The Competition Act, of 2002 addressed the persistent need for a comprehensive framework to prevent monopolies, curb unfair trade practices, and avoid wealth concentration that penetrated the Indian landscape since India's liberalization in 1991. The act established the Competition Commission of India (CCI), a regulatory body under the Ministry of Corporate Affairs. The body is entrusted to implement a fair approach to promulgate free and fair trade practices, foster healthy competition, and protect consumer interests while aligning with India's vision of economic growth within an open economy.
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Role of the Competition Act in M&A
The Act requires the Competition Commission to assess mergers and acquisitions that may have a significant negative impact on market competition in the relevant sector.
Anti-competitive agreements are outlined in Section 3 of the Competition Act, 2002. It states that “no enterprise, association of enterprises, person, or group of persons shall enter into any agreement related to the production, supply, distribution, storage, acquisition, or control of goods, or the provision of services, that causes or is likely to cause a substantial adverse effect on competition within India.” Such agreements are considered void. In simpler terms, any agreement between enterprises or individuals that affects the prices of goods controls production or supply, or leads to coordinated bidding in the market is deemed anti-competitive.
Section 4 of the act talks about the abuse of the dominant position. It states that no enterprise shall abuse its position of functioning independently in the relevant market of India while implementing discriminatory conditions during the sale or purchase of goods, restricting the production of goods or services, denial of market access to consumers or other enterprises. Recently, CCI penalized Google with an amount of Rs. 936.44 crore for abusing its dominant position concerning its Play Store policies and issued a cease-and-desist order. And directed Google to modify its conduct within a defined timeline. The allegations were that Google's Play Store policies require the App developers to use Google Play's Billing System (GPBS) obligatorily, to use it for procurement of payments for Apps sold via the Google Play Store, additionally for certain in-app purchases i.e. purchases made by users of Apps after they have downloaded/ purchased the App from the Play Store. If app developers do not adhere to Google's policies, they are also not allowed to list their Apps on the Play Store. Moreover, the allegations include the exclusion of contending UPI apps as viable payment options on the Play Store.
The combination that causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India shall be void if entered by any person or enterprise under section 6 of the act. Section 5 of the Act illustrates various types of combinations where if the specified threshold limit is breached, the Commission should be mandatorily notified as per the prescribed format. The details of the proposed combination are to be disclosed, which enumerates the approved proposal relating to merger or amalgamation, by the board of directors of the concerned entity, and execution of any agreement for acquisition or acquiring of control. No combination shall come into effect till 210 days have elapsed from notifying the commission or orders passed by commission under section 31 in this regard, whichever is earlier. Additionally, notices are dealt with by the Commission under sections 29, 30, and 31.
Why an Amendment?
India has been primarily focusing on, keeping its market business friendly along with swift regulatory compliances and enhanced scrutiny. The idea is to project its market as a profitable landscape for foreign investors. The changes incorporated in the competition law landscape after decades of its implementation are in congruence with the same, the Competition (Amendment) Act, 2023 provides a refined perspective on mergers and acquisitions (M&A) expedited timelines, corporate-friendly regulatory environment, strengthened cross-border compliance, etc cohesively contributing to 'ease of doing business'.
Changes Incorporated Through the Amendment Bill of 2023
The 2023 Amendment to the Competition Act introduces several key changes aimed at streamlining merger control, strengthening enforcement, and enhancing ease of doing business in India.
An additional criteria deal value threshold (DVT) is introduced that would amount to combination was added i.e., Where transactional value is more than Rs. 2000 crore and enterprise which is being acquired, taken control of, merged or amalgamated significant business operation in India, will also be considered as a combination. It is adopted to prevent the 'killer acquisition' in the technology sector. Acquisitions of start-ups with lower asset values escape traditional target asset and turnover-based thresholds for CCI merger control. Deals anchored solely on these benchmarks can overlook key transactions. Adopting a deal value threshold is a more rational approach incorporated by CCI to capture deals that could impact competition.
The explanation to section 5 redefines "control" means the ability to exercise material influence, in any manner, over the management or affairs or strategic commercial decisions by— “(i) one or more enterprises, either jointly or singly, over another enterprise or group; (ii) one or more groups, either jointly or singly, over another group or enterprise ”; The term material influence is added to the definition of control, contrary to the decision-making power being recognized previously.
CCI to pass its order in a shorter period i.e. instead of 210 days, it has to decide in 150 days, which can be extended by 30 days, in sub-section (2A) of section 6. If no order is issued by CCI within these timelines, the combination will be "deemed" approved.
The timeline to take a prima facie view of the complaint whether it is in contravention to Competition Law is set to 15 days replacing 30 days under section 29(2).
The scope for punishment for cartelization has been widened to include the Hub and Spoke cartel, which includes not only each producer, seller, distributor, trader, or service provider included in that cartel but also if another cartel is disclosed during the investigation of one will also be penalized under section 46. It aims to cover all participating and intending to participate in the cartel. Digital platforms could now be classified as part of a cartel if they enable the exchange of information among their service users.
Penalties laid down by CCI are to be based on global turnover derived from overall products and services by a person or an enterprise, irrespective of the horizon of the infringing product/service instead of the 'relevant' Indian turnover of the enterprise. In 2017, the Supreme Court interpreted that in the case of a multi-product company, the CCI should calculate the penalty exclusively based on the revenues from the allegedly infringing product or service, rather than the company's entire turnover. However, this might lead to a heavy penalty over global conglomerates in comparison to domestic places which would require more-edged risk analysis, before investing in the Indian market.
Businesses facing allegations of anticompetitive vertical agreements or abuse of dominance can adhere to concerns promptly with the introduction of commitments and settlement mechanisms. The CCI can accept commitments during investigations, even before the Director General's report is shared, helping businesses tackle preliminary issues without lengthy proceedings. In case of settlement, the process enables a business to resolve proceedings after receiving the DG Report but before the CCI issues its final order. Under the settlement, the business may incur a reduced penalty compared to the maximum amount of penalty CCI could impose. Although the settlement and commitment orders absolve the business of infringement findings, settlements may yet lead to actions for compensatory damages.
The 2023 Amendments equip the Competition Commission of India with essential tools to foster business growth in India and alleviate regulatory burdens, all while ensuring a competitive market landscape. The latest amendment addresses the requirements of corporate restructuring while providing a broader perspective on mergers and acquisitions. This is expected to significantly boost India's economic growth and foster fair market competition. However, the impact will hinge on how the Competition Commission manages the delicate balance between stringent regulation and economic expansion.
By:- Meghna Gupta
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Competition Act Amendment 2023 and M&A: FAQs
Q1. What is the Competition Act Amendment 2023?
It updates India’s competition law to enhance merger review, penalties, and compliance timelines.
Q2. What is the new deal value threshold (DVT)?
Transactions above ₹2,000 crore with significant Indian operations now require CCI approval.
Q3. What is the revised CCI approval timeline for combinations?
The timeline is reduced from 210 to 150 days (extendable by 30 days).
Q4. How are penalties calculated now?
Based on global turnover, not just Indian market revenue.
Q5. What are settlements and commitments?
New mechanisms that let companies resolve issues early and avoid lengthy CCI proceedings.
