EXCLUSIVE | DG already has search and seizure powers: CCI Chairperson on Competition (Amendment) Bill

As for other changes, the Bill contains a significant proposal concerning the reduction of the overall time limit for the approval of M&As from 210 days to 150 days. In fact, the amendments also obligate CCI to form a prima facie opinion within 20 days of receipt of the notice.

Can the industry expect faster clearance of deals by the CCI post-amendment? Is the CCI ready for the new time frame?

First of all, let me explain the rationale of M&As regulations -- M&As bring business synergies and are vital for achieving efficiency by scaling up operations. It can also enable companies to have global footprints. So, it has always been the endeavor of the CCI to give quick approval and facilitate the inorganic growth of businesses. Nevertheless, experience across the globe shows that some mergers may change market structures and distort the level playing field. This may, over a period of time, result in unfair pricing, and poor quality of goods and services, thereby requiring correction at the stage of the merger itself.

The introduction of the Green Channel for automatic approval of combinations in August 2019 has further cemented the trust-based system of the CCI. It is a first-of-its-kind system in the world, wherein the transactions get automatically approved at the time of filing. Today, nearly 30 percent of the filings are under Green Channel. In fact, the CCI has always facilitated quick approval of M&As. The average number of days to approve M&As has already come down to 17 working days only primarily because we trust the information filed by parties.

Since the timelines have been compressed, we will continue this trust-based regime with an underlying assumption that parties would reciprocate by providing full and true disclosures, in a timely manner. At the same time, making a false statement or suppressing information will now attract aggravated penalties as proposed in the Bill, apart from other consequences.

The Bill proposes for the introduction of a deal value threshold of Rs 2,000 crore as an additional criterion for notifying M&As to the CCI for approval if the target has “significant business operations in India”. What was the gap under the extant regime that this Bill seeks to fill? Will it apply only to ‘killer acquisitions’ by Big Tech?

Germany and Austria, through legislative changes, have introduced new transaction value thresholds into their merger control regimes, while the United States already had it.

Let me, at the outset, clarify that the provision is sector agnostic and not specifically directed at acquisitions taking place in the digital ecosystem.

However, in new-age markets, factors such as users, data, growth, and network effect have become means of gaining a significant market position. So, valuation depends on these factors and not on assets or turnover. Entities operating a successful business model in the new-age economy command a significant valuation with insignificant assets and turnover.

Presently, the jurisdiction of the CCI is limited to M&A transactions that meet the asset/turnover threshold specified in the law. So, some transactions that may cause competition concern may not get captured in the existing framework. This regulatory gap was observed, necessitating the introduction of additional notification criteria such as ‘deal value’.

Determining sufficient local nexus is likely to create a lot of uncertainty in the industry. How will the CCI determine the local nexus?

Not all deals of valuation Rs 2,000 crores or more need to be notified to the CCI. Hence, the importance of local nexus criteria. It is meant to exclude M&A transactions where the target exclusively operates abroad or has limited business operations in India.

Since, in new-age markets, assets and turnover do not reflect the correct market valuation of the target, local nexus criteria should also be based on factors that affect the valuation of an entity in new-age markets. These criteria would largely be based on market-facing factors such as number of users, number of contracts, aggregate amount of payment received, etc.

Local nexus criteria would be provided through regulations framed by CCI. This is important as the CCI will have to dynamically respond to changing market conditions. Therefore, the CCI will deliberate on the issue in great detail and only after wide-ranging public consultations with stakeholders, will such regulations be firmed up. We will provide certainty and predictability to stakeholders.

One key reform envisaged in the Bill is to do away with the requirement of prior approval of CCI in case of transactions involving open offers or acquisition of shares through regulated stock exchanges. Will it create regulatory uncertainty if subsequent approval is not granted?

At present, parties to M&As are required to notify the CCI and wait for its approval or 210 days before consummating the transaction, whichever is earlier.

In the case of market purchases where prices are volatile, if a person is required to wait for approval of CCI, it may lose the opportunity to buy the shares at the best prices. Further, if any information relating to an acquisition of shares of a listed company is made public, it may result in speculation in prices, and such a proposed acquisition may become unprofitable/ unviable and thus may fail. Therefore, the time taken for their competition assessment and approval may increase the cost of the transaction.

To address the above eventualities in line with the international best practices, the proposed amendments seek to establish a special framework for market purchases. Under this framework, parties can conduct market purchases without prior notification and approval of CCI. However, they would be required to notify the CCI within the specified time period and shall not exercise any ownership or beneficial rights or interest in such shares till its approval.

The proposed reform will balance the need for standstill requirements and the compelling element of time sensitivity in market purchases. It is a major step towards ease of doing business. I see no reason for any regulatory uncertainty due to this reform. Since the merger control regime came into operation, the CCI has not blocked any transaction and has addressed M&As, which were likely to cause appreciable adverse effects on competition, through behavioural and structural remedies. Of course, in a given situation where the deal is likely to distort the market, decisions will be taken accordingly.

The Bill proposes a lower threshold of ‘control’, i.e., the ability to exercise material influence, in any manner, over the management or affairs or strategic commercial decisions. How will this change affect the merger control regime in India? How is the CCI going to define material influence?

Currently, “control” includes controlling the affairs or management. But the Bill proposes to define "control” as the ability to exercise material influence in any manner whatsoever over the management or affairs or strategic commercial decisions.

Competition is a highly dynamic activity and therefore competition law, if it is to fulfill its mandate, has to be equally dynamic. The relationship between the shareholders/ investors and enterprises is also fast evolving and accordingly, the concept of ‘control’ also needs to evolve into one that enables the assessment of such a relationship in the proper perspective.

Therefore, the need was felt to make the concept of “control” align with the ability to influence the strategic commercial decisions that actually cause changes in market dynamics. This approach complements the conventional concept of control rooted in shareholding or affirmative/veto rights.

The proposed definition of “control” in the amendment Bill is on the same lines as the CCI’s decisional practice and thus does not change the practical parameters being followed. On the contrary, the change is aimed to bring more clarity and certainty by clearly specifying the control threshold in the Competition Act itself. It is expected that the change will make stakeholders more aware of their statutory obligations and prevent any unintended non-compliance.

The Bill proposes to broaden the scope of anti-competitive agreements and seeks to include parties facilitating anti-competitive horizontal agreements within the ambit of anti-competitive agreements. Is the proposal targeted at “hub-and-spoke” cartels?

At present, the law works with the presumption that certain horizontal agreements, including cartels, have an appreciable adverse effect on competition unless otherwise rebutted. There exist certain unique forms of agreements in which a third party, i.e., a ‘hub’ organizes or facilitates collusion between two or more competitors, i.e., the 'spokes'. In such cartels, the hub communicates with one or more spokes resulting in shared information between them. While the spokes are captured within the presumptive rule of appreciable adverse effect on competition, the hub, not being at the horizontal level with spokes, remains outside the scope of this presumption.

Against this backdrop, the Bill proposes to expand the scope of cartels to include ‘hub and spoke’ arrangements implemented by entities involved at different levels of the value chain, within the presumptive rule. The Bill allows the CCI to proceed against any entity that facilitates a horizontal agreement or cartel in any capacity.

Does the new law equip the CCI to deal with digital markets in a more effective way?

Well, the existing statutory framework is robust enough to deal with anti-competitive conduct through ex-post measures in the digital markets. However, the Bill provides for some new features that will strengthen the CCI to address competition concerns in digital markets more effectively.