On 11th April 2023 the President of India gave her assent to the Competition Amendment Bill, 2023 (Amendment Act) which substantially overhauls the existing Competition Act, 2002 (Competition Act). Notably, the ground-work to revamp the Competition Act began in 2018 with the formation of the Competition Law Review Committee which was set up to recommend changes to the Competition Act with an aim of creating a more robust and effective competition regime. Thereafter, on 29th March 2023 and 3rd April 2023, the Lok Sabha (i.e., the lower house of the Indian parliament) and Rajya Sabha (i.e., the upper house of the Indian parliament) respectively, passed the Competition Amendment Bill, 2023. This process of modifying the Competition Act has almost reached fruition, with the various provisions of the Amendment Act now awaiting Government notifications to come into force. Set out below is a brief overview of the key changes to the Indian competition regime as contemplated in the Amendment Act.  

Deal Value Thresholds

One of the most significant changes to the Indian merger regime is the introduction of a new ‘Deal Value Threshold’ for determining whether a transaction needs to be notified to and obtain the approval of the Competition Commission of India (CCI). As such, mergers, amalgamations, or acquisitions of control, shares, or voting rights (i) where the value of the transaction exceeds Rs 2000 crore (~ USD 243.36 million); and (ii) the target enterprise has substantial business operations in India will now need CCI approval irrespective of whether the target entity involved can avail the benefit of the existing small target/ de-minimis exemption.

While the Amendment Act does clarify that ‘value’ of a transaction will include direct, indirect and deferred consideration, it does not provide clarity on the threshold to be adopted to determine whether the target has ‘significant business operations in India’ which is slated to be specified in subsequent regulations.

Merger Review and Notification Timelines

The Amendment Act has reduced the CCI’s overall merger review and approval timeline from 210 days to 150 days and further introduces a mechanism for deemed approval of notified transactions if the CCI does not come to any prima facie findings within 30 days of receiving a notice. Consequently, there have also been proportionate reductions in the timelines for each individual step of the CCI’s review process to accommodate for the overall expedited review timeline of 150 days.

As a result of these expedited timelines and changes to references of ‘working days’ to ‘days’, it is likely that both, the CCI while reviewing and approving transactions, and the notifying parties while responding to the CCI’s queries will have to deal with significant time constraints. As such, it will be integral for notifying parties to engage with the CCI early in the transaction process, through the existing pre-filing consultation framework, to avoid rejections and invalidations of notices during CCI review.

Transactions Taking Place on a Regulated Stock Exchange

Open offers taking place in accordance with the provisions of the SEBI Takeover Code and acquisitions of shares or convertible securities taking place on regulated stock exchanges can be implemented without having to strictly adhere to the ‘stand-still’ obligation mandated in the Competition Act. However, such transactions would need to broadly adhere to the following conditions: (i) until the CCI approves such acquisitions, the acquirer should not exercise any ownership or beneficial rights or interest in such shares or convertible securities (including voting rights and receipt of dividends or any other distributions), except as may be specified by regulations; and (ii) the notice of the acquisition should be filed with the CCI within such time and in such manner as may be specified by regulations.

This carveout from the standstill obligations of the Competition Act and consequent deviation from the suspensory nature of the merger regime which mandates that transactions(or steps thereof),that are subject to CCI review, cannot be consummated until (i) CCI approval has been obtained; or (ii) a review period of 210 calendar days (now 150 days) has elapsed, should help navigate some of the practical hurdles faced by such open market transactions on account of their price and time sensitivities. That said, the success of these changes will depend on the manner in which they are implemented through the proposed regulations that will govern such transactions.

Mechanism for Commitments and Settlement

The Amendment Act introduces a commitments and settlements mechanism for proceedings initiated against alleged contraventions of the Competition Act relating to abuse of dominance and anti-competitive vertical agreements. Notably, aggrieved parties will now be able to voluntarily approach the CCI through a ‘Commitment’ application at any time prior to the receipt of the report of the investigative arm of the CCI (i.e., the Director General of Investigation (DG)); on the other hand, ‘Settlement’ applications can be made after the parties receive the DG report but before CCI reaches its final decision. At the time of considering a proposal for a commitment or settlement, the CCI will give the parties, the DG and/or any other third party, an opportunity to be heard before passing its final order, which shall not be appealable.

These developments, which are in keeping with global best practices, would help avoid long and difficult litigations while letting the CCI and DG use their resources optimally. That said, it remains to be seen how the commitments and settlements processes will be enforced once the relevant regulations setting out their framework for implementation are put in place.

Hub and Spoke Cartels

The Amendment Act expands the scope of the Competition Act’s existing provisions relating to anti-competitive horizontal agreements to include any entity that ‘participates or intends to participate in furtherance of such agreements’. As such, by addressing the limited scope of anti-competitive collusion (as presently set out in the Competition Act) and widening it to include all players who participate in or facilitate such activities, the Amendment Act allows the CCI to also assess anti-competitive coordination taking place through hub and spoke arrangements (e.g., collusion through trade associations) under the cartel provisions of the Competition Act.

That said, presently there is no standard assessment for determining ‘intention’. Accordingly, it will have to be seen if the CCI provides further clarifications, through notifications or regulations, regarding the interpretation of this term and standard of proof required for prosecution.

Leniency Regime

The Amendment Act has introduced certain important changes to the existing leniency /lesser penalty regime which presently only allows for the first three leniency applicants to avail the benefit of a lesser penalty. As per the Amendment Act, if a party being investigated for violations pertaining to anti-competitive agreements, files a leniency application with respect to cartel ‘A’ (that is under investigation) but also discloses information that is vital to the discovery and prosecution of another cartel ‘B’, then the said leniency applicant will have the right to claim for reduced penalty with respect to both the cartel ‘A’ and the newly disclosed cartel ‘B’ investigations.

The changes introduced are a step in the right direction to provide the CCI with efficient tools to detect cartels and will also help incentivise India Inc. to adopt a competition compliance culture. That said, the efficacy of these changes to the leniency regime will depend on the framework set out in the regulations that are proposed to be introduced in this regard.

Other Important Changes

Three Year Limitation Period – The CCI has been barred from entertaining any matter in relation to anti-competitive agreements or abuse of dominance violations unless the information relating to the same has been filed within three years from the date of the cause of action. That said, the CCI has the discretion to take up such matters after the three year time period lapses, if it is satisfied that there was sufficient cause for the delay and its reasons are recorded in writing.

DG’s Powers of Investigation – The scope of DG's powers to investigate contraventions under the Competition Act have been widened to allow the DG to examine ‘agents’ of the party being investigated which include such entity’s bankers, legal advisors, and auditors. Further, the Amendment Act also sets out the manner in which the DG must handle documents in its custody and the process that must be adopted while conducting search & seizure operations.

Global Turnover for Penalty Calculations – Turnover based penalty calculations, relating to anti-competitive agreements and abuse of dominance violations, will need to be calculated on the basis of the relevant entity’s ‘global turnover’ derived from all its products or services.

Definition of Control – The definition of control has been amended to align it with existing decisional practices of the CCI which presently adopts ‘material influence’ over the management, affairs or strategic commercial decisions of an enterprise as the minimum threshold for control.

Penalties–The maximum penalty that can be imposed for omission of material information and submission of false statements has been increased from Rs 1 crore (~USD 121,0000) to Rs 5 crores (~ USD 600,000). Further, failure to respond to a requisition of the CCI asking for information to evaluate whether a transaction is notifiable, can attract a penalty of up to 1% of the turnover, assets or value of the transaction, whichever is higher.

25% of Penalty to be Deposited – Parties who want to appeal a decision of the CCI before the National Company Law Appellate Tribunal will be required to deposit 25% of the penalty amount ordered by the CCI as a condition to such appeal being entertained.

Conclusion

The Indian competition regime is at the cusp of major reform. The changes set out in the Amendment Act provide the CCI with the tools to effectively address changing market realities and commercial dynamics. However, in order to effectuate these changes set out in the Amendment Act, the existing body of regulations will also need to be supplemented with new or amended regulations and guidelines as contemplated in the Amendment Act. Consequently, in the near future this regime is also poised to see new regulations and /or guidelines inter-alia relating to (i) the calculation of appropriate amount of penalty for contravention of provisions of the Competition Act; (ii) the settlement and commitments process; (iii) open market transactions; (iv) the determination of ‘substantial business operations in India’ for the purposes of the deal value thresholds; (v) the leniency applications for disclosing cartels that are not being investigated; and (vi) the manner in which modifications can be proposed by the parties under the merger control process.

Co-authored by Zenia Cassinath (Principal Associate) and Vrinda Gundam (Associate)