Introduction

Increasingly, India is a key jurisdiction for foreign investment. To keep the momentum, the Indian government has been consistently attempted to keep the business environment friendly and less burdensome. These include reduction in corporate tax rates, easing liquidity problems of NBFCs and banks, FDI policy reforms, easing compliance norms – all with the aim of promoting “ease of doing business in India.”^[1] After over a decade of its enforcement, India’s competition law has recently been amended and has brought about key changes that will impact businesses.

The 2023 Amendments^[2] to the Indian Competition Act, 2002 (Act) introduce changes that several antitrust jurisdictions are still considering. The 2023 Amendments are a mixed bag of changes, several business friendly such as commitments and settlements, expedited merger review timelines and introducing a leniency plus regime, while others aim to achieve greater regulatory oversight and stricter enforcement such as deal value threshold, penalties on global turnover and increased liability for hubs in hub and spoke cartels.

It is for the Competition Commission of India (CCI), the body entrusted with the responsibility to nurture and maintain well-functioning markets that facilitate the growth manifested by the Indian government,^[3] to adopt a balanced approach to ensure that competition enforcement does not come in the way of ‘economic growth’ as envisaged under the Preamble of the Act.^[4] In this article, we examine the impact of the 2023 Amendments on the Indian market. In particular, we examine the CCI’s approach in adopting these tools and tailor it according to the requirements of the Indian economy.

Impact of the 2023 Amendments

Commitments and Settlements

At the forefront of the 2023 Amendments is the introduction of commitments and settlement mechanisms for allegations of anticompetitive vertical agreements and abuse of dominance. Unlike other parts of the world, these do not extend to cartels.

The CCI is now empowered to accept commitments for ongoing investigations, before the Director General’s (DG’s) investigation report (DG Report) is shared with the parties. Through commitments, businesses under investigation can address the preliminary competition concerns raised by the CCI instead of participating in long drawn investigations. Similarly, introduction of a settlement process allows a business to settle proceedings after receipt of the DG Report but before the CCI issues its final order. In case of settlements, the business agrees to pay a settlement amount (as decided by the CCI) which can be less than the maximum penalty that the CCI may impose in that particular case. Settlement and commitment orders also exonerate the business from any infringement finding; however, in case of settlements, the business can face action for compensatory damages.

Introduction of commitments and settlements present two key benefits to the CCI – (i) saves time and resources; and (ii) faster market correction. The preliminary assessment of a potential infringement allows the CCI to filter out cases which are not likely to cause harm to the competition and save its scarce resources^[5] – not only before the CCI but equally during the appellate stage that often take several years to conclude. In terms of market correction, the CCI has emphasised the need for quickly implementing corrective measures once competition harm is identified.^[6]

Settlements and commitment do not deter businesses from contesting their cases where they believe they have strong justifications. These mechanisms provide an added optionality to not contest CCI’s preliminary finding or the DG Report (as the case may be) based on a cost benefit analysis. The businesses can provide more practically feasible remedial measures as compared to the directions that the CCI may issue in its final order without any discussion with the business. These mechanisms allow businesses to assess how commercially important it is to continue to contest the ‘alleged’ anticompetitive conduct. If the conduct merely results in a technical violation and does not accrue any substantial benefit to businesses, it may be prudent to offer commitments and tweak its conduct in a manner which is more acceptable to the CCI. Similarly, settlements provide businesses with an additional opportunity to avoid long lasting adversarial proceedings with the CCI/complainants and instead arrive at a commonly agreed decision. For example, in the Autoparts^[7] case, the CCI issued extensive directions (later upheld by the appellate tribunal) in relation to supply and use of spare parts by automotive dealers. Concerns were raised regarding these directions having a negative impact on safety of car owners.^[8] The Supreme Court of India has stayed the enforcement of CCI’s order and is yet to decide the case while more than 9 years since the CCI’s order has passed.^[9] Experience from other jurisdictions suggest that authorities have used commitments and settlements in their jurisdictions effectively to address competition harm in an expedient way. For example, in Gazprom, the European Commission’s preliminary view was that Gazprom abused a dominant position by pursuing partitioning the European natural gas markets. Gazprom committed to remove contractual restrictions on cross-border resale of gas; facilitate gas flows to and from isolated markets; structure a process ensuring competitive gas prices; and cease leveraging dominance in the supply of natural gas.^[10]

For the settlements and commitments regime to be successful, the CCI may need to extend flexibility in accepting commitments and settlements that are pragmatic. The CCI may consider:

(a) being open to considering novel remedies (as opposed to traditional ‘cease and desist’) that businesses may suggest;

(b) implementing business friendly timelines to comprehensively understand market harm and suggest effective remedies (particularly for global companies who may need to consider multi-jurisdiction impact of remedies offered);

(c) adopting a business friendly approach in deciding the settlement amount which does not discourage businesses from avoiding adversarial proceedings and risking imposition of penalty that the CCI may impose.

Deal Value Threshold

The 2023 Amendments have introduced a transaction value based threshold for notification of transactions exceeding a deal value of INR 20 billion (~USD 244 million), where the target has substantial business operations (SBO) in India. The deal value threshold has been brought in keeping in mind the increasing number of acquisitions by large digital companies – yet the provision is sector agnostic.^[11] Mergers such as Facebook/Instagram, Facebook/WhatsApp, etc. have drawn attention of competition regulators across the globe, including India. This is because acquisitions of start-ups/companies with less asset value by big tech companies do not typically satisfy traditional turnover-based thresholds which trigger the merger control mechanism of the CCI. Where the value of transactions does not tally with the value of the target’s assets and its turnover, deal value thresholds appeared to be the most appropriate way to widen the CCI’s net to catch such transactions.

The ultimate purpose of the CCI is to prevent any practice causing appreciable adverse effect to the competition and to promote and sustain competition, for which, the CCI is also adequately armed with ex-post powers. Globally, there is limited evidence to show that introduction of transaction size based thresholds have avoided potential competition harm. For example, in Germany insignificant additional notifications were made for review^[12] and in Austria, none of the additional notifications were found to be anticompetitive or in relation to digital acquisitions.^[13] Even the Whatsapp/Facebook merger was cleared by the US Federal Trade Commission^[14] and the European Commission.^[15] Prevention of ‘killer acquisition’ in the digital sector is also often cited as the objective behind introducing transaction based threshold.^[16] However, evidence suggests that acquisitions in the digital sector typically result in integration of target’s services into the acquirer’s suite of services rather than ‘killing’ the target’s services, which can be argued as a plausible efficiency rationale.^[17] For instance, Whatsapp’s communication services have been added as a complementary service to the full suite of social media services offered by Facebook. Therefore, as of now, there is very little evidence of a positive impact of introduction of transaction-based threshold on maintaining healthy competition.

Deal value threshold creates an additional regulatory requirement for investments which were earlier exempt due to significantly low value of assets and turnover of the target. Consequently, the said transactions will be covered by the standstill obligation provided in the Act, requiring parties to the transaction to wait for CCI’s approval before closing the transaction. The CCI is well aware of the possible increase in regulatory burden due to the introduction of deal value threshold. The previous Chairperson of the CCI commented that the criterion of ‘substantial business operation’ would assist in ensuring that transacting parties are not overburdened with unnecessary notifications and only those transactions with significant economic link to India are caught by the threshold.^[18] To outweigh the regulatory burden, it is important for there to be clear guidelines for triggering notifications under the deal value threshold and ensure regulatory certainty among transacting parties. The regulator published draft regulations for consultation in which it laid down the SBO criteria as any entity having more than 10% of (a) number of users/consumers/visitors; or (b) gross merchandise value; or (c) turnover, in India.^[19] These criteria are set at a low level and are likely to increase the volume of transactions notified to the CCI. Following stakeholder consultations, it’s possible for the SBO criteria to bring in additional clarity that ensures deal value threshold based notifications do not overburden the CCI with technical notifications and catches only those transactions that may potentially have anti-competitive effects.

Hub and Spoke cartels

The 2023 Amendments have expanded the definition of cartels to specifically include non-competing entities provided they participate or intend to participate in the cartel. Digital platforms that provide services to competing enterprises are one class of businesses that may directly be impacted by this change. Digital platforms may now be considered as part of a cartel if they facilitate sharing of information between its service recipients.

Competition authorities may find it difficult to determine whether certain vertical agreements (e.g. exclusivity agreements, or limits on retailer pricing) should be considered a hub-and-spoke cartel, or vertical restraints.^[20] In essence, digital platforms can be presumed to be indulging in market allocation and price fixing on account of requiring exclusivity or resale price maintenance, respectively. While allegations of vertical restraint are assessed on a ‘rule of reason’ basis that involves the CCI balancing procompetitive effects, CCI adopts a per se approach for cartels. This is likely to create an additional compliance burden for online digital platforms.

It’s therefore worth considering adopting this approach only when there is an element of collusion – and to a technical “meeting of the criteria.”  ^[21] Given significant fines, it would help increase certainty for businesses were the CCI to release detailed guidelines and best practices for platform markets to avoid regulatory uncertainty and educate platform companies about the possibility of finding cartel violations against them. Equally, digital platforms should be mindful of their market behaviour and conduct when dealing with multiple competing enterprises.

Penalty on Global Turnover

The 2023 Amendments empower the CCI to impose penalties based on global turnover derived from all products and services by a person or an enterprise, regardless of the scope of the infringing product/service. This is a departure from the existing computation of penalty based on ‘relevant’ Indian turnover of the enterprise. In 2017, the Supreme Court of India clarified that for a multi-product company, only the revenues generated from the allegedly infringing product or service should be considered when determining the quantum of penalty by the CCI, and the penalty cannot be imposed on the opposite party’s entire turnover.^[22] However, in recent cases involving digital markets, the CCI  imposed  penalties on the company’s total (albeit Indian) turnover^[23] holding that “restricting revenue to just one segment would not appropriately capture the interdependent and integrated nature of the ecosystem wherein one product/ service reinforces multiple other products/ services.”^[24].

Now with the 2023 Amendments, the CCI can impose a penalty on the company’s entire global turnover even if the infringement relates to only a small section of the company’s business in India. These expanded powers of the CCI may create a situation where global companies are penalised disproportionately high compared to their domestic counterparts. For instance, if X and Y both compete in the same market and have been found to have similarly violated the provisions of the Act, the CCI may charge higher penalty from X because it is a global conglomerate while charging a substantially low penalty from Y because it is a standalone company having operations only in India. Ironically, this may create a disbalance between competitors operating in the same market.

While the change has been brought in to create increased deterrence for big pocketed global enterprises to refrain from indulging in anticompetitive conduct, the possibility of disproportionate penalties may require additional risk assessment by global companies before setting up shop in India.^[25] To provide regulatory certainty and consistency, the CCI may consider clarifying in it’s yet to be released “penalty guidelines” that penalties based on global turnover would be invoked only in exceptional cases of serious infringements. Further, the CCI may also clarify that it will continue to abide by the principle of proportionality while imposing a penalty, as laid down by the Supreme Court.^[26]

Expedited merger review timelines

The overall period for the CCI to arrive at a decision on a transaction has been reduced from 210 days to 150 calendar days. If the CCI does not issue an order within these timelines, the combination will be “deemed” approved. The existing suspensory merger control regime also made it difficult to complete stock market purchases without incurring gun jumping fines. Recognising transactional impracticality, the 2023 Amendment allows derogation from standstill obligations for (a) an open offer; or (b) an acquisition of shares or securities, through a series of transactions on a regulated stock exchange.

The expedited timelines are a welcome change. But the shorter timelines may be burdensome for the CCI officials. One way of striking a balance between truncated timelines and giving officers at the regulator sufficient review time would be by making effective use of the pre-filing consultations. Parties may seek to engage with the CCI in substantive pre-filing consultations and use that process to address likely concerns of the CCI that would come up during review to expedite the formal review process and limit the number of follow up requests for information.

Conclusion

The Indian government is keen to secure India as a key jurisdiction in the World Bank’s ease of doing business index.^[27] Improving ease of doing business while maintaining healthy competition in the market also seems to be the mantra behind the 2023 Amendments. Implementation is the key and the actual impact of the 2023 Amendments would ultimately depend on the enforcement priorities the CCI carves out for itself. Regulatory uncertainty and excessive regulatory oversight are impediments for the growth of an economy. While it is true that healthy competition in the market results in faster economic growth (by increasing productive and allocative efficiency of firms),^[28] firms are less likely to invest in jurisdictions with higher regulatory burden and longer compliance timelines. The 2023 Amendments provide the CCI with the necessary tools to promote business in India and reduce regulatory burden while maintaining healthy competition in the market. It remains to be seen how the CCI will strike a balance between effective regulation and economic growth.

Footnotes: 

^[1] Ministry of Commerce & Industry, Initiatives to boost domestic and foreign investments. Available at

https://pib.gov.in/PressReleasePage.aspx?PRID=1782353#:~:text=These%20include%20reduction%20in%20Corporate,Programme%20(PMP)%2C%20Schemes%20for , last accessed 8 September 2023.

^[2] The Competition (Amendment) Act, 2023. Available at https://prsindia.org/files/bills_acts/acts_parliament/2023/The%20Competition%20(Amendment)%20Act,%202023.pdf

[3] The Preamble of the Act states that the objectives of the CCI are to be fulfilled keeping in mind the ‘economic development’ of the country. See, Sangeeta Verma, A Competition Law for Shaping the Future of the Indian Economy: Competition Commission of India 2.0. Available at https://www.pymnts.com/cpi_posts/a-competition-law-for-shaping-the-future-of-the-indian-economy-competition-commission-of-india-2-0/ , last accessed at 8 September 2023.

^[4] Ibid.

^[5] Section 26(2) of the Act allows the CCI to close a matter if it is of the opinion that there is no prima facie case made out.

^[6] Mr. Umar Javeed and Others Vs. Google LLC and Another (Smartphones), Case No. 39 of 2018 available at https://www.cci.gov.in/antitrust/orders/details/1070/0 ; CCI Fairplay, Volume-42 July September 2022, page 8 available at https://www.cci.gov.in/advocacy/publications/fair-play/details/48/0 .

^[7] Shri Shamsher Kataria vs Honda Siel Cars India Ltd. & Ors., Case No. 3 of 2011, available at https://www.cci.gov.in/antitrust/orders/details/750/0 .

^[8] BQ Prime, Supreme Court Grants Relief To Nissan, Ford And Toyota In Antitrust Violation Case. Available at https://www.bqprime.com/business/supreme-court-grants-relief-to-nissan-ford-and-toyota-in-antitrust-violation-case, last accessed 8 September 2023.

[9] Nissan Motor India Private Limited and Ors. v. Competition Commission of India and Ors., Civil Appeal No.951 of 2017

^[10] Gazprom (COMP/AT.39.816), Commission press release IP/18/3921.

^[11] As per reports, Google, Amazon, Facebook, Microsoft and Apple combined have reportedly made over 400 acquisitions globally in the last decade. See Digital Competition Expert Panel (UK), Unlocking digital competition (March 2019), page 94. Available at  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data

/file/785547/unlocking_digital_competition_furman_review_web.pdf , last accessed 8 September 2023.

^[12] Organisation for Economic Co-operation and Development (OECD), Start-ups, killer acquisitions and merger control – Note by Germany, para 16-17. Available at https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Diskussions_Hintergrundpapiere/2020/OECD_2020_Start-ups_killer_acquisitions_and_merger_control.pdf?__blob=publicationFile&v=3, last accessed 8 September 2023.

^[13] OECD, Annual Report on Competition Policy Developments in Austria

– 2021, para 47-50. Available at https://one.oecd.org/document/DAF/COMP/AR(2022)2/en/pdf, last accessed 8 September 2023.

^[14] Vox, FTC Clears Facebook’s WhatsApp Acquisition in the U.S. Available at https://www.vox.com/2014/4/10/11625486/ftc-clears-facebooks-whatsapp-acquisition-in-the-us , last accessed 8 September 2023.

^[15] European Commission, Commission approves acquisition of WhatsApp by Facebook. Available at https://ec.europa.eu/commission/presscorner/detail/en/IP_14_1088 , last accessed 8 September 2023.

^[16] Moneycontrol, Competition (Amendment) Bill 2023: Big Tech firms’ ‘killer’ acquisitions on radar. Available at https://www.moneycontrol.com/news/trends/legal/competition-amendment-bill-2023-big-tech-firms-killer-acquisitions-on-radar-10412281.html , last accessed 8 September 2023.

^[17] Crémer, Jacques, Yves-Alexandre de Montjoye and Heike Schweitzer, Competition Policy for the Digital Era, 2019, p. 117. Available at https://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf , last accessed 8 September 2023.

^[18] CCI Fairplay, Volume-42 July September 2022, page 8. Available at https://www.cci.gov.in/advocacy/publications/fair-play/details/48/0 , last accessed 8 September 2023.

^[19] CCI, Draft Combination Regulations. Available at https://www.cci.gov.in/images/stakeholderstopicsconsultations/en/draft-combinations-regulations1693891636.pdf , last accessed 8 September 2023.

^[20] OECD, Background Note: Latin American and Caribbean Competition Forum – Session III: Practical Approaches to Assessing Digital Platform Markets for Competition Law Enforcement, 2019, p. 24. Available at https://one.oecd.org/document/DAF/COMP/LACF(2019)4/en/pdf , last accessed 8 September 2023.

^[21] Ibid.

^[22] Excel Crop Care Ltd. v. CCI & Ors. (Excel Crop), 2017 8 SCC 47.

^[23] Federation of Hotel & Restaurant Associations of India (FHRAI) and another Vs. MakeMyTrip India Pvt. Ltd. (MMT) and others with Rubtub Solutions Pvt. Ltd. Vs. MakeMyTrip India Pvt. Ltd. (MMT) and others (MMT), Case No. 14 of 2019 and 1 of 2020, available at https://www.cci.gov.in/antitrust/orders/details/1069/0; MMT, Smartphones (n.6); XYZ (Confidential) Vs. Alphabet Inc. and Others, (14 of 2021) Match Group, Inc. vs.  Alphabet Inc. and Others, (35 of 2021) Alliance of Digital India Foundation vs.  Alphabet Inc. and Others, Case No. 07 of 2020 with 14 of 2021 with 35 of 2021 available at https://www.cci.gov.in/antitrust/orders/details/1072/0.

^[24] MMT (n. 23, Para. 319.

^[25] Moneycontrol, Penalty on global turnover for anti-trust violations may not be a deterrent to MNCs, say lawyers. Available at https://www.moneycontrol.com/news/business/penalty-on-global-turnover-for-anti-trust-violations-may-not-be-a-deterrent-to-mncs-say-lawyers-10497401.html , last accessed 8 September 2023.

^[26] Excel Crop (n. 22).

^[27] The Times of India, Ease of doing business will ultimately lead to ease of living: PM Modi. Available at https://timesofindia.indiatimes.com/business/india-business/ease-of-doing-business-will-ultimately-lead-to-ease-of-living-pm-modi/articleshow/66695623.cms , last accessed 8 September 2023.

^[28] OECD, Factsheet on How Competition Policy Affects Macro-Economic Outcomes, 2014, pp. 2–3. Available at https://www.oecd.org/daf/competition/2014-competition-factsheet-iv-en.pdf , last accessed 8 September 2023.