THE COMPETITION (AMENDMENT) BILL, 2022
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- The Lok Sabha passed The Competition (Amendment) Bill, 2022 to amend The Competition Act of 2002.
Competition Act, 2002
- The Competition Act, 2002was enacted by the Parliament of India and governs Indian competition law.
- It replaced the archaic The Monopolies and Restrictive Trade Practices Act, 1969.
- Under this legislation, the Competition Commission of India was established to prevent the activities that have an adverse effect on competition in India. This act extends to whole of India.
- The Competition Act, 2002 was amended by the Competition (Amendment) Act, 2007 and again by the Competition (Amendment) Act, 2009.
Features of Competition Act 2002
Below mentioned are some of main the features of the Competition Act:
- Anti-competitive agreements:The competition law prohibits any agreement between two or more enterprises or persons to maintain market competition and safeguard consumers' interests within India. Such agreements can be vertical or horizontal. Vertical agreements are those agreements between enterprises at different stages of production, while horizontal agreements are those between enterprises at the same production level.
- Anti-abuse of dominance:If any enterprise abuses its dominant position, it will be punished.
- Anti cartels:If any agreement between enterprises or individuals hurts competition, it will be considered a criminal offence.
- Combination regulations:The Commission will decide on mergers and acquisitions only if it does not harm competition in the market.
- Informative nature of this act: To secure transparency and avoid any misunderstanding between enterprises or individuals, an enterprise shall inform CCI regarding their dealings that are likely to affect competition in the market before taking such action or entering into such agreement.
COMPETITION COMMISSION OF INDIA (CCI)
The Competition Commission of India (CCI) is the chief national competition regulator in India. It is a statutory body within the Ministry of Corporate Affairs and is responsible for enforcing the Competition Act, 2002 to promote competition and prevent activities that have an appreciable adverse effect on competition in India. The CCI looks into cases and investigates them if the same has a negative impact on competition. The commission was established in 2003.
It is a quasi-judicial body tasked with the following duties:
1. Prevent practices that have a negative effect on competition.
2. Encourage and maintain market competition.
3. Safeguard the interests of all consumers.
4. Safeguard commercial liberty.
5. Investigate problems related to or ancillary to trade.
Importance of Competition Act, 2002
The Competition Act is concerned with enforcing rules to ensure that firms and corporations compete effectively with one another. This promotes entrepreneurship and productivity, increases customer choices and helps reduce prices and enhance quality.
- Low prices:Offering a lower price is the easiest approach for a firm to achieve a large market share. Prices are driven down in a competitive market. This is not simply beneficial to consumers; where more people can afford to buy items, it motivates firms to produce and helps the economy as a whole.
- Innovation:To develop high-quality products, firms must be innovative in their product concepts, design, manufacturing processes, services, and so on.
- Better quality:The Competition Act encourages firms to enhance the quality of their goods and services in order to attract more consumers and extend their customer base. Quality can refer to a variety of things, including items that last longer or perform better, better after-sales or technical advice, and better service.
- More options:In a competitive market, firms will seek to differentiate their products from the competition. As a result, consumers have more options, allowing them to choose the product that provides the most value for money.
Competition (Amendment) Bill, 2022
- The Bill seeks to amend the Competition Act of 2002 to regulate mergers and acquisitions based on the value of transactions.
Highlights of the Bill
Regulation based on Merger and Acquisition
- The Bill seeks to amend the Competition Act, 2002, to regulate mergers and acquisitions based on the value of transactions. Deals with transaction value of more than Rs 2,000 crore will require CCI’s approval. The Bill proposes to reduce the timeline for the CCI to pass an order on such transactions from 210 days to 150 days.
Expansion of the scope of entities
- The Bill expands the scope of entities that can be adjudged to be a part of anti-competitive agreements. Currently, enterprises or persons engaged in similar businesses can be held to be a part of anti-competitive agreements. The Bill expands this to also include enterprises or persons who are not engaged in similar businesses.
Framework for settlement and commitment
- The Bill provides a framework for settlement and commitment for faster resolution of investigations of anti-competitive agreements and abuse of dominant position.
Decriminalises certain offences under the Act
- The Bill decriminalises certain offences under the Act by changing the nature of punishment from imposition of fine to civil penalties. These offences include failure to comply with orders of the CCI and directions of the Director General related to anti-competitive agreements and abuse of dominant position.
Key Features of the Competition (Amendment) 2022 Act
Regulation of combinations based on transaction value:
- The Act prohibits any person or enterprise from entering into a combination which may cause an appreciable adverse effect on competition.
- Combinations imply mergers, acquisitions, or amalgamation of enterprises.
- The prohibition applies to transactions where parties involved have:
- cumulative assets of more than Rs 1,000 crore, or
- cumulative turnover of more than Rs 3,000 crore, subject to certain other conditions.
- The Bill expands the definition of combinations to include transactions with a value above Rs 2,000 crore.
Time limit for approval of combinations:
- The Act requires the CCI to pass an order on an application for approval of combinations within 210 days.
- The Bill reduces this time limit to 150 days.
Definition of control for classification of combinations:
- For classification of combinations, the Act defines control as control over the affairs or management by one or more enterprises over another enterprise or group.
- The Bill modifies the definition of control as the ability to exercise material influence over the management, affairs, or strategic commercial decisions.
- Under the Act, anti-competitive agreements include any agreement related to production, supply, storage, or control of goods or services, which can cause an appreciable adverse effect on competition in India.
- Any agreement between enterprises or persons, engaged in identical or similar businesses, will have such adverse effect on competition if it meets certain criteria.
- Directly or indirectly determining purchase or sale prices,
- Controlling production, supply, markets, or provision of services, or
- Directly or indirectly leading to collusive bidding.
- The Bill adds that enterprises or persons not engaged in identical or similar businesses shall be presumed to be part of such agreements if they actively participate in the furtherance of such agreements.
Settlement and Commitment in anti-competitive proceedings:
- Under the Act, CCI may initiate proceedings against enterprises on grounds of:
- entering into anti-competitive agreements, or
- abuse of dominant position.
- Abuse of dominant position includes:
- discriminatory conditions in the purchase or sale of goods or services,
- restricting production of goods or services, or
- indulging in practices leading to the denial of market access.
- The Bill permits CCI to close inquiry proceedings if the enterprise offers:
- settlement (may involve payment), or
- commitments (may be structural or behavioural in nature).
- The manner and implementation of the framework of settlement and commitment may be specified by CCI through regulations.
Decriminalisation of certain offences:
- The Bill changes the nature of punishment for certain offences from imposition of fine to penalty.
- These offences include failure to comply with orders of CCI and directions of Director General with regard to anti-competitive agreements and abuse of dominant position.
Significance of Competition Law
- The Competition Law is therefore regarded as a landmark legislation.
- This law does not promote dominance abuse.
- This law mainly works in promoting competition in the market and also helps in distributing profits to firms of all sizes so as to increase the business potential in the community.
Competition Law is not applicable in:
- Public Financial Institutions.
- Foreign Institutional Investors (FIIs).
- Venture capital Funds (VCFs).
- Agreements related to intellectual property rights (IPRs) such as trademarks, patents, copyrights etc.
- Central Government has the authority to exempt any class of enterprises from the provisions of Act in the common interest of national security or public interest.
Looking Forward - A National Competition Policy
- The benefits of competition law, though in force for the last 10 years, through the institution of the CCI, have yet to reach to all sectors of our economy.
- Whereas Sectors like coal mining are still under the monopoly control of the State through Public Sector Undertakings, other ostensibly "open" sectors such as power and road infrastructure have not been able to reap the benefits of competition due to strong governmental interference.
- Similarly, the public procurement of goods and services by the governments, which constitutes approximately 20-30% of our GDP, continue to be infested with the menace of cartelization in the bidding process.
- This is due to the corrupt nexus between government officials and the interested bidders'e. vested interests but also due to a general lack of awareness of the reach of competition law or about the Act.
- This apathy and ignorance can be best cured if India adopts an NCP as a part of its Directive Principles of State Policy under the Constitution of India where each and every policy, regulation, and even law will be first required to be screened from the angle of their impact, if any, on the state of competition prevailing in the relevant markets.
Understanding the benefits of NCP through International Examples
- An effective NCP can bring in that much-needed extra boost to the economy.
- The successful implementation of such a National Competition Policy leading to higher growth has been demonstrated particularly in Australia in 2005, where after the Council of Australian Governments (CoAG) adopted a National Competition Policy in 1995, found that productivity and price changes in infrastructure sectors , where competition reforms were implemented boosted Austria’s GDP by 2.5 percent .
- Similarly , South Africa saw positive effects on total productivity factor because of implementation of competition policy. From a 2014 report of OECD, there appears to be a consensus that effective competition policy can result in an extra 2-3 percent growth.
- Apart from Australia, competition policy has also been adopted and implemented by UK, Denmark, Italy, Turkey, Mexico, Hong-Kong, Malawi and Botswana.
- India’s NCP should focus on promoting free and fair competition by focusing on competitive neutrality i.e. creating level playing field between all private and public sectors and gradual opening of sectors such as mining, ports, railways, and electricity towards true competition.
- An early adoption of NCP is essential for utilizing the full potential of digital economy in the wake of contemplated major disruptive trends like Internet Of Things, Machine to Machine learning, 5G etc.
- The recent government initiatives to introduce limited privatisation of Indian Railways by introducing 109 pairs of routes for private train operations for passenger train services indicate India’s growing realization of the importance of introducing competition in the public sector.
- However, such ad hoc initiatives may not give the desired results, unless institutionalized and implemented after the adoption of a well-considered and thoroughly debated NCP.
- For this there needs to be political will and a national consensus of all political parties.
MAINS PRACTICE QUESTION
Q. India needs a National Competition Policy that focuses on promoting free and fair competition by focusing on competitive neutrality and gradual opening for utilizing the full potential of digital economy in the wake of contemplated major disruptive trends. Critically examine.