Violation of competition law provisions will require the firms concerned to pay much stiffer penalties and mergers and acquisitions (M&As) in the big tech space will have an increased chance of being regulated by the Competition Commission of India (CCI), thanks to changes to the relevant laws approved by the Lok Sabha on Wednesday.
The Competition (Amendment) Bill, 2022, passed by the Lower House, makes it explicit that the regulator could impose penalties based on the “global turnover” of an enterprise for anti-competitive behaviour, rather than the “relevant turnover”, that is, turnover derived from the sales of goods or services, which are found to be the subject of contravention. The change would impact multinational firms with India operations and local firms with global presence.
The change practically overturns the Supreme Court’s May 2017 ruling in the case pertaining to public procurement of aluminium phosphide tablets by state-run Food Corporation of India (FCI) from a group of companies, where it upheld the principle of “relevant turnover” norm. The CCI had for several years been penalising firms, interpreting the Section 3(3) of the Competition Act to mean that the fines shall be imposed on the entire global turnover of the entity concerned.
The apex court ruling has also impeded recovery of penalties from many firms, including some in the cement and chemical industries, which were sought to be fined for abuse of dominant position or being party to cartels.
The rate of penalty will continue to be subject to the upper limit 10% of the global turnover or three times the profits of the companies for the last three preceding financial years.
Finance and corporate affairs minister Nirmala Sitharaman moved 13 amendments to the Bill, before it was passed by the Lok Sabha without any debate as Opposition members continued to seek a probe by a joint parliamentary committee into the allegations against Adani Enterprises
“Turnover means global turnover derived from all the products and services by a person or an enterprise,” said the amendment moved by the minister. This is a key change from the original amendments in the Bill last year and also does not feature in the recommendations of the Standing Committee on Finance that had examined the proposed legislation.
“The objective of the amendment is to make the penalty sufficient deterrent for erring enterprises. And this is the practice in many other jurisdictions, including the EU,” Augustine Peter, former member of CCI, said.
A key provision of the Bill is the introduction of deal value threshold (DVT) of `2,000 crore as an additional criterion for M&A regulation. The rise of Big Tech and acquisitions in the sector such as that of WhatsApp by Facebook was the trigger for the change, as it was felt in this space the current thresholds of assets and turnovers (of the acquirer and the target) may not suffice to pre-empt competition infractions.
The Bill seeks to make it mandatory for M&As to be notified to CCI if the DVT is above `2,000 crore, if there is significant India presence. It also proposes to reduce the overall time limit for assessments to 150 days from the existing 210 days, and to form a prima facie opinion to 20 days from the current 30 days. It proposes to introduce a Settlement and Commitment framework (compounding) for faster resolution of investigations into antitrust cases. However, the parliamentary standing committee’s proposal to extend the settlement facility to cartels hasn’t been included in the Bill.
“From businesses’ point of view, the consideration of total turnover may lead to ‘unfair and punitive’ outcomes and would also lead to discrimination between enterprises who commit a similar contravention but are penalised differently depending on the expanse of their business,” said Avaantika Kakkar, partner & head-competition, Cyril Amarchand Mangaldas. She, however, welcomed the commitment and settlement regime which would be applicable to contraventions related to “anti-competitive vertical restraints and abuse of dominance”.
Via an amendment, the government has brought in a clarificatory provision that DVT threshold will be triggered when the party “being acquired, taken control of, merged or amalgamated” as substantial business operations in India to ensure that the target enterprise has a large business link to India. This would mean that high value transactions, particularly in the digital economy with an Indian connection, are vetted by the antitrust watchdog.
Other key changes from the original Bill include a provision to expand the scope of cartel prosecution to include persons who participate or even “intend to participate” for assessing hub and scope cartels as against the original provision of including persons who have actively participated in such activities.
Further, it has also provided for compensation claims even in settlement orders passed by the CCI. The Bill had proposed to introduced a settlement and commitment framework that would allow parties, except cartels to approach the CCI for a settlement in antitrust cases.
Experts welcomed the passage of the long-pending bill, noting that it is based on the 14 years of enforcement experience that the CCI has since it was set up in 2009.
“The Competition (Amendment) Bill is timely and was required to make the legislative framework future proof. The amendments relating to settlements and commitments for example, will bring in regulatory efficiency by allowing the CCI and parties to prevent long drawn out inquiries,” said
Ravisekhar Nair, partner, Economic Laws Practice.
Saksham Malik, programme manager, Competition Law and Policy, The Dialogue, noted that currently, major technology platforms are under investigation before the CCI. “The Bill will allow them to settle with the Commission, reducing their financial burden by avoiding large penalties,” he said.
GR Bhatia, partner, Luthra and Luthra Law Offices India, said the changes approved are expected to strengthen the scope and powers of the CCI in elimination of anti-competitive practices.
The Bill was originally introduced in Parliament on August 5 last year and was then referred to the Parliamentary Standing Committee on Finance led by BJP