The year 2017 has been a year of significant changes for India's competition law regime, with several positive changes made both by the Competition Commission of India (CCI) and the Ministry of Corporate Affairs (MCA).
The year also saw the National Company Law Appellate Tribunal being statutorily mandated as the appellate tribunal for appeals arising from the CCI, in place of the Competition Appellate Tribunal.
This has been a year of more hits than misses for the CCI.
Merger control continues to remain the CCI's strongest scorecard. The CCI has laid to rest industry's concerns of significant delays to the M&A regime.
The CCI's average review time for notifiable transactions has reduced from 34 working days in 2016 to 24 working days (approximately) in 2017, despite it having a skeletal headcount in the merger control division as compared to its international counterparts. In 95% of all notified transactions involving approvals from more than one regulator or schemes filed with the courts, the CCI approval has always come first, a credit to the CCI's efficiency.
The annual review of the combination regulations where the CCI continually addresses industry concerns has yielded great results. The merger control regime is "near perfect" and one key change which remains on industry's wishlist is the right of hearing, before the CCI can invalidate a merger notification - which it currently can, and does, without affording parties a right to be heard.
The MCA and the CCI should be lauded for removing the 30-day filing deadline for a notifiable transaction and bringing India's merger control regime in-line with international best practices, and recognizing the fact that merging parties are incentivized to file as soon as possible. This move also does away with unnecessary penalties for delayed filings.
To further streamline the merger regime, the new de minimis exemption by the MCA clarified that asset acquisitions would entail application of de minimis and jurisdictional thresholds only to the assets and turnover of the relevant business being acquired and not to the aggregate value of the seller's entire financials, as previously considered. While this is a welcome relief for the industry, the modalities of auditor certification for such asset acquisitions and business transfers need to be addressed by the CCI, given that a majority of businesses do not maintain separate financials for assets/ business divisions.
In a similar vein, the MCA extended the applicability of de minimis thresholds to "mergers and amalgamations" and not just to "acquisitions" - recognizing that the mode of corporate organization is irrelevant to the applicability of the thresholds.
The CCI has issued guidance on non-compete which prescribes the CCI's framework and approach for assessment of non-compete restrictions in M&A transactions. This is a welcome move as around 60% (13 cases) of all modifications voluntarily offered or imposed by the CCI (22 cases) pertained to scope and duration of non-compete clauses.
Apart from these positive amendments, the MCA has exempted transactions involving nationalized banks, regional rural banks, and Central public-sector enterprises operating in the oil and gas sectors from the CCI's merger control review. The carve-out for state-owned enterprises is not in line with other major competition jurisdictions and results in creation of an ownership-based divide, which distorts the level playing field amongst private companies and state-owned enterprises. Given that the mandate of the CCI is to ensure proper functioning of the markets and intervene if there is any appreciable adverse effect on competition, such exemptions should be carefully considered.
Detection and busting of cartels continues to remain the CCI's primary focus. Competition regulators across the world continue to treat cartels as the most egregious offence under competition law, given the harmful effect on prices, choice and innovation. The CCI has been promoting its leniency programme. In 2017, the CCI issued its first order under the leniency regime in a case involving bid-rigging for tenders relating to supply of fans to Indian Railways. The CCI gave a 75% reduction of penalty to both the enterprise and the individual who availed of the leniency regime.
Shortly after this order, the CCI made amendments to its leniency regulations to strengthen and streamline the leniency regime. The amended regulations, inter alia, remove the cap on the number of applicants who may claim leniency (consistent with the US system), allow access to file by non-leniency applicants and third parties (consistent with the EU system), and allow individuals to also apply for leniency. Previously, the non-access to any information filed by the leniency applicants had resulted in several non-leniency applicants approaching High Courts through writ petitions in order to gain access to information provided by the leniency applicant.
The CCI recently imposed a penalty on Monsanto for not providing information regarding the role of individuals allegedly involved in the conduct of business at the time of the alleged contravention. The CCI's penalty sends a strong signal to industry of a "zero tolerance" approach to non-co-operation during investigations, even if parties have challenged the CCI's proceedings in court.
The CCI also delivered its first substantive order in relation to resale price maintenance and held that Hyundai Motor's discount control mechanism through which it monitored maximum discounts offered by dealers and imposed sanctions for non-compliance with the stipulated discounts, was a violation of the Competition Act, 2002. The key takeaway message for industry is that minimum resale price maintenance will not be permitted, in-line with international competition jurisprudence.
Given that the CCI has the ability to levy India's highest economic penalties, the application of turnover remained highly contested until 2017 when the Supreme Court of India settled the issue in relation to turnover being interpreted to only mean relevant turnover thereby adopting the principle of proportionality. The clear position now is that an enterprise can only be penalised with respect to turnover pertaining to those of its businesses which violated the Competition Act, and not in relation to its entire turnover. The CCI has since followed this precedent, and enumerated aggravating and mitigating factors in relation to the penalties being levied. However, the need of the hour is for the CCI to formulate penalty guidelines which will serve as a barometer to guide industry.
Further to contribute to the ease of doing business in India, and given that a substantial majority of the CCI's matters originate in Mumbai, the time has come for the Government to set up benches of the CCI. SEBI has 19 offices in India apart from the head office in Mumbai, including offices in Delhi, Bengaluru and Kolkata. It is high time for the CCI, which is almost a decade old, to follow suit.
The author is Partner and National Head, Competition Law, Trilegal