Understanding the latest amendments in Indian Competition Law and their implications
The Competition Act, 2002 (“Act”) governs the anti-competitive framework in India. The Competition (Amendment) Act, 2023 (“Amendment Act”) was passed in the year 2023 and came into force on September 10, 2024 [1] , with key amendments outlined as follows:
Deal Value Threshold
Prior to the Amendment Act, the Act, for the purpose of dealing with anti-competitive practices, considered only the asset and turnover thresholds to define ‘combinations’ [2] . Acquisitions which did not meet these asset and turnover thresholds were exempt from Competition Commission of India’s (“CCI”) scrutiny, leaving a significant gap in regulatory oversight.
The Amendment Act has introduced the concept of ‘deal value threshold’, mandating an issue of notification for any acquisition exceeding INR 2000,00,00,000 (Indian Rupees Two Thousand Crores), if the target company has substantial business operations in India. [3] The amendment addresses the unique aspect of digital markets, where companies having dominant position predominantly prioritize user growth over instant profits thus, evading the existing determining thresholds. These entities often lack significant revenue or assets, making turnover and assets thresholds inadequate for assessing their anti-competitive impact on the relevant market. For example,
high-value acquisitions like Taxi4Sure by Ola and Myntra by Flipkart illustrate how major players can combine market power, through strategic acquisitions. [4]
Given the rapid growth of technology-based entities worldwide, this amendment, in alignment with global standards seen in countries like Germany, and Austria, allows for scrutiny of acquisitions of digital entities and curbs anti-competitive practices. [5]
Derogation from standstill obligations
The Amendment Act now allows open offers and acquisitions of shares on regulated stock exchanges without prior notification to CCI, facilitating timely acquisitions while still ensuring regulatory oversight. [6] Prior to this amendment, such acquisitions were on hold until CCI’s approval and had the potential of negatively impacting the viability of public bids, in turn impacting the market. Now, CCI must be notified within thirty days of the acquisition. Acquirers, in the meantime, may acquire economic benefits but cannot exercise any ownership or voting rights, except in matters related to liquidation or insolvency, until the CCI’s approval. Acquirers and their affiliates are prohibited from influencing the enterprise during this period, preserving competition in the relevant market. [7] This promotes ease of doing business and ensures that while acquisitions can proceed, they remain subject to anti-competitive regulations.
Notification to CCI
The Amendment Act allows parties to apply to the CCI to notify the proposed combination any time before consummation of a combination. [8] Prior to the amendment, the requirement to notify CCI within 30 days of key events [9] , placed a significant burden on parties. By extending the timeframe for notification, the amendment eases this burden while still safeguarding from anti-competitive practices. It balances facilitating business conduct and ensures that the market remains protected, allowing parties greater flexibility through the approval process without the fear of penalties.
The Misses
While this is a welcome step, the CCI should also be empowered to grant exceptions from standstill obligations in certain circumstances, such as acquisition of companies on the verge of insolvency or to preventasset deterioration, as provided in EU [10] and Brazil. [11] Prohibiting the prospective acquirer from remitting consideration or undertaking certain obligations before the CCI’s approval in such acquisitions, may render the whole acquisition unfeasible. Allowing exceptions in such cases would promote ease of doing business,safeguard businesses on the verge of insolvency, while also protecting the relevant markets from anti-competitive practices.
While exemptions from standstill obligations can be a way forward for companies on the verge of insolvency, for companies in insolvency, a fast-track approval route should be considered i.e., reducing the timeline from 150 days to 30 days for CCI to decide on such proposed combinations. Under the Insolvency and Bankruptcy Code (“IBC”), a resolution cannot be accepted by the committee of creditors (“CoC”) without the prior approval of CCI, if such acquisition constitutes a combination under the Act [12] . However, there are rulings by NCLAT which state that this requirement is more ‘directory’ than ‘mandatory’ [13] . While NCLAT through its rulings provided a temporary relief to the prospective acquirers, the waiting period of 150 days to obtain CCI approval poses a burden on the prospective acquirer and could act as a disincentive to participate. This may result in loss of viable options for the CoC to choose from. It is pertinent to understand that extended legal procedures cause more harm than gain especially in situations of insolvency where value protection is paramount.
A fast-track approval route would not only ease the burden on the prospective acquirers and provide the CoC with a larger pool to choose from, but it would also maximise the value for creditors. It also ensures swift completion of corporate insolvency proceedings and protects against anti-competitive practices in the relevant market, thereby safeguarding the essence of the Act.
Conclusion
India's anti-competition legislation is strengthened by the Competition (Amendment) Act, 2023. The changes ensure that new age acquisitions undergo regulatory supervision while also facilitating timely transactions overall. While these amendments ensure that Indian competition law is up to date with the market trends, there is scope for further amendments. Empowering the CCI to grant derogations for acquisition of companies on the verge of insolvency and allowing a fast-track approval route for acquisition of companies in insolvency is essential to safeguard distressed businesses and enhance market efficiency.
Reference
[1] Ministry of Corporate Affairs, S.O. 3846(E) (Notified on September 09, 2024
[2] Competition Act, 2002 No. 12, Section 5, Acts of Parliament, 2002 (India)
[3] Competition (Amendment) Act, 2023, No. 9, Section 6, Acts of Parliament, 2023 (India)
[4] MCA, Report of the Competition Law Review Committee, July 26, 2019
[5] Bundeskartellamt, Guidance on Transaction Value Thresholds for Mandatory Pre-merger
Notification (Section 35 (1a) GWB and Section 9 (4) KartG), January, 2022
[6] supra note, 3, Section 8
[7] Id., Competition Commission of India (Combinations) Regulations, 2024, No. 7, R. 6, Acts of
Parliament, 2024 (India)
[8] supra note, 3, Section 7.
[9] supra note, 2, Section 6
[10] Council Regulation 139/2004, art. 34, 2004, 0.J (L 24/1)
[11] OECD (2018), (Suspensory Effects of Merger Notifications and Gun Jumping),
(DAF/COMP(2018)11)
[12] Insolvency and Bankruptcy Code, 2016, No. 31, § 31, Acts of Parliament, 2016 (India)
[13] Arcelormittal India Pvt. Ltd. V. Abhijit Guhathakurta, 2019 SCC Online NCLAT 920