A Quick Look at the Proposed Amendment to India's Anti-Trust Legislation

The Competition (Amendment) Bill, 2022, seeks to amend India's anti-trust legislation (i.e. the Competition Act, 2002) in order to align India's anti-trust law with the modern business environment. At present, the Bill is under consideration before the Indian Parliament.

Some of the proposed amendments are advantageous for businesses and regulators alike. In this regard, a notable proposal is the introduction of "Commitment" and "Settlement" procedures. Enterprises under investigation for indulging in anti-competitive practices would have the option to offer a commitment (presumably to cease and desist from such practices) or a suitable settlement. The exercise of this option would ostensibly result in the swift resolution of investigations initiated by the Competition Commission of India/CCI (India's anti-trust watchdog).

However, other proposals warrant a careful analysis. At this preliminary stage of the Bill's lifecycle, I examine a few interesting issues presented by the proposed clauses:

1. Deal Value Threshold: M&A arrangements that cross a certain asset/turnover threshold are defined as "combinations" under the present legislation. Such combinations should not cause "an appreciable adverse effect on competition"/ AAEC (determined on the basis of various factors, such as the countervailing power of consumers, whether such combination would result in the removal of vigorous and effective competitor(s), whether the benefits to economic development outweigh any adverse effects to competition, etc.). The AAEC that a combination may have is measured with respect to a "relevant market within India" i.e. a product market or a geographical market within which the parties to the M&A arrangement operate. Although the asset/turnover thresholds are comprehensive, they may not permit the CCI to examine combinations in the digital sector which do not satisfy the said thresholds. Hence, the Bill introduces a deal value threshold - transactions with a deal value above 2,000 crore Indian Rupees will also be considered as "combinations" that may be subject to scrutiny by the CCI for their actual or potential AAEC in India. The Bill does not clarify whether this deal value must be the value as reported by the parties or as determined by the CCI. In the case of the latter, the Bill must clarify how a reasonable deal value will be determined by the CCI. If the determination of assets/turnover in case of M&A transactions in markets such as the digital sector proved to be difficult, the determination of the market value of an M&A deal might be equally challenging. Further, the value of a transaction includes direct or indirect, as well as upfront or deferred, valuable consideration. An issue arises as to whether deferred consideration includes conditional consideration (such as performance based adjustments or earn-out payments). It has been suggested may adopt the approach suggested by anti-trust regulators in different countries (such as Austria and Germany), which involves including conditional consideration in the deal value. Conditional consideration clauses may be genuinely beneficial for high risk acquisitions, particularly acquisitions of start-ups. A company intending to acquire a promising start-up may minimise heavy losses by offering a substantial performance-based compensation to the start-up along with a reasonable upfront consideration. The aforementioned recommendations by anti-trust regulators in Austria and Germany recommend a precautionary notification of the transaction - if the parties to the M&A transaction exceed the threshold by paying out the performance-based compensation in the future, it may provide the required notice to the anti-trust regulator. These instances indicate the need for further elaboration of the deal-value threshold clause in the Bill.

2. Powers of the Director General: The Director General/DG is tasked with assisting the CCI with investigation into anti-competitive practices. The DG has extensive powers in respect of summoning and enforcing the attendance of any person and examining such person on oath, requiring the discover and production of documents, receiving evidence on affidavit, etc. As per the Bill, the DG may require any person other than an investigated person to produce information and/or documents that are necessary for the purpose of an investigation. Further, the DG may keep such information and/or documents in custody for 180 days (extendable by a maximum of another 180 days). Confidentiality of information submitted by investigated parties has been a sensitive issue for the CCI in the past. There have been reforms to the existing regulations in order to ensure that access to information and documents that are submitted during investigations are kept confidential and disclosed only to the representatives of the concerned parties (and, if required, the informant). The retention period of 180 days (and a maximum of 360 days) proposed by the Bill must be evaluated in light of the risk of disclosure of sensitive information, such as the trade secrets of the investigated parties. The Bill also provides that if the DG has reasonable grounds to believe that information, records, etc. may be destroyed, mutilated, altered, falsified or secreted, the DG may make an application to the Chief Metropolitan Magistrate, Delhi for an order for seizure of such information, records, etc. My colleagues have noted that the the jurisdiction of the Chief Metropolitan Magistrate, Delhi is limited and that this provision does not seem to provide suitable powers to apply for the seizure of information/records from the offices of an investigated party throughout India.

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Author: Roopashi Khatri