A good time to seriously consider competition compliance in India!

Ann Minu Jose

by Ann Minu Jose

In August 2022, the Competition (Amendment), Bill was introduced in the Indian Parliament. On April 11, 2023, the Bill received Presidential assent to become the Competition (Amendment) Act, 2023 (‘Amendment Act’). The Amendment Act aims to equip the Competition Commission of India (‘CCI’) with the necessary powers and tools to meet the demands of regulating an increasingly digital economy. As CCI notes in its Salient Features of the Amendment Act, the aim of the amendments was to ensure faster market correction and to provide regulatory certainty and a trust-based business environment.

The Amendment Act makes it imperative for a business to consider competition compliance programs in India seriously. There is exposure to new risks for businesses.

  • Hub and spoke arrangements: A key amendment is that ‘hub and spoke’ arrangements are assumed to negatively impact competition unless the companies involved can demonstrate otherwise. Previously, the law only applied to agreements between competitors engaging in identical or similar business activities. It now brings within its fold enterprises which are not actual competitors, but which facilitate or intend to facilitate a cartel. This could include online marketplaces which only provide a platform to third party service providers, or a common supplier acting for competing resellers, etc. This has broadened the scope of horizontal agreements and exposes such enterprises to severe penalties like the participating members of the cartel.
  • Harsher penalty: Penalties for contraventions will now be indexed to global turnover. For anticompetitive conduct, CCI can impose a penalty up to 10% of the average turnover of the enterprise for the three preceding financial years. The Supreme Court of India, in 2017, restricted the interpretation by ruling that turnover means ‘relevant turnover’ – which is directly related to the anticompetitive conduct in question. The Amendment Act has reversed this by clarifying that turnover means ‘global turnover’ – i.e., turnover of all the goods and services sold by the enterprise. This is very similar to the position in the EU and UK. The amendment exposes multi-product enterprises to very high penalties. Multinational corporations can no longer have a lackadaisical attitude towards competition compliance by its Indian subsidiaries as there is risk of increased penalties.
  • Pre-deposit of penalty for appeal: Appeals have become expensive as a business will have to deposit 25% of the penalty before it can file an appeal before the appellate body.

The Amendment Act has also introduced new programs that businesses can take advantage of in order to mitigate the impact of negative consequences.

  • Settlement and commitment:  In cases of vertical restraints and abuse of dominance, an enterprise can seek faster resolution of the proceedings by way of settlement or commitment. This is a significant change as previously, the Act did not have any systems for early closure of cases. Businesses can now avail these methods to save on time and resources by fast-tracking the process.
  • Leniency plus: In addition to the regular leniency program, a new mechanism has been introduced to encourage additional cartel disclosures. If a leniency applicant in one case provides information of a separate undisclosed cartel, it may be granted lenient treatment under both the cartel investigations. If a business finds itself involved in a cartel, it can use these procedures to co-operate with CCI and reduce the adverse outcomes.

Risk assessment is an essential principle of a credible compliance program. External changes to the business environment such as amendments to the law are a good reason for businesses to re-assess their risk exposure. With the abovementioned changes having far-reaching consequences, businesses can no longer ignore competition compliance in India.  

To give effect to these amendments, CCI will issue regulations.  The CCI has recently concluded its public consultation on the draft settlement and commitment regulations. Others in the works are regulations on leniency plus, computation of turnover, calculation of penalty, etc. This is a good opportunity for CCI to consider providing a stimulus by assigning a credit for compliance programs in immunity/leniency programs and penalty computation. Such incentives from the regulator to promote compliance can cultivate an environment of self-regulation by businesses.   

[Disclaimer: All comments are made in my personal capacity and should not be attributed in any manner to the Canadian Commissioner of Competition]

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