or singly, over another group or enterprise;

Amended Provision

The definition of control has been amended in the following manner – :

“Control” means the ability to exercise material influence, in any manner whatsoever, over the management or affairs or strategic commercial decisions by—

(a) one or more enterprises, either jointly or singly, over another enterprise or group; or

(b) one or more groups, either jointly or singly, over another group or enterprise.

Impact

The amended norms expand the scope of the definition of control to include any material influence exercised over the management, affairs, or strategic commercial decisions of another enterprise or group. As per the amended norms, the ability to exercise material influence over the management, affairs, or strategic commercial decisions shall also be considered as control for the purpose of determining the combinations.

14. Submission of information after 3 years cannot initiate an Inquiry into certain agreements and dominant positions

Existing Provision

Section 19 of the Act provides for an inquiry into certain agreements and dominant position of enterprises on its own motion or upon receipt of information from others.

Amended Provision

The amended norms add a provision stating that the Commission shall not entertain  information or a reference unless it is filed within 3 years from the date on which the cause of action has arisen.

However, it may be entertained in the event of sufficient cause for condoning such delay.

Impact

Earlier, there was no timeline specified. Now, a timeline of three years has been prescribed. The timeline is intended to ensure that information is provided in a timely manner and that cases are not delayed due to late submissions.

Conclusion

These proposals aim to further promote and sustain competition in markets, protect the interest of consumers, and ensure freedom of trade for market participants. Overall, the Competition (Amendment) Act, 2023 is a positive step towards ensuring a level playing field in the market and promoting fair competition.