India: Overview

Antitrust and competition issues in India are governed by the Competition Act 2002. In addition, the Companies Act 1956 contains provisions with regard to the acquisition and transfer of shares by or to enterprises having a dominant position or which will become dominant as a result of such acquisition or transfer.

Competition Act

The Competition Act 2002 was enacted by the Indian parliament in December 2002 and received the assent of the president of India in January 2003. The Competition Act 2002 was amended by the Competition (Amendment) Act 2007. The Competition Act 2002, as amended, prohibits anti-competitive agreements and abuse of dominant position, and regulates combinations. The Competition Act also promotes competition advocacy. The provisions relating to anti-competitive agreements and abuse of dominant position and other related provisions of the Competition Act were enforced with effect from 20 May 2009 (see the notification dated 15 May 2009). The provisions relating to regulation of combinations were notified on 4 March 2011 and came into force on 1 June 2011.

Anti-competitive agreements

The Competition Act provides that anti-competitive agreements are void and prohibits an enterprise or a person from entering into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services that causes or is likely to cause an appreciable adverse effect on competition in India.

Horizontal agreements entered into between enterprises or associations of enterprises, or persons or associations of persons or enterprises (including cartels), are presumed to have an adverse effect on competition and are considered to be per se illegal if they:

• directly or indirectly determine purchase or sale prices;
• limit or control production, supply, markets or technical development, investment or provision of services;
• directly or indirectly result in bid rigging or collusive bidding; or
• share the market or source of production by way of allocation of geographical area of markets or the type of goods or services or the number of customers in the market.

However, joint venture agreements are excluded from the category of anti-competitive agreements if they increase efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.

Tie-in agreements, exclusive supply agreements, exclusive distribution agreements, refusal to deal and resale price maintenance agreements causing or likely to cause an appreciable adverse effect on competition in India are considered anti-competitive. These types of ‘vertical agreement’ have been subjected to review by the Competition Commission of India (CCI), which is the regulator under the Competition Act. However, the right to impose reasonable conditions for protecting intellectual property rights and the rights of any person in relation to production, supply, distribution or control for export of goods are not restricted under the Act.

Abuse of dominant position

An enterprise is said to be dominant if it is able to operate independently of competitive forces prevailing in the relevant market or to affect its competitors, consumers or the relevant market in its favour. Abuse of dominant position by an enterprise or a group has been defined in the Competition Act to include:

• directly or indirectly imposing unfair or discriminatory conditions or prices in purchase or sale of goods or services;
• restricting or limiting production of goods and services or the market, or limiting technical or scientific development relating to goods or services to the prejudice of consumers;
• indulging in practices resulting in denial of market access; and
• using dominance in one market to move into or protect other markets.

Certain factors such as market share, the size and resources of enterprise, the size and importance of competitors and the economic power of the enterprise would have to be given due regard by the CCI when determining whether an enterprise enjoys a dominant position.

Regulation of combinations

The Competition Act seeks to regulate ‘combinations’, including acquisitions, mergers or amalgamations of enterprises. Notifications of combinations are mandatory. Acquisitions of one or more enterprises by one or more persons, or mergers or amalgamations of enterprises, are combinations if they meet the thresholds based on assets and turnover. The Competition Act prohibits enterprises from entering into combinations that cause or are likely to cause an appreciable adverse effect on competition within the relevant market in India. Various factors have been listed that the CCI has to take into account to determine whether a combination will or is likely to have an appreciable adverse impact on competition in India.

Thresholds for parties having assets or turnover in India are different from parties that have assets or turnover within and outside India. The minimum threshold requirement for determining territorial nexus is assets worth 5 billion rupees in India or turnover worth 15 billion rupees in India from the combined entities. However, the government of India, through a notification dated 4 March 2011, has enhanced (on the basis of the wholesale price index) the value of assets and turnover by 50 per cent, thereby enhancing the threshold for combinations. By way of a separate notification, the government of India has exempted groups exercising less than 50 per cent of voting rights in other enterprises from the applicability of

combination-related provisions. Through yet another notification, the government has also exempted acquisition of control, shares, voting rights or assets over a target enterprise having assets of the value of not more than 2.5 billion rupees or turnover of not more than 7.5 billion rupees from the purview of provisions relating to combinations. These exemptions have been given for a period of five years.

It will be mandatory for qualifying transactions to notify the CCI within 30 days of approval of the proposal relating to a merger or execution of any agreement or other document for acquisition, disclosing the details of the proposed merger or an acquisition, if said merger or acquisition meets the threshold limits. As per the Competition Commission of India (Procedure in regard to the transaction of business relating to combination) Regulations 2011 (Combination Regulations), ‘other document’ as used under the Competition Act means any binding document, by whatever name it may be called, conveying an agreement or decision to acquire control, shares, voting rights or assets. In cases of acquisition without the consent of the target, any document executed by the acquirer conveying a decision to acquire control, shares or voting rights will be the ‘other document’. The obligation to notify in case of an acquisition is that of the acquirer and, in case of a merger or an amalgamation, all the persons or enterprises to the proposed merger or amalgamation are required to jointly notify. Where the CCI acts suo moto, the party to whom the notice has been issued is required to notify the transaction.

The Combination Regulations provide for a shorter form (Form I) and a longer, detailed form (Form II). The fee prescribed is 1 million rupees for Form I and 4 million rupees for Form II. The parties are ordinarily required to notify in Form I. The parties may notify in Form II if the parties are involved in activities relating to identical, similar or substitutable goods and have a combined market share of 15 per cent or more or in cases where the parties are engaged at different stages or levels of the production chain in different markets and their combined market share is 25 per cent or more. In a case where the parties have filed the notice in Form I, the CCI may require further information to form a prima facie opinion with regard to the appreciable adverse effect of such a combination in India, or may also require the parties to file information in Form II to form a prima facie opinion. Public financial institutions, foreign institutional investors, banks or venture capital funds are required to inform of any acquisition pursuant to a covenant of a loan agreement or investment agreement in Form III. No fees are payable to the CCI for such a notification.

The CCI is required to give its decision on the transaction within 210 days, failing which the combination is deemed to be approved. However, as per the proposed Combination Regulations, the CCI is required to form a prima facie opinion as to the existence of appreciable adverse effect on competition within 30 days of receipt of the notice. Thus, the CCI will not be required to wait for the entire period of 210 days in a situation where, prima facie, it is of the view that a combination does not have an appreciable adverse effect on competition. The Combination Regulations also require the CCI to endeavour to pass a final order or issue decision within 180 days of the date of notice.

Competition advocacy

The CCI has been empowered to give its opinion on a reference made to it by the central government or a state government on possible effects of any competition policy (including review of laws related to competition) formulated by the government. It has the power to promote competition advocacy and create awareness and impart training.

Competition Commission of India

The Competition Act seeks to ensure fair competition in India through the CCI. The CCI has the authority to inquire on its own motion, on information or on a reference made by the central government, the state government or statutory authorities, or upon receiving a complaint. The CCI also has the power to investigate agreements, combinations or abuse of dominant position outside India that have an appreciable adverse effect on competition in India.

If, after an inquiry, the CCI finds that the provisions of the Competition Act are being contravened, it may direct the enterprise to stop abusing its dominant position or the agreement or combination should not be given effect, or should be discontinued, or it may impose penalties, direct an amendment to an agreement or combination, or make recommendations to the central government.

The Competition Act provides for imposition of hefty penalties in cases of contraventions. If, after inquiry, the CCI is of the opinion that any enterprise has abused its dominant position, or that any agreement is an anti-competitive agreement within the meaning of the Competition Act, it may, inter alia, impose a penalty of up to 10 per cent of the average turnover for the past three financial years. In cases of cartels, the CCI may impose on each member a penalty of up to three times its profit for each year of the duration of the cartel. Recently, the CCI, vide its order dated 20 June 2012, imposed a penalty of about 63 billion rupees on 11 cement manufacturers of the Cement Manufacture’s Association (CMA) for indulging in anti-competitive practices and forming a cartel. In another order dated 23 April 2012, the CCI imposed a combined penalty of 3.17 billion rupees on United Phosphorus Limited, Excel Crop Care Limited and Sandhya Organic Chemicals Private Limited for indulging in collusive bidding in tenders and for collectively refraining from bidding in a tender floated by Food Corporation of India.

The CCI may also impose a lesser penalty, inter alia, in case a member of a cartel has made full and true disclosures in respect of the alleged contraventions, and such disclosures are vital. The Competition Commission (Lesser Penalty) Regulations 2009, which were published on 13 August 2009, contain regulations for imposing lesser penalties. Entities that fail to notify a qualifying combination to the CCI could face penalties that may extend to 1 per cent of the total turnover or the assets of the combination, whichever is higher. The Competition Act also empowers the CCI to impose fines that may reach up to 100,000 rupees for each day of non-compliance with the directions or orders issued by the CCI, subject to a maximum of 100 million rupees. Further, if the orders or directions of the CCI are not complied with or there is a failure to pay the fine imposed, the CCI can order imprisonment for a term of up to three years, or a fine of up to 250 million rupees.

The Competition Act also provides for establishment of a three-member quasi-judicial body, the Competition Appellate Tribunal (COMPAT), to hear and dispose of appeals against any directions or orders passed by the CCI. The COMPAT was established with effect from 15 May 2009, with its headquarters based in Delhi. The COMPAT, vide an order dated 3 July 2012, imposed a penalty of 200,000 rupees on Hindustan Petroleum Corporation Limited (HPCL) and ICICI Bank (ICICI) for entering into anti-competitive agreements. The appeal came before the COMPAT vide a complaint filed by the Federation of All Maharashtra Petrol Dealers Association (FAMPDA) before the CCI. FAMPDA alleged that HPCL insisted on setting up only ICICI terminals at retail outlets for swiping credit cards as a method of payment for fuel. The customer incurred a 2.5 per cent surcharge to a private bank on every such transaction made at these outlets, if the credit card used was of any bank other than ICICI. The COMPAT, when imposing the penalty, held that the agreement was restrictive as the requirement of setting up only ICICI terminals eliminated competition by other banks. The COMPAT further observed that HPCL’s insistence on setting up only ICICI terminals at retail outlets, even against the wishes of the dealer, was equivalent to granting ‘exclusive status’ to ICICI, hence it was unjustified. Further, the COMPAT noted that eliminating the option to use other bank cards would deny the outlets the opportunity to deal with other banking institutions, which in essence amounted to restrictive trade practice.

The appeals from the COMPAT will lie with the Supreme Court of India. In a landmark judgment, the Supreme Court of India held that taking a prima facie view by the CCI, and the subsequent issuance of directions to the director general for investigation, would not be an order appealable to the COMPAT under Section 53A of the Competition Act. The Supreme Court observed that the orders, which have not been specifically made appealable under Section 53A(1)(a) of the Competition Act, cannot be treated appealable by implication. Hence, taking a prima facie view by the CCI and thereafter issuing directions to the director general for investigation would not be an order appealable under Section 53A and therefore the COMPAT will not have the jurisdiction to entertain such an appeal. The Supreme Court also observed that the opinion on existence of prima facie case has to be formed by the CCI within 60 days and the report of the director general should be submitted within 45 days. These observations were made by the Supreme Court pursuant to the CCI challenging the order of the COMPAT, whereby the COMPAT had directed the director general to stay the investigation into allegations levelled by Jindal Steel & Power Ltd (JSPL) over an agreement between Steel Authority of India Limited (SAIL) and Indian Railways for exclusive supply of rails. Earlier, a complaint was filed before the CCI that the agreement between SAIL and Indian Railways was anti-competitive because it has or will have an appreciable adverse effect on competition in India, as it would impact the right of other steel manufacturers and suppliers. The CCI, after forming a prima facie view, directed the director general to investigate into the agreement. The director general directed SAIL to provide information within a week; this was challenged by SAIL in the COMPAT.

The COMPAT is also looking into matters that were transferred to it from the Monopolies and Restrictive Trade Practices Commission (the MRTP Commission) , which was set up under the Monopolies and Restrictive Trade Practices Act 1969 (the MRTP Act). The president of India promulgated the Competition (Amendment) Ordinance 2009, with effect from 14 October 2009. The Ordinance has amended section 66 of the Competition Act, which provided for the MRTP Commission to exercise jurisdiction for a period of two years in respect of cases or proceedings filed before the commencement of the Competition Act. The MRTP Commission was established under the MRTP Act, which was the first substantive legislation in India aimed at regulating free and unfettered trade. With effect from 14 October 2009, all cases pending before the MRTP Commission stand transferred to COMPAT. The ordinance was subsequently adopted as the Competition (Amendment) Act 2009.

The Companies Act

The Companies Act 1956 regulates issues concerning acquisition and transfer of shares as well as mergers and amalgamations. These provisions relating to acquisition and transfer of shares were originally a part of the MRTP Act and were incorporated into the Companies Act in 1991.

The Companies Act restricts acquisition of equity shares of a public company, or a private company that is a subsidiary of a public company, by certain classes of persons in excess of 25 per cent (including any previous share holding, if any) of the paid-up equity capital of the company. Acquisitions that exceed the threshold require prior approval of the central government.

In addition, the Companies Act restricts transfer of shares of a company by a body or bodies corporate under the same management that holds in aggregate 10 per cent or more of the nominal value of the subscribed equity share capital of the company. Transfers that exceed the threshold require notification to the central government. The Companies Act also restricts the transfer of shares of a foreign company, having an established place of business in India. Bodies corporate that hold 10 per cent or more of the nominal value of the equity-share capital of such companies require approval of the central government prior to transferring any shares in such companies to an Indian citizen or a body corporate incorporated in India. The central government may direct that a transfer or acquisition should not be given effect if it is satisfied that as a result of such transfer a change in the controlling interest of the company is likely to take place and that such change would be prejudicial to the interest of the company or to the public interest. The above restrictions relating to transfer of shares would apply only if the acquirer of the shares is a dominant undertaking, or would become one by virtue of the acquisition or, in case of transfer of shares, the transferor is a dominant undertaking. Dominance means a share of 25 per cent or more of the relevant market in the production, supply, distribution or control of the total goods that are produced, supplied, distributed or controlled in India or a substantial part thereof; or the provision or control of any services that are provided in India or any substantial part thereof. These provisions, however, do not apply to government companies, statutory corporations or financial institutions.

Failure to comply with the provisions may attract penalties, which may extend to imprisonment for up to three years or a fine of up to 50,000 rupees, or both. The Companies Act also governs matters relating to a compromise or arrangement between an Indian company and its creditors or shareholders, or an amalgamation of two or more Indian companies. Such a compromise or arrangement must be sanctioned by the High Court possessing jurisdiction in the matter. With merger relating provisions of the Competition Act coming into force, the provisions under the Companies Act regarding acquisition and transfer of shares have become redundant. However, they remain in the statute.

In matters relating to acquisition of shares of a listed company, the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 1997 (the Takeover Code) are also applicable.