Dec 14, 2022Parliamentary Panel Fine-tunes Changes to Indian Competition Law
The Competition (Amendment) Bill, 2022 (‘Bill’), which seeks to amend certain provisions of the Competition Act, 2002 (‘Act’) was referred to the Joint Parliamentary Standing Committee on Finance (‘Committee’) to present its report on the Bill. We had previously summarised and discussed the key amendments proposed by the Bill, which can be accessed here.
The Committee presented its report before the Lok Sabha and the Rajya Sabha yesterday after consulting stakeholders including us (one of only two law firms invited to participate in the discussions). We set out the key recommendations of the Committee below:
| Topic | Recommendation of the Committee[1] | AZB Comments |
| Deal Value Threshold | Value of any transaction, manner of calculation of which shall be determined by regulations, and which in connection with acquisition of any control, shares, voting rights or assets of an enterprise, merger or amalgamation exceeds rupees two thousand crore: Provided that the party whose control, shares, voting rights or assets have been acquired or are being acquired has such substantial business operations in India as may be specified by regulations. The Committee also recommended that: (i) the value of the transactions be calculated based on the regulations that the CCI will issue; and (ii) the thresholds of the turnover, value of assets, and value of transaction be reviewed by the Central Government every year instead of every two years. | Local nexus target enterprise related. The Committee suggests strengthening the local nexus test for the deal value threshold by requiring that the target enterprise has substantial operations in India. Details to be decided by regulations. The Committee suggests that the CCI sets out regulations to clarify: (i) the method of computing the deal value; and (ii) what constitutes ‘substantial business operations’. This is a welcome move since this would provide much needed clarity and certainty to the transacting parties. The regulations may also perhaps specify the sectors to which the deal value thresholds would apply. Merger control thresholds to be reviewed each year. The need to revisit the merger control thresholds each year ensures that each of the thresholds including the deal value thresholds is decided based on contemporary and relevant standards. |
| Settlements and Commitments | 48A. Settlement – (1) Any enterprise, against whom any inquiry has been initiated under sub-section (1) of section 26 for contravention of sub-section (3) or sub¬ section (4) of section 3 or section 4, may, for settlement of the proceeding initiated for the alleged contraventions, submit an application in writing to the Commission in such form and upon payment of such fee as may be specified by regulations. (2) An application under sub-section (1) may be submitted at any time after the receipt of the report of the Director General under sub-section (4) of section 26 but prior to such time before the passing of an order under section 27 or section 28 as may be specified by regulations. Provided that the applicant under sub-section (1) shall have the right to withdraw the application within 7 working days from the date of the hearing. In the event of withdrawal of the application, the Commission shall proceed with its inquiry under Section 26 of the Act without any prejudice to the settlement offered. (4) While considering the proposal for settlement, the Commission shall provide an opportunity to the party concerned, or the Director General, or any other party to submit their objections and suggestions, if any. (7) No appeal shall lie under section 53B against any order passed by the Commission under this section, from any party who agreed to the settlement proposal. Sub-sections (3), (5), (6), and (8) remain unchanged. 48B. Commitment – (4) While considering the proposal for commitment, the Commission shall provide an opportunity to the party concerned, or the Director General, or any other party to submit their objections and suggestions, if any. (7) No appeal shall lie under section 53B against any order passed by the Commission under this section, from any party who agreed to the commitment proposal. Sub-sections (1), (2), (3), (5), and (6) remain unchanged. The Committee also recommended appropriate additions in Section 53N of the Act to allow compensation claims against orders resulting from settlements. | In line with the international best practices, the Committee recommends: i. Allowing parties to file settlement applications for cartels. Inclusion of cartels within the scope of settlements would: (a) eliminate a number of procedural steps for parties and the CCI, by introducing an effective settlement mechanism and swifter resolution of cartel proceedings; and (b) enable the CCI to actually recover penalties; ii. No requirement for the CCI to mandatorily seek objections of a third party before passing an order of settlement / commitment. This ensures that a third party does not hamper the CCI’s ability to: (a) objectively assess the impact; and (b) freely negotiate the terms of the settlement / commitment with the applicant; iii. Allowing parties to withdraw their application before the CCI makes an order of settlement / commitment and inserting an enabling provision to allow parties to revisit the settlement / commitment order of the CCI once it has been passed. This ensures that a party is not left in a worse off condition if due to a material change in circumstances, the party is no longer in a position to comply with the commitment / settlement suggested, either completely or in the manner intended by the CCI; iv. Inserting a provision allowing compensation claims in cases of settlements. This ensures that adversely affected persons have a right to claim compensation against parties to a settlement that have admitted guilt; and v. Allowing appeals if parties did not enter into a settlement / commitment. This ensures that the applicants can appeal a decision of the CCI rejecting the offer of settlement / commitment. While each of these recommendations is welcome, they are not reflected in the proposed text of the Bill by the Committee. Accordingly, suitable amendments to the text of the draft Bill will need to be adopted. |
| Definition of Control | “control” means the ability to exercise material influence, as may be specified by regulations, in any manner whatsoever, over the management or affairs or strategic commercial decisions | The Committee has agreed to retain the ‘material influence’ standard in the definition of control on the grounds that this is the current practice adopted by the CCI. The Committee has however recommended that appropriate regulations specify definitively the scope of what constitutes ‘material influence’. While drafting these regulations, it would be helpful if the CCI could further clarify which rights would qualify as investor protection rights and therefore are excluded from the ambit of material influence / control conferring rights. This recommendation may bring in some certainty when the CCI provides its guidelines on what rights will be covered under this definition. |
| Effect Based Test for Abuse of Dominance | Section 4(1)(a) – An enterprise or group shall be in contravention of sub section (1), if it causes or is likely to cause appreciable adverse effect on competition. Section 19(3) – The commission shall, while determining whether an agreement or conduct has an appreciable adverse effect on competition under section 3 or section 4 of the Act (as applicable) have due regard to all or any of the following factors… | The Committee has recommended the insertion of an effects based test for Section 4 of the Act. The Act does not presently expressly mandate the CCI to undertake an effect based analysis while determining abuse of dominance under Section 4 of the Act. The existing decisional practice in this regard is inconsistent. An effect based analysis has been carried out in various cases including in Dhanraj Pillay v. Hocket India[2] and in the Schott Glass case[3]. In contrast, in the MCX v. NSE[4] and as recently as CCI’s decision passed in Umar Javeed v. Google[5], a per se standard was followed. This recommendation will help bring consistency in the approach followed by the CCI to determine whether an entity is abusing its dominant position. |
| Ability of Director General (‘DG’) to Depose Legal Advisors | The Committee strongly recommended that the relevant clause specifies with clarity that nothing in the section will be in contravention of the Indian Evidence Act, 1872 or any other Act that protects attorney client privilege. | This is a welcome recommendation as this would remove external legal counsel to whom ‘attorney client privilege applies’, from the scope of persons that the DG may depose during a deposition and ensure consistency with the provisions of the Indian Evidence Act, 1872. |
| Hub and Spoke Cartels | Provided further that an enterprise or association of enterprises or a person or association of persons though not engaged in identical or similar trade shall be presumed to be part of the agreement under this sub-section if it is proved that such person intended to actively participate in the furtherance of such agreement. | In a welcome move the Committee clarifies that only where the intention of a platform to participate in an anti-competitive agreement is proved, would it be liable for a cartel infringement. Facilitating information exchange with no intention, knowledge, or concern about the cartel arrangement cannot be actionable as a cartel. |
| IPR as a Defence for Abuse of Dominance | 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 Lavout-Design Act 2000 (37 of 2000); g. any other law for the time being in force relating to the protection of other intellectual property rights. | Unlike Section 3 of the Act which carved out an exception for reasonable exercise of intellectual property rights (‘IPR’) in relation to anti-competitive agreements, Section 4 of the Act did not have any such provision. In the absence of such an ‘explicit’ defense enshrined under the Act, the CCI did not allow any dominant entity to provide a defense for reasonably protecting its IPR while being investigated for alleged abuse of dominance. This ensures consistency with the rights of an IPR holder under the relevant statutes. |
| Requirement of a Judicial Member | Since the decision of the Delhi High Court, in Mahindra v. CCI is now sub judice in the Supreme Court, the Committee recommended that this suggestion may await the decision of the Supreme Court. | The Delhi High Court, in one of its decisions, had mandated that a judicial member be a part of the CCI’s composition. However, this decision is pending in an appeal before the Supreme Court. Although the Committee could have relied on the Delhi High Court decision to recommend the presence of a judicial member as part of the CCI, it remains to be seen whether this will be enshrined as part of the law. |
| Procedural Timelines for Merger Control | The Committee concurred with the CCI and stakeholders that the current prima facie opinion timeline and that of passing the order for approval of combinations should remain unchanged. | The Committee recognised CCI’s clarification that the existing clearance timelines of 17 days quoted by the Ministry of Corporate Affairs did not account for clock stops and public holidays. The Committee recognised that a reduction in timelines may adversely affect the review process to suggest that the review timelines for Phase I clearance not be amended. This timeline may be reconsidered only once the CCI has the infrastructure to and is able to efficiently dispose of the combination matters within shorter timelines. |
Certain provisions of the Bill that have not been addressed by the Committee are set out below.
- Independence of the DG and the CCI. The Bill proposed to empower the CCI to appoint the DG with the prior approval of the Central Government. Consistent with the principles of separation of powers enshrined in the Indian Constitution, this proposed amendment must be reconsidered.
- Reduction of the mandatory penalty pre-deposit to 10% of the penalty amount for appeal. The Bill proposed a pre-deposit penalty of 25% of the penalty imposed by the CCI in order to file an appeal before the National Company Law Appellate Tribunal. The Act statutorily empowers parties to appeal certain decisions of CCI. To prescribe a pre-deposit percentage for admitting the appeal would be contrary to Section 53-B of the Act.
- Reference to Section 20(1) of the Act under Section 43A of the Act. The Bill proposed that if any party fails to submit information to the CCI pursuant to an inquiry under Section 20(1) of the Act, the CCI can impose a penalty that may extend to 1%, of the total turnover or assets or the value of the transaction, whichever is higher. An inquiry under Section 20(1) is to only ascertain the notifiability of a transaction. To impose a prohibitive penalty on an entity for failure to respond to a notice from the CCI, without first determining whether the transaction was even notifiable in the first instance, would be disproportionate.
[1] For convenience, the Committee’s proposed additions to the clauses of the Bill have been set out in red, whereas the ones that the Committee has suggested replacing / deleting have been set out as strikethroughs.
[2] Case No. 73 of 2011 passed by the CCI.
[3] Order passed by the COMPAT in Appeal No. 91 of 2012.
[4] Case No. 13 of 2009.
[5] Case No. 39 of 2018.