CAA- AN ACUTE FUNAMBULIST?March 23, 2020
SECTION 36 OF THE ARBITRATION ACT DOESN’T PERMIT ‘AUTOMATIC STAY’: A COMMENT ON HINDUSTAN CONSTRUCTION CO. LTD. AND ORS. V. UOI & ORS.March 23, 2020
In an attempt to create a robust competition regime, the Ministry of Corporate Affairs (“MCA”) has introduced a Draft Competition (Amendment) Bill, 2020 (“Bill”). The Bill was released in the public domain on 20 February 2020 for inviting public comments from stakeholders. The proposed changes to the Competition Act, 2002 (“Act”) are pursuant to the report submitted by the Competition Law Review Committee (“CLRC”) to the Government in July 2019. The Bill seeks to plug the gaps and bring some much-needed clarity to certain provisions in the Act. In this post, the author has encapsulated the significant changes that have been proposed and its implications on enterprises subject to the Act.
Settlement and Commitment Clause
With the insertion of Section 48A and 48B to the Act, the Bill proposes to introduce a settlement and commitment regime in relation to parties under investigation for abuse of dominance or for entering into anti-competitive vertical agreements. This will allow parties to either resort to settlement by admitting violation and liability or commitment to correct ways. The Bill envisages that an application for settlement must be submitted after the Director General (“DG”) has submitted its report but before the final order from the Competition Commission of India (“CCI”). Whereas, an application for commitment must be submitted before the DG submits its investigation report.
The proposed amendment will certainly facilitate quicker disposal of cases thereby ensuring a timely conclusion to longstanding and pending litigation. Moreover, the enterprises seem to benefit from the possibility of avoiding the negative impact of an investigation on the goodwill of the enterprise and along with that, the high penalty imposed by the CCI.
Section 5 of the Act deals with ‘combinations’ and provides for certain thresholds based on the monetary asset and turnover of the enterprise. The proposed amendments seek to bring more transactions under the purview of the CCI review. For this purpose, it is now proposed to permit the Central Government in consultation with the CCI, to prescribe any other criteria, other than the asset size and turnover, to trigger a combination filing. This is most likely to enable the regulator to review transactions in the digital space which are currently escaping scrutiny.
With a view to expediting the process of merger control approval by the CCI, the Bill proposes to reduce the current overall review period of combinations from two hundred and ten days to one hundred and fifty days, with a provision of additional thirty days in certain specified cases. Along with this, the Bill also provides for a reduction in the time period available to the CCI to issue its prima facie opinion from thirty days to twenty days. A quicker approval from the CCI from the perspective of the transaction is indisputably a welcome proposal. On the other hand, it is going to put immense time pressure on parties and the administrative authorities to expedite the entire process to adhere to the revised timeline.
Furthermore, a new Section 6A is to be inserted to provide that cases of open offers or acquisitions through a series of transactions on a regulated stock exchange shall be exempted from the mandate of implementing a combination only after receipt of the CCI’s approval. Through this proposal, the Bill addresses the challenge faced to secure CCI approval in such transactions due to the time-bound nature of open market acquisitions.
On another positive note, the Bill also mandates the Commission to give the parties to the combination an opportunity of being heard before any order is to be passed.
In concurrence with its primary goal of creating a robust and effective competition regime, the Bill provides for the creation of a ‘Governing Board’ (“Board”) which shall comprise of members of the CCI, Secretary of the Department of Economic Affairs, Ministry of Finance or his nominee, Secretary of the Ministry of Corporate Affairs and his nominee, and four other part-time government-appointed members. The Board shall be vested with the power to make regulations on various matters relating to competition and the general superintendence, direction and management of the affairs of the Commission. The objective behind setting up the Board is the separation of the CCI’s administrative and rule-making powers from the adjudicatory powers. Henceforth, the CCI will only discharge the adjudicatory functions.
Protection to Intellectual Property Rights
At present, protection to holders of intellectual property is restricted to Section 3 of the Act which pertains to anti-competitive agreements. With the insertion of Section 4A, the Bill proposes to extend this protection to cases of abuse of dominance as well. Considering that, there was no reasonable basis for such distinction, this proposed amendment is fair in removing the disparity between treatment of anti-competitive agreements and abusive practices of a dominant enterprise. Additionally, along with the pre-existing six intellectual property rights statutes listed under the Act, there is an insertion of a residual clause covering any law in force relating to the protection of intellectual property rights.
Yet another positive development in the proposed Bill is the introduction of ‘additional leniency’. The Bill provides for the grant of an additional reduction in penalties to a leniency applicant provided that during the course of the investigation of the ongoing cartel proceedings, the applicant makes a true and vital disclosure of another undisclosed cartel. The proposed change to the leniency regime is expected to encourage more informants to come forward.
The Bill also provides for the withdrawal of leniency application by an applicant. However, it is pertinent to note that in such cases of withdrawal, the CCI will still remain at liberty to make use of the evidence already submitted by the applicant.
Scope of Anti-Competitive Agreements
The Bill proposes to expand the scope of Section 3(4) of the Act (currently applicable to only vertical agreements) to also include all other non-horizontal agreements. This is significant in the context of arrangements that do not fall strictly within the parameters of a horizontal or vertical agreement. The idea behind the proposal is to ensure that there is no adverse effect on the market simply due to the difficulty in classifying an arrangement as a horizontal or a vertical arrangement. Therefore, the proposal to include ‘other agreements’ will establish that the scope of anti-competitive agreements is not restricted to horizontal and vertical agreements.
Definition of ‘Control’
The Bill proposes to provide for a wider interpretation to the term ‘control’ as defined in explanation to Section 5 of the Act. The amendment seeks to establish that while determining control for the purpose of notifying a transaction to the CCI, the threshold should be ‘material influence’. The proposed change will result in the expansion of the scope of what the CCI presently considers as control from the standards of ‘decisive influence’. It is pertinent to note that material influence is effectively the lowest threshold of control. Therefore, the application of material influence may not be a positive change from an ease of doing business standpoint since it is going to result in unnecessary notifications being made to the CCI which otherwise would not have been under the ambit of control under the decisive influence test.
Definition of ‘Cartel’
The Bill also proposes to make certain amendments to the definition of ‘cartel’ by expanding its scope to now also include (i) buyers’ cartels and (ii) hub and spoke cartels. Drifting away from the inference of cartelization to only a ‘seller-oriented cartel’, the inclusion of buyers’ cartels shall address the growing concerns over the exploitation of buyer’s power. Furthermore, by codifying hub and spoke cartel in the law, the proposal seeks to make it absolutely clear that a third party facilitating collusion shall be treated on the same footing as a hard-core cartel. Parties need not be on the same level, as long as they are actively participating, they will be brought under the ambit of cartels.
The Bill is a forward-looking amendment in terms of bringing clarity and efficiency to the competition regime. It is significant to mention that the majority of the recommendations for amendments in the CLRC Report have been accepted by the MCA in the Bill. The MCA has now circulated its version for stakeholders’ comments and it is hoped that most concerns raised by the stakeholders are appropriately addressed. In all, the Bill is a gallant attempt to achieve the said objective of creating a robust competition regime.
ABOUT THE AUTHOR
Ayushi Saumya is a fourth-year law student pursuing B.A. LL.B. (Hons.) at Symbiosis Law School, Pune.
In Content Picture Credit: Bussiness Standard