2017: A Year Of Significant Changes For Competition Law In India

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2017: A Year Of Significant Changes For Competition Law In India
2017: A Year Of Significant Changes For Competition Law In India

The field of competition law in India has witnessed significant changes in the year 2017 with several positive initiatives taken by the  Ministry of Corporate Affairs (MCA) and the Competition Commission of India (CCI).

A major change this year was that the National Company Law Appellate Tribunal has replaced the Competition Appellate Tribunal as the appellate tribunal to deal with appeals originating from the CCI.

Some of the main changes are

Merger control

The CCI has managed to control the significant delays in the M&A regime. The average review time for notifiable transactions had dropped from 34 working days in 2016 to roughly 24 working days in 2017 despite the agency having a smaller headcount than its international counterparts.

In nearly 95% of all notified transactions needing approvals from several regulators or schemes with courts, the approval from CCI has been the first to come which is a credit to its efficiency.

The practice of holding an annual review of the combination regulations wherein the CCI tackles industry concerns has yielded great results. The only item remaining on the industry’s wish list is the right of hearing before the agency invalidates a merger notification, which is not available now.

Both MCA and the CCI must be lauded for eliminating the 30-day filing deadline for a notifiable transaction and also for bringing India’s merger control regime in-line with international best practices. It has also recognised that merging parties are incentivized to file promptly which  has resulted in removal of penalties for delayed filings.

The new de minimis exemption introduced by the MCA has streamlined the process further by clarifying the asset acquisitions that need application of de minimis and jurisdictional thresholds are those related to the relevant business being acquired and not the overall value of the seller’s entire financials.

This is a welcome move but the process for auditor certification and business transfers must be addressed by the CCI, since most businesses do not have separate financials for assets/ business divisions.

The MCA has also extended the applicability of de minimis thresholds to “mergers and amalgamations” going beyond “acquisitions”

The CCI has issued guidance regarding non-compete providing the framework and approach for the assessment of non-compete restrictions in M&A transactions.

Additionally, the MCA has exempted transactions which involve nationalized banks, regional rural banks, along with Central public-sector enterprises operating in the oil and gas sectors from the CCI’s merger control review.

Leniency regime

Identifying and eliminating of cartels remains the CCI’s primary focus. For regulators cartels are the most egregious form of offence under competition law, considering its harmful effect on prices, choice and innovation.

Under its leniency programme, the CCI issued its first order in 2017 in a case that dealt with bid-rigging for tenders with respect to supply of fans to Indian Railways. The CCI provided a benefit of 75% reduction of penalty to both the individual and the enterprise availing of the leniency regime.

Subsequently, the CCI introduced amendments to its leniency rules in order to further strengthen and streamline the program. Under the amended regulations, the cap on the number of applicants eligible to seek leniency has been reduced and non-leniency applicants and third parties are allowed to access the files. Individuals have also been allowed to apply for leniency.

Contentious cases

The CCI penalized Monsanto in 2017 for failing to provide information with respect the role of individuals allegedly being involved in the conduct of business during the time of alleged contravention. The penalty has sent a strong signal of its “zero tolerance” approach with respect to non-co-operation during investigations, even if the case is pending before a court.

The CCI also issued its first major order on resale price maintenance issues, holding that Hyundai Motor’s discount control mechanism was a violation of the Competition Act, 2002. Hyundai’s scheme monitored maximum discounts offered by dealers and imposed sanctions for those not in compliance with its stipulated discounts,

For the industry the takeaway is that minimum resale price maintenance will not be allowed which is in-line with international competition practices.

Conclusion

The application of turnover was a highly contested issue until 2017 when the Supreme Court of India settled it by ruling that turnover can be interpreted only to mean relevant turnover which indicates the adoption of the principle of proportionality.

An enterprise can only be levied with penalties on turnover related to its businesses violating the Competition Act, and not in relation to its entire turnover. The CCI has been following this precedent, and considered several both mitigating and aggravating factors related to the penalties being levied.

The CCI however now needs to formulate penalty guidelines that can act as a barometer for the industry.

Given that many of the CCI cases are originating from Mumbai it is time for the government to set up benches of the CCI across the country, which will additionally contribute to the ease of doing business in the country.

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