Subject: Governance

The long-awaited Bill to amend the Competition Act, 2002, was finally tabled in the Lok Sabha recently.

What is the Indian Competition Act?

• The Indian Competition Act was passed in 2002, but it came into effect only seven years later.
• The Competition Commission primarily pursues three issues of anti-competitive practices in the market: anti-competitive agreements, abuse of dominance and combinations.
• As the dynamics of the market changes rapidly due to technological advancements, AI, and the increasing importance of factors other than price, amendments became necessary to sustain and promote market competition.
• Therefore, a review committee was established in 2019 which proposed several major amendments.

Competition (Amendment) Bill, 2022: Key features

(1) Regulation of combinations based on transaction value

• The Act prohibits any person or enterprise from entering into a combination which may cause an appreciable adverse effect on competition.
• Combinations imply mergers, acquisitions, or amalgamation of enterprises.
• The prohibition applies to transactions where parties involved have: (i) cumulative assets of more than Rs 1,000 crore, or (ii) cumulative turnover of more than Rs 3,000 crore, subject to certain other conditions.
• The Bill expands the definition of combinations to include transactions with a value above Rs 2,000 crore.

(2)  Definition of control for classification of combination:

• For classification of combinations, the Act defines control as control over the affairs or management by one or more enterprises over another enterprise or group.
• The Bill modifies the definition of control as the ability to exercise material influence over the management, affairs, or strategic commercial decisions.

(3) Time limit for approval of combinations

• The Act specifies that any combination shall not come into effect until the CCI has passed an order or 210 days have passed from the day when an application for approval was filed, whichever is earlier.
• The Bill reduces the time limit in the latter case to 150 days.

(4) Anti-competitive agreements

• Under the Act, anti-competitive agreements include any agreement related to production, supply, storage, or control of goods or services, which 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: (i) directly or indirectly determining purchase or sale prices, (ii) controlling production, supply, markets, or provision of services, or (iii) directly or indirectly leading to collusive bidding.
• The Bill adds that enterprises or persons not engaged in identical or similar businesses shall be presumed to be part of such agreements, if they actively participate in the furtherance of such agreements.

(5) Settlement and Commitment in anti-competitive proceedings

• Under the Act, CCI may initiate proceedings against enterprises on grounds of: (i) entering into anti-competitive agreements, or (ii) abuse of dominant position.
• Abuse of dominant position includes: (i) discriminatory conditions in the purchase or sale of goods or services, (ii) restricting production of goods or services, or (iii) indulging in practices leading to the denial of market access.
• The Bill permits CCI to close inquiry proceedings if the enterprise offers: (i) settlement (may involve payment), or (ii) commitments (may be structural or behavioral in nature).
• The manner and implementation of settlement and commitment may be specified by CCI through regulations.

(6) Relevant product market

• The Act defines relevant product market as products and services which are considered substitutable by the consumer.
• The Bill widens this to include the production or supply of products and services considered substitutable by the suppliers.

(7) Decriminalization of certain offences

• The Bill changes the nature of punishment for certain offences from imposition of fine to penalty.
• These offences include failure to comply with orders of CCI and directions of Director General with regard to anti-competitive agreements and abuse of dominant position.

Most notable amendment on: Merger and acquisition

• Any acquisition, merger or amalgamation may constitute a combination.
• Section 5 currently says parties indulging in merger, acquisition, or amalgamation need to notify the Commission of the combination only on the basis of ‘asset’ or ‘turnover’.
• The new Bill proposes to add a ‘deal value’ threshold.
• It will be mandatory to notify the Competition Commission of any transaction with a deal value in excess of ₹2,000 crore and if either of the parties has ‘substantial business operations in India’.

Key note on gun-jumping

• Parties should not go ahead with a combination prior to its approval.
• If the combining parties close a notified transaction before the approval, or have consummated a reportable transaction without bringing it to the Commission’s knowledge, it is seen as gun-jumping.
• The penalty for gun-jumping was a total of 1% of the asset or turnover.
• This is now proposed to be 1% of the deal value.

What next?

• By implementing these amendments, the Competition Commission should be better equipped to handle certain aspects of the new-age market and transform its functioning to be more robust.
• The proposed amendments are undoubtedly needed; however, these are heavily dependent on regulations that will be notified by the Commission later.
• These regulations will influence the proposals.
• Also, the government needs to recognize that market dynamics change constantly, so it is necessary to update laws regularly.

 

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