Explained: Why We Need To Amend The Existing Indian Competition Act

The Competition (Amendment) Bill, 2022, aims to add a new criterion value¡ªfor Mergers and acquisitions (M&A) that must be reported to the competition regulator for approval. This acknowledges the possibility that the current "assets & turnover" criteria might not prevent competition infractions in the digital arena.

The Competition Act

The Indian Competition Act was passed in 2002, but it wasn't until seven years later that it actually went into effect. The Act, which attempted to encourage fair trade and free competition in the marketplaces for goods and services, established the Competition Commission of India (CCI).

The three main types of anti-competitive market behaviour that the Competition Commission monitors are anti-competitive agreements, abuse of dominance, and combinations.

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Changes were required to maintain and foster market competitiveness as a result of the market's dynamic shifts brought on by technology breakthroughs, artificial intelligence, and the growing significance of factors other than price. As a result, a review committee was formed in 2019 and made numerous significant amendments.

It was amended in 2007, 2009, and 2017. On May 20, 2009, the Act's provisions concerning anti-competitive agreements and abuse of a dominant position were made public. Recently, the Lok Sabha received the long-awaited Bill to modify the Competition Act, 2002.

In May 2011, two years later, the CCI also started reviewing M&As. Combinations that exceed specific asset/turnover thresholds now require notification to the CCI for approval.

Why is it necessary to amend the Act?

For Indian firms and groupings, Section 5 of the Act specifies asset and turnover thresholds that, if exceeded, demand notifying the CCI. Different thresholds apply to mergers for multinational companies and groups having an Indian component. Every two years, the thresholds are revised.

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Combinations might include any purchase, merger, or union. Parties engaging in merger, acquisition, or amalgamation are currently only required to notify the Commission of a combination on the basis of "asset" or "turnover," according to Section 5.

A "deal value" barrier is proposed to be added under the new Bill. Any transaction with a deal value greater than Rs. 2,000 crores and if either party has "significant business operations in India" must be reported to the Commission.

The Competition Law Review Committee, established in 2018, stated that the Act needed to be reevaluated. The rise of Big Tech and sector acquisitions, such as Facebook's acquisition of WhatsApp, was the motivation for the review because, in this industry, the businesses involved may operate well below the thresholds at the time of a deal's closing but still possess sufficient market power to stifle competition. Additionally, it was felt that settlement of actions for violations needed to be introduced (like ACA and ABP).

Parliamentary panel recommendation

The Standing Committee on Finance presided over by BJP MP Jayant Sinha, has advocated keeping the DVT level of "2,000 crores," but has also stated that the company being acquired in India should have "significant business operations." In order to prevent DVT from becoming restrictive, it was suggested that it be evaluated annually rather than every two years as called for under the Bill. Although industry participants argued that the threshold was relatively low and may compel many M&As to seek regulatory permission unnecessarily, the panel appears to have adhered to the threshold deal value.

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The legislative committee also supports keeping the approvals timeline at its current value (210 and 30 days).

Significantly, it proposed that "cartels," a serious offence, be covered by the settlement. It is crucial to emphasise that cartelization is considered a criminal offence in many advanced competitive nations, not a civil one. Before the Bill is brought to the Cabinet, the government will now review the Standing Committee's suggestions and may incorporate all or some of them. The Lok Sabha would probably take up the Bill for consideration and passage during the Budget session.

What next?

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By putting these changes into effect, the Commission should be better prepared to manage specific features of the new-age market and improve its operation.

The suggested changes are unquestionably necessary, but they also strongly rely on the regulations that the Commission will notify at a later stage. The proposals will be influenced by these regulations.