Understand Competition Amendment Act, 2023 | UPSC

Recent Changes in the Competition Law of India: Significance, Implications and Concerns

Introduction:

• There has been a significant growth of Indian markets and a paradigm shift in the way businesses operate in the last decade.
• In view of the economic development, emergence of various business models and the experience gained out of the functioning of the Commission, the Government of India has introduced amendments in the Competition Commission of India Act, 2002, to sustain and promote market competition.
• The Competition (Amendment) Act, 2023 is the most comprehensive overhaul of the existing competition law since its original enactment in 2002 that aims to bring antitrust law at par with changing markets.

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Recent changes in the Competition Law in India

a) Global turnover provision:

• One of the major changes in the amended law is that it empowers the Competition Commission of India (CCI) to penalise entities found engaging in anti-competitive behaviour based on their global turnover.
• So far, the penalties were decided as a percentage of erring entities’ “relevant” turnover, which typically means their annual domestic turnover.

b) ‘Deal value’ threshold:

• After the introduction of new changes, it is mandatory to notify the Commission of any transaction with a deal value in excess of ₹2,000 crore and if either of the parties has ‘substantial business operations in India’.

c) Time limit to approve a combination reduced:

• The Commission now must approve a combination in only 150 working days (earlier it had to approve it in 210 days), after which it is automatically approved.

d) Penalty for gun-jumping:

• The penalty for gun-jumping, which earlier was a total of 1% of the asset or turnover, is now proposed to be 1% of the deal value.
  • • Parties should not go ahead with a combination prior to Commission’s 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.

e) Issue of Hub-and-Spoke Cartels:

• The recent changes have broadened the scope of ‘anti-competitive agreements’ to catch entities that facilitate cartelisation even if they are not engaged in identical trade practices.
• The Amendment Act,2023 has broadened the definition of the cartel by including hubs and spoke in the definition of cartele., those who do not directly participate in supply or production but participate indirectly at the horizontal levels such as trade associates or consultants or intermediaries.

f) Pre-deposit for filing of an appeal against the order of CCI:

• For an appeal to be heard by the National Company Law Tribunal (NCLT) against the Commission’s order, the party will have to deposit 25% of the penalty amount.

g) Decriminalisation of certain offences: 

• The recent amendments has changed 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 with regard to anti-competitive agreements and abuse of dominant position.

h) Provision of ‘Leniency Plus’

• In the amendment Bill, a provision called ‘Leniency Plus’ allows the commission to give an additional waiver of penalties to an applicant who discloses the existence of another cartel in an unrelated market.

I) Green channel route

• The introduction of the ‘Green Channel Route’ is another step forward in the ‘Ease of Doing Business’ initiative of the Government.
• The green channel route is already in vogue as a procedure, but now the Competition (Amendment) Act 2023 has formally included this route to the Competition Act.
• Where there is a merger or acquisition and there is no horizontal, vertical or complementary overlap between the companies, then deemed approval can be given on the day the application is filed.
• The ‘Green Channel Route’ benefits the Indian and foreign corporations by creating a quick and smooth merger review system, that encourages more cross-border acquisitions, cross-border mergers and amalgamations.

Four types of market structure • Market structure is the number of suppliers in a market. • Perfect competition is characterized by a large number of buyers and sellers, very similar products, good market information for both buyers and sellers, and ease of entry into and exit from the market. • In a pure monopoly, there is a single seller in a market. • In monopolistic competition, many firms sell close substitutes in a market that is fairly easy to enter. • In an oligopoly, a few firms produce most or all of the industry’s output. An oligopoly is also difficult to enter, and what one firm does will influence others. • Anti-trust (anti-competition) laws prevent companies from engaging in unreasonable restraint of trade and transacting mergers that lessen competition.

Significance of the changes to the Competition Act

• The Competition (Amendment) Act, 2023 is likely to have a significant impact on competition in India.

a) More difficult to engage in anti-competitive behavior:

• The expansion of the definition of anti-competitive agreements and the increase in penalties for anti-competitive behavior will make it more difficult for businesses to engage in anti-competitive behavior.

b) Benefit to consumers:

• This will lead to a more competitive market environment, which will benefit consumers in the form of lower prices and better quality products and services.

c) Ease of doing business in India:

• The reduction in the time limit for the CCI to review mergers and acquisitions will help ease of doing business.

d) Positive impact the Indian economy:

• These changes are also likely to positively impact the Indian economy. A more competitive market environment will increase efficiency and productivity, which will boost economic growth in the country.

Concerns regarding the recent changes and the way forward

a) Impact of fines imposed on global instead of relevant turnover on FDI

• Globally, India is among the most attractive foreign direct investment (FDI) destinations, ahead of China, with 8% plus economic growth, low inflation, a huge consumer market and the world’s largest population (with a median age of under 30), apart from a stable regime and friendly policies, all of which offer investors high returns. Strong inflows of FDI are accompanied by technology that benefits us.
• Fines imposed on global turnovers could deter firms that sell multiple products in multiple markets across the world. The prospect of being penalized in various jurisdictions based on their global instead of relevant turnover could also expose them to double jeopardy.
• We must bear in mind that sunrise sectors would play a key role in our economy’s growth over the next decade, propelled by manufacturing of semiconductors, electronics, electric vehicles, renewable energy, avionics and defence equipment.
  • • Investments from global companies to set up units in India, indigenization, research and development and localized manufacturing will play a critical role.
    • In this context, the CCI’s role as a market regulator will be crucial and enforcement by the CCI must be kept in tune with the ease of doing business.

b) Low recovery of fines

• In India, the actual recovery of fines for violations of the competition law has been meagre, with most cases stuck in courts and tribunals, and some fines stayed or reduced on procedural or evidentiary grounds.
• Unfortunately, this deprives penalties of their sting; it also results in wastage of the CCI’s time in defending its decisions at various forums.
• The current framework for fine imposition and recovery must be made more enforcement-oriented.
• The Competition Act (Section 39) offers a provision allowing for the penalty amount recovery under the Income Tax Act 1961, which can be applied judiciously.
• Perhaps the CCI needs to be provided additional manpower and a dedicated wing for this purpose.

References:

• https://www.livemint.com/opinion/online-views/competition-penalties-going-by-global-turnover-call-for-a-rethink-11713276436387.html
• https://indianexpress.com/article/explained/explained-law/competition-amendment-bill-passed-lok-sabha-effects-bigtech-8529781/
• https://loksabhadocs.nic.in/Refinput/New_Reference_Notes/English/05082022_125541_1021205203.pdf
• https://www.mondaq.com/india/cartels-monopolies/1323672/analysis-of-the-competition-amendment-act-2023
• https://www.business-standard.com/opinion/columns/from-local-to-global-competition-law-gained-much-traction-in-2023-123122000401_1.html
• https://www.thehindubusinessline.com/economy/competition-amendment-act-2023-centre-readies-rules-to-operationalise-provisions/article67090693.ece
• https://courses.lumenlearning.com/suny-osintrobus/chapter/competing-in-a-free-market/#:~:text=In%20a%20pure%20monopoly%2C%20there,all%20of%20the%20industry’s%20output.

Practice Questions for UPSC Prelims:

Q. With reference to the recent changes in the Competition Laws in India, consider the following statements:

1. Entities found engaging in anti-competitive behaviour are penalized based on their global turnover and not on their domestic turnover.
2. The definition of the cartel has been broadened by including hubs and spoke in the definition of cartel.
3. For an appeal to be heard by the National Company Law Tribunal (NCLT) against the Commission’s order, the party will have to deposit 50% of the penalty amount.

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How many of the above statements are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

Answer: b

 Practice for UPSC Mains

• The Competition (Amendment) Act, 2023 is the most comprehensive overhaul of the existing competition law since its original enactment in 2002 that aims to bring antitrust law at par with changing markets.

Recent changes in the Competition Law in India

a) Global turnover provision:

• One of the major changes in the amended law is that it empowers the Competition Commission of India (CCI) to penalise entities found engaging in anti-competitive behaviour based on their global turnover. So, statement 1 is correct.
• So far, the penalties were decided as a percentage of erring entities’ “relevant” turnover, which typically means their annual domestic turnover.

b) ‘Deal value’ threshold:

• After the introduction of new changes, it is mandatory to notify the Commission of any transaction with a deal value in excess of ₹2,000 crore and if either of the parties has ‘substantial business operations in India’.

c) Time limit to approve a combination reduced:

• The Commission now must approve a combination in only 150 working days (earlier it had to approve it in 210 days), after which it is automatically approved.

d) Penalty for gun-jumping:

• The penalty for gun-jumping, which earlier was a total of 1% of the asset or turnover, is now proposed to be 1% of the deal value.
  • • Parties should not go ahead with a combination prior to Commission’s 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.

e) Issue of Hub-and-Spoke Cartels:

• The recent changes have broadened the scope of ‘anti-competitive agreements’ to catch entities that facilitate cartelisation even if they are not engaged in identical trade practices.
• The Amendment Act,2023 has broadened the definition of the cartel by including hubs and spoke in the definition of cartele., those who do not directly participate in supply or production but participate indirectly at the horizontal levels such as trade associates or consultants or intermediaries. So, statement 2 is correct.

f) Pre-deposit for filing of an appeal against the order of CCI:

• For an appeal to be heard by the National Company Law Tribunal (NCLT) against the Commission’s order, the party will have to deposit 25% of the penalty amount. So, statement 3 is not correct.

Hence, only two of the statements given above are correct.

Therefore, option (b) is the correct answer.

Relevance: The Competition Commission of India Act, 2002, has been amended to sustain and promote market competition.

Subject: Current Affairs | Economy

Level of Difficulty: Moderate | Factual

Answer Writing Practice for UPSC Mains:

Topic: Indian Economy and related issues (GS Mains Paper 3)

Q  . The Competition (Amendment) Act, 2023 is the most comprehensive overhaul of the existing competition law since its original enactment in 2002 that aims to bring antitrust law at par with changing markets. Comment. (Answer in 250 words)