By Shivanand Pandit
It has been more than 20 years since India’s market watchdog—the Competition Commission of India (CCI)—was conceived with the enactment of the Competition Act, 2002. Since then, rapid economic progress and transformation in market performances have demanded a re-look at the legal framework.
The move to finetune the law started in 2018, with the appointment of the Competition Law Review Committee (CLRC). The CLRC suggested comprehensive changes to launch a competition law 2.0, which would empower the CCI to tackle contemporary concerns, and many of these suggestions have found their way into the Competition Amendment Bill, 2022. The Bill was introduced in the Lok Sabha on August 5, 2022. But, considering the extent to which the Bill had changed the prevailing law, it was sent to the Parliamentary Standing Committee on Finance for discussion.
The Committee, led by Jayant Sinha, a Lok Sabha member, undertook a wide-ranging study and consultation task, which concluded in a 60-page report that was presented in the Lok Sabha on December 13, 2022. The report is both well-timed and extensive, considering the scale of exercise undertaken and the short time in which it was finished. On the whole, the Committee has done a good job of analysing various intricate issues and taking into account a wide variety of stakeholder opinions while framing a set of significant suggestions to tweak the Bill.
Major amendments have been recommended and these include bringing cartels within the range of settlement and commitment provisions, clearly defining “material influence” for regulatory purposes, retaining current timelines for merger approval and prima facie opinion by the CCI, tweaking the “deal value threshold” provision that seeks to bring Big Tech’s offshore mergers and amalgamation (M&A) deals with proven India nexus under CCI’s merger control regime, and expressly mandating CCI to undertake an effects-based analysis while determining abuse of dominance.
The Bill had proposed a deal value limit as a supplementary standard to secure killer acquisitions with a local connection in digital marketplaces, which have so far not been covered by the notification standards, owing to the asset and revenue-light business patterns of new-age corporations. In contrast, the panel has stated that the Bill does not offer any direction on how to deal with the value to be computed and agreed with investors, and this may produce ambiguity and could bring transactions under the merger control system. It has also mentioned that transparency should be provided and deal value associated with the value of the target and the “local nexus” clause should not be left to the CCI to choose; instead, it should be stipulated in the statute itself.
The Bill had recommended a lesser ceiling of “control” in terms of material influence, that is the capacity to use substantial power, in any manner, over management affairs or strategic commercial choices. The Committee has stated that material influence is the smallest and weakest pattern of power which is an established criterion across jurisdictions. However, it has been recommended that the same needs be defined through guidelines by the CCI.
The Bill had proposed a decrease in the general time limit for sanction of M&As, from 210 days to 150 days, and recommended that the CCI shape a clear opinion within 20 calendar days. In a noteworthy divergence, the Committee has opined that a lesser time limit will put the CCI in a problematic and burdensome position. The Committee observed that a tighter time limit can be troublesome for an already understaffed CCI. Accordingly, it has been recommended by the Committee that the current time limit and passing of the order for approval of combinations should remain unchanged.
By increasing the range of settlement and commitment systems, the Committee has brought cartels under the proposed system, which were initially not included in the Bill. It has stated that admission of guilt should not be mandated for an application for settlements and commitments. The Committee has also suggested a supporting stipulation to permit applicants to apply to CCI to revisit the settlement or commitment after the order of the final settlement by CCI, as one last opportunity.
The Bill had extended the range of cartels to include hub-and-spoke arrangements executed by firms involved at different levels of the value chain. However, the Committee has observed that there was no clarity on the meaning of “active participation” in the hub-and-spoke agreement, which could cover entities only offering intermediation services in digital markets. Accordingly, it has recommended the addition of “intention” to active participation for invoking such a clause.
In a comprehensive suggestion, the Committee has observed that the law does not deliberately force the CCI to undertake an effects-based analysis while deciding misuse of dominance, and has, accordingly, suggested modifications in the law by recommending appropriate amendments. The Committee also wants the CCI to test the “actual effect” and not come to an assumption based on the intention behind the actions of the corporate enterprise concerned. In a competition case, an effect-based analysis may be employed to assess whether a company’s behaviour has damaged competition by, for instance, lessening the number of competitors in the market or increasing prices for consumers.
However, this suggestion of the Committee could be prove to be an awkward condition for the CCI because so far it has gone by the “likely effect” and not the “actual effect” of business practice. If effects tests are there and need to be followed, then the competition law is dead as the CCI will never be able to show the actual effects in the market, but can at most only show potential effects. So far, the CCI had refrained from looking at the “actual effect” of the anti-competitive behaviour, but proceeded with adjudication based on the intent behind the actions or behaviour. The fact that CCI never favoured the “actual effect” test is reflected in some of its recent orders against Big Tech companies. The CCI’s contention has been that an “effect test” is not required and if “you as a dominant player do anything that it is unfair—whether it results or likely results (in anti-competitive effect) is immaterial”.
The Committee has proposed an intellectual property rights’ (IPR) exemption to manipulation of dominant position cases, as well as on the lines of advice made by the CLRC. The CCI will now be required to consider an IPR exemption petition taken from leading undertakings. Presently, IPR exemption is available in respect of anti-competitive agreements only.
The Committee has also suggested that a judicial member be appointed to the CCI. Interestingly, the CLRC had not suggested such an appointment. Presently, the CCI has only two members, but none are from a judicial background. In 2018, the Union cabinet had decided that it will not appoint anyone other than the chairman and three members. With the CCI now imposing huge penalties in recent days, there is a feeling within the Committee that there should be a proper application of mind before the penalties are levied.
Another controversial proposal in the Bill was to authorize the director general of CCI to “examine on oath” any officer or agent of the company under investigation for violation of competition law. The scope of this provision was too wide and it should not cover legal advisers as this would amount to a breach of attorney-client privilege. This would violate the provisions of the Evidence Act which protects professional communication between a legal adviser and the client. The Committee stated that this would violate the Evidence Act as well as the Bar Council of India rules. It said that the clause should specify clearly that nothing shall be in contravention of the Indian Evidence Act, 1872, or any other Act that protects attorney-client privilege.
Although the Committee has proposed several strong amendments, it has missed a few opportunities. Firstly, the lack of concrete guidance on how the value of a transaction will be calculated or the basic business operations of an entity will be evaluated for deciding whether a combination is notified under the proposed “deal value thresholds” (DVT) is unfortunate.
Secondly, the Committee has refused to suggest the inclusion of at least one judicial member in the CCI only because this matter is being considered by the Supreme Court. Thirdly, the failure to segregate the functioning of the investigative arm of the CCI—its director general—from the Commission itself will result in continued constitutional and legal challenges in every case and is a missed opportunity to prevent such litigation.
The need of the hour is an energetic debate on the proposals of the Committee on the floor of the House. Then only all recommendations can make their way into a revised Amendment Bill.
—The writer is a financial and tax specialist, author and public speaker based in Margao, Goa