THE COMPETITION (AMENDMENT) BILL,2023

This blog is written by Shivani Sehrawat, A second year law student at Faculty of Law, University of Delhi.

INTRODUCTION

The Competition (Amendment) Bill, 2023 aims to bring certain essential structural modifications in the structure and governance of the Competition Commission of India, and changes to numerous substantive provisions of the Competition Act, 2002 to address the changing dynamics and demands of the market.

LEGISLATIVE HISTORY

The Competition (Amendment) Bill, 2022 was introduced in the Lok Sabha on August 5, 2022, thereafter it was referred to the Standing Committee on Finance, on August 17, 2022 which presented its report on December 13, 2022. Consequently, the bill was passed by the respective Houses of Parliament on March 29, 2023 and April 03, 2023. Though the Bill is yet to receive Presidential assent for being notified in the official gazette.

ORIGIN & NEED OF THE BILL

The Competition Act, 2002 was enacted after the adoption of LPG Policy by the government of India at the beginning of the century to promote the interests of consumers, ensure freedom of trade and sustain competition in the market. However, since then, there has been a significant growth of Indian markets and a paradigm shift in the way businesses operate due to the emergence of digital internet-based companies and new age markets involving technology in the last decade specially.

Therefore, in view of the economic developments and emergence of different modes of businesses, the Ministry of Corporate Affairs, Government of India constituted the “Competition Law Review Committee” in 2018 to examine and suggest the modifications in the original Act to ensure the law on Competition is at par with the fundamentals of economy.

After review of the recommendations proposed by the Committee, public consultations and with a view to provide regulatory certainty and trust-based business environment, the government brought the amendment bill.

OBJECT OF THE BILL

The Bill seeks to make the below-mentioned modulations to achieve the aim of making the statute in accordance with the evolving times and needs-

1. Broadening the scope of anti-competitive agreements;
2. Providing for evaluation of combinations based on value of transactions;
3. Reducing the time limit for approval of combinations; and
4. Introduction of settlement and commitment framework to reduce litigation.

SALIENT FEATURES OF THE BILL

Changes in Definitions of Section 2

1. Inserting clause (ea) for providing a definition of the term “commitment”.
2. Substituting clause (h) for providing a new definition of the term “enterprise”.
3.  Inserting clause (ka) for providing a definition of the term “party”.
4. Substituting clause (t) for providing a new definition of the term “relevant product market”.
5. Inserting clause (ua) for providing a definition of the term “settlement”.

Substitution of reference to Companies Act

The clause 2 of the Bill seeks to substitute the reference of Companies Act, 1956 to Companies Act, 2013 throughout the Act.

Broadening the scope of Anti-Competitive Agreements

• The Bill seeks to expand the scope of entities that can be adjudged to be a part of anti-competitive agreements i.e., any agreement related to production, supply, storage, or control of goods or services, which can cause an appreciable adverse effect on competition in India.
• Presently, Section 3 of the Act provides that any agreement between enterprises or persons engaged in similar businesses can be held to be a part of anti-competitive agreements.
• The Bill expands this to include agreements entered into by enterprises or persons who are though not engaged in similar businesses however actively participates in furtherance of such agreement by inserting a second proviso in sub-section (3) of Section 3.
• Anti-competitive conducts like “tie-in arrangement,” “refusal to deal,” “resale price maintenance,” and “exclusive distribution agreement” have all been redefined to cover goods and services, and not just goods by amending the definitions in the Explanation of Clause (4) of Section 3.
• The phrase “exclusive supply agreement” has been replaced with “exclusive dealing agreement” to cover the selling side, and not just the purchasing side when looking at exclusive agreements by substituting the clause (b) of Explanation to sub-section (4) of Section 3.

Regulation of Combinations Based on Transaction Value

• Section 5 of the Act prohibits any person or enterprise from entering into a combination which may cause an appreciable adverse effect on competition. Combinations imply mergers, acquisitions, or amalgamation of enterprises. The prohibition applies to transactions where parties involved have: (i) cumulative assets of more than Rs 1,000 crore, or (ii) cumulative turnover of more than Rs 3,000 crore, subject to certain other conditions.
• The Bill expands the definition of combinations by inserting clause (d) in Section 5 to include combinations wherein the value of a transaction in connection with acquisition of any control, shares, voting rights or assets of an enterprise, merger or amalgamation exceeds 2000 crore rupees.
• Also, the newly inserted clause (e) to Section 5 provides that it would require filing a notice of combination before the Commission and the Central Government may exempt certain transactions from the requirement to file combination notice under the Act.
• The Bill modifies the definitions of “Control”, “Group”, “Turnover”, and “Value of Transaction” that are provided in the Explanation of Section 5.

Reducing Time Limit for Approval of Combinations

The Bill seeks to amend sub-section (2) of Section 6 of the Act to omit the reference of 30 days and sub-section (2A) as well to reduce the overall time limit of assessment of combinations by CCI to a period of 150 days from 210 days.

Changing the Service Conditions of the Members of CCI

1. The Bill amends sub-section 2 of Section 8 to include the field of Technology as an additional qualification for the members of CCI.
2. The Bill amends Section 12 to restrict the acceptance of employment by Chairperson and Members of the Commission within a period of 2 years from the date of ceasing the office.
3. The Bill amends sub-section (1) of Section 16 to empower the CCI to appoint the Director General with the prior approval of the Central Government.

Redefining the Duties and Functions of Commission

The Bill seeks to substitute section 18 of the Act to enable the Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interest of consumers and enter into a memorandum or arrangement with the Department of Government or statutory bodies.

Limitation Period of Filing Information for Inquiry into Agreements and Abuse cases

The Bill inserts a proviso in sub-section (1) of Section 19 to provide that the CCI shall not entertain any information or reference for making an inquiry into the cases of Anti-Competitive Agreements and Abuse of Dominant Position beyond the period of three years from the date of cause of action. However, the Commission may condone the delay if it is satisfied with the reasons given by the parties. 

Two more factors to determine the Relevant Product Market

The Bill inserts news clauses, namely, (g) and (h) in sub-section (7) of Section 19 to provide for two more factors to CCI for consideration in identifying the Relevant Product Market which are – Costs associated with switching demand or supply to other goods or services; and, Categories of Customers.

Two more factors to determine the Relevant Geographic Market

The Bill inserts news clauses, namely, (i) and (j) in sub-section (6) of Section 19 to provide for two more factors to CCI for consideration in identifying the Relevant Geographic Market which are – characteristics of goods or nature of services; and, costs associated with switching supply or demand to other areas.

Broadening the grounds for making reference to CCI

The Bill amends sub-section (1) of Section 21 to expand the scope of any statutory authority to make a Suo motu reference to the Commission on any issue that involves any provision of this Act or is related to promoting the objectives of this Act.

Further Investigation by Director General

The Bill inserts sub-sections (3A) and (3B) in Section 26 to enable the Commission to direct the Director General to investigate a matter further and to submit a supplementary report on his findings if it is of the opinion that it is necessary to investigate a matter further after the considering the report already submitted.

 Enhancement of Penalties

• The Bill substitutes clause (b) of Section 27 to empower CCI to pass orders in relation to anti-competitive agreements and the abuse of dominant position, by imposing a penalty that can be up to 10% of the average income or turnover for the last three preceding financial years.
• Additionally, the turnover will be the global turnover and not just the turnover in India. Earlier, the penalty could only be based on the “relevant turnover,” which was understood to mean domestic turnover.
• The Bill has amended Section 44 to increase the penalty from 1 crore rupees to 5 crore rupees if a party makes a false statement or omits material information when seeking approval for a combination.

Prima Facie Opinion in regard to Combinations

• The Bill inserts sub-section (1A) in Section 29 to provide that the Commission shall form a prima facie opinion within 20 days of receipt of notice under sub-section (2) of Section 6.
• The Bill also inserts Section 29A for issuance of statements of objections by the Commission and proposal of modifications.
• The Bill further adds a proviso to sub-section (1) of Section 31 which states that combination shall be deemed to have been approved and no separate order shall be required if the Commission does not form a prima facie opinion within 20 days as provided under sub-section (1B) of Section 29.

Decriminalization of Certain Offences

The Bill changes the nature of punishment for certain offences from imposition of fine to penalty. These offences include failure to comply with orders of CCI and directions of Director General with regard to anti-competitive agreements and abuse of dominant position under Sections 42 and 43 respectively.

 Power to Impose Lesser Punishment

The Bill amends Section 46 to provide that if the Commission is satisfied that a party in an ongoing cartel investigation has made a full and true disclosure in respect of the alleged violations then impose a lesser penalty on them. 

Settlement and Commitment in Anti-Competitive Proceedings

• The Bill empowers CCI to close inquiry proceedings against enterprises initiated by it on grounds of entering into anti-competitive agreements and abuse of dominant position, if the enterprise offers settlement or commitment respectively under the newly inserted Sections 48A and 48B.
•  If entities are found to engage in anti-competitive agreements or abuse of dominance, they can propose a settlement for the alleged contraventions at any time after the Director General presents their report and before the CCI passes an antitrust order. Entities can also propose commitments in respect of the alleged contraventions at any time after a prima facie order is passed by the CCI and before the Director General presents their report.
• CCI can accept or reject the proposed settlement or commitments. This new framework is expected to provide an incentive for companies to settle with CCI rather than go to court.

Deposit before filing of Appeals in Tribunal

The Bill inserts a proviso to sub-section (2) in Section 53B to provide that the Appellate Tribunal will not entertain an appeal from any company unless the company deposits 25 percent of the amount of penalty imposed by CCI. This additional requirement is expected to prompt companies to scrutinize their decision to appeal. 

Contempt Jurisdiction of Appellate Tribunal

The Bill seeks to amend section 53Q of the Act to provide contempt proceedings under section 53U if any person contravenes any order of the Appellate Tribunal. 

CRITICAL OVERVIEW OF THE BILL

The Competition (Amendment) Bill, 2023 has been brought by the government to deal with the new emerging trends and demands of the changing market, and to an extent it does meet the objectives that it sought to achieve by the modifications. However, as argued in the Parliament during the debate over the Bill and after its passing, by the academicians, the Bill proposes a great deal of danger not only to the existing statutory frameworks but also incompatible with the future situations. Therefore, it has been made subject to severe criticism across the country for its conflicting provisions.

Deal Value for regulation of Combinations is not a suitable measure

• Under the Act, combinations are defined as the acquisition, merger, or amalgamation of one or more enterprises if they meet certain thresholds based on their assets or turnover. Combinations meeting these thresholds have to seek CCI’s approval.
• The Bill seeks to add an additional threshold of deal value of transactions for the notification and scrutiny of combinations. According to the provision, transactions with a value of more than Rs 2,000 crore will have to be notified for CCI’s approval.
• Value of transaction is proposed to include every valuable consideration, whether direct, indirect, or deferred for any acquisition, merger, or amalgamation. Of late, acquisitions in the digital markets are valued based on data or certain business innovation of the company being acquired.
• In such transactions, the target may not have a large asset base and may be in a line of business where products/services are given free or generate insignificant revenue. While such transactions may have an impact on market competition, the CCI currently lacks the legal framework to evaluate them if they do not meet the stipulated criteria based on assets or turnover.

Director General’s Powers may be incompatible with the Indian Evidence Act, 1872

• The Bill expands the powers of the Director General for investigating contraventions under the Act. This includes the power to seek information and documents from legal advisers also. This may be at variance with the provisions of lawyer-client confidentiality under Section 126 of the Indian Evidence Act, 1872.
• The Bill specifies that all officers, employees, and agents of a party under investigation, shall produce all information and documents related to the party to the Director General. Under the Act, the term ‘agents’ includes bankers and legal advisers of the party being investigated.
• However, under the Indian Evidence Act, no barrister, attorney, pleader, or vakil is permitted to disclose any professional communication without his client’s consent. Similarly, under the Companies Act, 2013, as well, legal advisors are exempt from disclosing certain information. This includes any privileged communication with the legal advisor.

IPR is not allowed as defence in cases of Abuse of Dominant Position

• IPR allows their holders to derive certain benefits from their creation or investment. These include trademarks, copyrights, or patents. The IPR holder has a temporary right to exclude others from benefiting from their creation or investment. This could create a form of monopoly or a degree of economic exclusivity.
• The Act allows the use of IPR including copyrights, patents, and designs as a defence in cases of anti-competitive agreements. However, it does not allow this defence in cases of abuse of dominant position.
• Although, the Competition Law Review Committee recommended in its Report that in cases involving the abuse of dominant position, a defence allowing for protecting IPR may be provided. As it noted that creation of exclusivity, through IPR laws, may not necessarily establish the ability to exercise market power.

Imposition of heavy penalties possess a constitutional challenge

• One of the most crucial changes that the Bill has proposed is to increase the methodology for imposing penalties on the enterprises that engage in any such acts that contravene the provisions of the law.
• The proposed amendment provides that CCI can impose penalties up to 10% of the total global turnover of the enterprise. This is a radical departure from the prior mechanism, in which the penalty for such a violation was up to 10% of total “relevant turnover,” i.e., an enterprise’s turnover pertaining to products and services affected by such a violation rather than the total global turnover.
• The proposed penalty clause represents a paradigm shift and may be one of the heaviest punishments levied in any anti-competitive regime in the world. Additionally, it raises a concern that whether it would be constitutionally valid as it is contrary to one of the earlier judgments of the Supreme Court.
• The penalty provision violates the Doctrine of Proportionality, expounded by the Supreme Court in Excel Crop Care Limited v. Competition Commission of India & Anr. The Doctrine provides that administrative actions cannot be harsher than necessary to accomplish the desired goal. Thus, if contravention includes one product, then there is no justification for including the other products. Hence, the doctrine attempts to strike a balance between means and end. In the above judgment, the Supreme Court reaffirmed this principle, stating that “the penalty cannot be disproportionate and it should not lead to shocking results“.

Thus, the 2023 Bill raises numerous concerns which need to be dealt with cautiously not only by the government but also by the CCI in order to preserve the very object of the Act. Although the Bill has increased the powers of CCI abruptly when it comes to imposing penalties and making appointments, however, to some extent, this would only enhance its working capacity. 

CONCLUDING REMARKS

The Competition (Amendment) Bill, 2023 aims to make the Act of 2000 consistent with the changing dynamics of the market. The Bill proposes numerous changes in the structural and functional aspects of the CCI to empower it to be able to work effortlessly for achieving the desired objectives for which it was constituted. 

The Bill not just reduces regulatory hurdles and promotes ease of doing business in India but also provides greater clarity to businesses operating in India and reduces the compliance burden for companies. It also enhances transparency and accountability in the Indian market by making minor changes in defining terms which have crucial effects. 

Further, though in some instances the Bill reduces penalties and decriminalizes offences, it also ensures that companies do not escape penalties for violating the provisions of competition law and contravening the orders of CCI.

Moreover, the Bill provides a framework for settlement and commitment for faster resolution of investigations of anti-competitive agreements and abuse of dominant position, which is an exceptionally forward step in enhancing the law and reducing the burdens not only on parties involved but also on the statutory authorities like CCI, Tribunal and Courts. 

Consequently, the Competition (Amendment) Bill, 2023 is an essential change necessary to make the laws of the country consistent with the needs, demands and problems of the people across the framework.