1. Introduction
The Competition Act, 2002 ("Act") is the primary legislation for India's modern competition law, which was enacted to ensure businesses compete fairly. Its aim is no company should abuse its dominance in the market and all market players get a fair chance. Competition Commission of India ("CCI") is the anti-trust regulator set up by the Act to curb any anti-competitive conduct and promote ethical market practices. Over the years, the Indian market has seen a paradigm shift where innovative and tech-driven business models are emerging and existing businesses are moving towards digitalization. Responding to the evolving market and digital environment, the Government introduced the Competition (Amendment) Act, 2023 ("Amended Act") in April 2023. Effective September 10, 2024, certain provisions of the Amended Act and new CCI (Combinations) Regulations, 2024 ("New Regulations") were implemented. These changes broadly include additional deal value threshold criteria, expedited approval timelines, revised scope of control, leniency provision for cartels and others. The Government also introduced three merger control rules1 which amplified certain provisions.
This newsletter analyses the changes introduced by new competition regime and its implication on the Indian market.
2. Key changes under the Amended Act & Regulations
A combination occurs when companies merge, amalgamate, or acquire control, shares, voting rights, or assets of another company. Section 5 of the Act states if these combinations meet specified threshold criteria, based on the asset value and turnover of the transacting parties they need CCI approval. If the combinations involve a small target,2 no CCI approval is required under the de-minimis exemption. Apart from this, the Act also provides for certain exempt categories which are not likely to have any adverse effect on market competition. The Amended Act has brought few changes to the existing regime, discussed as follows:
2.1 Deal value threshold: The Amended Act introduced an additional deal-value threshold criterion. Now, the combinations with deal value exceeding INR 20 billion (about USD 239 million)3 will need CCI approval. For this rule to apply, the target must also have significant business operations in India, which means at least 10% (a) global users, subscribers, customers, or visitors are in India (for digital services), or (b) global sales or service value for 12 months prior to transaction date from India exceeds INR 5 billion (about USD 60 million), or (c) global turnover for previous financial year from India exceeds INR 5 billion.
In recent times, India has seen rise in startups who may have minimal asset value or turnover to start with, but are rich in terms of technology and innovation, leading to higher company valuation. Essentially, the new criterion intends to catch high-value transactions that may impact competition, even if parties are small in terms of assets or turnover. This is different from the traditional criteria, which targeted larger companies. Moving forward, the transacting parties should focus on 3 parameters – asset value, turnover and valuation – while structuring a combination and assessing its legal requirements.
2.2 Expedited approval timeline: Earlier, CCI had 210 days to review and decide on combination applications which is now reduced to 150 days. Under section 29 of the Amended Act, CCI must first form a preliminary opinion within 30 days failing which the transaction will be automatically approved. Faster approvals will allow businesses to focus on their work rapidly. For large scale combinations, the initial 30-day opinion will provide more certainty and, potentially, minimize lengthy approval process. The reduced timelines should result in quicker deal closures and help businesses to capitalize on time-sensitive market opportunities.
2.3 Revised scope of control: Under the explanation to section 5 of the Act, "control" referred to controlling the affairs or management of an entity or group. CCI expanded the scope of control while reviewing Ultratech Cement's acquisition of two cement plants from Jaiprakash Associates Limited.4 CCI raised concerns about Ultratech's failure to disclose material information about all entities owned and controlled by the promoter and his family, both directly and indirectly. During the assessment, the regulator stated that control can be established even without majority ownership or direct management, it includes exercising material influence through shareholding, special voting rights, status and expertise of an enterprise or person5, board representation or structural/financial arrangements. The Amended Act has now formalized CCI's precedent and revised the definition stating that control means the ability to materially influence the management, affairs, or strategic commercial decisions. This will cover entities or individuals who possess special rights or powers to influence key decisions. The transacting parties will need to be mindful and give adequate attention to the rights and powers to evaluate who has the ability to have a "material influence."
2.4 Relaxations on open offer and stock exchange acquisitions: Previously, transacting parties had to wait for CCI approval before making any open market offer or acquiring securities through stock exchanges. Certain suspensory obligations were laid on the combining parties awaiting regulatory approval. This created delays, especially in hostile takeovers or price-sensitive market opportunities. The Amended Act has removed these hurdles. Under the New Regulations, the parties can proceed with open market transactions by informing CCI within 30 days of executing the deal. However, during this period, the acquiror cannot take any ownership, beneficial interest, or exercise rights over the acquired securities.
2.5 Exemptions: The Exemption Rules have replaced schedule I of CCI (Procedure in regard to the Transaction of Business relating to Combination) Regulations 2011. These rules outline 12 categories of transactions which do not need CCI approval. Broadly, these categories include minority share acquisitions, incremental/creeping acquisitions, and intra-group transactions. The Exemption Rules also provide a uniform test of change in control for certain exemptions relating to bonus issue or stock splits and creeping acquisitions. The exemption will be available provided the transaction does not result in any change in overall control. The Exemption Rules also extend to demergers. Companies often need to restructure their operations for various reasons, like splitting any defunct division or consolidating entities within group without change in control for easier management without any impact on competition. By taking advantage of these exemptions, large groups can make internal adjustments or strategic changes more quickly and freely.
2.6 Green channel mechanism: The green channel is an express lane for business deals where there is no overlap in business activities between parties to the combination, their group entities, or affiliates. To qualify for this, entities must meet certain criteria (a) they should not produce or offer similar, identical, or substitutable products or services, (b) they must not operate at different stages of supply chain6 with respect to a product or service, and (c) their products and services should not complement one another, i.e. enhance each other's value when used together. Since such entities do not compete directly, their combination should not harm the market which, in turn, will facilitate CCI approval. While this option existed under regulation 5A of combination regulation, 2011, the government has now codified specific rules. The transacting parties have to file requisite forms and necessary declarations with CCI, but they will not have to wait for mandatory 150 days review period. As a result, the green channel simplifies the approval process for combinations involving unrelated companies and fosters partnerships across diverse sectors.
3. Other significant changes
When CCI receives any information or a complaint regarding an alleged violation of the Act, it first conducts a preliminary inquiry to determine if a prima facie case exists for further investigation. If so, it directs the Director General to conduct a detailed investigation. If violation is established, then it passes necessary orders under different provisions of the statute, depending upon the nature of the breach. The Amended Act has introduced changes impacting anti-competitive agreements (section 3) and abuse of dominant position (section 4) which focus on creating a business-centric environment while ensuring consumer welfare.
3.1 Leniency for cartels: Section 46 of the Amended Act introduces specific leniency provisions for cartels.7 In the course of an investigation, if any entity in a cartel volitionally decides to provide accurate and complete disclosure about violative anti-competitive conduct, it can minimize its exposure to lower quantum of penalties imposed. Such disclosures should be made before CCI finalizes the investigation report. Additionally, they must cooperate with CCI throughout the proceedings and comply with any conditions the regulator may impose. Otherwise, the leniency benefits may be reversed, and full penalties imposed. The new provisions also allow a cartel or its member to disclose to the CCI the existence of another cartel which may be in violation of section 3 of the Act. If this happens, and CCI forms a prima facie opinion that another cartel exists, it may impose lighter penalties on the disclosing entity. Hopefully, in times to come, this should assist CCI to (a) reduce market manipulation caused by cartels and protect consumer interests; (b) correct any anti-competitive conduct before it adversely affects the market competition or consumers.
3.2 Settlement and Commitment mechanisms: A significant change to the Act is the introduction of provisions, sections 48A and 48B, allowing parties to offer settlements and voluntarily undertake certain commitments. If CCI has initiated an inquiry for any alleged violation, the party(ies) can write an application to either settle the matter or provide commitments, offering specific terms which directly address CCI's objections. These terms may include changing business practices, modifying pricing strategy, reviewing contractual arrangements, etc. In other words, CCI is empowered to close inquiry proceedings before the final decision is issued after duly considering the nature, gravity and impact of the contraventions, if the enterprise (a) offers to settle, by making a monetary payment; or (b) makes a structural or behavioural commitment. Parties can avoid prolonged investigations with proactive cooperation and potentially benefit from lesser penalties. It should save substantial time and resources of the regulator and industry. A cost benefit analysis and the opportunity to discuss provides an extra option to enterprises to settle with agreed remedial measures versus imposition by CCI without any dialogue.
3.3 Limitation period: By virtue of a proviso to section 19(1), a three-year limitation period has been introduced for filing complaints related to anti-competitive activities with CCI. This defined timeline will encourage stakeholders to act swiftly on violations, ensuring that only genuine matters are brought forward. The amendment aims to reduce the number of frivolous complaints, as stakeholders will be constrained to pursue matters which lack substantial or credible evidence.
3.4 Penalty framework: Under the Act, there was no standardized or detailed framework for calculation of penalties, which varied widely depending on facts at hand. To address this, the CCI Penalty Guidelines, 20248 were introduced on March 6, 2024 providing a clear methodology for penalty determination. The new guidelines state if any agreement is anti-competitive or an enterprise abuses a dominant position, then penalties can be up to 30% of the average relevant turnover. This calculation considers several factors such as the nature and gravity of the contravention, the affected industry, role and duration of involvement in the violation, etc. Under the Amended Act, the explanation to section 27(b) states that word turnover with reference will mean global turnover, not just Indian putting an end to interpretational issues in the computation process. Time will tell if global turnover leads to unfair outcomes since an enterprise could have a lower stake in India versus foreign markets. Consequently, businesses with extensive global operations, particularly digital companies, may face substantial penalties based on their entire global revenue. This could lead to discrimination between conglomerates who commit similar contraventions but are penalized differently depending on the size of their business. As a result, companies operating across multiple jurisdictions will need to be more vigilant.
4. Transitional provisions
New provisions regarding the regulation of combinations will now apply to all qualifying transactions, even those which were previously excluded and are not yet completed. Under the Act, companies are required to notify eligible combinations to CCI after board approval for mergers and amalgamations, and after executing documents for acquisitions. Even if the approval or document execution took place before September 10, 2024, combinations may need CCI approval if they meet the new criteria. Therefore, ongoing transactions should be carefully re-evaluated to see if they require CCI approval under the new framework.
5. Conclusion
The ultimate objective of CCI is to promote and sustain competition, prevent any practice which causes appreciable adverse effect thereon and even possesses ex-post powers. As India continues to consolidate its position on the global platform, the recent amendments strike a balance between listening to industry demands while providing regulatory certainty. Excessive oversight will be an obstacle for economic growth. Enterprises must understand the changes as they will impact both traditional and new-age markets in which they operate, help implement policies which will ensure compliance with the letter and spirit of the law, minimize investigations and ensuing penalties.
Footnotes
1. These were Competition (Criteria for Exemption of Combinations) Rules or Exemption Rules; Competition (Minimum Value of Assets or Turnover) Rules and Competition (Criteria for Combination) Rules
2. Asset value or revenue in India must be below INR 4.50 billion (about USD 54 million) or INR 12.5 billion (about USD 151 million) respectively
3. 1USD = INR 83 and rounded off
4. Order under section 44 of the Act pertaining to Combination Regn. No. C-2015/02/246 dated March 12, 2018
5. When an entity or individual can influence and shape strategic decisions through specialised knowledge, experience or credibility, without ownership or direct involvement
6. Production, supply, distribution, storage, sale and service, or trade
7. This is a group of companies which collude to control and manipulate the market
8. The Competition Commission of India (Determination of Monetary Penalty) Guidelines, 2024 dated March 6, 2024
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