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Antitrust and competition issues in India are governed by the Competition Act 2002 (the Competition Act). The Competition Act was enacted by the Indian parliament in December 2002 and received the assent of the president of India in January 2003. The Competition Act prohibits anticompetitive agreements and abuse of dominant position, and regulates combinations. The Competition Act also promotes competition advocacy. The provisions relating to anticompetitive 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 came into force on 1 June 2011 (see the notification dated 4 March 2011).
The Competition Act prohibits an enterprise or 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 the relevant market in India, and provides that such anticompetitive agreements to be void.
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 if they increase efficiency in production, supply, distribution, storage, acquisition or control of goods, or provision of services.
Tie-in arrangements, 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 the relevant market in India are considered anticompetitive. 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 Competition Act.
Abuse of a 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 affect its competitors, consumers or the relevant market in its favour. Abuse of a dominant position by an enterprise or a group has been described 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 the 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. Acquisitions of shares, voting rights, control or assets of one or more enterprises by one or more persons, or mergers or amalgamations of enterprises, are combinations if they meet the prescribed thresholds. Notifications of combinations are mandatory. 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 has had, or is likely to have, an appreciable adverse impact on competition in India.
The Competition Act prescribes assets and turnover-based thresholds. Thresholds for parties having assets or turnover in India are different from parties that have assets or turnover within and outside India. The government of India, through a notification dated 4 March 2016, enhanced (on the basis of the wholesale price index) the value of assets and turnover by 100 per cent, thereby enhancing the threshold for combinations (in 2011 the thresholds were enhanced by 50 per cent). 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. The government of India has also exempted acquisitions and mergers/amalgamations where the value of assets being acquired, taken control of, merged or amalgamated is not more than 3.5 billion rupees in value in India or where the turnover of the target enterprise is not more than 10 billion rupees from the purview of provisions relating to combinations, for a period of five years beginning March 2017 (similar exemption was given in 2011 to enterprises having assets of the value of up to 2.5 billion rupees, or turnover of up to 7.5 billion rupees).
It was mandatory to notify the CCI within 30 days of approval of the proposal relating to a merger by the board of directors of the enterprises concerned, 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. However, as per the notification dated 29 June 2017 issued by the government of India, the time period of 30 days for notifying the CCI has been done away with. The parties are now at liberty to notify at any time prior to giving effect to the acquisition/merger, as the case may be. The acquisition/merger would come into effect only upon approval of the CCI. Failure to file may result in imposition of penalty which may be extend up to 1 per cent of the total turnover or the assets, whichever is higher. As per the CCI (procedure in regard to the transaction of business relating to combination) Regulations 2011 (Combination Regulations), as amended, ‘other document’ as used in 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 motu, the party to whom the notice has been issued is required to notify the combination.
The Combination Regulations provide for a shorter form (Form I) and a longer, more detailed form (Form II). The fee prescribed is 1.5 million rupees for Form I and 5 million rupees for Form II. The parties may give notification 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 in the relevant market, 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 percent or more in the relevant market. 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 or may also require the parties to file information in Form II. 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 by public financial institutions, foreign institutional investors, banks or venture capital funds.
The Competition Act read with the Combination Regulations provides for a two-phase assessment of combinations. In the first phase, the CCI forms a prima facie view on the appreciable adverse effect of the combination on competition within the relevant market. Where the CCI is of the prima facie view that the combination would not have any appreciable adverse effect on competition, it approves such combination by passing an order. However, in case the CCI is of the prima facie view that the combination may have an appreciable adverse effect on competition, the assessment goes into the second phase and the CCI passes an order only after conducting a thorough assessment. If, after assessment, the CCI is of the view that the appreciable adverse effect on competition can be removed, it may suggest modifications to the combination.
The CCI may require the parties to the combination to file additional information or accept modification, if offered by the parties before framing a prima facie opinion. The CCI is required to frame a prima facie opinion within 30 days of the date of filing and is required to give a final decision on the combination within 210 days, failing which the combination is deemed to be approved. However, in computing the time period of 210 days, the time taken, inter alia, by the parties to submit any additional documents or information requested, or any extension of time as well as time taken by the parties to seek amendment to the modification or to accept modification proposed by the CCI, shall not be included. As per the 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 is not 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 an order or issue directions within 180 days of the date of notice.
If the CCI is of the prima facie view that the combination will have or may have an appreciable adverse effect on competition, it would issue a notice to the parties as to why the investigation should not be conducted. After receiving the response of the parties, the CCI may direct the director general (DG) to carry out an investigation in the matter and submit a report. On receipt of the report from the DG, if the CCI is of the view that the combination has or may have an appreciable adverse effect on competition, it would require the details of the combination to be published and may also invite written objections from any member of the public likely to be affected by such combination. Thereafter, the CCI proceeds with the assessment of the combination. Upon assessment, if the CCI is of the opinion that an adverse effect of a combination can be eliminated by modification, it may propose modifications to the combinations as it may deem fit, and upon modifications being accepted by the parties, approve the combination.
In November 2017, the CCI approved the acquisition of 100 per cent of the consumer mobile business of Tata Teleservices Limited (TTSL), Tata Teleservices (Maharashtra) Limited (TTML) by Bharti Airtel Limited (Airtel). TTSL, TTML and Airtel are licensed telephone services provider (TSPs). The notice for the proposed combination was filed by Airtel pursuant to execution of a binding term sheet between Airtel, TTSL, TTML and Tata Sons Limited (Acquisition Agreement).
Considering market revenue shares, the CCI held that TTSL and TTML neither seem to be close competitors of Airtel nor an effective competitor going forward as TTSL’s and TTML’s revenue and number of users were declining over the past years and therefore it was unlikely that the combination would result in the removal of a vigorous and effective competitor or competitors in the market. Keeping in view the effectiveness of TTSL and TTML as a competitor going forward, the proposed combination was not likely to cause a significant change in competition dynamics.
Considering the factors such as customers having multi-SIMs (multi-SIMing), ease of substitution due to the option of mobile number portability and significant churn rates, the CCI also concluded that there was significant constraint on the TSPs from the buyer side in the mobile retail telephony services market. Based on the size and resources of the competitors including Aircel, Reliance Jio and Vodafone-Idea, the CCI was of the opinion that they were in a position to exercise adequate competitive constraints on Airtel and would therefore eliminate any appreciable adverse effect on competition, if any resulting from the proposed combination.
After considering all the factors in totality, the CCI was of the opinion that the proposed combination was not likely to result in substantial change in competition dynamics in retail mobile telephony services in any of the overlapping telecom circles and accordingly did not raise unilateral or coordinated effects concerns and therefore, approved the combination.
The CCI has been empowered to give its opinion on references made to it by the central government or state governments on the possible effects of any competition policy (including the review of laws related to competition) formulated by the government. It has the power to promote competition advocacy, create awareness and impart training.
The 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; direct that an agreement or a combination should not be given effect or should be discontinued; impose penalties; or direct an amendment to the agreement or combination.
The Competition Act provides for the imposition of hefty penalties in cases of contravention. If, after inquiry, the CCI is of the opinion that any agreement is an anticompetitive agreement or that any enterprise has abused its dominant position, it may, inter alia, impose a penalty of up to 10 per cent of the average turnover for the past three financial years. In the case 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.
The CCI may also impose a lesser penalty, inter alia, in case a member of a cartel or an individual who has been involved in the 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, amended by the CCI vide Gazette Notification of 8 August 2017, contain regulations for imposing lesser penalties. Prior to the amendment only members of a cartel and not their employees or officers could apply to the CCI for lesser penalty.
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 the 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. However, Section 53A of the Competition Act relating to the COMPAT has been amended (vide the Finance Act 2017) to provide for the National Company Law Appellate Tribunal (the NCLAT), established under provisions of the Companies Act 2013 to be the appellate authority for the purposes of the Competition Act. The amending section of the Finance Act 2017 came into force with effect from 26 May 2017 and all appeals, applications or proceedings pending before the COMPAT were transferred to the NCLAT. The Supreme Court of India hears and disposes appeals against any direction or order of NCLAT. 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 DG for investigation would not be an order appealable to COMPAT. The Supreme Court observed that the orders, which have not been specifically made appealable under the Competition Act, cannot be treated as appealable by implication.
Hence, taking a prima facie view by the CCI, and thereafter issuing directions to the DG for investigation, would not be an order appealable and COMPAT (to be read as NCLAT) would not have the jurisdiction to entertain such an appeal. The Supreme Court also observed that the opinion on existence of prima facie cases has to be formed by the CCI within 60 days and the report of the DG should be submitted within 45 days. These observations were made by the Supreme Court pursuant to the CCI challenging the order of COMPAT, whereby COMPAT had directed the DG to stay the investigation into allegations levelled by Jindal Steel & Power Ltd over an agreement between the 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 anticompetitive because it had, or would have had, an appreciable adverse effect on competition in India, since it would impact the rights of other steel manufacturers and suppliers. The CCI, after forming a prima facie view, directed the DG to investigate the agreement. The DG directed SAIL to provide information within a week; this was challenged by SAIL before COMPAT.
The CCI passed an order on 29 November 2017 in which it found the Board of Control for Cricket in India (BCCI) in abuse of its dominant position and imposed a penalty of 522 million rupees. Earlier, in 2013, the CCI had come to a similar conclusion against BCCI and had imposed a penalty of the same amount. The CCI had concluded back then that BCCI was in a dominant position in the market for organisation of private professional cricket leagues/events in India and that the restriction under clause 9.1(c) (i) of BCCI’s IPL Media Rights Agreement entered into with the broadcasters of Indian Premier League (IPL), which restricted the BCCI to organise, sanction, recognise or support during the rights period any other professional domestic Indian T20 competition that is competitive to the league, was in contravention of the Competition Act. Aggrieved by the decision of the CCI, BCCI had preferred an appeal before the COMPAT, which had set aside CCI’s order on the ground of violation of principles of natural justice and ordered CCI to dispose of the matter afresh after giving an effective opportunity to BCCI to controvert.
In accordance with the directions of the COMPAT, the CCI directed the DG to conduct further investigation into the matter. The CCI perused the supplementary investigation report of the DG, the suggestions/objections filed by BCCI and other material available on record, and concluded that the BCCI was an ‘enterprise’ within the definition provided in section 2 (h) of the Act as in terms of its Memorandum of Association, BCCI had been established to control the game of cricket in India and give its decision on all matters including women’s cricket.
On the issue of BCCI enjoying a dominant position in the above-defined relevant market, it was held by the CCI that BCCI being engaged in organisation of tournaments/leagues, was put to advantage because they also possessed the authority to grant approval for organisation of similar events by others and set conditions for such organisation. Therefore, BCCI enjoyed a dominant position in the relevant market for organisation of professional domestic cricket leagues/events in India. The CCI concluded that BCCI, having a dominant position in the relevant market, had abused its dominant position by denying market access to other organisations for conducting domestic cricket leagues and had been pursued by BCCI consciously to protect the commercial interest of the bidders of broadcasting rights as well as the economic interest of BCCI.
The Competition Act also provides for the 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. However, section 53A of the Competition Act relating to the COMPAT has been amended (vide the Finance Act 2017) to provide for the National Company Law Appellate Tribunal (the NCLAT), established under provisions of the Companies Act 2013 to be the appellate authority for the purposes of the Competition Act. The amending section of the Finance Act 2017 came into force with effect from 26 May 2017 and all appeals, applications or proceedings pending before the COMPAT were transferred to the NCLAT. It lies with the Supreme Court of India to hear and dispose of appeals against any direction or order of NCLAT. 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 DG for investigation would not be an order appealable to COMPAT. The Supreme Court observed that the orders, which have not been specifically made appealable under the Competition Act, cannot be treated as appealable by implication. Hence, taking a prima facie view by the CCI, and thereafter issuing directions to the DG for investigation, would not be an order appealable and COMPAT would not have the jurisdiction to entertain such an appeal. The Supreme Court also observed that the opinion on existence of prima facie cases has to be formed by the CCI within 60 days and the report of the DG should be submitted within 45 days. These observations were made by the Supreme Court pursuant to the CCI challenging the order of COMPAT, whereby COMPAT had directed the DG to stay the investigation into allegations levelled by Jindal Steel & Power Ltd over an agreement between the 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 anticompetitive because it had, or would have had, an appreciable adverse effect on competition in India, since it would impact the rights of other steel manufacturers and suppliers. The CCI, after forming a prima facie view, directed the DG to investigate the agreement. The DG directed SAIL to provide information within a week; this was challenged by SAIL before COMPAT.