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Baba’s Explainer – Competition Amendment Bill

  • IASbaba
  • August 29, 2022
  • 0
Economics, Governance
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Syllabus

  • GS-2: Statutory, regulatory and various quasi-judicial bodies.
  • GS-3: Indian Economy and related issues
What is the Competition (Amendment) Bill, 2022?

The Competition (Amendment) Bill, 2022 aims to improve regulatory set-up by increasing the Competition Commission of India (CCI)’s accountability, giving it flexibility and enforcement efficiency. It seeks to amend the Competition Act, 2002.

What was the Competition Act, 2002?

Competition Act, 2002, which replaced “The Monopolies and Restrictive Trade Practices Act of 1969, provided for the establishment of a Competition Commission so as

  • To prevent practices having adverse effect on competition
  • To promote and sustain competition in markets
  • To protect the interests of consumers and
  • To ensure freedom of trade carried on by other participants in markets
Why is an amendment to the already existing Indian Competition Act necessary?

The Indian Competition Act was passed in 2002, but it came into effect only seven years later. The Competition Commission primarily pursues three issues of anti-competitive practices in the market:

  • Anti-competitive agreements
  • Abuse of dominance
  • Combinations

As the dynamics of the market change rapidly due to technological advancements, artificial intelligence, and the increasing importance of factors other than price, amendments became necessary to sustain and promote market competition.

Therefore, a review committee was established in 2019 which proposed several major amendments. The long-awaited Bill to amend the Competition Act, 2002, was finally tabled in the Lok Sabha recently.

What are the key changes proposed by the Bill?

The key changes proposed by the Bill include:

A.Regulation of combinations based on transaction value:

  • The Act prohibits any person or enterprise from entering a combination which may cause an appreciable adverse effect on competition. Combinations imply mergers, acquisitions, or amalgamation of enterprises.
  • The Bill expands the definition of combinations to include transactions with a value above Rs 2,000 crore and if either of the parties has ‘substantial business operations in India’.
  • The new Bill seeks to accelerate the timeline from 210 working days to only 150 working days with a conservatory period of 30 days for extensions. This will speed up the clearance of combinations and increase the importance of pre-filing consultations with the Commission.

B.Definition of control for classification of combination:

  • For classification of combinations, the Act defines control as control over the affairs or management by one or more enterprises over another enterprise or group.
  • The Bill modifies the definition of control as the ability to exercise material influence over the management, affairs, or strategic commercial decisions.

C.Time limit for approval of combinations:

  • The Act specifies that any combination shall not come into effect until the CCI has passed an order or 210 days have passed from the day when an application for approval was filed, whichever is earlier. The Bill reduces the time limit in the latter case to 150 days.

D.Gun Jumping

  • Parties should not go ahead with a combination prior to its approval.
  • If the combining parties close a notified transaction before the approval, or have consummated a reportable transaction without bringing it to the Commission’s knowledge, it is seen as gun-jumping.
  • The penalty for gun-jumping is now proposed to be 1% of the deal value.
  • But why does it happen?
    • There have been several gun-jumping cases owing to the combining parties’ inability to defer the consummation of open market purchases.
    • Many of them argue that acquisitions involving open market purchase of target shares must be completed quickly, lest the stock value and total consideration undergo a change.
    • If parties wait for the Commission’s clearance, the transaction may become unaffordable.

E.Anti-competitive agreements:

  • Under the Act, anti-competitive agreements include any agreement related to production, supply, storage, or control of goods or services, which can cause an appreciable adverse effect on competition in India.
  • A Hub-and-Spoke arrangement is a kind of cartelisation in which vertically related players act as a hub and place horizontal restrictions on suppliers or retailers (spokes). Currently, the prohibition on anti-competitive agreements only covers entities with similar trades that engage in anti-competitive practices.
  • This ignores hub-and-spoke cartels operated at different levels of the vertical chain by distributors and suppliers.
  • To combat this, the amendment broadens the scope of ‘anti-competitive agreements’ to catch entities that facilitate cartelisation even if they are not engaged in identical trade practices.

F.Settlement and Commitment in anti-competitive proceedings:

  • Under the Act, CCI may initiate proceedings against enterprises on grounds of: (i) entering into anti-competitive agreements, or (ii) abuse of dominant position.
  • The Bill permits CCI to close inquiry proceedings.
  • The manner and implementation of settlement and commitment may be specified by CCI through regulations.
  • According to the amendment, the Commission’s decision regarding commitment or settlement will not be appealable after hearing all stakeholders in the case. The Commission will come out with regulations regarding procedural aspects.

G.Relevant product market:

  • The Act defines relevant product market as products and services which are considered substitutable by the consumer. The Bill widens this to include the production or supply of products and services considered substitutable by the suppliers.

H.Appointment of Director General:

  • The Act empowers the central government to appoint a Director General to CCI. The Bill amends this to empower the CCI to appoint the Director General, with prior approval of the government.

I.Qualification of members of CCI:

  • As per the Act, the chairperson, and members of CCI should have professional experience of at least 15 years in fields such as: (i) economics, (ii) competition matters, (iii) law, (iv) management, or (v) business. The Bill expands this to include experience in the field of technology.

J.Decriminalisation of certain offences:

  • The Bill changes the nature of punishment for certain offences from imposition of fine to penalty. These offences include failure to comply with orders of CCI and directions of Director General about anti-competitive agreements and abuse of dominant position.

The Bill introduces certain new concepts into the field of Indian competition law, including Deal Value Thresholds, the changes to the definition of ‘control’, and mechanisms to settle certain violations of the Competition Act.

To increase the ease of doing business in India within the regulatory framework of the Competition Act, the CCI will need to provide timely guidance on the various concepts introduced in the Bill, and work together with all stakeholders to implement it.

What is the Competition Commission of India?
  • Competition Commission of India (CCI) is a statutory body of the Government of India responsible for enforcing the Competition Act, 2002, it was duly constituted in March 2009.
  • Competition Act prohibits anti-competitive agreementsabuse of dominant position by enterprises and regulates combinations, which causes an appreciable adverse effect on competition within India.
  • In accordance with the provisions of the Amendment Act, the Competition Commission of India and the Competition Appellate Tribunal have been established.
  • The government replaced the Competition Appellate Tribunal (COMPAT) with the National Company Law Appellate Tribunal (NCLAT) in 2017.

Composition

  • The Commission consists of one Chairperson and six Members who shall be appointed by the Central Government.
  • The commission is a quasi-judicial body which gives opinions to statutory authorities and also deals with other cases. The Chairperson and other Members shall be whole-time Members.

Functions and Role of CCI

  • To eliminate practices having adverse effects on competition, protect the interests of consumers and ensure freedom of trade in the markets of India.
  • To give opinion on competition issues on a reference received from a statutory authority
  • To undertake competition advocacy, create public awareness and impart training on competition issues.
  • Consumer Welfare: To make the markets work for the benefit and welfare of consumers.
  • Ensure fair and healthy competition in economic activities in the country for faster and inclusive growth and development of the economy.
  • Implement competition policies with an aim to effectuate the most efficient utilization of economic resources.

Most Recent Judgements of CCI

  • Cement companies: CCI imposed a fine of ₹63.07 billion (US$910 million) on 11 cement companies for cartelisation in June 2012.
  • BCCI: CCI imposed a penalty of ₹522 million (US$7.6 million) on the BCCI in 2013 for misusing its dominant position.
  • Telcos: CCI ordered a probe into the functioning of Cellular Operators Association of India (COAI) following a complaint filed by Reliance Jio against the cartelization by its rivals Bharti Airtel, Vodafone India and Idea cellular.
  • Google: The commission ordered an antitrust probe against Google for abusing its dominant position with Android to block market rivals.
What should be the way forward?
  • With the new changes, the Commission should be better able to manage certain aspects of the New Age market and make its operation more robust.
  • These proposed changes were necessary, and there is a need for the Government to recognise and accept the ever-changing market dynamics and make provisions for regular updation of laws.

Mains Practice Question –The long-awaited Bill to amend the Competition Act, 2002, was finally tabled in the Lok Sabha recently. Discuss the amendments while analyzing if this suits the current economic landscape of India.

Note: Write answers to this question in the comment section.


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