Competition Commission Bill 2022

Context: The Competition (Amendment) Bill, 2022 aims to improve regulatory set-up by increasing the Competition Commission of India (CCI)’s accountability, giving it flexibility and enforcement efficiency

Relevance: Prelims- Current issues of national and international importance
Mains- GS-2 and GS-3;  Government policies and interventions for development in various sectors and issues arising from their design and implementation;   Changes in industrial policy and their effects on industrial growth

Introduction:

• The Indian Competition Act was passed in 2002, but it came into effect only seven years later
• The Competition Commission primarily pursues three issues of anti-competitive practices in the market: anti-competitive agreements, abuse of dominance, and combinations
• As the dynamics of the market change rapidly due to technological advancements, artificial intelligence, and the increasing importance of factors other than price, amendments became necessary to sustain and promote market competition
• Therefore, a review committee was established in 2019 which proposed several major amendments
•  The Competition (Amendment) Bill, 2022 was introduced in Lok Sabha on August 5, 2022
• It seeks to amend the Competition Act, 2002
• The Act establishes the Competition Commission of India (CCI) for regulating market competition, giving it flexibility and enforcement efficiency
• The Bill introduces certain new concepts into the field of Indian competition law, including Deal Value Thresholds, the changes to the definition of ‘control’, and mechanisms to settle certain violations of the Competition Act

• Key features of the Bill include:
  • Regulation of combinations based on transaction value:
    • The Act prohibits any person or enterprise from entering into a combination that may cause an appreciable adverse effect on competition.
    • Combinations imply mergers, acquisitions, or amalgamation of enterprises
    • The prohibition applies to transactions where the 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 to include transactions with a value above Rs 2,000 crore
  • Definition of control for classification of combination:
    • For classification of combinations, the Act defines control as control over the affairs or management by one or more enterprises over another enterprise or group.
    • The Bill modifies the definition of control as the ability to exercise material influence over management, affairs, or strategic commercial decisions.
  • The time limit for approval of combinations:
    • The Act specifies that any combination shall not come into effect until the CCI has passed an order or 210 days have passed from the day when an application for approval was filed, whichever is earlier
    • The Bill reduces the time limit in the latter case to 150 days
  • Anti-competitive agreements:
    • Under the Act, anti-competitive agreements include any agreement related to production, supply, storage, or control of goods or services, which can cause an appreciable adverse effect on competition in India 
    • Any agreement between enterprises or persons, engaged in identical or similar businesses, will have such an adverse effect on competition if it meets certain criteria
    • These include:
      • (i) directly or indirectly determining purchase or sale prices,
      • (ii) controlling production, supply, markets, or provision of services,
      • or (iii) directly or indirectly leading to collusive bidding
    • The Bill adds that enterprises or persons not engaged in identical or similar businesses shall be presumed to be part of such agreements if they actively participate in the furtherance of such agreements.
  • Settlement and Commitment in anti-competitive proceedings:
    • Under the Act, CCI may initiate proceedings against enterprises on grounds of:
      • (i) entering into anti-competitive agreements, or
      • (ii) abuse of dominant position; this includes:
        • (i) discriminatory conditions in the purchase or sale of goods or services,
        • (ii) restricting the production of goods or services,
        • or (iii) indulging in practices leading to the denial of market access
  • The Bill permits CCI to close inquiry proceedings if the enterprise offers:
  • (i) settlement (may involve payment),
  • or (ii) commitments (may be structural or behavioral in nature)
  • • The manner and implementation of settlement and commitment may be specified by CCI through regulations
  • Relevant product market:
    • The Act defines relevant product markets as products and services which are considered substitutable by the consumer
    • The Bill widens this to include the production or supply of products and services considered substitutable by the suppliers
  • Appointment of Director General:
    • The Act empowers the central government to appoint a Director General to CCI
    • The Director General assists in conducting inquiries into contraventions of any provisions of the Act
    • The Bill amends this to empower the CCI to appoint the Director General, with prior approval of the government
  • Qualification of members of CCI:
    • As per the Act, the chairperson and members of CCI should have professional experience of at least 15 years in fields such as:
      • (i) economics,(ii) competition matters,(iii) law, (iv) management,(v) business
      • The Bill expands this to include experience in the field of technology
  • Decriminalization of certain offenses:
    • The Bill changes the nature of punishment for certain offenses from the imposition of fines to penalties (Fine is referred to as a sum of money ordered by the court to pay for an offense, after the complete prosecution in a matter. On the other hand, penalties do not involve court proceedings and they are imposed when a person does not comply with the provision of a specified act)
    • These offenses include failure to comply with orders of CCI and directions of the Director General with regard to anti-competitive agreements and abuse of dominant position

Important terms:

 Gun-jumping

Parties should not go ahead with a combination prior to its approval. If the combining parties close a notified transaction before the approval or have consummated a reportable transaction without bringing it to the Commission’s knowledge, it is seen as gun-jumping. The penalty for gun-jumping was a total of 1% of the asset or turnover. This is now proposed to be 1% of the deal value

What challenges do combining parties face in open market purchases?

• There have been several gun-jumping cases owing to the combining parties’ inability to defer the consummation of open market purchases
• Many of them argue that acquisitions involving the open market purchase of target shares must be completed quickly, lest the stock value and total consideration undergo a change
• If parties wait for the Commission’s clearance, the transaction may become unaffordable
• Similar to the European Union merger regulations, the present amendment Bill also proposes to exempt open market purchases and stock market transactions from the requirement to notify the Commission in advance
• This is subject to the condition that the acquirer does not exercise voting or ownership rights until the transaction is approved and the same is notified to the Commission subsequently

 Hub-and-Spoke Cartels

• A Hub-and-Spoke arrangement is a kind of cartelization in which vertically related players act as a hub and place horizontal restrictions on suppliers or retailers (spokes)
• Currently, the prohibition on anti-competitive agreements only covers entities with similar trades that engage in anti-competitive practices
• This ignores hub-and-spoke cartels operated at different levels of the vertical chain by distributors and suppliers
• To combat this, the amendment broadens the scope of ‘anti-competitive agreements’ to catch entities that facilitate cartelization even if they are not engaged in identical trade practices

Conclusion:

• By implementing these amendments, the Commission should be better equipped to handle certain aspects of the new-age market and transform its functioning to be more robust.
• The proposed amendments are undoubtedly neededhowever, these are heavily dependent on regulations that will be notified by the Commission later
• These regulations will influence the proposals
• Also, the government needs to recognize that market dynamics change constantly, so it is necessary to update laws regularly.
• Similarly, the changes proposed to the leniency regime and the introduction of settlements and commitments would require well-thought-out litigation strategies for behavioral cases
• It remains to be seen what final shape and form the amendments take
• To increase the ease of doing business in India within the regulatory framework of the Competition Act, the CCI will need to provide timely guidance on the various concepts introduced in the Bill and work together with all stakeholders to implement it