Last week, the government of India introduced the Competition (Amendment) Bill, 2022, in the Lok Sabha. The Bill is a culmination of the amendments recommended by: (i) the Competition Law Review Committee in 2019; and (ii) public stakeholders’ feedback on the draft Competition Amendment Bill, 2020, in early 2020, to inter-alia overhaul the merger control and antitrust provisions of the Competition Act. If it becomes law, it will update the Competition Act, providing it with more teeth and flexibility, in line with the changing economic and business reality.
I. Merger control provisions:
The Bill proposes to introduce a new criterion to determine whether any acquisition or merger will require mandatory notification to the Competition Commission of India (CCI), i.e., a ‘deal value’ threshold. As such, the CCI will now be able to review transactions where: (i) the global deal value is in excess of ₹2,000 crore ($250 m); and (ii) either party has ‘substantial business operations in India’; provided no exemption is available. The test to determine whether a party has ‘substantial business operations in India’ will be laid down in the regulations to be issued under the Competition Act.
The current framework prescribes only asset value and turnover based thresholds for mandatory notification to the CCI, hence, many transactions in the digital markets have escaped the CCI’s scrutiny owing to the low turnover generated by the target company. The introduction of ‘deal value’ threshold is in line with the international best practices and will bring a number of such transactions involving ‘asset lite’ and ‘low revenue’ technology start-ups under the CCI’s scrutiny.
However, in order to exclude benign transactions, it is important that the regulations, in addition to laying down test to determine ‘substantial business operations in India’, also specify: (i) the sectors/industries to which it will apply; and (ii) methodology for computation of ‘deal value’ (especially for transactions which involve share swap).
Reducing the timeline
The Bill proposes to expedite the merger review timelines by reducing the timeline for CCI’s: (i) formation of prima facie view, i.e., whether a transaction raises competition law concerns or not (from 30 working days to 20 calendar days); and (ii) formation of final view, i.e., approving/ modifying/ disapproving a transaction (from 210 calendar days to 150 calendar days, extendable by 30 calendar days). While this proposal appears to be a business-friendly approach and in line with the Government of India’s motto of ‘ease of doing business’, it may increase the pressure on the CCI which in turn may result in an added burden on the parties. It is likely that the CCI will now only accept merger notifications that are complete and accurate to prevent issuance of any request for information which may result in longer timelines. Hence, the parties will now necessarily have to undertake pre-filing consultations with the CCI to ensure that the merger notifications are not invalidated.
Widening scope of control
The Bill proposes to widen the scope of control to the lowest standard of ‘control’, i.e., the ability to exercise ‘material influence’. The existing framework defines ‘control’ as controlling the affairs or management of a company. Given the wide scope for interpretation, the CCI had initially interpreted ‘control’ as the ability to exercise ‘decisive influence’. However, recently the CCI adopted a more comprehensive definition of ‘control’, comprising de facto control, de jure control and material influence. Thus, the proposal seeks to codify the prevailing practice and also bring certainty to the definition of ‘control’ under the Competition Act. Further, while the threshold for determining ‘control’ under the current framework is already lower than prescribed under the Companies Act, 2013 and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (i.e., the takeover code), upon passing of the Bill, the disparity will increase further.
Additionally, it appears that the Bill does not propose to make any corresponding amendment to the ‘control’ limb of the definition of ‘group’. Hence, this may have far reaching consequences for: (i) mapping of overlaps between parties for competition assessment; (ii) computing thresholds for determining notifiability to the CCI; and (iii) availability of the intra-group exemption.
In August 2019, the CCI introduced a green channel route for transactions that do not involve any form of overlaps, granting them ‘deemed approval’ on the date of filing a simplified merger notification. The Bill proposes to codify this mechanism in the Competition Act itself and further empower the CCI to bring additional types of transactions within the ambit of the green channel route. This is a welcome step as it will enable the parties to non-problematic mergers and acquisitions to obtain faster approvals.
The merger control regime in India is suspensory in nature and prescribes a standstill obligation, whereby the parties to a transaction are not permitted to consummate any part of a transaction till receipt of the CCI’s approval. Recognizing that such a blanket prohibition is onerous, the Bill proposes to exempt transactions involving open market purchases and other transactions on a regulated stock exchange from the standstill obligations of the merger control regime provided: (i) the transaction has been timely notified to the CCI; and (ii) the acquirer does not exercise any ownership/ beneficial rights/interest in such shares or securities. Thus, the proposal, in line with the Government of India’s motto of ‘ease of doing business’, seeks to dilute the standstill obligations on listed companies in order to ease their regulatory burden.
Given that the current framework prescribes only asset value and turnover based thresholds for notification of a transaction, the CCI has the power to penalize the parties up to 1% of the total assets or turnover, whichever is higher, for gun-jumping (i.e., consummating a notifiable transaction (in full/ part) without prior approval of the CCI or until the lapse of 210 days from the date of notification).
II. Anti-trust provisions:
Hub-and-spoke cartels:Under the current framework, only horizontal anti-competitive agreements (i.e., agreements between competitors) are presumed to have an appreciable adverse effect on competition. Recognizing that all anti-competitive agreements may not fall within the current pigeon-hole provisions of the Competition Act, the Bill proposes to extend the scope of cartels by bringing hybrid anti-competitive agreements (such as, hub and spoke cartels) within their ambit. This will enable the CCI to treat cartel facilitators at par with cartel participants—in line with international best practices.
Commitments and settlements: The Bill proposes to introduce a mechanism for commitments and settlements, enabling the parties to apply to the CCI to propose commitments or settlements in anti-trust cases (except in cartel cases). As such, the parties can propose commitments at any time after an investigation has been initiated but before the CCI’s investigative arm i.e., Director General’s (“DG”) investigation report is issued, whereas settlements can be offered after the DG’s investigation report is issued but before the CCI issues its final decision. The order accepting commitments or settlements can be revoked if the applicant does not make full and true disclosures, or if there has been a material change in the facts.
Other amendments include widening the powers of the Commission (appointment of DG, right to call information from third parties and keep documents for 360 days), and introduction of a limitation period of three years from the date of cause of action for filing of information or reference with the CCI, in relation to anti-trust violations.
The Competition Act has been in force for over 10 years; the amendments keep the provisions up to date with the current market realities. These amendments are a welcome change, which will: (i) ensure swift correction of anti-competitive behaviour and practices in the market; (ii) spare willing and legally compliant companies to face the rigours of an extensive CCI investigation; and (iii) ease the pressure on the CCI’s resources.
Even though the objective of these amendments is to ensure a business-friendly approach and in line with the Government of India’s motto of ‘ease of doing business’, the exact mechanism for implementation of certain amendments (such as, deal value thresholds, commitments and settlements, etc.) remain uncertain. The smooth implementation of these amendments will depend on the regulations issued by the CCI in due course to iron out the details.
(The authors are lawyers with IndusLaw, a law firm)