By Arnav Mathur and Manav Pamnani
- Introduction
In the economic landscape where companies compete for dominance and markets serve as platforms for this competition, the Competition Law (Amendment) Act, 2023, emerges as a crucial regulator, promoting fair competition, effective regulation, and economic growth.
This article examines the amendments introduced by the Act, focusing on the revised deal value threshold aimed at controlling unchecked high-value acquisitions while inadvertently increasing notification requirements. Additionally, it discusses recalibrated penalties, new settlement provisions, the omission of cartels from these provisions, an enhanced liability framework, and shortened approval timelines. By analysing the benefits and potential challenges of these changes, this article provides insight into the evolving Indian competition law and its implications for businesses and the broader economy.
- Navigating Deal Thresholds
One of the most noteworthy modifications through the Amendment Act pertains to the deal value threshold. A provision has been introduced, stipulating that any transaction surpassing Rupees 2000 crore in value necessitates prior approval. Furthermore, entities with “substantial business operations” in India are obliged to notify the Competition Commission of India (CCI).
The ramifications of this alteration are twofold. Firstly, it serves as an efficacious regulatory mechanism, effectively addressing the unchecked execution of high-value acquisitions such as Facebook’s acquisition of Whatsapp in 2014, which evaded CCI clearance. Unchecked transactions of such magnitude can potentially yield detrimental effects on the Indian economy. Secondly, this provision permeates positively across all sectors of the Indian economy, ranging from infrastructure to agriculture. This is due to the inherent interdependence between a country’s economic interests and its populace’s material well-being and ancillary concerns. By safeguarding the economic interests of the nation, this provision indirectly protects the diverse facets of Indian society, ensuring the holistic prosperity and welfare of its people.
In the past, CCI provided explicit guidelines to the parties involved in M&A transactions regarding the necessary notifications, ensuring clarity in the process. Post Amendment, the notifications for deal values have been formulated in a sector-agnostic manner rather than sector-specific for any deal crossing the threshold. However, this approach has introduced an additional layer of complexity in determining whether a notification is required, particularly for smaller transactions with a global angle where the value easily exceeds the threshold. The extent of the ‘Indian Nexus’ required remains uncertain at present.
At the heart of the matter lies how to arrive at a set of parameters that can be consistently applied, yielding meaningful outcomes in determining the “Indian nexus.” Here, a striking dichotomy emerges when considering the regulations’ original intent and subsequent implementation. While the tool was designed specifically to curb killer acquisitions in the tech sector, its broad implementation encompasses diverse industries.
Treating all sectors uniformly while aiming for a universal framework can inadvertently prolong the review and assessment process. Each industry possesses its own intricacies, market dynamics, and competitive landscape. Acknowledging these differences and tailoring the review process accordingly can prevent unnecessary delays and streamline the evaluation of merger transactions.
Time considerations are paramount in transactions involving startups, particularly relevant to strategic deals concerning Indian tech startups. Due to the new regulatory framework, there is a substantial risk of being subjected to lengthy investigations by the CCI.
Additionally, it is worth considering the establishment of offices in crucial startup hubs such as Bangalore. This measure would enhance accessibility to the CCI for a multitude of startups and potentially reduce costs associated with the startup. By strategically locating offices, CCI can foster an environment conducive to streamlined interactions with startups, thus facilitating efficient deal evaluations and regulatory compliance.
- Cartels and Settlements
The Act permits the CCI to swiftly address market malpractices and avoid lengthy appeals processes by introducing settlements and commitments. This allows companies under investigation to propose resolutions to potential competition concerns by commitment, which would halt ongoing investigations, correct market imperfections, and be final and non-appealable. It is a win-win for the regulator and the regulated since it will conserve institutional resources, reduce uncertainty in outcomes and ensure swift market correction.
However, to make the settlement scheme more appealing, CCI must ensure that it has a fair and reasonable ‘settlement fee’ and an even-handed rationale for establishing the same; only then will it encourage companies to opt for settlement rather than prolonged litigation, as even after parties have settled, there remains the possibility of compensation claims at the National Company Law Tribunal.
The omission of cartels from the settlement and commitment paradigm is noteworthy; at the same time, they are forms of the most egregious form of anti-competitive behaviour. The Standing Committee had recommended this inclusion for practical reasons. Most penalties imposed by the CCI are related to cartel activities, and settlements would offer a means to effectively recover and address market anomalies. The omission creates a potential incentive for Cartel participants to litigate their cases up to the Supreme Court, as exemplified by the Cement Cartel case.
- Amplified Liability
An additional revision pertains to the ambit of anti-competitive arrangements, delineated explicitly in Section 3(3) of the Act. The Act has been expanded to encompass the direct participants of a transaction and the facilitators of anti-competitive arrangements, including entities involved in the “hub and spoke” cartel framework. Consequently, liability is extended to distributors, intermediaries, and potentially even artificial intelligence entities if their involvement furthers the primary objective of the transaction.
The introduction of this provision signifies a noteworthy advancement, as it imparts a heightened stringency to the anti-competitive regulatory framework. By issuing a clear warning to all involved parties, well in advance, to abstain from engaging in anti-competitive arrangements, the provision significantly contributes to enhancing the regulatory landscape. This, in turn, yields positive ramifications for the Indian economy, as it mitigates the pernicious effects of ruinous competition, replacing it with a climate conducive to positive competition.
- Calculating Consequences
An aspect to scrutinise pertains to penalties. Notably, the Act has augmented the penalty for concealing material information or disseminating false information while also introducing a method of calculating penalties based on a percentage of the entity’s global turnover. This development carries advantages on multiple fronts.
Firstly, the heightened penalty signifies a more stringent enforcement mechanism, thereby expectedly reducing the non-compliance rate. Secondly, the approach adopted for penalty computation is both efficient and progressive. By imposing higher fines on firms with more significant turnovers and vice versa, a proportional levy is ensured, devoid of arbitrariness. This approach effectively prevents smaller firms from bearing the burden of exorbitant penalties.
Furthermore, endeavours have been made to align this legislation with the antitrust provisions observed in the European Union and the United States. A testament to this alignment is the provision pertaining to the introduction of settlements and commitments, which further exemplifies this Act as welfare legislation.
- Unlocking Efficiency
The timeline framework for the approval of combinations has significantly reduced, transitioning from a lengthy period of 210 days to a more streamlined span of 150 days. Moreover, the CCI must provide its opinion within a concise window of 30 days, serving as a crucial determinant for subsequent approval considerations. This transformation yields another favourable outcome, imparting an expedient dimension to the process, enabling entities to proceed with their arrangements within a shorter timeframe. Consequently, this compressed timeline indirectly leads to heightened profitability for the entities involved, thereby positively impacting the overall economy and its diverse sectors.
While the aspect of the CCI’s opinion may be subject to subjective evaluation, its necessity is undeniable. Hence, only meticulously selected arrangements that fulfil the stipulated criteria will be deemed approved, thereby establishing a high benchmark and safeguarding the holistic interests of the economy.
However, it is worth noting that specific arrangements fall outside the purview of requiring prior approval, as specified under Section 6(4). Such combinations are deemed prima facie approved by default, absolving the CCI from delving into intricate details and, in turn, fostering an environment characterized by procedural simplicity and expeditiousness. The advantage of this approach lies in the convenience and ease it affords, with minimal emphasis placed on procedural formalities, thereby manifesting itself as an undeniable boon.
- Conclusion
The implementation of this Act propels India to expand the horizons of Indian Competition Law and brings a robust and efficient framework. The amalgamation of relaxed regulations and stringent provisions, meticulously balanced and decisive, signals a promising future for Competition Law in India.
However, the success of this legislation extends beyond its well-crafted design; it hinges on the efficient execution of its provisions in the unconquered terrain of possible delays and hinderance to the startup culture. A carefully constructed legal framework lays the foundation for achieving the broader objectives of the competition regime in India, with systematic and effective enforcement being paramount.
Observing the practical implications of this legislation will be intriguing, as the dynamic nature of law and society may necessitate future amendments to align with evolving trends and the diverse needs of the people.
Arnav Mathur and Manav Pamnani are third year students at the NALSAR University of Law, Hyderabad