Competition Amendment Bill: Tightening noose on monopolistic practices
The Competition (Amendment) Bill 2022 was originally introduced in Lok Sabha on August 5 2022 and subsequently referred to the Parliamentary Standing Committee on Finance headed by Jayant Sinha for examination and report. It has been cleared on March 29.
Under the new bill, the Competition Commission of India (CCI) will be granted more authority to hold big corporations accountable. The proposed changes in the bill are aimed at redefining the rules for acquiring firms and keeping the process transparent.
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New Delhi, March 30: The Lok Sabha has cleared the Competition Amendment (2022) Bill on March 29, with latest passed amendments to the competition law for stricter compliance. The amendments in the bill aims to empower the antitrust regulator to impose penalties on global turnovers of “faulty companies. While a Competition Act, introduced in 2002, already exists, the Competition Amendment Bill seeks to introduce changes in the Act.
With the new amendments, the Competition Commission of India (CCI), the antitrust watch dog, will be granted more authority to hold big corporations accountable. This include expansion of the scope of cartel prosecution, introduction of a deal value threshold for mergers and combination, and the modification of ‘turnover’ to mean global turnover, among others.
Introduction of competition law in India
The Monopolies and Restrictive Trade Practices Act of 1969 (MRTP Act) was the first competition law established in India. The MRTP Act came into effect on June 1, 1970, with the aim of ensuring that the functioning of the market structure did not result in the concentration of the economy in a few hands. It also prohibited monopolistic and discriminatory acts that are harmful to the public at large.
In 1991 economic liberalisation was introduced which was a major turning point for Indian markets in the globalised world. This meant loosening the grip of the act. The MRTP eliminated provisions such as the method of pre-entry critical examination of investment by MRTP Industries, the scope of MRTP in mergers, acquisitions, and combination, and the precondition of government permission for spreading and forming new enterprises.
In 2002, the MRTP Act was deemed outdated and unnecessary as a result of worldwide economic trends. Hence, the Competition Act 2002 was brought in to switch from ‘curtailing monopolies’ to ‘supporting competition’.
Which are the newly introduced amendments?
The current bill seeks to include the following amendments:
- To regulate mergers and acquisitions (or M&A) based on the value of transactions. Deals with transaction value of more than Rs 2,000 crore will require CCI’s approval. The Bill proposes to reduce the timeline for the CCI to pass an order on such transactions from 210 days to 150 days.
- To introduce deal value threshold as an additional criteria for notifying M&As to capture killer acquisitions in digital markets, which were hitherto falling below the notification criteria due to asset and revenue light business models of new age companies.
- The bill will provide limitation period of three years for filing cases relating to anti-competitive agreements and abuse of dominant position.
- To introduce settlement & commitment framework.
- To deepen scope of inter-regulatory consultations.
- To incentivize parties in an ongoing cartel investigations in terms of lesser penalty to disclose information regarding other cartels (leniency plus).
Deal Value Threshold
The newly introduced amendments include a deal value threshold, which will regulate mergers and acquisitions. The bill states that companies are expected to seek approval from the Competition Commission or CCI, if the deal value exceeds Rs 2,000 crore and if both companies (acquiring and the target) have substantial business operations in the country. The decision to introduce this amendment was taken as several digital mergers and acquisitions with low transaction values are often not notified to the CCI.
Definition of Cartel in India?
As of now, the Competition Act 2002 defines a ‘cartel’ as “an association of producers, sellers, distributors, traders or service providers who, by agreements amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or trade in goods or provisions of services”. Given that this is an inclusive definition, other concerted activities may also fall under the provisions on cartels.
A much awaited change
The Competition Bill says that any enterprise against whom an investigation is launched may, in accordance with Sections 48(A) and 48(B), submit a written application to the CCI for the payment of a fee against the alleged infractions.
Notably, the measure also aims to amend Section 41 of the Act, which grants the Director General authority to look into cases involving violations. The proposed law stipulates that violations are subject to punishment. The fine cannot exceed 10% of the average revenue from the previous three fiscal years, subject to certain restrictions.
The proposed changes is a welcome step in redefining the rules of acquiring firms and keeping the process transparent. Previously in the bill, it was not clear whether either or both the acquirer and the target were required to have substantial business operations in India. This could have meant that a purchaser with a large India presence making an offshore acquisition of an entity with no local nexus in India would have to take prior approval from the CCI.
Similarly, an acquisition by an offshore purchaser of an entity having substantial business operations in India may not have required a CCI approval. The bill addresses the obscurity by stating that, regardless of the purchaser’s presence in India, it is the target that must have significant business operations there.