India: Indian Competition Law Regime To Undergo A Revamp

On 5 August 2022, the Government of India tabled the Competition (Amendment) Bill, 2022 (Bill), in the lower house of the Indian Parliament. The Bill seeks to bring about significant substantive and procedural changes to the existing competition law framework, which last underwent a legislative amendment more than a decade back in 2007. Reforms to the Competition Act, 2002 (as amended) (Competition Act) have been in the spotlight since 2019, when the Government of India had constituted the Competition Law Review Committee to recommend modifications to the existing law to bring it in line with global best practices.

Some of the noteworthy changes proposed in the Bill are as follows:

Merger Control

Introduction of Deal Value Thresholds (DVT)

In addition to the existing value of asset and turnover based thresholds prescribed under the Competition Act, a new deal value threshold is proposed to be introduced. In the event the value of any transaction exceeds INR 20 billion (approx. USD 252 million or EUR 247 million) and the enterprise which is party to such a transaction has "substantial business operations in India", it would be considered a reportable transaction under the Competition Act. If none of the exemptions provided under the law apply, such a transaction would require an approval from the Competition Commission of India (CCI). While the Bill does not clarify what would constitute "substantial business operations in India", guidance is expected to follow from the CCI on the scope and import of this expression. The Bill further clarifies that the value of the transaction will include all consideration including indirect, indirect and deferred.

Our view – For years, it has been felt that transactions in various sectors, where possible competitive harm was apparent in the Indian markets, were escaping scrutiny as the thresholds provided in the Competition Act are fairly high. With the introduction of DVT, India seems to be following in the footsteps of jurisdictions such as Germany and Austria which have had DVT for a few years, leading to a mixed effect and outcome. Interestingly, the de minimis or the small target exemption remains as is for the time being. However, there is speculation that for the DVT to be effective, the de minimis exemption thresholds may also require a revision. 

Merger Review Timeline

The Bill proposes to shorten the merger review timeline in phase 1 from the current 30 working day period to a 20-calendar day period. The overall review timeline granted to the CCI under the Competition Act is also to be shortened from 210 calendar days to 150 calendar days.

Our view – It was recently announced by the Chairperson, CCI, that the regulator took an average of 17 working days to clear a transaction in phase 1. This timeline is quite short and in fact, fares much better than some of the counterparts of the CCI around the world. We believe that the shortened timeline under the Bill would add significant burden on the CCI as well as filing parties to complete the review. If CCI requests are not met, parties could risk that their filing is invalidated, and in any event, additional requests for information "stop the clock" during a merger review.

Material influence as the standard of Control

The decisional practice of the CCI has been devolving towards a standard of material influence, the lowest threshold of control. This standard has now been embedded in the Bill. In the past the CCI has considered shareholding, financing arrangements, board representation, expertise of a person to be relevant factors to evaluate existence and exercise of material influence.

Our view – The Bill simply formalizes the existing practices of the CCI captured in prior decisions. Codification of the lower standard of control also tallies with the recent non-renewal of an earlier notification issued by the government which specified the threshold of group companies at 50% ownership.  As a result of the non-renewal, if any company has a shareholding of 26% or more in another company, then both companies will form part of a single group. Previously this threshold was 50%.¹ Overall, these developments mean that the CCI will be able to cast a wider net to gain higher coverage of companies that will have to be considered for testing jurisdictional thresholds and mapping overlaps relating to parties to a transaction.

Derogation of standstill for open Market Purchases

As the Indian merger control regime is suspensory, acquirers were unable to structure open market purchases as part of an acquisition strategy without tripping the gun-jumping provisions under the Competition Act. The Bill seeks to exempt a transaction from standstill obligations if such transaction involves an open offer or an acquisition of securities through a series of transactions on a regulated stock exchange. However, the acquirer would not be able to exercise ownership, beneficial rights, voting rights, any interest in such securities or receive dividends or other distributions until the approval of the CCI for such acquisition has been procured.

Our view – Over the years, acquirers have faced gun-jumping proceedings due to the suspensory nature of the Indian merger control regime. This exemption has long been demanded by the industry and would allow transactions involving listed companies to be structured with greater freedom, to include open market purchases at the first instance.

Behavioural

Settlements and Commitments

The Bill proposes a new settlement and commitment mechanism for cases involving vertical restraints and abuse of dominance. The settlement and commitment process will not be applicable for cartel cases. Parties being investigated can provide commitments between the commencement of an investigation and the issuance of an investigation report by the Office of the Director General (DG). Settlements would be considered in the period between issuance of the DG's report and the final order of the CCI. The final order adopting the commitment or settlement would not be subject to any appeal.

Our view – The introduction of a settlement and commitment mechanism is a welcome move. Until now, if an informant had filed some information of a potential behavioural abuse, the regulator had to pass a final order on merits. The revised scheme will now allow the CCI to accept settlements and commitments with parties and close investigations quicker. This will ensure predictability, thereby minimising waiting period besides reduce the litigation costs of the parties and the CCI. While the complete mechanism has not been provided under the Bill, the essential details are expected to be provided by the CCI in its regulations including perhaps the treatment of ongoing cases.

Introduction of limitation period

The Bill seeks to introduce a period of 3 years within which an information can be filed from the date of the cause of action.

Our view – While the CCI has the power to condone delays, the introduction of a limitation period is to encourage parties to bring anti-competitive issues quickly to the fore and not as an afterthought. This will help the CCI recover evidence in a timely manner. Further, the law of limitation exists in India which makes the amendment in line with such general law of the land.

Hub & Spoke Cartels

The Bill clarifies that the CCI could proceed to initiate action against entities at different levels of the supply and distribution chains implementing a cartel arrangement. While the CCI was exercising such powers under a more broader provision, now a specific provision is proposed to be included in the law.

Our view – Facilitation of cartels through third parties such as trade associations or distributors would now be specifically covered under the law. With this, the CCI will have the power to penalize even the enablers and intermediaries serving as conduits to sustain cartels.

Leniency

The Bill proposes to make significant changes to the leniency or lesser penalty programme. The first major change proposed is the introduction of leniency plus, which allows the CCI to grant additional leniency in penalty in a situation where a party being investigated for collusive conduct makes a true and vital disclosure of another undisclosed cartel.

The Bill also allows for a leniency applicant to withdraw its application. While the CCI would not be able to use the admission of any wrongdoing by the withdrawing leniency applicant, it could use the information provided by such person as part of its investigation.

Our view – The leniency plus regime is a consequence of the successful running that the CCI has had in the leniency realm. It appears that with this amendment it only seeks to further incentivize disclosure of hidden cartels.

Other Significant Proposals

Appointment and Powers of the DG

The Bill empowers the CCI to appoint the DG as opposed to the existing position where appointment to the DG's office was made by the Central Government.

The Bill also expands the powers currently provided to the DG under the Competition Act. Going forward, the DG would be able to retain information and documents requisitioned during an investigation for up to 360 days. While the DG currently has powers of summoning and examining officers of a company under investigation on oath, the Bill also grants power to the DG to examine 'agents' (which would include legal advisors, bankers and auditors of a company) on oath.

Our view – The CCI and the DG under the current framework are required to discharge their roles and responsibilities independently, on an arms-length basis. If the DG becomes a CCI appointee, then it remains to be seen what impact this would have on the autonomy of DG's office.  Further, empowering the DG to examine advisors and auditors is arguably an excessive measure but the DG may look to use this to gather further information.  It is noteworthy that while communications between clients and accountants / auditors don't benefit from legal privilege, communications with lawyers ordinarily do.

Penalties

In addition to the above changes, the Bill also seeks to change the manner in which penalties are imposed by the CCI. The Bill directs the CCI to publish penalty guidelines for various contraventions of the provisions of the Competition Act.

The Bill also enhances penalties for furnishing false information or failing to furnish material information in merger control cases from INR 10 million (approx. USD 126 million or EUR 124 million) to INR 50 million (approx. USD 630 million or EUR 619 million).

The scope of gun-jumping provisions has been expanded to empower the CCI to penalize parties where parties do not provide information requisitioned by the CCI to evaluate whether a non-notified transaction was actually reportable.

Mandatory pre-deposit for appeals

Further, in the event an appeal to an order of the CCI is filed before the National Company Law Appellate Tribunal, the Bill mandates that such an appeal would be entertained only post deposit of 25% of the penalty amount.

Conclusion

The changes proposed in the Competition Act by the government are far reaching. While some of the amendments proposed are progressive, some would impose significant administrative burden on the CCI as well as increase the compliance costs and measures of the parties involved. It is expected that if the Bill is passed, there would be further clarity on the broad mechanisms being introduced by the Bill through the regulations which would be amended by the CCI. Further, the mandate of the CCI to invite public comments on proposed regulations are expected to result in increased transparency and dialogue to help develop comprehensive and pragmatic regulations.

Footnote

1 See also, Paku Khan, Soham Banerjee and Siddharth Bagul, "Expansion of "group" in India: new notification needed to aid ease of doing business", available on https://www.lexology.com/commentary/competition-antitrust/india/khaitan-co/expansion-of-group-in-india-new-notification-needed-to-aid-ease-of-doing-business

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