The Standing Committee's Report on the 2022 Bill
The Standing Committee's Report on the 2022 Bill
Tracking the Competition (Amendment) Bill, 2022 (Part 2)
The Report of the Standing Committee on Finance (2022-23) (Standing Committee Report), presented to the Lok Sabha and laid in Rajya Sabha on 3 December 2022, contains deliberations on 9 issues contained in the Competition (Amendment) Bill, 2022 (2022 Bill), which recommended amendments to the Competition Act, 2002 (Competition Act).
See our analysis of the 2022 Bill here.
In this post, we take a closer look at the deliberations before the Standing Committee, which included comments from stakeholders, the Competition Commission of India (CCI) and the Ministry of Corporate Affairs (MCA) and the Standing Committee’s recommendations.
Issue 1: Deal Value Thresholds
The 2022 Bill proposed that a deal value threshold (DVT) be introduced in addition to the size of parties thresholds that already exist in the Competition Act. Deals of above INR 2000 crores (approx. USD 308 million) would be notifiable to the CCI, if either party had “substantial business operations” in India.
What Stakeholders said:
Submissions against the introduction of the provision
The provision contemplating the introduction of a DVT should not be inserted.
Applying the same transaction value threshold across industries would be burdensome for companies as well as the regulator.
Transaction value is not a determinative factor in assessing effect on competition.
The CCI will have to review several transactions which are not likely to cause any harm to competition.
The CCI may consider introducing sector-specific thresholds through regulations, instead of the current formulation (as proposed by the Competition Law Review Committee (CLRC)).
Other submissions
Detailed guidance is required on:
The sector/s intended to be regulated through the deal value threshold
The meaning of “substantial business operations in India”
The scope and calculation of “value of any transaction”
Clarification on the applicability of the current de minimis thresholds to transactions to which the deal value threshold applies.
What the MCA said:
Transaction thresholds have been adopted by other jurisdictions – such as Germany and Austria - with a view to protect innovation and competition in a landscape driven primarily by new technology.
The value of transaction criteria would be amended every 2 years, under Section 20(3) of the Competition Act, to ensure the threshold is appropriate to market realities.
A combination only will have to be notified if (A) transaction value exceeds Rs. 2000 crore and (B) has substantial business operations in India. The local nexus criteria need not be prescribed through Competition Act; “substantial business operations” will be well-defined through regulations.
De minimis shall not apply to those transactions that are covered by DVT.
The Standing Committee recommended:
The uncertainty in terms in the 2022 Bill may require review of transactions unlikely to cause adverse effects on competition.
The proviso should be amended to require the manner of calculation of transaction value through regulations.
The proviso must specify that “enterprise” means party being acquired.
The local nexus condition should be defined in the Competition Act, and not in regulations, to ensure predictability and certainty. (Note, however, that this change is not reflected in the Standing Committee’s rephrasing of Clause 15 of the 2022 Bill).
Section 20(3) of the Competition Act may be amended to require review of assets, turnover, and value of transaction every year, instead of every two years.
Issue 2: Defining “Control”
The 2022 Bill introduces the lower threshold of “material influence” (as opposed to the higher “decisive influence” threshold, used in the EU) as a test to determine “control”, but does not set out parameters to determine “material influence”.
What Stakeholders said:
In keeping with international best practices, the definition of control should remain as is, i.e. the standard of “decisive influence”.
CCI must conduct a market study to analyze the impact of “material influence”.
The Competition Act should adopt the definition of “control” in other statutes.
What the MCA said:
The harmonisation of the definition of “control” with other statutes is not viable, because the definition of control in different legislations is mandate-specific.
Introducing the material influence standard in the Competition Act is suitable, as it brings certainty to the meaning of “control”.
The Standing Committee recommended:
Material influence is now a settled standard and should be explicitly defined, and the explanation of “control” under Clause 6(c) of the Competition Act should be modified to refer to “material influence, as may be specified by regulations”.
Issue 3: Merger control timelines
The 2022 Bill proposed that merger control review timelines be shortened:
Phase I - from 30 days (per the Merger Regulations) to 20 working days, failing which the merger is deemed approved.
Phase II - from 210 days to 150 days.
Clock stops - A maximum of further 30 days may be granted to remove defects or seek further information.
What Stakeholders said:
The consequences of not removing defects within 30 days must be specified.
Such significantly compressed timelines could give rise to issues, such as increased pressure on the CCI in terms of resources and bandwidth. This could lead to the opposite of the intended outcome - more requests for information (which “stop the clock” on the merger review timeline) or even invalidations of merger filings, since the regulator will not have sufficient time to comprehensively assess the filing.
What the MCA said:
The proposed amendment does not require any change.
The overall time limit for assessment of combinations is sought to be reduced to 150 days from 210 days. “Days” must be used in place of “working days”, in order to approve combinations in time.
A time frame of 20 days for Phase I review, failing which the transaction will receive deemed approval, will provide certainty to businesses.
The Standing Committee recommended:
Compressed timelines can be burdensome.
The current timelines under the Competition Act should remain: 30 days to take a prima facie view, and 210 days for the assessment of combinations.
Issue 4: DG’s powers to depose legal advisors
The 2022 Bill proposes that “all officers, other employees and agents of a party” can be called to depose before the DG during an investigation. Notably, the 2022 Bill defines “agents” to include legal advisors.
What Stakeholders said:
Forcing independent advocates engaged by parties to depose before the DG, especially on privileged discussions with their clients, may dilute attorney-client privilege. This would be in contravention of the Indian Evidence Act, 1872 as well as their obligations under the Advocates Act, 1961 and the Bar Council of India Rules.
On the other hand, if legal advisors refuse to cooperate with the DG, they risk exposure to penalties for non-compliance under the Competition Act.
The provision should exclude all legal advisors qualifying as “advocates” from this list in order to maintain consistency between the 2022 Bill, on the one hand, and various statutes and fundamental principles of legal policy and legal representation, on the other.
What the MCA said:
The provision only relates to seeking information from parties under investigation.
The Ministry of Law and Justice has vetted the provision, and determined that it does not override attorney-client privilege.
The Standing Committee recommended:
The provision allowing the DG to examine legal advisors runs contrary to attorney-client privilege and contravenes the Indian Evidence Act, 1872 and the Bar Council of India Rules.
The provision should specify that nothing in this section will be in contravention of the Indian Evidence Act,1872 or any legislation which protects attorney-client privilege.
Issue 5: Settlements & Commitments
The 2022 Bill introduces mechanisms to allow parties under investigation to offer commitments and settlements, in line with practice in other jurisdictions.
What Stakeholders said:
Settlements
There is no clarity on whether the settlement process involves an admission of guilt, and whether a settlement applicant would be protected from compensation proceedings under Section 53N of the Competition Act.
There are concerns in relation the treatment of any subsequent breach of the Competition Act. For example, it is unclear whether the presence of a settlement order would be considered an aggravating factor.
There is also no clarity on whether settlement agreements would include only monetary penalties or behavioural remedies as well.
Commitments
Before the completion of DG’s investigation, parties will not be clear on all the allegations they need to address in commitments. Therefore, there ought to be a positive obligation on the CCI to share a statement of concerns.
What the MCA said:
Settlements
The phrase “or on such other terms and manner” covers monetary penalties and behavioural remedies.
Cartels must not be included with the proposed settlement mechanism.
If there are material changes in facts, settlement and commitment orders can be revoked.
Commitments
There is no need to modify the proposed formulation in the 2022 Bill. Parties can offer commitments before they are made aware of the contents of the investigation, i.e. before receiving the DG Report.
The Standing Committee recommended:
Settlements
Parties should have the ability to withdraw settlement applications. In the event of withdrawal, the CCI shall proceed with its inquiry without any prejudice.
Cartels should also be included in the scope of settlements.
Admission of guilt should not be mandated.
There should be an enabling provision to allow the applicant to apply to the CCI to revisit the settlement/commitment after the order of the final settlement by the CCI as last resort.
Commitments
The clause permitting “any other party” to comment on commitment proposals must be removed so that secrecy of the matter is not compromised. If the CCI is to seek objections from third parties, such an obligation must be discretionary (and not mandatory).
Axiom5’s detailed analysis of the Standing Committee’s proposals is in our blog post here.
Issue 6: Hub-and-spoke Cartels
The 2022 Bill proposes that enterprises that are not competitors with cartel-participants may also be considered to have participated in the cartel if it “…actively participates in the furtherance of the [horizontal] agreement.”
What Stakeholders said:
The provision must not include an adverse rebuttable presumption, because it could lead to undue harassment of parties who gain no benefit from anti-competitive agreements.
The phrase “actively participates” is vague and could lead to misuse of the provision.
The scope of the provision should be limited to those instances where enterprises have acted with the intention to furthering a cartel.
What the MCA said:
The phrase “actively participates” aims to penalize hub-and-spoke cartels along with horizontal anti-competitive agreements.
The CCI must establish that there was active participation in furtherance of anticompetitive agreements.
Associations can rebut the presumption if they can demonstrate no appreciable adverse effect on competition.
The Standing Committee recommended:
The CLRC report had recommended that hub-and-spoke cartels be included under Section 3(3) of the Competition Act.
Given that there is lack of clarity on the meaning of “active participation” the provision may be amended to require proof of an entity’s intention to actively participate in the furtherance of an anticompetitive agreement.
Issue 7: Requirement of a Judicial Member on the CCI
The 2022 Bill is silent on the composition of the CCI, apart from introducing experience in technology as being an additional qualification for selection as a CCI Member.
What Stakeholders said:
The CCI must have a predominance of judicial members.
Despite the express direction of the Division Bench of the Hon’ble Delhi High Court in Mahindra Electric Mobility v. CCI, no judicial member has been appointed to the CCI. The presence of a judicial member will bring more fairness to proceedings.
What the MCA said:
There is no specific requirement to appoint a judicial member under Section 8 of the Competition Act. The provision indicates that a person with special knowledge of law can be considered for appointment as a member of the CCI.
The Standing Committee recommended:
Given that the presence of a judicial member in the CCI is under consideration by the Hon’ble Supreme Court, the suggestion to have a judicial member in CCI can await the final decision in Mahindra Electric Mobility v. CCI.
Issue 8: The IPR Defence in Abuse of Dominance cases
The 2022 Bill did not incorporate the CLRC’s suggestion of expanding the IPR Defence to Section 4, that relates to the abuse of dominance. At present, the IPR Defence exempts any agreements or conduct that is aimed at protecting an enterprise’s intellectual property rights (IPRs) from review under Section 3.
What Stakeholders said:
The Competition Act does not currently recognise the reasonable protection of IPRs as a valid defence in cases of abuse of dominant position.
The absence of an explicit defence could lead to conflicting determinations (between the CCI and regulators/courts) on the conduct of an IPR owner.
A defence should be allowed after noting reasonable conditions and restrictions for protecting IPRs in cases pertaining to abuse of dominance.
What the MCA said:
The IPR Defence need not be explicitly included under Section 4 of the Competition Act, as it already includes adequate defences.
The Standing Committee recommended:
As recommended in the CLRC Report, it would be desirable for the CCI to specifically take into consideration the rights that a party may have in relation to reasonable exercise of its IPRs when dealing with cases involving abuse of dominant position, to avoid any uncertainty. It proposed the introduction of the IPR Defence in a new Section 4(3).
Issue 9: Effects Test in Abuse of Dominance cases
Section 4 of the Competition Act does not expressly require the CCI to prove an appreciable adverse effect on competition when considering conduct that may be an abuse of dominant position. This was not raised in the 2022 Bill either.
What Stakeholders said:
The addition of an effects-based analysis in Section 4 of the Competition Act would facilitate more responsible, comprehensive, and reasoned decisions from the CCI, and eliminate the possibility of over-enforcement.
What the MCA said:
The current text of Section 4(2) has not proven to be a hindrance to the CCI’s ability to assess effects in abuse of dominance disputes, because the CCI has relied on the effects “built into some of the clauses”. Therefore, no amendment is required.
The Standing Committee recommended:
The Competition Act should be amended to include reference to “appreciable adverse effect on competition” in Section 4.