Competition Amendment Bill: Parliamentary Panel Sees A Problem With Deal Value Threshold

Parliamentary Committee suggests incorporating the manner of calculating the deal value threshold in the Act itself.

<div class="paragraphs"><p>The Indian Parliament building in New Delhi, India. (Source: Reuters)</p></div>
The Indian Parliament building in New Delhi, India. (Source: Reuters)

The Parliamentary Committee working on the Competition Amendment Bill, 2022 has asked for clarity in the manner in which deal value threshold is calculated.

The committee has highlighted the newly introduced provision of deal value criterion in its report tabled on Tuesday, where it has recommended various changes to the proposed bill.

This is in addition to the existing turnover/asset threshold criterion and applies to any transaction whose deal value exceeds Rs 2,000 crore.

This means that any deal that exceeds the said threshold would come under the scrutiny of the commission and therefore, would be liable to get permission in advance to complete the deal.

According to the Competition Law Review Committee, this has been proposed as an additional criterion to capture certain combinations that have assets/turnover lower than the threshold under the Act.

However, according to the committee, these uncertainties potentially bring transactions that are unlikely to have anti-competitive effects under the radar of the merger control mechanism.

Also, the manner of calculation must not be left to delegated legislation and must be provided in the Act itself, the report said.

According to Avaantika Kakkar, partner at Cyril Amarchand Mangaldas, these changes were always intended to be dynamic.

There is no denying that the regulator will need to have flexibility and the power to intervene when necessary. The balance that stakeholders would look for is that the intervention does not impact everyday transactional activity with limited or no effect on the market or consumers.
Avaantika Kakkar, Partner, Cyril Amarchand Mangaldas

Other key changes proposed by the panel include:

Inclusion of Cartels in Settlement Mechanism

As part of efforts to make the Competition Act more "pragmatic", the parliamentary panel has recommended the inclusion of cartels in the settlement scheme of the Competition Amendment Bill, 2022.

According to the committee, every case including cartels need not necessarily be anti-competitive, and courts must decide on a case-to-case basis. This is in line with the recommendation made by FICCI, as the exclusion of cartels would defeat the primary objective of the settlement mechanism.

This is indeed a pragmatic move, said Kakkar of Cyril Amarchand Mangaldas.

In the amendment bill introduced in Parliament in August, the government introduced a settlement facility for certain minor offences where parties by submitting an application to the commission, in such form and upon payment of such fees as may be specified by the regulations, can seek settlement of the case. 

Besides suggesting the inclusion of cartels under the settlement mechanism, the committee has also observed that there is no clarity on whether the admission of guilt is a prerequisite to settlement. The committee recommended that ‘admission of guilt’ should not be mandated.

This is a facilitative provision anyway. There is no harm in laying the ground for a settlement that some enterprise may take up (when the stakes are not too high), given the lengthy appeals process in India and the fact that many penalties imposed by the CCI have not yet been paid, pending appeals.
Avaantika Kakkar, Partner, Cyril Amarchand Mangaldas

Will Reducing Procedural Timelines Be Burdensome?

A reduction of various procedural timelines, including the timeline for consummating any combination from 210 days to 150 days, is part of the bill.

According to the Ministry of Corporate Affairs, this will provide regulatory certainty to businesses, and will make combinations timebound and swift.

However, according to the stakeholders and CCI, this will only increase the burden of an already understaffed commission.

The committee, in concurrence with the view of stakeholders and CCI, has proposed that the present timelines remain unchanged.

Kakkar, too, concurred with the view of the committee in terms of timelines. The thresholds in India are among the highest in the world and the CCI has a generally good record with timelines in spite of the fact that they are understaffed, she said.

Is Ability Of Directorate General To Depose Legal Advisers Illegal?

The proposed amendment to the act allowed the Director General to examine agents of parties under investigation, including legal advisers. Stakeholders were of the view that this was in violation of attorney-client privilege.

The committee has concurred with the stakeholders and has noted that this is in violation of the Evidence Act, 1872, as well as Bar Council of India Rules, which apply to advocates.

What Would Constitute ‘Active Participation' In Hub And Spoke Cartels?

Hub and spoke cartels refer to an agreement with parties placed in a similar position in the market, which are implemented vertically through restrictions placed on suppliers or retailers without any direct contract between similarly placed parties.

The proposed amendment brings under its radar any person who is actively engaged in the furtherance of an anti-competitive agreement, even though they are not engaged in similar trade or business.

The stakeholders have pointed out that this provision not only affects hub and spoke cartels but all sorts of agreements between parties placed horizontally in the market.

The committee has observed that there is no clarity on what constitutes ‘active participation’ and therefore, has proposed ‘intention to active participation’ as a necessary element under the provision.  

However, intention is going to be difficult to prove, according to Kakkar. The investigator will rely on circumstantial and direct evidence to prove intent but this will allow for complex arguments that would aid in appeals in the long run, she said.

In addition to the above recommendations, the committee has also proposed inclusion of IPR as a defense to cases involving allegations of abuse of dominance.