Competition Act 2023

What is the competition act?

India's commercial competition is governed under the Competition Act, 2023 (the Act), which replaced the erstwhile Competition Act, 2002 and the Monopolies and Restrictive Trade Practices Act, 1969. The main goal of these Acts was to stop actions that have a negative influence on competition in the Indian market.

The Competition Act, 2002 legislation led to the establishment of the Competition Commission of India (the Commission or the CCI), charged with preventing activities that hinder competition within India.

The Act empowers the Commission to safeguard the interests of free and fair competition, including the competitive process, thereby protecting consumers' interests. Its main responsibilities are as follows:

1. Prohibiting agreements or practices that have, or are likely to have, a significant adverse effect on competition in the Indian market (horizontal and vertical agreements/conduct)
2. Prohibiting the abuse of dominant positions in the market
3. Prohibiting acquisitions, mergers, amalgamations, etc. between enterprises that have, or are likely to have, a considerable adverse effect on competition in the Indian market(s)

Furthermore, the Competition Act, 2002 emphasized international cooperation and enforcement by envisioning mutual support and a global enforcement network.

Over time, the Competition Act, 2002, underwent amendments through the Competition (Amendment) Act, 2007, and the Competition (Amendment) Act, 2009.

Why the changes

The Competition Act, 2002, was enacted with the aim of curbing abuse of dominance and monopolies in the Indian market. Since its implementation, the Indian market experienced significant growth, witnessing a surge in internet-based businesses and companies leveraging technological advancements. Recognizing these developments and in alignment with India's everexpanding economic fundamentals, the Ministry of Corporate Affairs (MCA) established the Competition Law Review Committee (CLRC) in 2018. The CLRC was tasked with assessing the Act's implementation and its coherence with the evolving market landscape. In 2019, certain gaps and drawbacks were identified in the existing framework, leading to recommendations for structured management of market competition. Considering the Standing Committee’s suggestions, the MCA introduced additional amendments and presented the draft to the Parliament in February 2023. After due consideration of the report, the Lok Sabha passed the Competition (Amendment) Bill, 2023 in March 2023, and the Rajya Sabha subsequently passed it in April 2023, effecting changes to the two-decade-old Competition Act, 2002.

The proposed Competition (Amendment) Bill, 2023 aims to revamp India's current competition law in response to instances of anti-competitive conduct by major corporations, particularly in the technology industry.

Summary of amendments and impacts

1. Introduction of deal value thresholds – Deals with a transaction value of more than INR 2,000 crore (USD ~250 mn) will require prior approval of the CCI. The aim of introducing a deal value threshold is to bring certain deals under the Act’s purview, such as deals by large technology and digital platforms where a target may not hold significant assets or turnover in India, provided that the target has ‘substantial business operations’ in India. This is an additional threshold prescribed over and above the existing asset- and turnover-based tests and, noticeably, is applicable across sectors of the economy and not merely confined to digital markets as was originally recommended in the CLRC Report, 2018.

2. Reduction of time-limit for approvals of combinations (M&As) from two hundred and ten days (210) to one hundred and fifty (150) days and for forming a prima facie opinion by the CCI to issue a show cause notice to parties within fifteen days (15) from the previous thirty days (30) for expeditious approval of combinations. Furthermore, the CCI has to form its prima facie opinion of whether the proposed combination is likely to cause an Appreciable Adverse Effect on Competition (AAEC) in India or not within thirty (30) calendar days (whereas the Competition Act, 2023 states thirty (30) working days). If no prima facie opinion is formed within this period, the combination shall be deemed to have been approved.
3. The new Act has modified the definition of ‘control’, and defined it as “the ability to exercise material influence over the management, affairs, or strategic commercial decisions”.
   The new definition of ‘Group’ under Section 5 of the Act states that “two or more enterprises where one enterprise is directly or indirectly, in a position to exercise twenty six percent (26%), or such other higher percentage as may be prescribed, of the voting rights in the other enterprise”.

4. The Act extends the Director General-CCI’s (DG) powers to investigate defilements under the Act. This includes the DG’s power to seek information and papers from legal advisors appointed by the parties.
5. Waiver of standstill obligations for open market purchases: The existing ‘standstill obligations’ in case of an open offer and acquisition of convertible shares/securities on a stock exchange is waived off provided:
   1. a. A merger notification is promptly filed with the CCI; and
   2. b. The acquirer does not exercise any ownership or beneficial rights/interest/receives dividends in such shares/securities till the receipt of approval from the CCI
6. Introduction of ‘Green Channel’ or deemed approval for certain categories of combination not likely to have an AAEC:
   • The CCI, through regulations, introduced the ‘Green Channel’ for automatic approval of combinations in August 2019 in the spirit of promoting trust-based regulation
   • It was the first of its kind system in the world wherein transactions were automatically deemed approved on the day of filing. This dispensation is presently available to those parties that do not exhibit overlap, be it horizontal, vertical, or complementary
7. Increased penalty for making false statements or suppressing material information related to the proposed combination: Under the existing provisions, any person being a party to a combination who either makes a false statement or omits to disclose any material information is liable to a minimum penalty of INR 50 lakhs (USD ~62,500) and a maximum penalty of INR 1 crore (USD ~125,000). The maximum penalty has now been increased to INR 5 crores (USD ~625,000).
8. Penalties to be imposed on ‘Global’ Turnover: Enterprises found guilty of violation of the provisions of the Competition Act, 2002 (the Act) can now be penalized up to ten percent (10%) of not only their total turnover derived from revenue generated from the sale of all products and services within India but also from all over the globe.
9. The Competition Act, 2023 proposes to recognize the ‘hubs and spokes’ (hubs are facilitators and spokes are direct competition) arrangement of the Competition Act, 2002, which means that the parties who are not actively involved in cartel formation but merely intend to participate in its furtherance can also be penalized for such formation.
   A hub and spoke cartel is one where market players at the horizontal level (spokes) enter into an agreement, tacit, or explicit, to share sensitive information through a vertical common player, referred to as a ‘hub’. Although not directly involved in its activities, the hub acts as a medium to facilitate the cartel mainly by acting as an information exchange mechanism.

10. Widening the net to include agreements other than vertical anti-competitive agreements between manufacturers and dealers: Now, all kinds of business agreements, not even restricted to those between enterprises or persons, are vulnerable to scrutiny if they are likely to cause an AAEC. This will include clauses such as non-compete clauses/ parity clauses used by online travel agents for hotels/air ticket bookings, etc. and will include AI-driven arrangements which may cause an AAEC.
11. Introduction of Settlements and Commitment: The CCI is empowered to initiate inquiry proceedings on contravention of provisions like Section 3 (anticompetitive agreements), Section 430 (abuse of dominance), Section 19 (inquiry), etc. Furthermore, the present amendment brings in the following options, after which it may close the inquiry proceedings:
    1. Settlement, referring to an agreement between the CCI and a party under investigation to terminate proceedings upon payment of a settlement amount by the party; and
    2. Commitment, involving an undertaking given by a party under investigation to modify its conduct or take certain actions to eliminate any concerns raised by the CCI regarding its conduct
12. Introduction of ‘leniency plus’: This will encourage members of cartels under investigation to disclose other cartels and obtain a waiver of penalties for such cartels in advance.

Other Amendments to the provisions of the Act

1. Widening the definition of ‘Relevant product market’ to include supply-side substitutability. The new Act widens the scope of ‘Relevant product market’ to include products and services interchangeable by not only the consumer but the supplier as well, and also recognizes buyer cartels. This inculcates the supplier’s perspective as well and is more comprehensive than the previous descriptive constraints. The term ‘party’ would include a consumer and an information provider.
2. Appointment of DG by the CCI, with prior approval of the Central Government.
3. Allowing parties to call expert witnesses to depose before the CCI and provide their expert opinion during the inquiry hearings before the CCI.
4. Enhanced and well-codified powers of the DG to investigate. These are now independent powers not linked to the Companies Act, 2013 as was the case before.
5. Mandatory pre-deposit of a 25% penalty as a condition precedent to admission of appeal for hearing before the National Company Law Appellate Tribunal (NCLAT).
6. Compounding of any offense punishable under the Act, excluding the offenses punishable with imprisonment only or imprisonment with fine, by the NCLAT or any other court where any proceeding related to such offense is pending.