Significant changes proposed in the Competition Act, 2002 - the Competition Amendment Bill, 2022 introduced in the Lok Sabha

The?Competition (Amendment) Bill, 2022 was introduced by the Ministry of Finance in the Lok Sabha on 05th August 2022. The Competition Act, 2002 is being modified by the Competition Amendment Bill, 2022 to include new provisions and to give the Act and the Competition Commission the much-needed regulatory certainty it needed. The Competition Law Review Committee, an expert committee established in 2019 to review and recommend modifications in the Competition Act, served as the foundation for the proposed amendments and introduction of the Bill in the parliament. The proposed amendments will make the Competition Act adequate to deal with the ever-changing business models adopted in the digital age markets.

The Bill proposed the following amendments – ?

Enforcement - Anti-Competitive Horizontal and Vertical Agreements and Abuse of Dominance (Section 3 and Section 4 of the Act)

1.??????‘Relevant Product Market’ - The definition of "Relevant Product Market" under Section 2(t) of the Act is now proposed to be defined from supply-side substitutability based on factors such as ease of switching production and marketing. The newly added Clause (ii) in the definition of ‘relevant product market’ includes a market of all products or services that ‘the production or supply of, which are regarded as interchangeable or substitutable by the supplier, because of the ease of switching production between such products and services and marketing them in the short term without incurring significant additional costs or risks in response to small and permanent changes in relative prices’. The Bill proposed that all products/services the production or supply of which are substitutable from the supplier’s side would also form part of relevant products. Earlier, the Relevant product market only comprises of a "market of all products or services which are regarded as interchangeable or substitutable by the consumer, by reason of their qualities, pricing, and intended use”.

2.??????Hub & Spoke cartels – The proviso in Section 3(3) of the Act proposed to be expanded to also include any parties who facilitate cartels or actively participate in cartels in any capacity, such as trade groups, distributors, consultants and even any enterprise operating in any other markets that may not be actual market intermediaries. Currently, Section 3(3) of the Competition Act prohibits anti-competitive agreements between enterprises engaged in identical/similar trade of goods/services (competitors) which determines purchase or sales prices, limits or controls production, supply, markets, bid-rigging etc. The Bill proposes to widen the scope of the Competition Act to include ‘active participants/facilitators' in cartel agreements, even when such persons/enterprise is not competitors or engaged in a similar line of business. The Bill proposed that "Provided further that an enterprise or association of enterprises or a person or association of persons though not engaged in identical or similar trade shall also be presumed to be part of the agreement under this sub-section if it actively participates in the furtherance of such agreement". The Bill makes it clear that the CCI may even proceed against enterprises for allegations of cartels which are operating even at vertical levels. As all horizontal agreements are per-se illegal, judged on basis of preponderance of probability, it will be on impugned enterprises to establish the non-existence of any cartelization.

3.??????Vertical Agreements to include ‘any other agreement' – The new definition in Section 3(4) also includes "Any other form of arrangement among enterprises or persons, including but not limited to an agreement among enterprises or persons”. Further, in addition to "goods", "provisions of services" has been added in all forms of vertical agreements under Sections 3(4)(a)-(e). With the addition of the term ‘services’ in the definition of vertical agreements, all agreements in digital and technological markets will now be included under the preview of the Competition Act.

3.1.1.????Exclusion of any vertical agreement entered between an enterprise and its end-consumers - The proviso to Section 3(4) proposed to include that, ‘Provided that, nothing contained in Section 3 (4) of the Act relating to the vertical agreement shall apply to an agreement entered into between an enterprise and an end consumer’.

3.1.2.????Renaming ‘Exclusive supply agreements’ to ‘Exclusive dealing agreements’ under Section 3(4)(b) – Now, the ‘Exclusive dealing agreements’ includes ‘any agreement restricting in any manner the purchaser or the seller, in the course of his trade from acquiring or selling or otherwise dealing in any goods or services other than those of the seller or the purchaser or any other person, as the case may be’.

3.1.3.????Modification in the definition of ‘resale price maintenance’ in Section 3(4)(e) – The definition of ‘resale price maintenance’ agreement now includes ‘any direct or indirect restriction imposed by any manufacturer for its sellers/distributors on prices for reselling the goods or services’. Earlier, only “any agreement to sell goods on condition that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged”.

4.??????Settlement and Commitment - The Bill introduced provisions for "settlement" and "commitment" under sections 48A and 48B of the Act respectively for all anti-completive agreements (under Section 3) and abuse of dominance cases (under Section 4 of the Act), except cartels. This will permit the CCI to close any inquiry if the impugned enterprise offers (a) settlement (which may involve the imposition of monetary penalty on account of acceptance and settlement), or (b) commitments (voluntarily offering of certain behavioural remedies) in exchange for termination of proceedings. For cartels, the settlement and commitment will not be applicable. Further, the stage of the investigation will be critical for parties in deciding whether to offer commitments or enter into a settlement with the CCI. While before the submission of the DG report, parties may come up and offer Commitments; Settlements would be considered in the period between upon completion of the DG’s report but before the issuance of CCI’s final order. The revised scheme will now allow the CCI to close investigations quicker. The final order adopting the commitment or settlement would not be subject to any appeal. The CCI will also have the power to reject the settlement or commitment if it is of the opinion that it is “not appropriate in the circumstances”. The CCI is expected to ascertain the effect and impact of the alleged contraventions while considering settlement or commitments offered by the parties.

5.??????Revocation of the Settlement or Commitment and recovery of legal fees – Section 48C inserted in the Act which includes that, ‘If an applicant fails to comply with the order passed under section 48A or section 48B (Settlement & Commitment), or it comes to CCI’s notice that the applicant has not made full and true disclosure or there has been a material change in the facts, the order passed under section 48A or section 48B, shall stand revoked and withdrawn. Further, such enterprise shall be liable to pay legal costs incurred by the CCI which may extend to Rs. 1 crore (rupees one crore) and the CCI may restore or initiate the inquiry in respect of which the order under section 48A or section 48B was passed”. Further, Section 47 of the Act proposed to allow the CCI to recoup the legal fees in addition to the imposed fine.

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MERGER CONTROL

6.??????Assessment of combinations based on Transaction/Deal value -?the Bill added cumulative "value of transaction" as another criterion for notifying combinations to the CCI in all cases where transacting parties have "substantial business operations in India". The proposed amendment is expected to impact the enterprises operating in Technological markets which were able to avoid scrutiny under the current regime which is based on the assessment of combinations on its cumulative assets and turnover, as many times their asset and turnover value did not breach the notifiability test. Section 5(1)(d) and (e) proposed in the Bill to clarify that if the value of any transaction/deal (in connection with the acquisition of any control, shares, voting rights, etc.) exceeds Rs. 2,000 crores, such transaction/deal would be required to be notified to CCI when parties have substantial operations and local nexus in India. Further, the Bill clarifies that all considerations, including deferred, indirect, and indirect ones, shall be included in the transaction /deal value. The Bill also added an Explanation to define the terms ‘turnover’, ‘value of the transaction’, etc. The term ‘turnover' includes the “turnover certified by the statutory auditor of the relevant enterprise, based on the last available audited accounts in the financial year immediately preceding the financial year in which the notification for approval is filed with the CCI, and shall?exclude - (i) intra-group sales, (ii) indirect taxes, (iii) trade discounts, and (iv) all amounts generated through assets or business from customers outside India”.

7.??????Clarified the definition of ‘control’ in the assessment of notifiability of any combinations -?The Bill proposed modification in the definition of ‘control’ and proposed a lower degree of the level of ‘control’. Now, the definition of control includes ‘having the power and ability to exercise material influence over the management, affairs, or strategic commercial decisions of one or more enterprises over another enterprise or group’. The Bill added that the material influence of one enterprise/group over another enterprise/group should be considered while ascertaining the ‘control’ of one enterprise/group over another. Earlier, the Act defined ‘control’ only in terms of voting rights and control over the affairs or management of other enterprises/groups. In?UltraTech Cement Limited/?Jaiprakash Associates Limited [2015],?the CCI had noted that?“control is considered as a matter of degree?and includes material influence which is the lowest level of ‘control' and implies on factors which give an enterprise ability to influence affairs and management of the other enterprise including factors such as shareholding, special rights, status and expertise of an enterprise or person, board representation, structural/financial arrangements etc.”

8.??????Statements of objections and proposals of modifications - Section 29A proposed in the Act to allow the CCI to issue a Statement of Objections identifying the appreciable adverse effect in the case where the CCI is of the opinion that the combination has, or is likely to have, an appreciable adverse effect on competition; and direct the parties to explain within 25 (twenty-five) days as to why such combination should be allowed to take effect. Further, where the parties consider that such Statement of Objections (appreciable adverse effects on the competition) can be eliminated by suitable modifications, they may offer appropriate modifications to the combination along with their explanations. In case, the CCI does not accept the modification submitted by the parties, “it shall, within 7 days (seven days) from the date of receipt of the proposed modifications, communicate to the parties as to why the modification is not sufficient to eliminate the appreciable adverse effect on competition and call upon the parties to furnish, within 12 days (twelve days) of the receipt of the said communication, revised modification, if any, to eliminate the appreciable adverse effects on competition. The CCI may suo-motu propose appropriate modifications to the combination which may be considered by the parties. Provided that, the CCI shall evaluate the proposal for modification within 12 days (twelve days) from receipt of such proposal".

9.??????Reduction in overall time taken in approval of combinations: Sections 6 and 29 of the Act amended to mandate the CCI to form its prima facie opinion within a period of 20 days of receiving the combination notice, which was earlier, a period of 30 days. If the CCI does not deliver its prima facie opinion order within 20 days under Section 29(IB) of the Act, any such combination shall be deemed to have been approved under amended Section 31 of the Act. The Bill now provides a maximum of 30 days for parties to submit any additional information or correct errors in the notice. If within 20 days, the CCI finds that the notified combination does not fulfil the requirements or the information or declarations provided are materially incorrect or incomplete, the approval shall be void ab initio and the CCI may pass such order as it may deem fit after hearing the parties. Additionally, the Bill shortens the overall time for assessment of combinations and now requires completion of the investigation and inquiry and issuance of CCI’s final order to a maximum period of 150 days (5 months) from the date of the notice, which was earlier a period of 210 days (7 months).

10.????Relief from Standstill Obligations for transactions involving Open Offers (open-market stock acquisitions) or any Stock Market Purchases – New Section 6A proposed to be inserted in the Act to allow parties to file a subsequent notification to the CCI after completing the purchase for any transaction involving Open offers (open-market stock acquisitions) or the purchase of shares or securities convertible into other securities through a series of transactions from various sellers on a stock exchange. However, the purchaser/acquirer must get CCI’s approval and wait to exercise ownership, benefit rights, voting rights, or any other interest in such shares, or to receive dividends or other payments. The proposed amendment will help parties in avoiding the risk of public disclosure and price increases. In the past, stock market purchases through a series of transactions were subject to standstill obligations where parties were required to wait until the CCI has approved the transaction which sometimes resulted in public disclosures, an increase in prices of stocks and also gum-jumping penalties where parties in doubt failed to file the transaction notice with the CCI. This amendment will enable parties to complete open-market purchases, along with timely notification to the CCI and alleviate gun-jumping risks. Nevertheless, the CCI can always impose certain conditions/modifications/remedies on such transactions if it ascertains that the proposed transaction may adversely affect competition in India.

PRACTICE & PROCEDURES

11.????Filing of information by Govt Departments/Agencies - Sections 21 and 21A amended in the Act to expand the grounds on which the statutory authorities (Govt Departments/Agencies) may suo-motu refer information to the CCI on any issues relating to Competition law. Further, to allow the CCI to engage in an agreement or memorandum with a government department or statutory bodies, Section 18 of the Act has been proposed to be substituted.

12.????Three (3) years limitation period prescribed in filing any information in enforcement cases – Section 19 of the Act amended to put a limitation period of three (3) years on filing any information/reference relating to any anti-competitive agreements and abuse of dominance case. Currently, the Competition Act does not prescribe a timeline for filing a complaint with the CCI. However, now the Bill proposed the CCI not entertain any information/reference of any anti-competitive and abuse of dominance case from any enterprise/government departments beyond the period of three (3) years from the date of cause of action. However, the CCI has been allowed to condone any delay and allow the filing of information/reference after 3 years if it is satisfied with the reasons given by the parties relating to the delay in filing the information/reference.

13.????Inquiry procedures - Section 26 of the Act proposed to allow the CCI to reject any new information and issue closure orders if the CCI has previously considered the same/similar facts and issues addressed in a previous information/reference dealt by the CCI, without conducting any inquiry and issuing a final order. However, it is not certain that the right to appeal will exist in such orders with the parties. Further, the Bill allows the CCI to accept the supplementary DG reports.

14.????Recoding of expert opinion - Section 35(2) proposed in the Act allows parties to place on record any expert advice obtained from experts in the fields of economics, commerce, international trade, or any other discipline(national/international) during the inquiry proceedings at the CCI.

15.????Composition of the CCI and Qualifications of its members -?In Section 8(2) of the Act, in addition to professional expertise in economics, competition, management, and business, the appointment of members in the CCI now requires additional qualifications in the field of ‘Technology’. A similar Technological qualification has been included for the members of the selection committee constituted for the selection of CCI’s Chairperson/Members under Section 9 of the Act. Additionally, Section 12 of the Act proposed to limit the ability of the CCI’s Chairperson/Members to accept employment within two years of leaving their respective positions.

16.????Appointment of Director General and expansion of powers of investigation -??Section 16 of the Act proposed to give the CCI the powers to appoint the Director General (DG) with the prior consent of the Central Government. Under the current structure, the CCI and the DG are expected to carry out their duties independently and impartially. However, with the proposed amendments giving the CCI the authority to appoint the DG, it is expected that the DG's autonomy may be affected. Further, Section 41 of the Act proposed to clarify the process for investigations and the DG's authority to call and testify the "agents" of any impugned enterprises acting on behalf of the company for recording their statements under oath. The agents would include the bankers, auditors, legal counsel, in-house, advisors, consultants etc, in addition to the company’s employees and officers. It is interesting to note that while interactions with external counsels/advocates typically benefit from legal privilege, however, those with agents/consultants/advisors/clients etc. do not.

17.????Compoundable Offences - New section 59A inserted in the Act to provide that the offences punishable, not being an offence punishable with imprisonment only or imprisonment and fine, shall be Compoundable by the NCLAT or a court before which such proceeding is pending. Now, the informant can compromise and agree to take back the information/reference filed against opposite parties, except for information on offences punishable with imprisonment only (Sections 42 and 53Q) or imprisonment and fine (Sections 42, 43, 45).?Section 59A proposed insertion that “Notwithstanding anything contained in the CrPC, 1973, any offence punishable under Competition Act, not being an offence punishable with imprisonment only or imprisonment and also with fine, may either before or after the institution of any proceeding, be compounded by the NCLAT or a court before which such proceeding is pending”.

18.????Increase in penalty for submitting False/Incorrect information - Section 44 of the Act proposed to increase the fine for submitting false information or neglecting to provide material information in combination cases from Rs. 1 crore (one crore) to Rs. 5 crores (five crores). In addition, a provision for contempt in the event of a violation of any NCLAT ruling has been proposed to be added. Earlier, a penalty of upto Rs. 1 crore or imprisonment for up to three years, or both was the provision in case any party violates NCLAT orders/directions.

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PERSONAL PENALTY AND LENIENCY

19.????Personal liability (penalties on Key Managerial Personals) - Section 48 of the Act substituted to provide that penalties on Key Managerial Personnel (Directors, CXOs) will not be greater than 10% of their average annual income of the last three financial years. Section 27 of the Act proposed to empower the CCI to pass orders based on income.

20.????Leniency - Section 46 of the Act substituted to provide incentives for parties involved in cartels to disclose information about other cartels in exchange for reduced penalties in both cartels in terms of lesser penalty provisions. The Bill introduced ‘leniency plus’ provisions which allow the CCI to grant additional leniency to any parties under investigation in case they disclose another undeclared cartel. Further, the Bill also allowed leniency applicants to withdraw their applications. Notwithstanding, the CCI has been given the powers to use any information received through leniency application which has been later withdrawn, and in such cases, the parties who had withdrawn its leniency application would not be able to use the benefits of leniency later. The proposed amendments may offer enterprises operating in multiple markets to apply for leniencies.

APPEALS

21.????Appeal to NCLAT and Compensation application - Section 53B of the Act amended to insert a proviso allowing the NCLAT to deny consideration of an appeal unless the appellant deposits 25% of the penalty imposed by the CCI. Earlier, 10% of the penalty was the standard which also was restricted by the Hon’ble Supreme Court in 2018 in Madras Bar Association V Union Of India. The Hon’ble Supreme Court had answered the question of whether the NCLAT could dismiss the appeal itself if the condition to deposit 10% of the penalty imposed by the CCI has not been complied with. It was decided that NCLAT lacks the jurisdiction to reject the primary appeal directly. Regarding the stay of penalty order issued by the CCI, the condition of a deposit of 10% of the penalty may be imposed having an effect, at the most, on the termination of stay.

21.1.???On the compensation provisions - Section 53N of the Act proposed to permit the parties to file compensation applications after an order of the Supreme Court in an appeal against the findings of the NCLAT.

21.2.???On Contempt provisions - Section 53Q of the Act proposed to provide that contempt proceeding under section 53U may be invoked by the NCLAT if any person contraventions its orders/directions.

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The Bill is expected to be tabled for consideration in the upcoming winter session. The original text of the Competition Amendment Bill is available at the link - https://164.100.47.4/BillsTexts/LSBillTexts/Asintroduced/185_2022_LS_Eng.pdf