The Competition (Amendment) Bill, 2020 checks most boxes on the recommendations of the Competition Law Review Committee, but still leaves room for further reform
Key Changes Introduced
The Competition (Amendment) Bill, 2020 (Bill) was widely expected to carry forward the recommendations of the Competition Law Review Committee (CLRC) chaired by the Corporate Affairs Secretary, Mr. Injeti Srinivas, tasked with reviewing the Competition Act, 2002 (CA02), and ensuring that the law equips regulators to deal effectively with new age markets.
As a member of the Working Group on New Age Markets and Big Data under the aegis of the CLRC, NASSCOM had been keenly awaiting the release of the Bill.
Having reviewed the Bill closely, we note that the Bill carries forward most of the recommendations of the CLRC, with the only notable exception being the lack of any statutory recognition for a dedicated bench of the National Company Law Appellate Tribunal (NCLAT) to hear appeals arising out of the provisions of the CA02.
Moreover, the Bill incorporates several recommendations made by NASSCOM in the consultation process conducted by the CLRC. These include NASSCOM’s recommendations regarding:
- Introduction of a National Competition Policy
- Avoiding the introduction of any standard for “attempt to monopolization”
- Updating the definition of “consumer”
- Introduction of mechanisms enabling the Competition Commission of India (CCI/ Commission) to accept commitments and settlements
- Revising jurisdictional thresholds for combinations
- Rationalizing timelines for approval of combinations by the CCI
- Allowing for greater coordination between the CCI and sectoral regulators, and
- Rendering greater certainty over determination of penalties.
In particular, the Bill addresses the following recommendations of the CLRC:
- Establishment of the Governing Board: The CLRC had recommended the establishment of a Governing Board, in order to provide greater accountability through a separation of powers. In particular, the CLRC had recommended that the quasi-legislative and policy making functions of the Commission be separate from the adjudicatory powers vested upon the CCI under the CA02. The Bill takes on Board this recommendation, and introduces under Section 8(1A) of the CA02 a provision that calls for the establishment of a “Governing Board” composed of both ex-officio whole-time members, and four other part-time members, and tasked with the general superintendence, direction and management of the affairs of the CCI.
- Increasing Administrative Efficiency of the Office of the Director General: The CLRC had recommended that the Office of the Director General (DG) be subsumed within the CCI for attaining greater administrative efficiency. The Bill incorporates this by causing an amendment to Section 16(1) of the CA02 and requiring the DG to be appointed by the CCI.
- Settlement and Commitments: The CLRC had recommended that the CA02 be amended to provide for a mechanism for the CCI to accept remedies from parties to antitrust disputes. Accordingly, the CLRC had recommended that the CCI should be able to accept both settlements (measures where there is an admission of guilt) and commitments (where there is no admission of guilt) to close an investigation, should such settlements or commitments address the CCI’s concerns relating to competition harms. Taking forward this recommendation, the Bill introduces Sections 48A and 48B, to provide statutory mechanisms for the CCI to accept commitments.
- Timelines for Merger Assessments: The CLRC had recommended that the 30 days’ time-period available to the CCI for providing a prima facie opinion on the likelihood of Appreciable Adverse Effects on Competition (AAEC) from a combination, be included within the overall time-limit of 210 days, and thereby rationalizing the total timeline for merger assessments. The CLRC had also recommended the introduction of a “green-channel” notification process, whereby certain combinations could be eligible for automatic approval where there are no major concerns of AAEC. While a “green channel” procedure had already been introduced by the CCI, the Bill provides statutory recognition to the same. The proposed Sections 6(4) and (5) of the CA02 will empower the Central Government to notify, in consultation with the CCI, criteria that are required to be met for a deemed approval under the “green channel” process. Likewise, the Bill prescribes an outer limit of 150 days for the assessment of a merger, with a maximum extension of 30 days for filing additional information or removing defects.
- Hub and Spoke Cartels: The CLRC had recommended that CA02 be amended to account for ‘’hub and spoke cartels’, where an entity, may facilitate collusion between competitors by becoming a ‘hub’ for sharing sensitive information, despite not being a competitor itself. The Bill incorporates this concept by introducing a proviso to Section 3(3) which presumes such ‘hubs’ to be a part of an anti-competitive agreement, if it actively participates in the furtherance of such agreement.
- Penalties: The CLRC recommended introducing a mandate upon the CCI to issue guidance on the calculation and imposition of penalties, in order to ensure that such penalties are proportionate and appropriate in the context of the contravention established. The Bill addresses this recommendation by introducing a new Section 64B under the CA02, which requires the CCI to publish guidance as to the appropriate amount of penalty for any contravention under the CA02. Additionally, Section 27 of the CA02 has been amended to vest the Central Government with the power to prescribe by way of rules, the relevant turnover or income for the purposes of Orders of the CCI passed under Section 27.
- Deal Value Thresholds: The CLRC had recommended the introduction of deal-value based jurisdictional thresholds for certain combinations and transactions in new age and digital markets, which while having the potential of causing AAEC, would not be required to be notified under the asset/turnover based jurisdictional thresholds under the CA02. The Bill, while not expressly using the term “deal value thresholds”, empowers the Central Government to notify, in consultation with the CCI, criteria that may lead to a transaction as being viewed as a notifiable combination under the CA02. This power would exist concurrently with the power of the Central Government to provide ‘de minimis’ thresholds for transactions based on assets, turnover, or other criteria, based on which transactions may be exempt from the requirement of being notified.
- Updating Definitions: The CLRC had recommended updation for certain definitions under the CA02, including the definitions for “cartel” (to include buyer side cartels), “consumer” (to include Government departments and agencies), “control” (to account for material influence as the standard of control), and “turnover” (for the purposes of determining the applicability of jurisdictional thresholds for combinations). The Bill incorporates amended definitions for each of these terms, in line with the recommendations of the CLRC.
Unresolved Issues and NASSCOM’s Recommendations
The Bill, therefore, checks most boxes on the recommendations of the CLRC. However, the manner of incorporation of these and other modifications to the CA02, still leaves room for uncertainty in the eventual implementation of the CA02. These concerns relate largely to:
- The manner of merging the administrative offices of the DG and CCI
While the case for greater administrative efficiency is undoubtedly a need for over-burdened regulators such as the CCI, the need for separation of prosecutorial/investigative powers from that of decision-making/ quasi-judicial powers, is imperative to ensure fairness in the investigative process. By making the Commission responsible for the appointment of the DG, the Bill risks diluting the autonomy and independence of the DG in the discharge of its prosecutorial/investigative functions under the Act, since this could lead to patent conflicts of interest, and bias the investigation process towards a finding of guilt.
- Potential for prejudice on account of settlement/ commitment offered
While the introduction of settlements and commitments under the newly proposed Sections 48A, 48B and 48C of the CA02 are welcome, in the absence of an express statutory assurance that any commitment or settlement offered before Commission will not amount to or be construed as an admission of guilt, or as a contravention of the CA02, parties are unlikely to proceed with offering commitments.
- Lack of effects-based analysis under provisions of the CA02
The continued lack of reference to “effects”/AAEC under Sections 4 and 28 of the CA02, could lead to a formulaic and form-based interpretation of these provisions, and could in turn lead to excessive intervention that vilifyies efficiency enhancing practices. In fact, the CCI has in prior cases adopted such an approach, thereby leading to certain Type-I errors that could potentially be economically counterproductive – for instance, the CCI’s treatment of ‘take or pay’ clauses and ‘minimum guarantee off-take’ (MGO) clauses.
- Appellate Process under the CA02
Prior to the issuance of the Department of Revenue Notification S.O. 1696(E), appeals from the Act were heard by the Competition Appellate Tribunal (COMPAT). However, as a part of an exercise in rationalizing the number of tribunals tasked with hearing appeals from specialized legislation, the Finance Act was amended to transfer the functions of the COMPAT to the NCLAT. However, after the transition, the lack of capacity, and the lack of technical members, has increased the pendency of appeals arising out of the Act. Accordingly, a dedicated Bench of the NCLAT to hear appeals arising out of the CA02 may be considered.
Likewise, the requirement to provide a pre-deposit under Section 53B of the CA02 should ideally be done away with. A penalty, as opposed to a tax demand that is due, is typically exemplary in nature, and making the right of appeal contingent upon a prescribed pre-deposit approach could impose a significant burden upon appellants before the NCLAT, especially given the variances in nature of contraventions, and the quantum of penalties imposed. In any event, even in the absence of the proposed amendment, the NCLAT will retain the power of prescribing a deposit after considering all relevant circumstances, including the manner and nature of contravention, the quantum of penalty levied, the solvency of the appellant, etc.
- Jurisdictional thresholds for merger review under the CA02
While the departure from a “deal-value threshold” is welcome, the current approach, i.e. prescribing through notifications such additional criteria over and above the existing asset-turnover based thresholds, that would qualify a transaction as a notifiable combination under the Act, has its own share of issues, including uncertainty regarding the nature and limits for such additional criteria.
Accordingly, and as a part of the public consultation initiated by the Ministry of Corporate Affairs (MCA) in this regard, NASSCOM recently submitted its feedback on the Bill (attached). The attached submissions make detailed recommendations regarding each of the above.