Competition Bill with higher fines provision gets LS okay

Livemint, March 30, 2023

The Lok Sabha on Wednesday approved the Competition Amendment Bill, bringing a significant update to the over two-decade-old law that fosters competition in the market a step closer to reality.

Besides the original proposals, such as negotiated settlements in the case of certain anti-competitive behaviour and expanded merger control provisions based on the value of transactions, that were part of the Bill tabled in the House last year, the Bill cleared by the Lower House includes a major last-minute change in the penalty provision.

For the purpose of penalty, the Bill defines ‘turnover’ as global turnover derived from all the products and services by a person or an enterprise. The goal is to levy a penalty as a percentage of the global turnover of the offending company in the case of anti-competitive agreements and abuse of dominance, moving away from the current practice of levying a part of the local or relevant market turnover as a penalty.

In the case of anti-competitive agreements and abuse of dominance, Competition Act prescribes a penalty, which is not more than 10% of the average turnover for the preceding three financial years, on each of the guilty entities. Defining turnover as the global turnover is likely to step up deterrence at a time several global tech companies are facing strong action by the anti-trust regulator.

Mint had reported on 8 February that the central government was likely to introduce further changes to the Bill pending in the House to increase penalties for anti-competitive behaviour steeply.

The Bill passed by Lok Sabha also seeks to introduce more clarity to the provisions relating to merger regulation that was proposed in the original Bill introduced in the House last year. The deal value-based merger regulation brings transactions valued at more than ₹2,000 crore under the Competition Commission of India’s (CCI) purview even if the conventional asset turnover thresholds are not met. The Bill makes it explicit that the target entity has to have substantial business operations in India so as to require CCI’s approval for such transactions.

While some of these provide desired clarifications, such as substantial business operations in India of the target, expanding the scope of turnover to global turnover derived from all products and services for penalty purposes seems unreasonable, according to Amol Kulkarni, Director of Research at CUTS International, a non-profit, non-governmental organization working on public interest issues. “But one needs to recognize that it is the cap and hope that actual penalties are proportionate to the harm,” Kulkarni said.

The Parliamentary standing committee on finance led by BJP’s Jayant Sinha had already reviewed the Bill.

The Bill passed by Lok Sabha also broadens the scope of who will be covered under provisions relating to anti-competitive agreements that cause an appreciable adverse effect on market competition. The original Bill introduced in the House last year had sought to expand the scope to cover others who “actively participate” in such agreements relating to controlling the supply of goods or services even if they are not engaged in the same or similar trade. The Bill passed in Lok Sabha further broadens the ambit of this provision by including those who “intend to participate” in anti-competitive behaviour too.

According to Avaantika Kakkar, partner and head of competition at law firm Cyril Amarchand Mangaldas, from a business standpoint, the consideration of total turnover for penalty may lead to ‘unfair and punitive’ outcomes and would also lead to discrimination between enterprises who commit a similar contravention but are penalized differently depending on the expanse of their business.

“An intention to actively participate has been introduced for assessing hub and spoke cartels. Such an inclusion not only increases the number of parties that can be included in a hub and spoke cartel investigation but also increases the level of subjectivity and discretion of the investigating authority,” Kakkar said.

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