21 April, 2016
General
What is the main piece of legislation of general application which regulates anti-competitive behavior? What are the main prohibitions in the legislation?
The Competition Act, 2002 (Competition Act). It primarily seeks to prohibit behavioural conduct in the form of anti competitive agreements and abuse of a dominant position and regulates combinations (i.e., mergers, acquisitions and amalgamations).
Which regulator is responsible for administering and enforcing competition laws?
The Competition Commission of India (CCI).
Are there any exclusions from the competition legislation of general application? Are there any sector-speci c competition laws or regulations?
The Central Government of India has the right to exempt from the application of the Competition Act:
(a) behaviour by any class of enterprise if necessary in the interest of security of the state / public interest;
(b) practices arising out of and in accordance with an obligation assumed by India with any other country or countries; and
(c) enterprises that perform a sovereign function on behalf of the Central Government of India or a State Government.
To date, the Central Government of India has issued the following exemptions:
(a) the “de-minimis” exemption for merger control that exempts, for a period of 5 years from 4 March 2016, acquisitions in which the target enterprise has assets less than INR 3500 million in India or turnover lesser than INR 10,000 million in India;
(b) Vessel Sharing Arrangements of the Shipping Liner Industry are exempted from the provisions prohibiting anti-competitive agreements under the Competition Act for a period of 1 year from 2 March 2016, as long as the agreement does not include concerted practices involving the xing of prices, limitation of capacity or sales and the allocation of markets or customers; and
(c) all combinations involving banking companies in respect of which the Central Government of India has issued a noti cation under Section 45 of the Banking Regulation Act, 1949, are exempted from the ling requirements before the CCI, for a period of ve years from 8 January 2013.
Does the competition legislation apply extraterritorially to persons, behaviour or action outside the jurisdiction?
Yes. The CCI is empowered to inquire into an agreement / abuse of dominant position / combination if it has, or is likely to have, an appreciable adverse effect on competition (AAEC) in the relevant market in India.
What penalties and liabilities may be imposed for a breach of the competition law?
In the case of anti-competitive agreements and abuse of dominance, the CCI may impose nes of up to 10% of the average turnover for the last three preceding nancial years upon each of such persons or enterprises that are parties to such agreements or abuse. In the case of cartels, the CCI may impose the higher of the amount equal to three times the total pro ts for each year of the continuance of such agreement or 10% of turnover for each year of the continuance of the agreement, whichever is higher.
The CCI may also require parties to an anti-competitive agreement or enterprises abusing their dominant position to “cease and desist” from continuing with such agreements or practices. The CCI may also sanction modi cation of agreements, which are found to be anti-competitive. In the case of abuse of dominance, the CCI has the power to order the division of the dominant enterprise.
Once the CCI or subsequently the Competition Appellate Tribunal (COMPAT) in appeal, nds a contravention of the Competition Act, a person may approach the COMPAT for adjudicating its claim for compensation for any loss or damage shown to have been suffered as a result of such contravention.
Prohibition on anti-competitive
agreements
What kind of agreement or conduct is illegal under the prohibition?
The Competition Act prohibits enterprises (or association of enterprises) from entering into any horizontal or vertical agreement, in respect of the production, supply, storage and distribution of goods, which causes or is likely to cause an AAEC within India. Agreement is broadly de ned and captures a range of coordination between parties.
The exchange of commercially sensitive business information may be prohibited if it falls within one of the categories of prohibited agreement (for example, if it used to determine prices or limit supplies).
What types of agreements or conduct are illegal by object? And which are illegal only if they are signi cantly anti-competitive in effect?
The Competition Act is an “effects” based legislation and whilst horizontal agreements that seek to x prices, limit supplies, allocate markets or customers, or rig bids are presumed to cause an AAEC, the presumption is a rebuttable one. Strictly speaking, the Competition Act doesn’t identify per se violations or conduct illegal by object.
The AAEC presumption does not apply to vertical agreements. For vertical agreements to be prohibited, it needs to be proven that the vertical agreements cause, or are likely to cause, an AAEC within India.
Is there regulation of vertical agreements and if so, what type of vertical restraints or provisions in such agreements are typically examined?
Yes. The Competition Act identi es a list of inclusive agreements, namely, exclusive distribution or exclusive supply agreements, re-sale price maintenance, refusal to deal and tie-in arrangements that are prohibited only if they cause or are likely to cause an AAEC in India.
An AAEC assessment involves a qualitative examination of certain identi ed pro-competitive (accrual of consumer bene ts; improvements in production / distribution of goods or provision of services; and promotion of technical, scienti c and economic development by means of production or distribution of goods or provision of services) and anti-competitive factors (creation of barriers to entry; driving existing competitors out of the market; market foreclosure).
Is resale price maintenance allowed? Are recommended resale prices or maximum resale prices permitted?
No. Resale Price Maintenance will be prohibited if they cause or are likely to cause an AAEC.
Recommended resale prices or maximum resale prices that specify that a lower price may be charged, are permitted.
Are there any defences or relief from liability provided by the legislation?
Yes. There are two conditional safe harbours provided for agreements under the Competition Act:
(a) the right of a person to restrain an infringement of, or impose reasonable conditions (as may be necessary) to protect any rights conferred upon him pursuant to identi ed domestic Indian intellectual property legislations; and
(b) the right of any person to export goods from India to the extent to which the agreement entered into relates exclusively to the production, supply, distribution or control of goods or provision of services for such export.
Is there a leniency regime? If there is, please describe the extent of and process in seeking leniency?
Yes. The Competition Act and Lesser Penalty Regulations provide for leniency. Any producer, seller, distributor, trader or service provider included in any cartel and alleged to have entered into an anti-competitive agreement under the Competition Act may apply for lesser penalties.
The earlier a cartel participant approaches the CCI with vital information on the existence of a cartel, the higher its chances are of availing bene ts under the leniency provisions. The rst member of a cartel to approach the CCI who makes a vital disclosure to the CCI on the existence of a cartel may receive a waiver of penalty up to 100%. Members who subsequently contact the CCI are eligible for partial penalty waivers, up to 50% and 30%, respectively, on the condition that they provide additional valuable information which was not known to the CCI earlier.
Abuse of Dominance or Market Power
How is “dominance” or “market power” determined? Is there a market share test?
The Competition Act de nes a “dominant position” as a position of strength, enjoyed by an enterprise, in the relevant market in India, which enables it to (a) operate independently of competitive forces prevailing in the relevant markets; or (b) affect its competitors or consumers or the relevant market in its favour. The Competition Act sets out several factors that the CCI is required to consider at the time of determining whether an enterprise may be considered dominant. While market share is one of the foremost factors that are considered for determining whether an enterprise is dominant, neither the Competition Act nor the accompanying regulations identify a market share test. While one decision of the CCI has identi ed 30% as being a reasonable market share gure to determine market power, it would ultimately depend on the facts of the case and the nature of the industry.
What type of conduct constitutes abuse of dominance or abuse of market power?
The Competition Act provides an exhaustive list of practices, which, when carried out by a dominant enterprise or group, would constitute an abuse of dominance and any behaviour by a dominant rm which falls within the scope of such conduct is likely to be prohibited. These include:
(a) imposing unfair or discriminatory conditions on sale or purchase of goods / services, including predatory pricing;
(b) limiting or restricting: (i) production of goods or provision of services of a market; or (ii) technical or scienti c development relating to goods or services to the prejudice of consumers;
(c) indulging in practice or practices resulting in denial of market access, in any manner;
(d) making the conclusion of contracts subject to acceptance by other parties of supplementary obligations, which, by their nature according to commercial usage, have no connection with the subject of such contracts; and
(e) using one’s dominant position in one relevant market to enter into or protect another.
The prohibition on imposing “unfair” or “discriminatory” pricing, however, does not apply to dominant enterprises when such conduct is employed to meet competition.
Are there any defences or relief from liability or exclusions applicable for abusive conduct?
No.
Merger Control
Is there a merger control regime? What is considered a “merger”?
Yes. Any acquisition, merger or amalgamation that meet the asset and/ or turnover thresholds prescribed under the Competition Act quali es as a combination under the Competition Act and are required to seek mandatory prior approval from the CCI, subject to available exemptions.
Is the merger noti cation a mandatory or voluntary process?
Mandatory.
When must the merger be notified to the regulator?
The parties are required to notify the CCI of proposed combination that meets the jurisdictional thresholds within 30 calendar days of the earlier of:
(a) date of execution of any agreement or binding document conveying an agreement or decision to acquire shares, control, voting rights or assets, in the case of an acquisition;
(b) approval of the proposal relating to the merger or amalgamation by the board of directors, in the case of a merger / amalgamation; or
(c) where a public announcement has been made in terms of the Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations, 2011, for an acquisition of shares voting rights or control. The 30-day time period within which the noti cation to the CCI is required to be led would commence from the date of such public announcement.
What are the ling thresholds and are there any exemptions from noti cation requirements?
If any one of the asset or turnover thresholds are satis ed by a combination, a noti cation to the CCI is triggered (subject to available exemptions):
(a) in case of a merger, the enterprise after merger or created as a result of merger or in the case of an acquisition, either the acquirer or target or both have:
(i) assets in India of more than INR20 billion; or
(ii) turnover in India of more than INR60 billion; or
(iii) worldwide assets of more than USD1000 million, including at least INR10 billion in India; or
(iv) worldwide turnover of more than USD3 billion, including at least INR30 billion in India; or
(b) the group to which the target will belong has:
(i) assets in India of more than INR80 billion; or
(ii) turnover in India of more than INR240 billion; or
(iii) worldwide assets of more than USD4 billion, including at least INR10 billion in India; or
(iv) worldwide turnover of more than USD12 billion, including at least INR30 billion in India.
There are three broad categories of exemptions under the merger control regime in India:
(a) statutory exemption: any nancing, acquisition, or subscription of shares undertaken by Foreign Institutional Investors, or venture capital funds registered with the Securities Exchange Board of India, public nancial institutions and banks pursuant to a covenant of an investment agreement or a loan agreement;
(b) transactions normally exempt from mandatory noti cation: transactions which are ordinarily not likely to cause an AAEC in India, for example the acquisition of stock-in-trade or raw materials in the ordinary course of business, acquisition of shares or voting rights pursuant to a bonus issue or stock splits, share buy backs or subscription to rights issue of shares, wherein it does not lead to acquisition of control, and certain kinds of intra-group transactions.
(c) target-based exemption (de minimis exemption): transactions structured as acquisitions in which the target enterprise either has assets less than INR 3500 million in India, or has a turnover less than INR 10,000 million in India.
Please provide a brief description of the merger clearance process and the typical timeline for merger clearance.
Notification to the CCI is to be made either in Form I (short form) or Form II (long form). After such ling, the CCI has the power to ask for additional information or to ask parties to re-file the notice in Form II. The responsibility for making a noti cation to the CCI varies depending upon the nature of transaction, In the case of acquisitions, the responsibility to file lies with acquirer and in mergers / amalgamations, both parties are responsible.
The CCI is required to form its prima facie opinion as to whether the combination is likely to cause or has caused an AAEC within the relevant market in India, within 30 working days of receipt of the notification. If the CCI is of the view that a transaction does not cause an AAEC, then it will approve the transaction within the Phase I period. The overall timescale that the CCI
is bound by to issue its decision is 210 days from the date of filing, which includes any discussions on modi cations or remedies, including divestments.
Where the CCI is of the prima facie opinion that the combination is likely to cause AAEC within the relevant market in India, the CCI will commence the detailed Phase II investigation process (Phase II period). The outer time limit for the Phase II period is the statutory 210 days provided for under the Competition Act, subject to certain identi ed stop-clocks.
What are the consequences of failing to notify the regulator when required?
Failure to notify a combination to the CCI can result in a ne of up to 1% of the total turnover or the assets of the combination, whichever is higher. The failure to notify a combination does not mean that the CCI cannot investigate into such combinations.
The Competition Act empowers the CCI to investigate into such combinations as long as a period of one year from the date of coming into the effect of the combination has not lapsed.
Further, if the CCI believes that the transaction will have, or is likely to have, an AAEC in India, the transaction will be treated as void. Consequently, actions taken in pursuance of the transaction will also be void.
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
