By Saksham Malik
The Competition Act, 2002, was enacted to promote and sustain competition in markets, protect the interest of consumers and ensure freedom of trade for market participants. The Act was recently amended through the Competition (Amendment) Bill, 2023, and this was the last stage of a long process undertaken to bring the Act in line with the market realities of the digital age.
The process began with the report of the Competition Law Review Committee (CLRC) in 2019, followed by two iterations of the Bill in 2020 and 2022. Thereafter, the Parliamentary Standing Committee on Finance recommended changes to the 2022 draft in December 2022 (Finance Committee Report). After incorporation of these recommendations, the Bill was tabled in Parliament and passed in April 2023.
Key thematic areas from the CLRC Report pertain to effects-based analysis and Intellectual Property Rights (IPR) exemptions in Section 4 of the Act, the inclusion of Hub and Spoke cartels (H&SC) in Section 3, Settlements & Commitments (S&C) frameworks and merger control thresholds. These areas are fundamental to understanding competition law reforms and may guide enforcement activity in the foreseeable future.
Effects-based tests
Some experts believe that the establishment of a violation of Section 4 should be done subject to an effects-based test. Essentially, this means that instead of presuming anti-competitive harm, the alleged conduct should be analysed to determine the existence and extent of the harm alleged to be caused by it. Neither the CLRC Committee nor the 2020 and 2022 Bills, however, incorporated this concern in their respective drafts. However, the Finance Committee’s Report recommended the insertion of a provision that would mandate the CCI to undertake the test as part of its analysis.
The Committee reasoned that the inclusion of this test would eliminate the possibility of over-enforcement in new-age markets and allow parties to legally defend their actions on the basis of the pro-competitive effects of their conduct. However, the change was not incorporated in the final draft of the proposed law, i.e., the 2023 Bill. It must be kept in mind, however, that currently, the CCI undertakes this analysis at its own discretion and going forward, it may employ the test at an increased frequency.
IPR exemptions
The existing Act allows parties to take a defence on the basis of protection of IPR only in allegations involving anti-competitive agreements, i.e., Section 3 of the Act. The CLRC recommended the extension of this exemption to Section 4 of the Act to enable meaningful protection of innovation by parties. The recommendation was incorporated in the 2020 Bill, but was subsequently dropped in the 2022 draft. The Finance Committee, in its report, recommended its inclusion to facilitate the protection of IP and harmonise Sections 3 and 4 of the Act.
However, the recommendation was not incorporated in the 2023 Bill, despite two committees recommending its inclusion. An indication of the reasons behind this can be found in various submissions before the Finance Committee which stated that inclusion of the IPR defence isn’t preferable as it may allow companies to abuse their dominance and isn’t needed due to the presence of other defences in Section 4 of the Act.
Hub and spoke cartels
In line with the CLRC’s recommendations, the 2020 and 2022 Bills introduced the concept of H&S cartels as part of amendments to Section 3 of the Act. The clause proposed that “an enterprise or association of enterprises or a person or association of persons though not engaged in identical or similar trade shall also be presumed to be part of the agreement under this sub-section if it actively participates in the furtherance of such agreement”.
In its earlier form, the clause only required “active” participation as a key element to establish an H&S cartel. However, the 2023 Bill updated it to also include “intention” as a key element, in line with the Finance Committee’s recommendations. The recommendation aims to prevent unintentional parties from being held liable for providing a platform for collusive conduct. It was observed that the provision should only apply to instances where enterprises have acted with the intention of furthering the cartel, ensuring that those who unknowingly provided a platform for collusive conduct are not unfairly scrutinised.
Settlement and Commitment
An S&C framework, that will enable the parties to file applications for the settlement of a case before the CCI, was proposed by the CLRC in 2019. The provision is aimed at facilitating the quick resolution of cases, freeing up institutional resources and avoiding long-drawn investigations in every scenario. The S&C framework has existed in each draft of the Bill since then but has arguably suffered from certain infirmities. The Finance Committee had recommended that cartels should be included in settlements, despite the argument that they are inherently anti-competitive. While the CLRC report did not recommend this, the Finance Committee subscribed to the notion that it should be included. The suggestion was, however, not incorporated in the final draft.
Another key omission from the S&C framework pertains to allowing parties to withdraw the application. None of the iterations, including the 2023 Bill provide the parties with this power, despite the Finance Committee’s recommendations to the contrary. The Committee had observed that under the current provisions of the Bill, parties can only withdraw from the commitments or settlements process if the Commission rejects the application due to an inappropriate offer or if they fail to reach an agreement. In light of these two possible lacunae, it remains to be seen whether parties will eventually be disincentivised to follow the S&C route.
Merger control
It has long been observed that the existing asset and turnover-based thresholds for merger notifications in the Act are not ideal to cover transactions in digital markets. To tackle this, the CLRC recommended an enabling provision that grants the government the power to introduce necessary thresholds for merger notification. The same was also incorporated in the 2020 draft.
However, there remained key concerns that the provision was very uncertain and gave the government disproportionate discretion on the subject. Resultantly, in the 2022 Bill, the provision was replaced with a new criterion, called the Deal Value Threshold (DVT) criteria wherein transactions with a value over Rs 2,000 crore have to be notified to the CCI, provided the parties have substantial business operations in India. To ensure that only relevant transactions with actual local nexus with Indian markets are covered, the Finance Committee recommended that the local nexus criteria should be ascertained only in the context of the target entity. The recommendation was thereafter accepted and incorporated in the 2023 draft.
The 2023 Bill is expected to herald the Indian competition framework into a new era that can efficiently and meaningfully regulate new-age markets. To ensure that the implementation of the updated framework is done without regulatory arbitrage and negative impact on the functions of the markets, the role of different stakeholders must be kept in mind.
In addition to the MCA, the CCI, parliamentary and ministerial committees, the role of civil society, the legal fraternity and industry must also be given due consideration in the conversations around the implementation of the updated law.
—The writer is Programme Manager – Competition Law and Policy, The Dialogue