Competition (Amendment) Bill: Panel wants annual review of deal valuations

Proposed Settlement and commitment mechanism

The Parliamentary Standing Committee on Finance has called for a series of clarifications and changes in the proposed Competition (Amendment) Bill 2022. From specifying the method of calculating deal value of transactions and allowing cartels to access settlement mechanisms as a “pragmatic recourse” to introducing effects-based analysis for the Competition Commission of India (CCI) and director general before ascertaining anti-competitive behaviour, the panel has sought more predictability and certainty in the proposed legislation. It has also objected to the proposal of reducing the timeline of acquisitions to 150 days, from the existing 210 days, saying that the status quo should remain.

The Jayant Sinha-led committee — in its report tabled in the Lok Sabha on Tuesday — has stated that the deal value of transactions should be reviewed every year, instead of every two years.

It said the Bill does not provide guidance on how the deal value should be calculated and the meaning of “direct, indirect or deferred consideration”. Agreeing with stakeholders’ view, the committee said: “These terms can potentially bring transactions which are unlikely to cause adverse effects on competition under the merger control mechanism.” 

According to the corporate affairs ministry (MCA), a combination (of companies) with a transaction value of more than Rs 2,000 crore, as well as having substantial operations in India or “local nexus”, will have to be notified to the CCI.

The idea, according to the MCA, is to find out combinations where the assets or turnover may be lower than the threshold but there are several intangibles, such as data, in the context of the digital and new age markets.

“The MCA has clarified that it is intended to apply only to the ‘digital sector’ and is an additional threshold -- this means that it will apply even if the target meets the small target test,” said Avaantika Kakkar, partner (head-competition law), Cyril Amarchand Mangaldas.

The proposed Bill also seeks to introduce a clause for settlement and commitment which offers any enterprise against which an inquiry is initiated to file an application for settlement. According to the CCI, it may be given the discretion to agree to the settlement proposal which may include a payment or such other terms, or both.

The standing committee has also sought the removal of the clause regarding the commitment mechanism that allows objections or suggestions to be submitted by “any other third party” amid stakeholders’ concern that it may compromise secrecy. The committee in the report said: “Such a mandate must be discretionary and not mandatory.”

It has also said the company opting for such proceedings should also be given the option to withdraw, which in the current Bill rests only with the CCI.

Regarding cartels, the committee has suggested their inclusion in the scope of settlements “as a pragmatic recourse to the whole process”. “A settlement provision for cartels on a case-by-case basis may be for the courts to decide. It does not require emphasis that any matter, cartels or otherwise, that reaches the settlement stage, would have an anti-competitive one," the report said.

The MCA had earlier clarified in its presentation to the committee that it would issue detailed regulations for the settlement and commitment mechanism to reduce arbitrariness and ensure accountability. The idea behind the amendment proposed is the faster resolution of competition cases and reduced litigation.

The Bill does not state whether opting for settlement or commitment requires admission of guilt by the company, the committee noted. “Prima facie admission of guilt should not be mandated…There should be an enabling provision to allow the applicant to revisit the settlement/commitment after the order of final settlement by the CCI as one last opportunity.”

It has also suggested a provision to provide compensation to the consumer in an appropriate manner.

The present law does not require the CCI or director general to do an effects-based analysis -- analysing the effects of the conduct while examining 'the abuse of dominance' cases.

“Under this test, the regulator looks at different factors like impact on consumers, innovation and competition before adjudicating a conduct as violative of the competition law,” the standing committee said.

The committee has suggested that the Act should be amended to say that while determining whether an agreement or conduct has an appreciable adverse effect on competition, the commission “should have due regard to all or any of the following factors…”

"So far the CCI was ambivalent about the need for such a test under the statute," Kakkar added.

The standing committee has also raised concerns about the ability of the director general to depose legal advisors which, it said, goes against the attorney-client privilege and the Indian Evidence Act, 1872. “It holds the potential to invite a judicial challenge,” the report stated.

 Concerns have been raised about the provision regarding the hub and spoke cartels introduced in the Bill. The provision says that any party even if it is not involved in the identical or similar trade, but “actively participates in the furtherance of such agreement”, will also be considered liable.

 “It is seen that many associations provide a platform where parties reach an agreement to fix prices or allocate markets,” according to the CCI.

The standing committee has also flagged that the Bill does not specify what constitutes active participation as it can also include entities providing intermediate services, such as digital platforms or an industry association organising meetings without agenda to share sensitive information. It has, therefore, suggested that the Bill should insert “if it is proved that such person intended to actively participate” in the said clause.