Tracking the Competition (Amendment) Bill, 2022
Axiom5 tracks the Amendment Bill as it moves through the Parliament and Standing Committee to become law
The Competition (Amendment) Bill, 2022 (2022 Bill) marks the first time we have come close to an overhaul of Indian competition law since 2009. As you can imagine, the competition law world is abuzz with the possibilities - there’s a lot that will change and a lot at stake both for the regulator, the Competition Commission of India (CCI), businesses operating in India and the Indian consumer.
We’re putting out a series of blog posts tracking the 2022 Bill and offering our insights on some of the most contentious issues it raises. Follow along and feel free to share your thoughts and questions!
The 2022 Bill was been tabled in the Monsoon session of the Parliament, and proposes significant changes to the Competition Act, 2002 (Competition Act).
The 2022 Bill replaces the Competition Amendment Bill, 2020 (2020 Bill). We set out below a summary of the most significant amendments.
Leniency and Leniency Plus
The CCI’s Structure and Functioning
Composition of the CCI: Contrary to the recommendations of the CLRC and the 2020 Bill’s proposal to create benches and a Governing Board, the 2022 Bill retains the existing structure of the CCI, i.e. a Chairperson and between 2-6 Members. However, the 2022 Bill removes the Chairperson’s right to a “casting vote” in Section 22(3) of the Competition Act.
Transparency: The 2022 Bill now introduces a positive obligation on the CCI to “ensure transparency while making regulations” by publishing draft regulations for public comments. There are two exceptions to this obligation:
the regulations are required to be made or amended “urgently in the public interest”; or
the regulations pertain “solely to the internal functioning of the Commission”.
In such instances, the CCI may create or amend regulations without following the procedure for public consultation, but must “...record… the reason for doing so.”
Guidelines: The 2022 Bill empowers the CCI to publish “guidelines” (as distinct from rules or regulations).
The CCI may issue guidelines of its own accord or on “a request made by a person”.
Notably, the guidelines are not binding on the CCI, its Members or its officers.
Mandate for penalty guidelines: The 2022 Bill includes a specific obligation on the CCI to publish guidelines for the appropriate amount of penalty for any contravention of the Competition Act. It requires the CCI to consider these guidelines when imposing a penalty under Section 27, Section 43A or Section 48. The CCI must provide reasons if it chooses to diverge from the penalty guidelines.
Introduction of Commitments and Settlements
The Competition Act does not currently provide for a commitments or settlement mechanism; the CCI must deal with every complaint before it on the merits. The 2022 Bill introduces two mechanisms - commitments and settlements - to address this issue.
Commitments: The 2022 Bill introduces a commitments system, by which an enterprise being investigated may offer commitments in respect of the alleged contraventions being investigated by the CCI. Enterprises may offer commitments after the initiation of a DG investigation but before receipt of the DG’s report.
Settlements: The 2022 Bill also introduces a settlements mechanism, by which an enterprise being investigated may apply to settle proceedings initiated by the CCI. Enterprises may seek to settle proceedings after receipt of the DG’s report but prior to the issuance of an order by the CCI.
No appeal: Notably, CCI’s orders affirming settlements and/or commitments are not appealable to the National Company Law Appellate Tribunal (NCLAT).
Leniency and Leniency Plus
The 2022 Bill introduces new sub-clauses in Section 46 that:
allows parties to withdraw its leniency application (within the framework of regulations that the CCI must create for this purpose).
permits the DG and the CCI to use evidence submitted by parties in withdrawn leniency applications, “except its admission”.
allows the CCI to grant a lesser penalty to a party that provides evidence of its
participation in a distinct cartel, if the CCI is able to initiate an investigation into the distinct cartel on the basis of such evidence (referred to as “Leniency Plus”)
Deal Value Thresholds
The definition of “combination” under Section 5 has been widened to include a deal value threshold of INR 2000 crores or more, where either party has substantial business operations in India. Any transaction that meets this threshold requires mandatory notification to the CCI and may not be given effect to, until CCI approval is received or the statutory waiting period lapses.
This is distinct from the 2020 Bill, which merely set out a proviso that allowed the Central Government in consultation with the CCI to create additional categories of transactions that may be deemed to be combinations.
The 2022 Bill requires the CCI to define “substantial business operations in India” through regulations.
The definition of “control” has been modified to include “the ability to exercise material influence…over the management of affairs or strategic commercial decisions”.
This gives statutory recognition to the CCI’s recent practice, which has adopted the material influence standard, which is a lower standard than the more widely adopted “decisive influence” standard.
Anti-competitive Agreements: Expanded Scope
The Competition Act currently prohibits anti-competitive agreements between enterprises at the same level of the production chain or at different levels of the production chain.
The 2022 Bill clarifies that agreements that do not fall within either category will also be subject to scrutiny under the Competition Act - this could include unrelated third parties who may be involved in facilitating the anti-competitive conduct under investigation.
Similarly, with respect to cartels, the 2022 Bill seeks to widen the scope of application of Section 3(3), clarifying that an enterprise that is not engaged in identical or similar trade shall also be presumed to be part of the agreement if it participates in the agreement.
Specifically on vertical agreements, the 2022 Bill excludes agreements between enterprises and end-users from the ambit of vertical agreements.
The IPR Exemption
The 2020 Bill expanded the scope of the exemption for protection of intellectual property rights under Section 3(5) (IPR Exemption) to conduct under Section 4 of the Competition Act as well. This amendment is not reflected in the 2022 Bill.
The 2022 bill, however, has broadened the ambit of the IPR Exemption - it introduces a catch-all provision under Section 3(5) of the Competition Act to include “any other law for the time being in force relating to the protection of other intellectual property rights”.
Factors affecting “AAEC” Assessment
The Competition Act listed “foreclosure of competition by hindering entry into the market” as a factor to be considered in determining whether an agreement causes an appreciable adverse effect on competition (AAEC). The 2022 Bill has recommended the removal of “by hindering entry into the market”. As a result, the CCI will now consider foreclosure to existing competitors in the market, as well.
Limitation Period for Competition Cases
The Competition Act contained no time limit for filing an information, statutory reference, or initiating an inquiry on its own. The 2022 Bill prohibits the CCI from entertaining information or reference unless it is filed within 3 years from the date on which cause of action has arisen, unless the CCI is satisfied that there was sufficient cause for not filing the information or reference earlier.
Expanded Powers to the DG
The 2022 Bill formally introduces a positive obligation on parties (i.e. “all officers, other employees and agents of a party”) to preserve and produce documentary evidence in their custody or power; and to give “all assistance in connection with the investigation” to the DG.
Notably, the 2022 Bill defines “agents” to include legal advisors. Agents or Officers includes not only individuals presently serving, but also past employees, agents or agents.
Merger Notification Procedures
The 2022 Bill formalises some aspects of merger control that had already been adopted in practice at the CCI.
Green Channel filings: The 2022 Bill introduces new sub-sections (4)-(7) of Section 6 formalise the Green Channel route for deemed approval.
Once a filing is made and acknowledged by the CCI, it is deemed approved.
The 2022 Bill introduces a fall-back, that allows the CCI to re-open Green Channel approvals if the information provided by parties is incomplete or materially incorrect. In such cases, “the approval…shall be void ab initio and the Commission may pass such order as it may deem fit”, after hearing the parties to the combination.
Notification of Open Market Transactions: The 2022 Bill introduces a new Section 6A, that sets out the procedure for notification of open market share acquisitions. There is now a slightly modified standstill obligation on “the exercise of ownership or beneficial rights or interest in such shares or convertible securities, including voting rights and receipt of dividends or any other distribution” until CCI approval is received.
Timelines for merger approval: The 2022 Bill reduces the overall timeline for merger approvals to 150 calendar days from 210 days.
It also introduces a proviso, statutorily recognising “clock stops”, i.e. the time
taken by the parties to “furnish relevant information” or “remove defects” in the merger filing. This proviso introduces an outer limit of 30 days for such clock stops. The CCI may extend the 150-day period by another 30 days, if the parties request for additional time.
The 2022 Bill mandates that the CCI must issue its prima facie opinion on a merger notification within 20 days. Currently, the CCI has no such statutory obligation and may clear transactions in Phase I on a best efforts basis (per the Merger Regulations).
We have a more detailed comparison of the current Competition Act, with the 2020 Bill (based on the CLRC Report) and 2022 Bill here.
Please feel free to share your thoughts and comments!