Competition Law in India- Explained Pointwise

Recently the CCI has made flurry of changes in the competition law in India. These include guidelines for monetary penalty, regulations for settlements and commitments, the introduction of new thresholds and the introduction of ‘leniency plus’ provisions. These changes emanate from the Competition Law Amendment Act of 2023. According to the CCI chief, these recently notified guidelines on settlement, commitment, ‘leniency plus’ and global turnover will be applicable to cases that are under CCI investigation.

What are the latest changes in the Competition Law in India?

The competition in the Indian market is regulated by the The Competition Act, 2002. This act regulates and prohibits anti-competitive practices such as cartels, abuse of dominant market position, and mergers and acquisitions that may have an adverse effect on competition.

1. New Threshold for acquisitions and mergers

The amendment act introduces new threshold to prohibit firms from entering into a combination which may cause an adverse effect on competition.

a. Deals with transaction value of more than Rs 2,000 crore will require CCI’s approval.
b. The amended act reduces the timeline for the CCI to pass an order on such transactions from 210 days to 150 days.

2. Penalties for Competition Law Violations

a. The amended act amends the definition of ‘turnover‘ for the imposition of penalties. The penalties will be imposed on company’s global turnover, rather than just its turnover in India.

b. Penalty can go up to 30% of the average relevant turnover/ income, subject to the legal maximum of 10% of the company’s global turnover.

3. Introduction of ‘Leniency Plus’ provisions

This provision allows the Competition Commission of India (CCI) to give an additional waiver of penalties to an applicant who discloses the existence of another cartel in an unrelated market.

4. Expedition of clearances of mergers and acquisitions

The amended competition law in India provides for the expedition of CCI clearance of mergers and acquisitions to within 150 days with an additional conservatory extension of 30 days. This is a reduction from the time limit of maximum of 210 days now.

5. Decriminalization of certain offences

a. The amended competition law in India decriminalizes certain offences by changing the nature of punishment from imposition of fine to civil penalties.

b. These offences include failure to comply with orders of the CCI and directions of the Director General related to anti-competitive agreements and abuse of dominant position.

What are the purported advantages of the changes in the Competition Law In India?

1. Promotion of Ease of Doing Business- The amendments to the Competition Act aim to reduce regulatory hurdles and promote ease of doing business in India. The amendments are expected to provide greater clarity to businesses operating in India and reduce the compliance burden for companies.

2. Enhancement of Transparency-  The inclusion of global turnover in the definition of “turnover” aims to enhance transparency and accountability in the Indian market.

3. Strong deterrence against anti-competitive practices- The amendment to the competition law in India ensures that companies cannot escape penalties for competition law violations by shifting their revenue to other countries.

4. Broadening the scope of anti-competitive practices- It broadens the scope of ‘anti-competitive agreements’ by the introduction of ‘leniency plus’ agreements to catch entities that facilitate cartelization.

5. Prevention of market monopoly- The amended act aims to prevent market monopoly of the large firms by introduction of revised thresholds for holding them to account for anti-competitive behavior. It would the CCI to make speedy market corrections in cases of market monopoly.

What are the challenges associated with the Competition law in India?

1. Low rate of recovery of penalties- The recovery of penalties for anti-competitive behavior has been only 0.4% over the past five years. CCI has low success rate in defending its decisions at various forums like the apellate tribunals and the higher courts.

2. Fears of loss of FDI- The inclusion of provisions of penalties based on the global turnover can have substantial impact on companies with global operations. Fines imposed on global turnovers could deter firms that sell multiple products in multiple markets across the world.

3. Lack of Capacity of CCI- CCI lacks the manpower and resources to effectively monitor the anti-competitive practices being employed by the big techs.

4. Fear of affecting sunrise sector- There are fears that the introduction of stringent penalties may end up affecting the sunrise industries in India like the semiconductors, electronics, electric vehicles, renewable energy, avionics and defence equipment.

What Should be the way Forward?

1. Revamping of CCI- The institutional structure of CCI must be revamped by creating separate cell/division, beefing up the technical manpower for dealing with digital anti-competitive practices.

2. Early establishment of separate bench of NCLAT- The government must constitute a separate bench in the NCLAT at the earliest for early adjudication of anti-competitive cases. Provision in the Competition Act (Section 39) for recovery of the penalty amount under the Income Tax Act 1961, could be liberally used after getting cases finalized in appeals.

3. Multilevel scrutiny before imposing fines based on Global Turnovers- CCI must employ a multilevel scrutiny process like EU and Germany before imposing fines based on global turnover levels. The factors like nature of infringement, consequential harm, market share etc. must be taken into account before imposing the penalties.

4. Effective Checks and balances- A mechanism of ensuring effective checks and balances must be instituted to curb any abuse of discretionary powers by the authorities.

5. Protecting the sunrise sector- CCI must effectively balance its role of regulating the anti-competitive behavior as well as protecting the sunrise sectors of the economy. Enforcement must be kept in tune with the ease of doing business.