Expands scope . Competition Bill: House Panel recommends radical changes

The Parliamentary Standing Committee on Finance has suggested overarching and fundamental changes to the Competition Bill, including tweaks to the ‘deal value threshold’ provision that seeks to bring Big Tech’s offshore M&A deals (with proven India nexus) under CCI’s merger control regime.

Other changes recommended are bringing cartels within the scope of settlement and commitment provisions; explicitly defining “material influence” for control purposes; retaining current timelines for merger approval and prima facie opinion by CCI, and expressly mandating CCI to undertake an effects-based analysis while determining abuse of dominance.

The Panel headed by Jayant Sinha, tabled its nearly 60-page report in the Lok Sabha on Tuesday.

If these changes were to be accepted, the entire amendment Bill would have to be re-written, say competition law experts. 

Deal Value Threshold

The Bill has introduced deal value threshold as an additional criterion to capture killer acquisitions with local nexus in digital markets, which have so far not been covered by the notification criteria due to the asset and revenue-light business models of new-age companies. The panel has, however, noted that the Bill does not provide any guidance on how deal value is to be calculated and agreed with stakeholders that this may create uncertainty and could potentially bring transactions under the merger control regime. Clarity should be provided that deal value relates to the value of the target. Further the ‘local nexus’ condition should not be left to CCI to decide, instead, it should be provided in the statute itself. 

‘Control’ to be defined by CCI

The Bill has proposed a lower threshold of ‘control’ in terms of material influence, i.e., the ability to exercise material influence, in any manner, over management or affairs or strategic commercial decisions. The panel has observed that material influence is the lowest and weakest standard of control, which is a settled standard across jurisdictions. However, it has recommended that the same needs to be defined through regulations by CCI. 

Existing timelines for merger approvals to continue

The Bill has proposed a reduction in the overall time-limit for approval of M&As from 210 days to 150 days, and also obligated CCI to form a prima facie opinion within 20 calendar days. In a significant departure from the proposal, the Committee has observed that the reduced timelines will put CCI in a difficult and onerous position. The Committee noted that shorter timelines can be burdensome for an already understaffed CCI. Accordingly, it has recommended that ‘…the current prima facie opinion timelines and that of passing of the order for approval of combinations, should remain unchanged’.

Power of DG to examine Legal Advisers 

The panel agreed with the stakeholders that allowing the Director-General (DG) to examine legal advisers on oath will go against attorney-client privilege and was in contravention of the Indian Evidence Act, 1872 and the Bar Council of India Rules, which apply to external or independent advocates. The panel, however, clarified that legal advisers employed by a company or firm will be included within the definition of officers and other employees and agents of the parties being investigated, who can be examined on oath by the DG. 

Settlement and Commitment 

Expanding the scope of settlement and commitment mechanism, the panel has brought cartels under the proposed mechanism, which were originally excluded in the Bill. It observed that admission of guilt should not be mandated for an application for settlements and commitments. The Committee also recommended an enabling provision to allow applicants to apply to CCI to revisit the settlement/ commitment after the order of final settlement by CCI as one last opportunity. 

Hub-and-spoke cartels – Big relief for Big Tech 

The Bill has expanded the scope of cartels to include hub-and-spoke arrangements implemented by entities involved at different levels of the value chain. 

However, in a huge relied to digital platforms, the Committee noted that there was no clarity on the meaning of ‘active participation’ in the hub-and-spoke agreement, which could potentially cover entities merely providing intermediation services in digital markets. Accordingly, it has recommended addition of “intention” to active participation for invoking such clause. 

Effects-based test   

In a far-reaching recommendation, the committee noted that the law does not expressly mandate CCI to undertake an effects-based analysis while determining abuse of dominance and has, accordingly, recommended changes in the law to provide for such analysis by proposing suitable amendments.  

Other recommendations

The panel recommended Intellectual Property Rights (IPR) exemption to abuse of dominant position cases, as well as on the lines of recommendations made by the Competition Law Review Committee. The CCI will now be obligated to consider an IPR exemption plea taken by dominant undertakings. Currently, IPR exemption was available in respect of anti-competitive agreements only. 

On the issue of whether a judicial member should form part of CCI, the Committee noted that the said issue is sub judice before the Supreme Court of India and, therefore, any decision in this regard has to await the outcome of the case.

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