The Competition (Amendment) Bill, 2022 {with outlines}

The Competition (Amendment) Bill, 2022

The Indian Competition Act was passed in 2002, but it came into effect only seven years later. The Competition Commission primarily pursues three issues of anti competitive practices in the market: anti competitive agreements, abuse of dominance and combinations. As the dynamics of the market changes rapidly due to technological advancements, artificial intelligence, and the increasing importance of factors other than price, amendments became necessary to sustain and promote market competition. Therefore, a review committee was established in 2019 which proposed several major amendments. The long-awaited Bill to amend the Competition Act, 2002, was finally tabled in the Lok Sabha recently.

Any acquisition, merger or amalgamation may constitute a combination. Section 5 currently says parties indulging in merger, acquisition, or amalgamation need to notify the Commission of the combination only on the basis of 'asset' or 'turnover'. The new Bill proposes to add a 'deal value' threshold. It will be mandatory to notify the Commission of any transaction with a deal value in excess of 2,000 crore and if either of the parties has 'substantial business operations in India. The Commission shall frame regulations to prescribe the requirements for assessing whether an enterprise has 'substantial business operations in India'. This change will strengthen the Commission's review mechanism, particularly in the digital and infrastructure space, a majority of which were not reported earlier, as the asset or turnover values did not meet the jurisdictional thresholds.

When business entities are willing to execute a combination, they must inform the Commission. The Commission may approve or disapprove the combination, keeping in mind the appreciable adverse effect on competition that is likely to be caused. The Commission earlier had 210 days to approve the combination, after which it is automatically approved. The new Bill seeks to accelerate the timeline from 210 working days to only 150 working days with a conservatory period of 30 days for extensions. This will speed up the clearance of combinations and increase the importance of pre-filing consultations with the Commission.

Parties should not go ahead with a combination prior to its approval. If the combining parties close a notified transaction before the approval, or have consummated a reportable transaction without bringing it to the Commission's knowledge, it is seen as gun-jumping. The penalty for gun-jumping was a total of 1% of the asset or turnover. This is now proposed to be 1% of the deal value. 

There have been several gun-jumping cases owing to the combining parties' inability to defer the consummation of open market purchases. Many of them argue that acquisitions involving open market purchase of target shares must be completed quickly, lest the stock value and total consideration undergo a change. If parties wait for the Commission's clearance, the transaction may become unaffordable.