Competition Act Amendment: CCI gets more enforcement tools to address emerging challenges

The Bill was originally introduced in the Lok Sabha on August 5, 2022 and then referred to the Parliamentary Standing Committee on Finance. (File image)

The amendments to the Competition Act, 2002 seek to strengthen the Competition Commission of India (CCI) as it continues its tryst with markets driven by technology and data. The Bill was originally introduced in the Lok Sabha on August 5, 2022 and then referred to the Parliamentary Standing Committee on Finance. It was passed by the Lok Sabha on March 29, 2023 and the Rajya Sabha on April 3.

Introduction of deal value threshold: Among the more significant changes is the introduction of a ‘deal value’ threshold (DVT) of Rs 2,000 crore, which will be in addition to asset/turnover-based thresholds set out under the Competition Act. Transactions that exceed the DVT will require prior mandatory notification to the CCI for its review and approval. Previously, such notification was subject to any party having substantial business operations in India. However, based on the Parliamentary Standing Committee’s recommendation, the Bill clarifies that substantial business operations in India are for the target company. Although deal value is defined to include direct, indirect, or deferred consideration, the CCI will now have to consider factors including fluctuations in share value, performance-linked payouts, etc. in assessing the notifiability of such transactions.

The impact of the DVT will most likely be seen in sectors that are driven by technology and data – which have seen a slew of small acquisitions that are otherwise not notifiable but have the potential to substantially alter market conditions. Enterprises in the tech sector will now have to grapple with merger control provisions of the Competition Act while deciding their growth strategies.

Definition of control: The definition of ‘control’ has been widened to include the ‘material influence’ standard. The broader definition of control could result in more transactions becoming notifiable. It is expected that the CCI will publish additional guidance to clarify the scope of material influence to provide some clarity to transacting parties to help them determine the notifiability of their planned transactions.

Settlements and Commitments: The Bill also introduces a ‘settlement’ and ‘commitment’ system that would be available in cases relating to anti-competitive vertical agreements and abuse of dominant position. While commitments can be offered after an investigation has been directed and before the Director General (DG) report is received by a party, a settlement application can be filed after receiving the DG Report but before CCI passes a final order. In line with the Parliamentary Standing Committee’s recommendation, claims for compensation/damages will lie in cases of loss/ damage suffered as a result of a settlement order by the CCI.

It is expected that the settlement and commitment system will lead to speedy disposal of cases, reduced litigation, and efficient deployment of resources by the CCI. However, since compensation claims can also be filed in settlement cases, it is unclear if this implies an admission of liability by the party seeking a settlement. If yes, this would result in further litigation, diluting the underlying objective of introducing the settlement system.

Penalty based on global turnover: A significant change to the penalty regime has been the expansion of ‘turnover’ to mean the ‘global turnover’ of an enterprise, accounting for all its products and services. Pegging penalty computation to a ‘global turnover' standard will be an overturn of ‘relevant turnover’ as settled by the Supreme Court in Excel Crop, in terms of which, the turnover for computing penalties is limited to the turnover accruing from infringing products/ services. This amendment will likely have far-reaching financial ramifications for global companies, especially those in the technology sector, facing inquiries under the Competition Act.

Withdrawal of leniency applications: The Bill has also introduced a provision allowing a party to withdraw its application for a lesser penalty in cases relating to cartels. While such a withdrawal will not preclude the DG and CCI from using the evidence submitted by the such party during the process, any admission of liability made by such a party cannot be used. The lesser penalty regime has been a valuable tool, increasingly used by the CCI to inquire into cartels. Allowing such a withdrawal brings much-needed flexibility, as the DG/CCI can use the evidence provided under the application and on the other hand, an applicant would have the option to withdraw its leniency request without limiting its defence.

Leniency plus: The Bill permits a lesser penalty applicant to submit another application, containing disclosures with respect to another cartel, provided that the first application is undergoing investigation. This adds to the tools available with CCI to inquire into cartels and could potentially incentivise parties to report more than one cartel to be eligible for greater penalty reductions.

Hub and spoke cartels: The Bill has introduced a provision which would penalise ‘hub and spoke’ arrangements by adopting a presumption that an enterprise that participates in the furtherance of a horizontal agreement is part of such an agreement, even though it may not be engaged in an identical or similar trade. Based on the Parliamentary Standing Commitee’s recommendation, the Bill has removed the requirement for ‘active participation’ and an enterprise would be liable if it participates or ‘intends’ to participate in furthering a horizontal agreement. This would potentially allow parties to take the defence that there was no ‘intention’ to participate in the cartel.

Expedited timelines: The timelines for clearance of combinations by the CCI have been reduced from 210 days to 150 days. The truncated timelines will likely exert some pressure on the CCI to adopt a more efficient review process. It will also mean that notifying parties will have to ensure the completeness and adequacy of the information being provided to the CCI.

Power to issue Guidelines: The Bill has introduced a provision requiring the CCI to ensure transparency in passing new regulations by publishing the draft regulations on its website and inviting public comments. A newly included provision also requires the CCI to publish guidelines on provisions under the Competition Act. This would also include guidelines for the appropriate amount of penalties, which are required to be considered by the CCI while imposing penalties. This is a significant addition to the existing regime as comprehensive and clear guidelines, especially on matters such as penalties, would impart much-needed legal certainty, especially from the perspective of concerned stakeholders.

In conclusion, the introduction of the deal value threshold, a settlements and commitments system, and provisions capturing hub and spoke cartels, seek to align the Competition Act with global competition regimes. The long-awaited amendments are poised to significantly overhaul the Competition Act by arming the CCI with newer enforcement tools to address emerging challenges.

Ravisekhar Nair is Partner at Economic Laws Practice (ELP). 

With inputs from Aayushi Sharma, Senior Associate and  Pavan Kalyan, Advocate – Economic Laws Practice (ELP). Views are personal and do not represent the stand of this publication.