Akshayy S. Nanda On Proposed Amendments In Competition Act To Regulate M&A In Digital Economy

The changes proposed in the competition amendment bill are quite significant and far-reaching. One of the driving factors of the amendments proposed is to address concerns in the digital economy. Mergers and acquisitions in the digital economy often escaped scrutiny by the CCI as such transactions were exempt from notification to the competition regulator on account of assets or turnover of the target entity being below specified financial thresholds. The introduction of the deal value threshold would ensure that significant acquisitions in the digital space are scrutinized by the CCI. The intent of the legislature is that only those acquisitions in the digital economy should be notified to the CCI where a party to the transaction has substantial business operations in India. Clarity is awaited from the CCI on what constitutes ‘substantial business operations’ in India. The other issue on which certainty is required is the theory of harm in assessing and analyzing M&A’s in the digital economy as the dynamics of competition in such markets differs from the traditional markets that the CCI has been scrutinizing in the last decade. The existing criteria of assessing M&A’s in the traditional markets may not be relevant or rational in the context of digital markets. The amendments propose to reduce timelines for approval of M&A’s notified to the CCI. On the face of it, such proposal appears to be business friendly. However, such reduced timelines are likely to impose significant burden on the combination department of the CCI and may prove to be counter-productive in the long run. Such reduced timelines are unnecessary considering that the CCI has done a stellar job in the last decade by approving M&A’s within prescribed statutory timelines and in an expedited manner. The bill also proposes to introduce a settlements and commitments mechanism whereby the CCI may accept settlements and commitments from the parties and close investigations quicker. This is beneficial for both the CCI as well as the parties under investigation as it reduces the litigation time and cost. The other significant amendments include provisions for penalizing third parties which may facilitate a cartel such as a ‘hub-and-spoke’ cartel; introduction of a limitation of 3 years; significant increase in maximum penalty for not disclosing facts or giving false information; and, codifying the ‘material influence’ test as the standard for control. Overall, the proposed amendments are significant and are being introduced to further the ‘ease of doing business’ objective of the Government. However, the success of the amendments depend on the regulations to be introduced by the CCI to give effect to these proposed amendments as well as the legal certainty that such regulations would provide to businesses.