A number of industry and trade bodies have expressed concerns against certain provisions of the Competition (Amendment) Bill, 2022 which is pending examination and report before the Parliamentary Standing Committee on Finance.
They have, among other things, demanded withdrawal of a provision on compulsory pre-deposit of penalty for effecting an appeal before NCLAT, describing the 25 per cent level as “confiscatory” in nature.
The representatives of industry associations also deposed in-person before the parliamentary panel in the first week of November whereafter the panel decided to call MCA and CCI officials to seek clarity on the issues red -flagged by the stakeholders. The panel scheduled its last sitting on November 29 when evidence of officials of MCA was recorded.
Compulsory Pre-Deposit of Penalty
The Bill makes a substantial change to the existing Competition Act by providing that no appeal shall be entertained by the National Company Law Appellate Tribunal (NCLAT) against the order of CCI unless the appellant has deposited twenty-five per cent of that amount.
The industry has raised concern on the proposal by pointing out that the first appeal is a statutory right and such a rigorous stipulation of pre-deposit chips away at the right of the parties’ filing appeal.
Considering that penalties by CCI are huge, twenty-five per cent pre-deposit is “confiscatory” in nature.The industry bodies have urged the panel to delete the provision and to continue the existing scheme whereby Appellate Tribunal has the discretion to stipulate or not to stipulate any sum as a pre-condition for admission of appeals.
Presently, NCLAT requires pre-deposit of ten percent of the penalty amount at the admission stage and in some cases even this is not insisted upon considering the financial health of the parties.
Settlement – Admission of Guilt?
The industry representatives have also highlighted ambiguity in the law on the aspects of admission of guilt as a necessary condition for filing settlement and commitment applications. The Bill for the first time in the Indian competition regime introduces settlement and commitment mechanism by enabling parties to offer commitments or otherwise settle the matter by making applications to CCI. However, the Bill is ambiguous as to whether admission of guilt is a condition precedent for making such applications. Industry has highlighted this aspect as any insistence by CCI on admission of guilt may expose the entities to compensation claims which may be filed by the aggrieved parties. This may not encourage the parties to make such applications and the whole proposal will become non-starter.
Deal Value Threshold too vague
The Bill proposes for introduction of deal value threshold of ₹2000 crore as an additional criterion for notifying Mergers and Acquisitions (M&As) to CCI for approval, provided that the enterprise which is a party to the transaction has such substantial business operations in India.
Presently, jurisdiction of the CCI is limited to M&A transactions that meet the asset/turnover threshold specified in the law. Thus, a regulatory gap was observed in the regime which necessitated introduction of an additional notification criteria such as deal value to capture killer acquisitions in new age markets which do not meet the traditional thresholds of assets and turnover.
The industry has pointed out that the Bill does not provide any guidance as to the meaning of “significant business operations in India” and also does not clarify as to whether this applies to the acquirer or the target. In the absence of clarity on these aspects, companies run the risk of being liable for gun jumping by CCI (i.e. for not notifying M&As transactions to CCI) as it has been completely left for the subjective satisfaction of CCI as to what constitutes significant business operations.
The final report is likely to be submitted by the Standing Committee to the Parliament before 7 December. The Bill is expected to be taken up for consideration and passage in the upcoming winter session of Parliament, which is commencing on December 7.