Impact of the Amendment of Insolvency and Bankruptcy Code 2016 on the Indian MSME sector, increasing default amount for initiation of Corporate Insolvency Resolution Process (CIRP) and Insertion of Section 10-A and Section 66(3)
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The Firm acted as the Counsel to the world's largest capital market transaction in terms of the deal size in India capital markets and the largest rights issue in the world by a non-financial issuer in 10 years.
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The Competition Amendment Act introduced numerous far-reaching changes to competition law in India. One such change is the introduction of the leniency plus regime, which allows an existing leniency applicant to disclose the existence of another cartel and benefit from this disclosure in both cases. Similar benefits are extended in most mature competition law jurisdictions to enable the detection of secret cartels. Though these provisions are yet to be implemented in India, these draft regulations provide much needed clarity on how the CCI is looking to implement this important change. We look forward to seeing how the new regime will develop.
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“The Competition Amendment Bill, which has just been passed in the Lok Sabha, is a timely update to the law, which has been on the statute books for two decades. Whereas certain amendments are business friendly and consistent with the Government’s “ease of doing business” mission, others may raise more uncertainty in their implementation. A lot will also depend on the regulations to be issued by the CCI to flesh out many of these broad proposals."
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“The amendments formally fix responsibility on facilitators of cartels such as trade associations, agents and even customers if they act as hubs for illegal information exchange. Now, they will be penalised in the same way as the cartelists themselves, which could be up to 10% of average global turnover for the preceding 3 financial years, or 3 times of profit for each year of the continuance of the cartel or 10% of the global turnover for each year of the continuance of the cartel, whichever is higher. It would be interesting to see if this expanded definition also covers AI software offering pricing suggestions.”
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Whilst the devil will lie in the detail, I think this is a progressive development. India’s legal market is ready for change and will grow. I welcome the opening up
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By laying a significant emphasis on Capex and Energy Transition, the FM has provided the foundation for strong anti-cyclical momentum that should enable robust domestic economic growth and help counter the expected global headwinds. The focus on making India future-ready by way of AI labs, Agri-tech, and R&D in healthcare, further boosting Digital Public Infrastructure and holistically expanding physical infrastructure, auger very well for sustained long-term economic growth.
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The Bill reflects the recommendations of the Competition Law Review Committee in 2019 and introduces key changes in merger control as well as anti-trust-related provisions such as deal value thresholds, expedited merger review timelines; settlements and commitments; leniency plus, hub and spoke cartels, etc. The Bill streamlines and updates the Competition Act by providing it with more teeth and flexibility, in line with the changing economic and business reality. In relation to the anti-trust provisions, the Bill addresses the issue that all anti-competitive agreements may not fall within the current pigeon-hole provisions of the Act. It recognises hybrid anti-competitive agreements (such as hub and spoke cartels) and empowers the Competition Commission of India (CCI) to now punish the cartel facilitators also. Additionally, the Bill provides for introduction of settlements and commitments mechanism, which will allow the parties to apply to the CCI to settle/ make commitments in various anti-trust cases. The proposed amendments are a welcome change, which will: (i) ensure swift correction of anti-competitive behaviour and practices in the market; (ii) spare willing and legally compliant companies to face the rigours of an extensive CCI investigation; and (iii) ease the pressure on the CCI’s resources. As such, the Bill provides that the procedure for conducting the commitments or settlements will be laid down in the regulations to be issued under the Act in due course. However, it will be prudent that such regulations also provide clarity on issues such as admission of liability for availing commitment or settlement, etc. The Bill also seeks to bring crucial amendments to the existing merger control regime. Given that many transactions in the digital markets have escaped the CCI's scrutiny owing to the low turnover generated by the target company, the Bill empowers the CCI to review transactions exceeding a certain ‘deal value’ threshold (i.e., (a) where the deal value is in excess of INR 2,000 crore (approx. USD 252 million); and (b) where either party has “substantial business operations in India”) which will bring a number of M&A transactions in the digital market under the CCI’s radar. Since, the proposed ‘deal value’ threshold is fairly low, it will be important to lay down the test to determine ‘substantial business operations in India’ through regulations and/or FAQs. Moreover, to prevent benign transactions from getting scrutinised due to this threshold, the regulations or FAQs should also specify: (i) the sectors / industries to which this threshold will apply; and (ii) methodology for computation of ‘deal value’ (especially in transactions involving non-cash consideration such as share swap). The proposed amendment also specifies that the ‘substantial business operations’ of the ‘parties’ will be considered to review any transaction which meets the deal value threshold. However, international jurisprudence suggests that substantial business operations of only the target is considered. Otherwise, a lot of transactions with no impact on competition in India (as the target's business operations are entirely overseas) will also come under scrutiny, resulting in an unwarranted burden over the regulator. Additionally, to align the Act with the CCI’s decisional practice, the Bill also aims to codify the CCI’s expansive interpretation of ‘control’, which includes the lowest standard of ‘control’, i.e., exercise of ‘material influence’. However, no such corresponding amendment is proposed in the ‘control’ limb of group’s definition. Hence, this may have far reaching consequences for: (i) mapping of overlaps between parties for competition assessment; (ii) computing thresholds for determining notifiability to the CCI; and (iii) availability of the intra-group exemption. Further, in order to ensure a business-friendly approach in line with the Government of India’s motto of ‘ease of doing business’, the Bill seeks to expedite the merger review timelines across the board by reducing the timeline for CCI’s: (i) formation of prima facie view (from 30 working days to 20 calendar days); and (ii) approving a combination (from 210 calendar days to 150 calendar days). While the shortening of timelines may result in speedy approval of transactions, it may increase pressure on the CCI which in turn may result in an added burden on the parties. The Bill also seeks to remove hurdles for transactions involving open market purchases and other transactions undertaken on stock exchanges by exempting them from standstill obligations. However, such exemption is subject to: (i) the transaction being timely notified to the CCI; and (ii) the acquirer not exercising any ownership/ beneficial rights/interest in such shares or securities till CCI’s approval. Conclusively, the Bill is in line with the international best practices and intends to achieve its broader objectives of economic development, protecting the interests of consumers and to ensure freedom of trade in the markets. The Bill has now been referred to the Standing Committee on Finance for further evaluation and asked to submit its report in 3 months. The Standing Committee may seek comments from industry experts, businesses and legal professionals to understand the challenges in various sectors and fine-tune the Bill accordingly. Therefore, it is unclear whether the Standing Committee’s report will be finalised before the winter session of the Parliament.
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