- The Competition Act, 2002 was enacted by the Parliament of India and governs Indian competition law.
- It replaced the archaic The Monopolies and Restrictive Trade Practices Act, of 1969.
- The Competition Commission of India was established under the Competition Act to prevent activities that have an adverse effect on competition in India.
- The Competition (Amendment) Bill, was presented to the Lok Sabhaon August 5th, 2022.
An environment of healthy competition is essential to any economy. It encourages better quality of products, suitable prices, diversification of products, customer satisfaction, and in turn, economic progress. Such well-regulated and healthy competition also allows the market to open up to new opportunities for the entry of businesses, and thus offers a fertile ground for innovation.
In 2020, William E. Kovacic, the former chairperson of the US Federal Trade Commission, discussed the main challenges faced by economic institutions internationally while speaking at the UK Competition and Markets Authority. He emphasised on the need to ensure the independence of such institutions, without which they cannot have decision-making powers on their core policies. He also talked about the need to recognise the issues in Competition Laws and solve them, along with increasing transparency regarding the value of markets and the quality of public administration. Such steps are to be taken considering the tough economic situation worldwide, he said.
At somewhat the same time, Prime Minister Narendra Modi had opined that fair competition was one of the four pillars on India’s path to being a $5 trillion economy by the year 2025. Along similar lines, the Competition Amendment Bill, 2022 has been introduced in the Lok Sabha on August 5th. This article tries to briefly explain the provisions of the Competiton Act, 2002 to which amendments are proposed, and the content of the Competition Amendment Bill,2022.
Competition Act 2002
The Indian market was opened up to international competition and free trade policies with the Liberalisation reforms in 1991. With these enormous changes taking up the market space it was inevitable to replace the age-old Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) as it was found incapable of keeping a check on monopolies and promoting competition levels. With this in mind, a high-level committee was formed in the year1999 to make suggestions regarding the enactment of a modern competition law that complies with international developments in Competition Laws. The establishment of a competition authority, the Competition Commission of India, along with repealing of the MRTP Act and laying off the MRTP Commission was recommended. Reforms in government policies were also put forward.
Thus the Competition Commission was founded in October 2003 after the Competition Act was passed in January 2003. According to the Act, the Commission's responsibilities included eradicating practices that harm competition, fostering and maintaining them, defending consumers' interests, and ensuring other traders' freedom to operate in Indian markets.
The main features of the Indian Competition Act are the following:
- Anti-agreement: Agreements that would adversely affect the Indian economy are not to be entered into by persons or associations of enterprises or persons, including cartels. Any such agreement is considered void.
- Abuse of powerful position:If a business or connected person is proven to have engaged in unfair or discriminating actions, it will be regarded as an abuse of dominating position. Such party will be subject to investigation by the relevant authorities.
- Combinations:Section 5 of the Act deals with Combinations. Combinations is the term used to refer to acquisitions, mergers, or amalgamations. The Act regulates such acts. It also deals with the threshold limits specified on assets or turnover and ensures that it doesn't affect competition in the Indian market.
- Competition Commission of India: The Act established a body called the CCI or the Competition Commission of India to provide relevant advice to the Government of India, regarding competition in the economy and to create public awareness of the same. It had powers to ensure healthy practices of competition in India and in case of any violation, to sue the concerned parties. The Commission consists of a maximum of six members who take care of the sustainability and promotion of an ideal environment for economic competition.
The Act also defined certain terms such as acquisition, cartels, dominant position, predatory pricing, and rule of reason. The Competition Act, 2002 was amended by the Competition (Amendment) Act, 2007, and again by the Competition (Amendment) Act, 2009.
Competition Amendment Bill,2022
On August 5, the Competition (Amendment) Bill, 2022, was presented to the Lok Sabha. The Bill will now be discussed in the Winter Session due to the early Monsoon Session adjournment. Numerous substantive, procedural, and institutional changes are suggested in the Bill. The Competition Act of 2002 will be revised to reflect contemporary circumstances, such as the development of new technology. Mergers will be more efficient, and competition law enforcement will be more effective. The devil is in the details, and a lot will be expanded upon in later rules and guidelines. Some of the major changes put forward in the Bill are as follows:
- Regulations regarding Combinations: The conditions under which an enterprise might be acquired, merged, or amalgamated are to be changed. New provisions (d) and (e) that deal with limiting the value of any transaction in connection with the acquisition of any control, shares, voting rights, etc. are inserted into the bill. If it exceeds Rs. 2,000 crores, it must be reported as a combination to the Commission, and the Central Government must be given the authority to exempt some transactions from the Act's requirement that a combination notification is filed. Additionally, it allows for the replacement of the explanation when defining concepts like turnover, transaction value, etc.
- Timeframe of approval to combinations: The time period within which combinations are to be approved by the CCI will be reduced from 210to 150 days. This is extendable by 30 days in some cases. Any combination would come into existence only upon the issue of an order by the CCI.
- Redefining “control” and “group”: The classification of combinations was on basis of the level of control on the affairs of enterprises. This classification helped to decide whether transactions are to be notified. By redefining the term it is now defined as the ability to exercise, in any manner, material influence over the management, affairs, or strategic commercial decisions by:
(i) either one or more enterprises over another enterprise or group, singly or jointly; or (ii) one or more groups over another group or enterprise, either singly or jointly.
A "group" is now defined as two or more businesses where one of the businesses has the ability (directly or indirectly) to do any of the following:
(i) exercise 26% (or higher percentage) of the right to vote in the other business;
(ii) authorise more than 50% of the other business' board of directors; or
(iii) control the business' matters or management.
- Increased Penalties for Violation:The parties to a notifiable transaction are additionally subject to a standstill duty under the Indian merger-control system, and violations of the Act's notification requirements may result in fines of up to one percent of the combined company's assets or turnover (whichever is larger).
- The Bill modifies this legal provision so that any party to a combination may now be held liable for a fine of up to 1% of the combined turnover, assets, or transaction value if they fail to give the required notice to the CCI or submit the necessary information in response to a CCI inquiry into the combination. However, the CCI shall grant a grace period of 30 days from the date of notification to any party who provides notice to it in this regard that is void ab initio, and no action shall be taken by the CCI until the expiration of this grace period.
- Penaltiesfor Providing Inaccurate Information or any Materials:The Bill stipulates that certain penalties should be paid if any party to a combination (i) makes a materially false statement or (ii) willfully omits or fails to state a material fact that such party knows to be material. According to the Act, the Commission must decide the penalty due by the offending party; it must not be less than Rs. 50 lakhs and cannot exceed Rs. 1 crore7; however, the Bill has raised the maximum penalty sum to Rs. 5 crores.
- Anti-competitive agreements: Prohibition of anti-competitive trade agreements have been actively suggested, which includes any act that adversely affects healthy environments of competition by means of:
(i) directly or indirect determination of purchase or sale prices,
(ii) controlling production, supply, markets, or provision of services, or
(iii) directly or indirectly leading to collusive bidding.
The Bill adds that even if any enterprises or persons are not directly engaged in such activities, they shall be presumed to be part of such agreements if they actively participate in the furtherance of such agreements.
A few other changes suggested in the Bill to the Competition Act are, widening the criteria of the relevance of the product market from just substitutability on the customer’s part to include that of the supplier’s too. While the Act entrusts the Central Government with powers to appoint the Director General of the CCI, the Bill proposes the transfer of these powers to the CCI itself with government approval. The change of nature of punishments given on violation to charging of penalties is also an important change.
The Competition Act 2002 was brought about to replace the MTP Act as it was found to be irrelevant in the changed circumstances of that time. In the current age too the policies regarding competition in the Indian market are to be revised and reimagined. If such changes do not take place it would not only adversely affect the economy, it would also prevent the benefit of competition from reaching all sectors. The main criticism against the bill is the silence on plans towards generating active awareness and capacity creation for competition. The existing legal system too would have to adapt according to the changing economic conditions to efficiently understand the implications of the Bill and for precedents to be set.