Competition (Amendment) Act, 2023

The Competition Act 2002 (hereafter referred to as ‘Act’) was drafted promoting and supporting market competition, safeguarding the consumers’ interests and guaranteeing that everyone shall have the freedom of trade and commerce. The goal was also to prevent individuals from getting involved in anti-competitive practices like price-fixing, rigging of bids, abusing power if you are a dominant company, etc.

The Act was amended by the Indian Parliament through the passing of the Competition (Amendment) Act, 2023 (hereafter referred to as ‘Amendment Act’), which basically amends the provisions of the Competition Act, 2002. This Amendment Act was approved by the President on 11 April 2023 and brought into force by the Government of India on 18 May 2023.

Key Changes in the Act

Limitations on Deal Values

Any deal that has a contract value of more than INR 2,000 crore needs to be pre-approved. This move aims to target the big corporate entities that do not have significant assets or turnover in India. However, it would be subject to the fact of the entity having ‘ample business operations’ in India.

It must be noted that this additional limitation is prescribed over the current asset and turnover-based tests. In addition, it shall be applicable to all sectors and not be limited to the digital markets, which was the actual recommendation in the Competition Law Review Committee (CLRC) Report, 2018.

Timelines for Different Processes

The Amendment Act provides several changes in the timelines for several processes and reduces them to enable faster transaction approvals.

• For mergers and acquisitions, the Amendment Act changed the period of 210 days from the date of notifying the CCI for a combination to come into effect to 150 days.
• The time limit to form a prima facie opinion by the Commission to issue a show cause notice to relevant parties has been reduced from the existing 30 days to 15 days.
• The Competition Commission of India (CCI) now needs to form a prima facie opinion on whether the merger and acquisition in question shall cause appreciable adverse effects on competition (AAEC) in India within a period of 30 calendar days (and not the current 30 working days)

Implementation of Open Offer/Purchases of Shares from the Open Market

The Amendment Act allows the implementation of an open offer or acquisition of shares or securities via a series of trades on a regulated stock exchange forming some part of the merger before receiving the CCI’s approval if:

• The acquisition notice has been filed with the CCI in accordance with the procedural standards defined in the Act, and
• The acquiring party shall not use their ownership or beneficial rights, voting rights or receive any dividends or any other distributions until the acquisition is approved by the CCI.

Addition of Limitation Period

The CCI shall no longer accept any information or complaints that have been filed after a period of three years from the date when the cause of action took place. However, it may take the filing into consideration under certain circumstances. This basically means that private entities and government bodies need to quickly bring any anti-competitive agreements or abuse of power by any dominating entity to the CCI’s attention. This seems somewhat probable and there is a lack of clarity about whether it will have an effect on decisions related to whether cases that have already been filed need to be investigated.

Furthermore, the CCI shall be barred from giving time to cases that somewhat cover the same facts and issues that they have previously addressed. Approaching parties will be required to differentiate their cause of action from previous decisions of the CCI at the threshold stage itself.

Hub and Spoke Cartels

When talking about the anti-competitive agreements that involve cartels, the existing Act only covered the agreements between entities that engage in the same or similar trade practices. In addition, there should be some collusion at the horizontal or vertical levels to prove the presence of a cartel arrangement.

Anti-competitive agreements between parties that are not involved in the same or similar trade now fall under the Competition Act. Individuals who facilitate cartels like trade associations and consultants along with those who participate in hub and spoke cartels that are run by suppliers or distributors at different levels shall now be liable for breaches. The CCI shall now treat them at par with actual cartelists had they participated or planned to participate in such cartels.

Elimination of Standstill Obligations for Open Market Purchases

The existing standstill obligations for open offers and acquisition of convertible shares shall be waived if:

• A merger notification has been filed with the CCI, and
• The acquiring party shall not use their ownership or beneficial rights, voting rights or receive any dividends or any other distributions until the acquisition is approved by the CCI.

Increased Penalty for Making False Statements/Suppressing Material Information

As per the existing provisions of the Act, anyone who is a party to a merger and acquisition and who makes a false statement or hides some information related to the combination is liable to pay a penalty of a minimum of INR 50 lakhs and maximum of INR 1 crore. The latest Amendment Act increased the maximum limit for this penalty to INR 5 crores.

Pre-Deposit Mandate of Penalty for Appeal

The Amendment Act deems it mandatory for any party that wishes to file an appeal against the Commission’s order before the National Company Law Appellate Tribunal (NCLAT) and has a penalty imposed on them to pay 25% of the penalty. They shall only be eligible to file an appeal to NCLAT after the required payment has been made by them.

Other Changes under the Amendment Act

• The Amendment Act demands that the CCI makes new regulations keeping certain changes in the Amendment Act in mind, like presence of substantial business operations in India, form of merger and acquisition, fee for the merger and acquisition, etc.
• The Act also defines a specific procedure for the CCI to create regulations under the Act. It also expresses that when making such regulations under the Act, the CCI should ensure there is complete transparency by seeking comments from the public and actively responding with a statement to such comments before or along with the regulations when publishing them.
• The Amendment Act grants the CCI the right to issue any guidelines including guidelines related to the amount of penalty that shall be levied in case of any violation of the Act.
• Along with now defining turnover, as certified by the statutory auditor, the Amendment Act has also laid out certain exclusions like indirect taxes, intra-group sales, trade discounts, etc.
• Parties have been allowed to call experts from different fields to share their expert opinion about anything related to a case before the CCI under the Amendment Act.
• As per the Amendment Act, the CCI shall now be responsible to appoint the Director General after acquiring a prior approval from the Central Government as compared to the prior regulations, which only granted this power to the Central Government.

Conclusion

The Amendment Act aims to improve the competition structure in India and represent a step towards toughening up of India’s antitrust enforcement framework. The various changes made to the Act under this Amendment shall not only shorten the time required to get approvals for mergers and acquisitions, but provide for better solutions, more efficient operations and much-needed harsher penalties for violations as well.