Recently, The Bill 2022 to amend the Competition Act,2002 proposed in Lok Sabha. After evaluating dynamic changes in the Indian market in these two decades and the rapid changes in the operation of business, the Government of India felt the necessity to amend the two decades old Competition Act and constitute a committee in 2019, which is called Competition Law Review Committee {CLRC} to suggest the modifications needed in the Act.
Based on the recommendations proposed in the report of CLRC, the Competition Amendment Bill, 2022 has been drafted. The Bill not only promotes healthy competition in the new age market but also empowers the Competition Commission of India.
Some critical changes proposed in the Bill are addressed here.
Deal value threshold for combination
The major proposal of this Bill is the introduction of ‘deal value’ threshold. Section 5 of the Competition Act, 2002, prescribes only assets and turnover based threshold to qualify as a combination and if any of the threshold met, the notification to CCI will be required. But the Bill proposes the third ‘deal value’ based threshold which is INR 2000 crores.
Considering the acquisitions in the digital market, the Government proposed the deal value threshold. According to Digital Competition Expert Panel, in the last decade the five largest technology companies have made over acquisitions globally and some of these acquisitions have been exceptionally high value, peaking with Microsoft paying 26.2 billion dollars for LinkedIn.
Currently, digital market of India witnessed certain transactions which can affect the competition adversely, but escape from the scrutiny of the CCI as their assets and turnover do not violate the prescribed asset and turnover threshold and affect competition in market directly or indirectly. Acquisition of TaxiforSure by Ola, WhatsApp by Facebook and Myntra by Flipkart are the examples.
So, the deal value threshold which is 2000crores promotes healthy competition by providing remedy for the escape from the CCI scrutiny and also empowers CCI to review more transactions to assess their anti-competitiveness. But there are still some issues which need clarification. The Bill does not clarify that such threshold only applicable for digital market or the whole market. Also, the Bill do not define the phrase ‘substantial business operations in India.’ Major thing is the effective method of calculation of deal value has not been given.
Hub and Spoke Cartels
‘Hub’ means third party which facilitates cartelization (grouping) between two or more competitors and these competitors are spokes. In such cartels, hubs are the mediators of the spokes. Spokes share the sensitive information through the hubs in order to affect the competition by fixation of price etc.
Section 3(3) describes the horizontal agreements as the agreements between the enterprises, associations or persons engaged in identical trade of goods and provisions of services but does not include such horizontal agreements in which third parties facilitate cartelization even though they are not engaged in identical trades.
So, to capture the such hubs or third parties the Bill2022 proposes to includes hub and spoke cartels by adding the provision in section 3(3) of the Act.
It is an appreciable step that hub and spoke cartels have been recognised by the Bill because at present Indian market is witnessing such spoke and cartel practices. The issue of the hub and spoke cartel raise for the first time in the Hyundai Motors Pvt. Ltd. case 2017. In this case it was alleged that by acting as a hub (common supplier) between two spokes (dealers), Hyundai motors was responsible for price collusion amongst competitors through a series of hub and spoke arrangements.
It is an appreciable step that hub and spoke cartels have been recognised by the Bill because at present Indian market is witnessing such spoke and cartel practices. The issue of the hub and spoke cartel raise for the first time in the Hyundai Motors Pvt. Ltd. case 2017. In this case it was alleged that by acting as a hub (common supplier) between two spokes (dealers), Hyundai motors was responsible for price collusion amongst competitors through a series of hub and spoke arrangements.
Inclusion of hub and spoke cartels broadens the scope of anti-competitive agreements and promotes healthy competition.
Settlement and Commitment Framework
Under the existing framework, the Competition Act does not recognise settlement and commitment. The Bill aims to insert new sections 48A, 48B and 48C to for the introduction of settlement and commitment framework.
According to the proposed provisions, parties can file an application for settlement for the alleged contraventions at any time after the Director General presents his report and before the CCI passes ant order. Parties can also file the application for commitments at any time after a prima facia order is passed by the CCI and before the DG presents the report. CCI can accept or reject the application for settlement and commitment. CCI can accept or reject the application after taking into consideration the nature, gravity and impact of the contraventions and the circumstances.
No appeal shall lie under section 53b against any order passed by the CCI under these provisions. Order passed under section 48a and 48b can be revoked by CCI if applicant fails to comply with the order or find any irregularity. Such party has to pay the penalty which may be extent to Rs. 1 crore.
Inclusion of settlement and commitment mechanism is a win-win strategy for the CCI and the entities. Such mechanism aids CCI to resolve antitrust cases faster and the parties can avoid the lengthy litigation. It also provides the window to the parties to settle out of the court so that they can avoid judicial proceedings. It also enables CCI to save its scanty resources. Imposition of penalty in case of any irregularity is another contributing factor preventing the parties from making illicit gains by abusing their positions of dominance.
A thorough perusal of the proposed amendment raises several issues that remain to be unaddressed. The provisions do not provide clarity on whether it will be applicable on the existing cases or will be applicable on the new cases. Also, no appeal shall lie under section 53b against any order passed by the CCI approving application of settlement and commitment implying a clear lack of judicial review in such cases. Judicial review prevents the misuse of the power by the legislature.
Reducing Timeline for Approval of the Combinations
The Bill proposes CCI to form prima facie opinion on combination request within 20 days of the receipt of notice. If CCI is of the prima facie opinion that a combination has cause or likely to cause an AAEC, the parties can respond within 15 days as to why an investigation should not be conducted. At present, the time period for the response by the parties is of 30 days. The Bill also proposes to reduce the overall time period of assessment of combinations by CCI to the period of 150 days from 210 days. CCI will be able to extend such time period up to maximum 30 days.
In August, 2019, CCI introduced an automatic system of approval of combinations under green channel and revised Form 1, which made the filing process simpler. Green channel route is an automated approval scheme which acts as a filter for certain kind of mergers transaction or combination filing which do not possess any risk or harm to competition regimes. So, CCI does not need 210 days long period to assess the combination. Keeping that in mind, the Bill proposed the reduced time period of 150 days.
Appointment of Director General
At present, the Central Government appoints the Director General to assist CCI to conduct inquiry and investigation. But the Bill proposes that Director General shall be appointed by the CCI. According to the report of Competition Law Review Committee, ‘Once the DG was appointed, it was in fact the CCI that monitored the activities as well as administrative matters of the office of the DG. This position has also been recognised by the court of law which have dealt with the institutional framework under the Competition Act.’ Further, ‘Adoption of the integrated agency model may result in considerable administrative efficiency and reduce timelines.’
The intention of the legislature behind the present provision was to maintain the separation of powers between the DG and CCI as it is evident in Act that DG can conduct investigation independently without taking any prior approval of CCI.
This amendment can affect the independence of the DG and maybe DG has to compromise. Also, CCI will become predominant as all functions and powers vest in CCI.
Mandatory Predeposit for Appeal
The Bill proposes to add proviso after section 53B (2) which stated that no appeal by a person, who is required to pay any amount in terms of an order of the Commission, shall be entertained by the Appellate Tribunal unless the appellant has deposited twenty-five per cent of that amount in the manner as directed by the Appellate Tribunal.
If any aggrieved party wants to appeal against the order, direction or decision referred to in clause (a) of section 53A, he has to deposit the 25% of the penalty imposed by CCI.
Now the question arise what will happen with the deposit? Does tribunal forfeit the deposit or return it? It is needed to make this provision clear so that we can understand the intention behind the provision.
Composition of CCI and Selection Committee
After evaluation of the Indian digital market, the Bill seeks to include technology as additional qualification for the CCI members and the members of the selection committee.
The Bill seeks to amend the composition of CCI by including additional qualifications of CCI members in the field of technology. Bill also seeks to amend the composition of the selection committee for Chairperson and members of CCI, to introduce knowledge and experience in the field of technology as additional criteria for the members of the selection committee.
The monsoon session of the Parliament has been adjourned and the Bill is now expected to be considered in the winter session of the Parliament.
