India – Summary Of Key Changes In The (Draft) Competition (Amendment) Bill, 2020.

iv. Extending the intellectual property right (IPR) defence to abuse of dominance: Rights of IPR holders’ to restrain infringement of, or impose reasonable conditions necessary to protect their IPR rights, is proposed to be exempt from provisions of the Act that proscribe abuse of dominance, in addition to the pre-existing exemption from the scope of anti-competitive agreements.(Please see Section 4A)

v.  Expressly granting the CCI the power to close an inquiry after further inquiry, notwithstanding the findings of the DG Investigation Report (Please see Section 26(9)): While in practice it was always the case, the Bill now expressly provides that in cases where (a) the DG has provided its investigation report or (b) after considering the DG’s investigation report, the CCI is of the view that further investigation is required, either by the DG or by the CCI – the CCI can close the inquiry. The Bill provides that before passing any order in instances (a) and (b), the CCI shall issue a show-cause notice (indicating the contraventions alleged to have been committed) and give a reasonable opportunity of being heard to the concerned parties.

vi.  Extensive powers to the DG (Please see Section 41(3) to (14)): The Bill proposes to confer wider powers to the DG. Any person who fails to (a) produce any documents, information or record, or (b) appear before the DG personally or fails to answer any question which is put to it by the DG, or (c) sign the notes of any cross-examination, shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to one crore rupees or with both, coupled with a further fine which may extend to INR 5 Lakh for each day of contravention. The power of the DG extends to parties under investigation (including their officer, past employees and agents) and third parties. Further, the DG has now been expressly granted the power to call for any books and records from, or examine on oath any agent of the party being investigated. The term agent has been defined to include any legal advisors, bankers and auditors of such party under investigation.

vii.  Expanding powers of granting leniency: A welcome development in line with the jurisdictions like UK, US, Singapore and Brazil, where a party implicated in a cartel investigation makes a true and vital disclosure of another undisclosed cartel, the CCI is empowered to grant lesser penalty. (Please see Section 46(3)). Further, the Bill includes a provision where the CCI may allow a leniency applicant involved in a cartel to withdraw its application for lesser penalty. However, in case of a withdrawal the CCI is at liberty to use the evidence submitted by the applicant, subject to the admissibility of such evidence. (Please see Section 46(2))

viii.  Mandatory pre-deposit of 25% (or lesser) of the penalty imposed by the CCI in order to appeal before the Appellate Tribunal. (Please see Second Proviso to Section 53-B (2))

ix.  Definition of ‘enterprise’ to include the ‘economic’ activity test. Under the Bill, to be seen as an ‘enterprise’, any entity (regardless of legal form) would need to be engaged in an ‘economic activity’. (Please see Section 2(h))

x.  Setting maximum cap for imposing penalty on individuals implicated in cartels – in line with the penalty for enterprises, the Bill provides for the imposition of penalty on individuals up to a maximum cap of 10% of an individual’s average income for the last three preceding financial years. Specifically in cases of cartel, the penalty provided for is up to 10% of the individual’s average income for each year of the continuance of the anti-competitive agreement. The definition of ‘income’ will be prescribed separately through subsequent regulation. (Please see Sections 27 & 48)

xi.  Compounding of offences (Please see Section 59A): The Bill proposes to confer the NCLAT with the power to compound any “offence” punishable under the Act (other than those punishable with both, fine and imprisonment. Typically, “compounding” refers to a mechanism whereby an offender is discharged of all liability for committing any offence, in lieu of a monetary payment being made to the authority/person empowered to compound the offence. The concerned person may apply for compounding either before or after the institution of any proceeding. While there appears to be a similar dispensation under the (Indian) Companies Act, 2013, the scope, process and procedure for compounding as set out in the Bill has not been detailed and we are examining the implication of this provision.

c.  Merger control functions: 

i.   Inserting the methodology for computing ‘turnover’ under the Act. The proposed amendment, in line with the CCI’s ‘Frequently Asked Questions’, clarifies that the ‘turnover’ of an enterprise excludes intra-group sales and indirect taxes. The proposed amendment also clarifies that ‘turnover’ also excludes trade discounts and all amounts generated through assets or business outside India from customers outside India, as certified by the statutory auditor. (Please see Explanation (d) to Section 5)

ii.  Amendments to the definition of ‘group’ to include two or more enterprises exercising ‘at least twenty-six per cent or such other per cent as may be prescribed’ voting rights in another. (Explanation (b) to Section 5) The Act, as it stands today, in the Explanation to Section 5 of the Act, defines group to include two or more enterprises exercising ‘twenty six per cent’ of the voting rights in another. Notably, the Central Government, by way of successive notifications, the most recent one being in 2016, exempted ‘groups’ exercising less than fifty per cent of the voting rights in an enterprise from the of Section 5 of the Act. While as on date there is no impact of this revision, going forward the Central Government may rescind the 2016 notification in light of this amendment. In the event, the 2016 notification is rescinded or otherwise rendered null and void, for the purposes of notifying a combination to the CCI, the parties will have to additionally include enterprises where they exercise at least twenty-six per cent of the voting rights or any other percentage as may be prescribed by the Central Government/CCI.  

iii.  Exemption from notification afforded to public  financial  institutions,  foreign institutional investor, bank or  alternate investment fund (Category I) for share subscriptions, financing facilities or acquisitions, pursuant to covenant of a loan agreement or investment agreement (Please see Section 6(9)). Prior to this proposed amendment, these institutions had to file within 7 days from completing their investment, but are now exempt from the filing requirement.

iv.  Shortening the timelines for review of combinations. The proposed amendment reduces the time period for the CCI to issue its preliminary opinion on whether a combination would cause an appreciable adverse effect on competition, to twenty calendar days (from the present thirty working day period). (Please see Section 29(1A))The proposed amendment also reduces the overall timelines for the review of a notification to one hundred and fifty days (extendable by up to thirty calendar days to account for ‘clock stops’ where parties are required to provide additional information) from the two hundred and ten day period as presently mentioned in the Act. (Please see Proviso to Section 31(6))