Competition Law Amendment Bill: Top 5 Proposed Changes
Higher scrutiny of M&A, lower threshold for control, costlier appeals, settlement regime — Key proposals to amend competition law.
In view of the changing business models and to reflect the experience gained by the anti-trust regulator, the government has proposed several amendments to the Competition Act, 2002. The Competition (Amendment) Bill, 2022 was introduced in the Lok Sabha on Friday.
One of the most significant proposals is the introduction of deal value threshold. Currently, parties to a deal don’t have to seek regulatory approval if they don’t meet the asset or turnover threshold.
If the target has an asset size of less than Rs 350 crore or turnover of less than Rs 1,000 crore, no filing with the Competition Commission of India is required.
Now, the bill says, if a deal value exceeds Rs 2,000 crore and either party has “substantial business operations” in India, CCI approval will be required. The proposal has its roots in the recommendations of the Competition Law Review Committee report of 2019.
The report had highlighted deals in the digital space, such as Facebook-WhatsApp, Flipkart-Myntra, Ola-TaxiforSure, and Snapdeal-Freecharge which didn’t meet the turnover or asset thresholds and so, didn’t require any CCI approval.
To be clear, the bill doesn’t say that the deal value threshold is only for M&A in the digital space.
The introduction of deal value thresholds stems from the CCI’s inability to review a number of so-called "killer acquisitions" in the digital space, Shweta Shroff, partner at Shardul Amarchand Mangaldas, told BQ Prime.
Such deals, so far, are not reportable as the assets and/or turnover value were below the de minimis target exemption thresholds. This, however, adds some amount of ambiguity as parties will now need to undertake different levels of notifiability checks.Shweta Shroff, Partner, Shardul Amarchand Mangaldas
The other key proposals in the bill include:
Acquisition of ‘control’, once the asset or turnover threshold is met, is one of the factors that triggers CCI approval for deals. But what rights will amount to control hasn’t been spelt out in the law.
Three years ago, the CLRC had sought to address it by suggesting the ‘material influence’ threshold, which will bring within its fold acquisition of joint or negative control, informational rights, etc.
Through regulations, the CCI should specify what will constitute as material influence and also provide a list of certain minority rights whose acquisition won’t breach this threshold, the committee had suggested.
The bill has incorporated this proposal.
“Control" means the ability to exercise material influence, in any manner whatsoever, over the management or affairs or strategic commercial decisions. - Competition (Amendment) Bill, 2022
The standard of defining control has shifted over time, Shroff said. In its initial decisions, the CCI interpreted control as the ability to exercise “decisive influence” over strategic commercial issues or the ability to cause a deadlock.
More recently, it has stated that control is to be determined over a spectrum that ranges from de jure control on the one hand to “material influence” on the other.
It will be important to see whether the CCI will provide detailed guidance on the scope and conditions of “material influence” through its FAQs and/or include clear criteria for the assessment of control in the regulations, without which this could lead to a flood of precautionary notifications.Shweta Shroff, Partner, Shardul Amarchand Mangaldas
(Commercial) Reality Check
If parties implement a transaction without notifying it or take certain premature actions–referred to as gun jumping–the regulator has the power to impose penalties.
This has proven to be an issue for acquisition of shares in public companies given price sensitivity challenges.
Several on-market purchases by parties without notifying the CCI have attracted penalties for gun jumping, including Thomas Cook, Zuari Fertilisers and Chemicals and Deepak Fertilizers, to name a few.
The bill seeks to address this commercial reality. It proposes an exemption from prior CCI filing for stock exchange transactions.
Two conditions will need to be met:
The notice of the acquisition is filed with the CCI within a particular time frame, which will be specified via regulations.
The acquirer will not exercise any ownership or beneficial rights or interest in such shares or convertible securities. This will include voting rights and receipt of dividends or any other distributions, until CCI grants an approval.
Currently, competition law violations cannot be settled. To reduce litigation, the bill now provides for a settlement and commitment mechanism for certain anti-competitive agreements and abuse of dominance.
Based on the language of the bill, it’s clear that the settlement mechanism will apply to anti-competitive vertical agreements and abuse of dominance cases and not to cartels, Avaantika Kakkar, partner at Cyril Amarchand Mangaldas, said.
This is perhaps because cartels are the most pernicious offense under the Act and there is no perceived need to simplify processes for non-compliance with these principles.Avaantika Kakkar, Partner, Cyril Amarchand Mangaldas
An application for settlement may be filed only after an investigation report is submitted and before the CCI passes its final order. And commitments will be considered between the start of an investigation and before the completion of the Director General’s investigation report. The commission may impose certain conditions, including settlement amount via regulations, as per the bill.
Any appeal against a CCI order will only be entertained by the National Company Law Appellate Tribunal if 25% of the penalty amount is deposited by the party, the bill says.
Today, while the law makes no mention of it, in most cases, the NCLAT has admitted appeals and granted relief by asking parties to deposit 10% of the penalty amount.
Besides these, the bill also seeks to:
Fast-track deal approval timelines from 210 days to 150 days.
Introduce a limitation period of three years to initiate action for anti-competitive behaviour.
Shift the appointment of the DG–currently by the central government–to the CCI.
Expand the DG’s powers to seek information from third parties, and search-seizure.
Strengthen the leniency regime by incentivising parties through lesser penalties in an ongoing cartel investigation to disclose information regarding other cartels.