Asia Pacific Competition Law Handbook 2020: India

General

What is the main piece of legislation of general application that regulates anti-competitive behaviour? What are the main prohibitions in the legislation?

The Competition Act, 2002 (“Competition Act”) primarily seeks to prohibit behavioural conduct in the form of anti-competitive agreements and abuse of a dominant position and regulates combinations (i.e., mergers, acquisitions and amalgamations).

Which regulator is responsible for administering and enforcing competition laws?

The Competition Commission of India (“CCI”) is responsible.

Are there any exclusions from the competition legislation of general application, including relevant provisions that explicitly reference public interest or non-efficiency objectives? Are there any sector-specific competition laws or regulations?

The Central Government of India has the right to exempt from the application of the Competition Act:

A.    behaviour by any class of enterprise, if necessary, in the interest of security of the state/public interest;

B.    practices arising out of and in accordance with an obligation assumed by India with any other country or countries; and

C.    enterprises that perform a sovereign function on behalf of the Central Government of India or a State Government.

To date, the Central Government of India has issued the following exemptions:

A.    the de minimis exemption for merger control that exempts, for a period of five years from 27 March 2017, acquisitions in which the target enterprise has assets of less than INR 3.5 billion in India or turnover of less than INR 10 billion in India;

B.    Vessel Sharing Arrangements of the Liner Shipping Industry are exempted from the provisions prohibiting anti-competitive agreements under the Competition Act for a period of three years from 4 July 2018, as long as the agreement does not include concerted practices involving the fixing of prices, limitation of capacity or sales and the allocation of markets or customers;

C.    all combinations involving Regional Rural Banks in respect of which the Central Government of India has issued a notification under Section 23A(1) of the Regional Rural Banks Act, 1976, are exempted from the filing requirements before the CCI, for a period of five years from 10 August 2017;

D.    all cases of reconstitution, transfer of whole or part, and amalgamation of nationalised banks under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 are exempted from filing requirements before the CCI for a period of 10 years from 30 August 2017; and

E.    all combinations involving Central Public Sector Enterprises operating in the Oil and Gas Sectors under the Petroleum Act, 1934 and the applicable rules, or under the Oilfields (Regulation and Development) Act, 1948 and the relevant rules, along with their wholly or partly owned subsidiaries operating in the Oil and Gas Sectors are exempt from the filing requirements before the CCI for a period of five years from 22 November 2017.

Aside from the above-mentioned exemptions, there are no sector specific competition laws or regulations in India.

Does the competition legislation apply extraterritorially to persons, behaviour or action outside the jurisdiction?

Yes. The CCI is empowered to inquire into an abuse of a dominant position, an anti-competitive agreement, or a combination that takes place or has been entered into or involves parties that are outside India, if such abuse of a dominant position, an agreement, or a combination has or is likely to have an appreciable adverse effect on competition (“AAEC”) in the relevant market in India.

What penalties and liabilities may be imposed for a breach of the competition law?

Under the Competition Act, penalties are to be calculated on the basis of turnover. However, the Supreme Court of India has introduced “relevant turnover” as the new basis for computing the penalty. Relevant turnover has been held to be the turnover of an entity pertaining to products and services affected by the contravention. In the case of anti-competitive agreements and abuse of dominance, the CCI may impose fines of up to 10% of the average relevant turnover for the last three preceding financial years upon each of such persons or enterprises that are parties to such agreements or abuse. In the case of cartels, the CCI retains the discretion to impose the higher of the amount equal to three times of the total relevant profits for each year of the continuance of such agreement or 10% of the relevant turnover for each year of the continuance of the agreement, whichever is higher.

The CCI may also require parties to an anti- competitive agreement or enterprises abusing their dominant position to “cease and desist” from continuing with such agreements or practices.

The CCI may also sanction the modification of agreements that are found to be anti-competitive.

In the case of abuse of dominance, the CCI has the power to order the division of the dominant enterprise.

Once the CCI or, subsequently, the National Company Law Appellate Tribunal (“NCLAT”) in appeal, finds a contravention of the Competition Act, a person may approach the NCLAT for adjudicating its claim for compensation for any loss or damage shown to have been suffered as a result of such contravention.

Prohibition on anti-competitive agreements

What kind of agreement or conduct is illegal under the prohibition?

The Competition Act prohibits enterprises (or association of enterprises) from entering into any agreement, in respect of the production, supply, storage and distribution of goods, which causes or is likely to cause an AAEC within India. Agreement is broadly defined and captures a range of coordination between parties.

The exchange of commercially sensitive business information may be prohibited if it results in any of the categories of prohibited agreements (for example, if it is used to determine prices or limit supplies).

What types of agreements or conduct are illegal by per se, and which are illegal only if they are significantly anti-competitive in effect?

The Competition Act is an effects-based legislation and while horizontal agreements that seek to fix prices, limit supplies, allocate markets or customers, or rig bids, are presumed to cause an AAEC, the presumption is a rebuttable one. Strictly speaking, the Competition Act does not identify per se violations.

The AAEC presumption does not apply to vertical agreements. For vertical agreements to be prohibited, it needs to be proven that the vertical agreements cause or are likely to cause an AAEC within India.

Is there regulation of vertical agreements and if so, what type of vertical restraints or provisions in such agreements are typically examined?

Yes. The Competition Act identifies a list of inclusive agreements, namely, exclusive distribution or exclusive supply agreements, resale price maintenance, refusal to deal and tie-in arrangements that are prohibited only if they cause or are likely to cause an AAEC in India.

An AAEC assessment involves a qualitative examination of certain identified pro-competitive (accrual of consumer benefits; improvements in production/distribution of goods or provision of services; and promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services) and anti-competitive factors (creation of barriers to entry; driving existing competitors out of the market; and market foreclosure). Aside from the factors included within the Competition Act, the CCI in its decisional practice also considers the market power of the entities involved, as well as any objective justifications for the restraints, while determining whether the agreement causes or is likely to cause an AAEC.

Is resale price maintenance allowed? Are recommended resale prices or maximum resale prices permitted?

No. Resale price maintenance agreements that stipulate a minimum price (including discounts) will be prohibited if they cause or are likely to cause an AAEC.

Recommended resale prices or maximum resale prices specifying that a lower price may be charged, are  permitted.

Are there any defences or relief from liability provided by the legislation?

Yes. There are two conditional safe harbours provided for agreements under the Competition Act:

A.    the right of a person to restrain an infringement of, or impose reasonable conditions (as may be necessary) to protect any rights conferred upon them pursuant to identified domestic Indian intellectual property legislations;

B.    the right of any person to export goods from India to the extent to which the agreement entered into relates exclusively to the production, supply, distribution or control of goods or provision of services for such export; and

C.    the Competition Act also creates a carve-out for efficiency enhancing joint ventures between entities engaged in the same level of trade, from the presumption that agreements between them for fixing prices, limiting supplies, allocating markets and bid-rigging qualify as anti- competitive.

Aside from the defences provided in the Competition Act, the CCI has recognised the doctrine of “single economic entity” as a defence in the context of anti-competitive agreements. The CCI has held that agreements between entities forming a single economic unit need not be assessed as an anti- competitive agreement.

Is there a leniency regime? If there is, please describe the extent of and process in seeking leniency.

Yes. The Competition Act and Lesser Penalty Regulations provide for leniency. Any producer, seller, distributor, trader or service provider included in any cartel and alleged to have entered into an anti- competitive agreement under the Competition Act may apply for lesser penalties.

The earlier a cartel participant approaches the CCI with vital information on the existence of a cartel, the higher its chances are of availing benefits under the leniency provisions. The first member of a cartel to approach the CCI that makes a vital disclosure to the CCI on the existence of a cartel may receive a waiver of penalty up to 100%. Members that subsequently contact the CCI are eligible for partial penalty waivers, up to 50% and 30%, respectively, on the condition that they provide additional valuable information that was not known to the CCI earlier.

Abuse of Dominance or Market Power

How is “dominance” or “market power” determined? Is there a market share test?

The Competition Act defines a “dominant position” as a position of strength, enjoyed by an enterprise, in the relevant market in India, which enables it to

(a) operate independently of competitive forces prevailing in the relevant markets, or (b) affect its competitors or consumers or the relevant market in its favour. The Competition Act sets out several factors that the CCI is required to consider at the time of determining whether an enterprise may be considered dominant. While market share is one of the foremost factors that are considered for determining whether an enterprise is dominant, neither the Competition Act nor the accompanying regulations identify a market share test. While one decision of the CCI has identified 30% as being a reasonable market share figure to determine market power, it would ultimately depend on the facts of the case and the nature of the industry.

What type of conduct constitutes abuse of dominance or abuse of market power?

The Competition Act provides an exhaustive list of practices, which, when carried out by a dominant enterprise or group, would constitute an abuse of dominance and any behaviour by a dominant firm that falls within the scope of such conduct is likely to be prohibited. These include:

A.    imposing unfair or discriminatory conditions on the sale or purchase of goods/services, including predatory pricing;

B.    limiting or restricting the (i) production of goods or provision of services of a market; or (ii) technical or scientific development relating to goods for services to the prejudice of consumers;

C.    indulging in practice or practices resulting in denial of market access, in any manner;

D.    making the conclusion of contracts subject to acceptance by other parties of supplementary obligations, which, by their nature according to commercial usage, have no connection with the subject of such contracts; and

E.    using one’s dominant position in one relevant market to enter into or protect another.

The prohibition on imposing “unfair” or “discriminatory” pricing, however, does not apply to dominant enterprises when such conduct is employed to meet competition.

Are there any defences or relief from liability or exclusions applicable for abusive conduct?

While there are no statutory defences available, more recently dominant firms have successfully defended allegations of abuse by objectively justifying their conduct on the basis of objective justifications or necessities. In fact, the decisional practice of the NCLAT suggests that the CCI is required to consider the commercial rationale offered by firms before finding conduct to be unfair.” (India Trade Promotion Organisation v. CCI & Ors.) Similarly, recent CCI decisional practice seems to suggest that the CCI has endorsed the “effects test” and has also considered objective justifications, when examining allegations of abuse of dominance, particularly in business to business relationships. (Indian National Shipowners’ Association v. Oil and Natural Gas Corporation Limited).

Merger Control

Is there a merger control regime? What is considered a “merger”?

Yes. Any acquisition, merger or amalgamation that meets the asset and/or turnover threshold prescribed under the Competition Act (and revised by way of subsequent notifications) qualifies as a combination under the Competition Act and are required to seek mandatory prior approval from the CCI, subject to available exemptions.

Is the merger notification a mandatory or voluntary process?

Mandatory.

When must the merger be notified to the regulator?

Parties must notify a merger or acquisition to the CCI at any time after:

A.    the execution of any agreement or binding document conveying an agreement or decision to acquire shares, control, voting rights or assets, in case of an acquisition; or

B.    the approval of the proposal relating to the merger by the board of directors in case of a merger; or

C.    a public announcement has been made in terms of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, for an acquisition of shares voting rights or control.

While there is no longer a filing deadline, a notifiable combination must not be “given effect to” without first receiving CCI approval.

What are the filing thresholds and are there any exemptions from notification requirements?

If any of the asset or turnover thresholds are satisfied by a combination, a notification to the CCI is triggered (subject to available exemptions):

A.    in case of a merger, the enterprise after merger or created as a result of merger or in the case of an acquisition, either the acquirer or target or both have:

i.     assets in India of more than INR 20 billion; or

ii.    turnover in India of more than INR 60 billion; or

iii.  worldwide assets of more than USD 1 billion, including at least INR 10 billion in India; or

iv.  worldwide turnover of more than USD 3 billion, including at least INR 30 billion in India; or

B.    the group to which the target will belong has:

i.     assets in India of more than INR 80 billion; or

ii.    turnover in India of more than INR 240 billion; or

iii.  worldwide assets of more than USD 4 billion, including at least INR 10 billion in India; or

iv.  worldwide turnover of more than USD 12 billion, including at least INR 30 billion in India.

There are three broad categories of exemptions under the merger control regime in India:

A.    statutory exemption: the requirement of mandatory pre-merger notification to the CCI does not apply to any financing, acquisition, or subscription of shares undertaken by Foreign Institutional Investors, or venture capital funds registered with the Securities Exchange Board of India, public financial institutions and banks pursuant to a covenant of an investment agreement or a loan agreement. However, these entities are required to provide details of the acquisition including control, circumstances for exercising such control, and consequences of default arising out of such loan agreements or investment agreements to the CCI within seven days from the date of the acquisition;

B.    transactions normally exempt from mandatory notification: transactions that are ordinarily not likely to cause an AAEC in India, for example, the acquisition of minority shareholding, stock-in- trade or raw materials in the ordinary course of business, acquisition of shares or voting rights pursuant to a bonus issue or stock splits, share buy-backs or subscription to rights issue of shares, wherein it does not lead to acquisition of control, and certain kinds of intragroup transactions; and

C.    target-based exemption (de minimis exemption): any acquisition or amalgamation under the Competition Act where the enterprise whose shares, voting rights, assets or control are being acquired, or amalgamated, either has assets not exceeding INR 3.5 billion in India, or has a turnover not exceeding INR 10 billion in India. Where only a portion of an enterprise is being acquired, taken control of, or amalgamated with another enterprise, only the value of assets that are actually being acquired, transferred, or amalgamated, and the turnover arising thereof is required to be considered for determining the availability of the de minimis exemption.

What is the merger clearance process and the typical timeline for clearance?

Notification to the CCI is to be made either in Form I (short form) or Form II (long form), on the payment of a requisite fee. After such filing, the CCI has the power to ask for additional information or to ask parties to refile the notice in Form II. The responsibility for making a notification to the CCI varies depending on the nature of the transaction.

In the case of acquisitions, the responsibility to file lies with the acquirer and in mergers/amalgamations, both parties are responsible.

The CCI is required to form its prima facie opinion as to whether the combination is likely to cause or has caused an AAEC within the relevant market in India, within 30 working days of receipt of the notification. If the CCI is of the view that a transaction does not cause an AAEC, then it will approve the transaction within the Phase I period.

Where the CCI is of the prima facie opinion that the combination is likely to cause an AAEC within the relevant market in India, the CCI will commence the detailed Phase II investigation process (Phase II period). As part of the Phase II investigation, the CCI will issue a show cause notice to the parties as to why investigation of such combination should not be conducted. Upon receipt of the response of the parties, the CCI will ask the parties to publish information about the combination to inform the public and persons affected or likely to be affected by the combination. The CCI may also invite members of the public to comment or object to the combination, and seek further information in relation to the combination.

The overall timescale that the CCI is bound by to issue its decision is 210 days from the date of filing. The 210-day period does not include time taken by the CCI and the transacting parties to negotiate remedies or modifications, for which an additional period of 60 working days is envisaged under the Competition Act.

Pursuant to a notification dated 13 August 2019,  the CCI has introduced a “Green Channel” route  for combinations where there are no horizontal, vertical or complimentary overlaps between the parties or their respective group companies. A transaction eligible for the green channel receives a “deemed” approval on filing.

What are the consequences of failing to notify the regulator when required?
Failure to notify a combination to the CCI can result in a fine of up to 1% of the total turnover or the assets of the parties to the combination, whichever is higher. The failure to notify a combination does not mean that the CCI cannot investigate such combinations. The Competition Act empowers the CCI to investigate such combinations within a period of one year from the date of coming into the effect of the combination.

Further, if the CCI believes the transaction will have or is likely to have an AAEC in India; the transaction will be treated as void. Consequently, actions taken in pursuance of the transaction will also be void.

Authors:

Hemangini Dadwal, Partner
Akshat Kulshrestha, Senior Associate
Atish Ghoshal, Associate

Published In:Baker McKenzie
Date: November 6, 2020