“Competition is the keen cutting edge of business, always shaving away at costs.” – Henry Ford
According to the World Bank’s Doing Business 2020 report, India was ranked 63rd out of 190 countries, marking a significant improvement of 79 places since 2014. This progress can be attributed to a series of reforms implemented by the central government, including the Business Reform Action Plan (BRAP)1. It is a report published annually by the Department for Promotion of Industry and Internal Trade (DPIIT), which is a branch of the Ministry of Commerce. The DPIIT also provides reports on initiatives such as Make in India, Start-up India, and Production Linked Incentives annually. This BRAP report takes into account various metrics and 15 areas are evaluated to determine the rankings of the states in Ease of Doing Business including the single window system, centralized inspection mechanism, labour and land laws, environmental clearance, law and order situation, ease of starting a business, location, availability of loans, taxes, exports, and other factors.
There is a clear relationship between the Competition Act 2002 and the Ease of Doing Business. By promoting fair competition, the Act helps create a level playing field for businesses of all sizes. This, in turn, encourages entrepreneurship and innovation, which are essential for a healthy business environment.
The Competition Commission of India is a quasi-judicial body, which operates under the Ministry of Corporate Affairs, and was established under the Competition Act 2002. Its primary objective is to promote competition in the market, safeguard the interests of consumers, and establish a trustworthy environment that is crucial for emerging economies like India, where the value of trade is continuously growing. To curtail anti-competitive practices, such as manipulating the sale or purchase price of goods and services, and controlling production or supply, the Commission advocates for the amendment of laws.
In terms of the Ease of Doing Business, the Competition Amendment Act 2023 passed1(a) on 11th April 2023 will play a crucial role in ensuring that businesses can operate in a fair and competitive environment, which can help attract foreign investment, create jobs, and foster economic growth. It is, therefore, essential that the Act is enforced effectively to promote a healthy and vibrant business environment in India
Additionally, the Act prohibits anti-competitive practices such as abuse of dominant positions, and mergers that can harm competition in the market. This ensures that businesses cannot engage in practices that would discourage new entrants or limit consumer choice, leading to a more dynamic and competitive market
Let’s examine in greater detail the significant points and procedures related to the amended act, which impact the ease of doing business in India[1]
Deal Value threshold:
A recently introduced regulation of combinations is designed to promote a more favorable environment for conducting business. The addition of new sections 5(d) and 5(e), introduces a deal value threshold. As per the mandatory notification requirement under 6(2), [2]if the value of any acquisition, merger, or amalgamation, i.e., any combination, exceeds Rs. 2000 crores2, it must be reported, given that the target entity has significant business operations in India. This additional threshold has been primarily established to include deals made by large technology multinational corporations in digital markets that have minimal or no assets or turnover in India.
The weakening of the definition of “control” – Section 5(a ) Interpretation:
The definition of control refers to the capacity to exert significant influence in any way on the management, affairs, or strategic commercial decisions of one or more enterprises or groups over another. In its decision-making practices, the Competition Commission of India (CCI) has recognized various forms of material influence, including shareholding, special rights, status and expertise of an enterprise, board representations, and structural/financial influence over another.
Relaxation in Procedural Requirements for Combination Notification:
A relaxation in the procedural requirements involves the elimination of the compulsory 30-day time limit for notifying a combination under section 6(2). Instead, it is now mandatory to provide notification before the consummation of the combination
A recent addition to section 6(2) includes an explanation of the term “other document,” which now encompasses any document indicating a decision to acquire control, shares, or voting rights. This includes documents related to hostile takeovers or the making of public offers in accordance with SEBI regulations from 2011.
Section 6(2A) of the regulation imposes a standstill obligation aimed at promoting a more favorable business environment in India. The maximum time limit for this obligation has been reduced to 150 days2 from the previous duration of 210 days. However, it may be extended for an additional 30 days if a reasonable cause is provided for the time extension request
An exemption that pertains to specific filing requirements-New Section 6(2A) in the case of contractual acquisitions, share subscriptions, or financial facilities obtained by a public financial institution, foreign portfolio investor, bank, or Category 1 alternative investment fund (as defined under SEBI regulations 2019), which are executed pursuant to a covenant of a loan or investment agreement, a specific exemption from filing requirements has been granted. Previously, such acquisitions had to be filed within seven days.
Section 6A, which has been recently added, allows for the exemption of standstill obligations in the case of open market purchases. The current standstill obligations related to open offers and the acquisition of convertible shares/securities on a stock exchange can be waived under certain conditions. These include filing a notice for such acquisition with the Competition Commission of India (CCI) within the statutory time limits specified by regulations established by the CCI and refraining from exercising any ownership or beneficial rights or interest or receiving dividends in such shares or securities until approval is received from the CCI.
The newly added Section 6(4) permits automatic or deemed approval of filings pertaining to cases falling under the green channel category. Combinations that meet the criteria (to be determined by the rules established by the central government under Section 63) and are not otherwise exempted from filing a statutory notice under Section 6(2) may be submitted to the Competition Commission of India (CCI) in the prescribed format and with the requisite fee (as specified by regulations established by the CCI under Section 64).
Penalty for Incomplete or False Disclosures:
Section 44 provides for a higher penalty for submitting false or incomplete information in the statutory notice that must be filed before the Competition Commission of India (CCI). There has been an increase in the maximum penalty for providing false or incomplete disclosures in the statutory notice to be filed before the Competition Commission of India (CCI) under Section 44, from Rs. 1 crore to Rs.5 crore [3]. However, the minimum mandatory penalty of Rs. 50 lakhs remain unchanged.
Penalty for Gun Jumping:
In the context of the Competition Act, “gun jumping” refers to the premature implementation of a combination (merger or acquisition) before receiving clearance from the Competition Commission of India (CCI). This is considered a violation of the Act, as it can impact competition in the market. Section 43A provides for a specific penalty in “gun jumping” cases, where failure to file a notice under Section 6(2), 6(4), or contravention of Section 6(2A) may result in a maximum penalty of 1% of the total turnover[4] or assets, whichever is higher
Enforcement Provisions for Anti-Competitive Agreements and Cartels:
The scope of horizontal anti-competitive agreements and cartels is extended to include “facilitators” or “hubs,” i.e., entities other than direct competitors, including non-participants.
Section 3(3) of the Competition Act has been amended to expand the scope of enforcement provisions for horizontal anti-competitive agreements and cartels. The changes include:
1. Insertion of a new proviso to cover “Hub & Spoke” cartels
2. The presumption that a facilitator of a cartel is a part of the cartel, even if not engaged in similar/identical trade, provided there is an apparent intention to participate in the agreement (or found participating in the agreement)
3. The inclusion of the element of Mens rea aims to safeguard alleged facilitators, including trade associations. However, in the previous case of CCI vs. Thomas Cook[5], it was determined that Mens rea is not pertinent.
4. Potential coverage of algorithm-driven collusion in digital markets.
Section 3(4) expands the scope of anti-competitive agreements to include agreements other than vertical agreements between manufacturers and dealers.
1. All other agreements, including those between manufacturers and dealers, are covered if they cause an Appreciable Adverse Effect on Competition in India (AAEC).
2. This provision also captures agreements that may not fall under the horizontal or vertical category, such as Most Favored Nations (MFN), non-compete clauses, and parity clauses used by online travel agents for hotel/air ticket bookings. An example of such a case is the MakeMyTrip-Oyo case, which was decided by the Competition Commission of India (CCI) in October 2022.
The Competition Act has clarified that tie-in agreements are only applicable when the tied product or service is distinct from the main product or service. The scope of resale price maintenance has been expanded to encompass any direct or indirect constraint on the resale of products through dealers, etc., and is not limited to price or discount alone.
A new proviso has been added before the explanation in Section 3(4) to exclude agreements between an enterprise and end consumers. This has been done to avoid unnecessary complaints against non-dominant real estate builders from buyers.
Time limit introduced for filing complaints to CCI regarding anti-competitive agreements:
The Competition Commission of India (CCI) has introduced a time limit for filing complaints regarding anti-competitive agreements or market conduct of a dominant enterprise. Under the new proviso to section 19(1) of the Act, any person can approach the CCI with a piece of information alleging a violation of section 3 or 4 within three years from the accrual of the cause of action. However, the CCI may condone the delay for genuine cases. It is important to note that this limitation only applies to agreements between enterprises and does not include agreements between an enterprise and end-consumers[6].
Section 19(3) clauses (c) and (d) has been fine-tuned to provide more precise factors for determining the Appreciable Adverse Effect on Competition (AAEC).
Section 19(6) now includes clauses (i) and (j), which introduce two additional considerations for identifying the “relevant geographic markets.”
Section 19(7) has been updated to include clauses (g) and (h), which outline two new factors that must be taken into account when identifying the “relevant product markets,” namely, switching costs and customer categories.
Section 26(2A) has been implemented to prevent a repeated investigation into allegations under sections 3 or 4 that have already been resolved in a prior case. This provision aims to simplify the inquiry process under section 19 and establish the principle of res judicata.
Under sections 26(3A) and 26(3B), the Competition Commission of India (CCI) has the authority to order additional investigations and require the Director General (DG) to produce a supplementary investigation report within a specified timeframe.
The recent amendment has resolved an ambiguity in the existing scheme of section 26 of the Act, which previously lacked provisions for the closure of cases by the Competition Commission of India (CCI) if it disagreed with the DG’s investigation report on violations of the Act following a post-investigation inquiry under section 26(8). This gap resulted in a lack of appeal or remedy against such “orders” issued by the CCI. However, the new proviso in section 26(9) now empowers the CCI to issue a show cause notice of its intention to close the case in such circumstances
Section 27(b) has been amended to include two additional explanations that relate to the imposition of penalties based on “Global Turnover.”[7]
The maximum percentage of turnover or income upon which penalties can be imposed remains unchanged, with 10% being the maximum or three times the profit per year in the case of a cartel, whichever is higher. However, two new explanations have been added to Section 27(b). The first explanation specifies that “Turnover” or “income” will be defined by regulations established by the Competition Commission of India (CCI). The second explanation clarifies that “Turnover” refers to the global turnover generated by an enterprise or individual from all their products and services.
This amendment appears to contradict the Supreme Court ruling in the Excel Crop Care Ltd Case. The court’s ruling limited the definition of “turnover” used in Section 27(b) to “relevant turnover” derived from the products or services under investigation, in accordance with global best practices and the doctrine of proportionality
The recent amendment appears to override the impact of the aforementioned ruling. As a result, businesses found to have violated sections 3 or 4 of the Competition Act 2002 may now face penalties of up to 10% of their global turnover, which includes revenue generated from the sale of all products and services, not just those within India. This is against the principle of proportionality well established in jurisprudences across the world.
Settlements, Commitments, and Leniency Plus: in order to Maximize the Benefits of Antitrust Enforcement Section 48 A introduces settlements as an option for cases involving alleged violations of vertical anti-competitive agreements under section 3(4) and abuse of dominant position under section 4, which are initiated under section 26(1). Parties may apply for settlement at any time after receiving the DG report but before the final order is passed by the CCI under section 27 or section 28, within the timeframe specified by CCI regulations. The CCI will provide an opportunity for concerned parties, the DG, or any other party to submit objections and suggestions. The CCI may accept or reject the proposed settlement after considering the gravity, impact, and nature of the contravention. If the settlement is deemed inappropriate or parties fail to reach an agreement within the specified time, the CCI will proceed with the inquiry under section 26. The party proposing the settlement must pay a determined sum to the CCI, and the CCI may specify the terms of implementation. The CCI’s decision is final and cannot be appealed. However, under section 53N, compensations must be paid if claimed, and settlements do not extinguish the right of an aggrieved person to seek compensation.
Section 48B outlines the option of commitments for cases involving alleged violations of vertical anti-competitive agreements under section 3(4) and abuse of dominant position under section 4, initiated under section 26(1). Applications for commitments can be submitted at any time before receiving the DG report and after the prima facie order under section 26(1), within the timeframe specified by CCI regulations. The CCI must provide an opportunity for concerned parties, the DG, or any other party to submit objections and suggestions. The CCI may accept or reject the proposed commitments after considering the nature, gravity, and impact of the alleged contravention and the effectiveness of the proposed commitments. The CCI may also impose terms, manner of implementation, and monitoring as specified by CCI regulations. If the proposed commitments are deemed inappropriate, or parties fail to reach an agreement within the specified time, the CCI will proceed with the inquiry under section 26. The procedure for commitments under this section will be specified by CCI regulations. The decision of the CCI is final and cannot be appealed.
Revocation of Settlement or Commitment Orders and Associated Penalties: Section 48C deals with the revocation of settlement or commitment orders. The CCI can withdraw the order passed under section 48A or section 48B in the following situations
1) the applicant fails to comply with the order passed under section 48A or section 48B
2) the applicant did not disclose full and accurate information, or
3) there is a significant change in facts.
The party that failed to comply shall be liable to pay legal costs incurred by the CCI, which may extend to Rs. 1 crore. Additionally, the CCI may initiate or restore the inquiry
Leniency Regime Amendment:[8]
The scope of leniency for breaking cartels has been expanded through the introduction of “Leniency Plus.” Under section 46(2), the CCI now has the authority to permit the withdrawal of a leniency application, which was previously not an option. However, even if an application is withdrawn, the DG or CCI may still use the evidence provided in that application, according to section 46(3).
“Leniency Plus” has been introduced to encourage cartel members to reveal multiple cartels to save time and resources in the investigation, aligning with similar provisions in the UK, USA, Singapore, and Brazil. Under this, the CCI has the authority to grant a reduced penalty if a party makes a truthful and significant disclosure of another undisclosed cartel during the investigation into the existing one. Additionally, such disclosure will give the party priority market status in respect of the other cartel, but only if it enables the CCI to form a prima facie opinion and pass an order for investigation under section 26(1).
Enhanced Authority of CCI Director General for Investigations:
Section 41 has been amended to enhance and formalize the authority of the DG to conduct investigations, the proviso has undergone revisions, expanding the powers of the DG in the following ways:
1. The DG now has the authority to demand any person who is not a party involved in the proceedings (third party) to provide any relevant or necessary information or records, including books, papers, or other documents.
2. The DG can now conduct an oath-based examination of officers, employees, agents, legal advisors, bankers, trustees, and other representatives of the party under investigation.
3. With prior approval from the commission, the DG can examine any other person, administer an oath, and record statements relating to the party under investigation.
4. The DG is now authorized to apply to the Chief Metropolitan Magistrate, Delhi, for an order to conduct a raid (search and seizure operation) on the premises of the party/person under investigation to seize information, books, papers, records, or other documents that the DG reasonably believes may be destroyed, altered, falsified, or concealed.
Section 16 has been modified, and the appointment of the DG by the CCI now requires prior approval from the Central Government. Additionally, a new proviso has been added to Section B, mandating the pre-deposit of a 25% penalty as a prerequisite for the admission of an appeal for a hearing before the National Company Law Appellate Tribunal (NCLAT). Furthermore, Section 2(t) has undergone an amendment, broadening the definition of “relevant product market” to encompass supply-side substitutability[9].
A new Section 2(ka) has been added, which defines a “party” before the CCI to include a consumer and an information provider. This addition is a positive development based on enforcement experiences.
Section 42(3) of the act covers the compounding of any offense punishable under the act, except for offenses punishable solely with imprisonment or imprisonment with a fine, by the NCLAT or any other court where proceedings related to such offense are ongoing. This provision is stated in Section 59 of the act.
Section 64B directs the CCI to issue non-binding guidelines on the provisions of the act, including guidelines on determining the appropriate amount of penalty.
Looking towards the future, it is clear that the Indian government is committed to further strengthening its competition laws and regulations, with a view to promoting even greater ease of doing business. This includes plans to introduce new laws and regulations to address emerging issues in the digital economy, such as data privacy and platform monopolies.
The government is also focusing on improving competition enforcement mechanisms and enhancing the role of the Competition Commission of India (CCI) in regulating anti-competitive practices. This will help to ensure that businesses operate in a fair and competitive environment and that consumers are protected from monopolistic practices and abuse of market power.
Moreover, the government is actively engaging with stakeholders to identify and address barriers to competition, such as the lack of access to credit and market information, which can disproportionately affect smaller businesses and entrepreneurs.
In conclusion, the legal reforms and amendments in the Competition Act have set a solid foundation for promoting ease of doing business in India. With the continued focus on improving competition laws and regulations, the Indian economy is well-positioned to attract more investment, drive innovation, and enhance overall economic growth and development in the years to come.
Excerpt and source links:
1. https://taxguru.in/corporate-law/india-ranks-63-world-banks-business-report.html
1(a) https://egazette.nic.in/WriteReadData/2023/245101.pdf.
2. The Competition (Amendment) Act, 2023 No. 9 of 2023, 11th April 2023 (gazette notification), page 4, point 6 Amendment of Section 5 clause (d) & The Competition (Amendment) Act, 2023 No. 9 of 2023, 11th April 2023 (gazette notification), page 5, point 7 Amendment of Section 6
[3]. https://taxguru.in/corporate-law/competition-amendment-act-2023.html page 14 point 31 Amendment of section 44
[4] https://www.cci.gov.in/faqs.
[5] https://indiankanoon.org/doc/84791944/.
[6] https://www.cci.gov.in/images/legalframeworkregulation/en/cci-general-regulations-20091652176202.pdf.
[7] The Competition Amendment Act 2023 (Gazette Notification) dated 11th April 2023, Page 10, point 20, explanation 2, Amendment to section 27
[8] http://164.100.58.95/sites/default/files/advocacy_booklet_document/Leniency.pdf.
[9] https://www.mondaq.com/india/cartels-monopolies/1307514/india-amends-its-competition-law—the-competition-amendment-act-2023-comes-into-force—promoting-ease-of-doing-business.
Author Bio
competition and market leadership is based on cost competitiveness and competition is followed by technology. Unfortunately in India concept of FAIR COST like fair value has not been introduced.