India: Key Regulatory Changes To The Indian Competition Law Regime

S. No.

Overview of Regulations

Potential implications

1.

Timeline for submitting an application.

• Settlement: Within 45 or (+30 if sufficient cause for delay is shown) days from date of receipt of confidential DG Report.
• Commitment: Within 45 or (+30 if sufficient cause for delay is shown) days from date of receipt of CCI's prima facie order.

• The Regulations have provided a narrower time period, within the overall time period under the Act. Once a party receives the CCI's prima facie order (in case of commitments) or once a party receives the DG's report (in case of settlements), there would be a much shorter window in which commitment or settlement proposals can be submitted to the CCI.
• While the Commitment Regulations provide that a commitment application may be filed within 45 days from receipt of the prima facie order of the CCI or before receipt of DG Report, whichever is earlier, for practical reasons, a commitment application will have to be filed within 45 days of receipt of the prima facie order as it is unlikely that a DG Report would be received by the applicant within 45 days of the CCI's prima facie order.
• Parties to pending inquiries where the 45 (+30 day if sufficient cause for delay is shown) day period has already lapsed will most likely not be able to avail the benefit of these mechanisms.

2.

Partial settlements or commitments.

• A settlement application would only be considered by the CCI if it addresses all contraventions identified in the DG report.
• A commitment application can be filed with respect to only some of the concerns identified in the CCI's prima facie order.

• In cases where parties believe there is likely to be a better outcome in defending some of the allegations through the CCI's inquiry process, requiring parties to settle all contraventions identified in the DG Report might be a disincentive. This might impact the overall uptake of the settlement mechanism.

3.

Withdrawal of a settlement or a commitment application. A settlement or a commitment application may be withdrawn by the settlement or commitment applicant any time before the CCI passes the settlement or commitment order.

• Parties have the flexibility to withdraw applications which gives them greater flexibility in deciding their defence strategy. There is a lesser disincentive in case of a withdrawal, as the CCI would not use the information submitted in the application after withdrawal and will only use information submitted by third parties for its inquiry.

4.

Condition on submitting a settlement or a commitment application. The Regulations state that if any amount is due under the Act from the settlement or commitment applicant, then the settlement or commitment application filed by such an applicant shall not be considered by the CCI.

• If the payment of penalty has been stayed by the National Company Laws Appellate Tribunal (NCLAT) in any matter, it would be fair to argue that the penalty amount is "due" or "liable for recovery" until the stay is vacated. Such parties arguably ought to be eligible to avail of settlement and commitment mechanisms in other on-going cases.

5.

Rejection of a settlement or a commitment application. The CCI can reject a settlement or commitment application, after providing an opportunity of hearing, if:

• The applicant fails to submit a revised settlement or a revised commitment application, as the case may be, or provide clarifications etc. to the CCI within the prescribed timelines;
• The applicant refuses to receive or respond to the communications sent by the CCI or violates the undertakings and waivers submitted; or
• The CCI is not satisfied with the settlement or commitment proposals offered by the applicant.

Additionally, a settlement application shall also be rejected if the settlement applicant fails to communicate its acceptance of the settlement amount or to pay the settlement amount within the prescribed timelines. A hearing shall not be granted in case a settlement application is rejected for failure to communicate acceptance of the settlement amount or pay the same within the prescribed timelines.

• The settlement or commitment applicant must necessarily waive off the right to initiate any legal proceedings including appeal against the CCI's settlement or commitment order and such waivers shall extend even after the CCI rejects the settlement or commitment proposals.
• Therefore, in cases where the CCI passes an order rejecting a settlement or commitment application and proceeds with its inquiry, parties will not have the opportunity to challenge any finding of contravention against them if the CCI finds them liable.
• Given the absence of clarity on how these waivers will operate in such scenarios, parties may be disincentivized from availing these mechanisms.

6.

'Invalid' settlement or a commitment application. If the settlement or the commitment applicant, as the case may be, fails to clear the defects to the application communicated by the CCI within 10 days of receipt of such communication, such settlement/ commitment application shall be treated as "invalid" by the CCI.

The Regulations do not clarify if the settlement or commitment applicant will have the opportunity to submit a fresh settlement or commitment application in case the first application is 'invalid' due to failure to clear defects. However, there is no express bar on the settlement or commitment applicant to file a fresh application if they are not time barred from filing an application.

7.

Deemed 'admission' of facts established against settlement or commitment applicant in proceedings on the same cause of action inside as well as outside India. The settlement or commitment applicant shall also be required to provide details of investigations in India and outside India with the same cause of action as part of their settlement or commitment application. However, any such facts that have been established or admitted by the settlement or commitment applicant under such ongoing or concluded proceedings with the same cause of action shall be deemed to be "admitted" against the applicant in respect of the settlement or commitment proceedings.

• The Regulations cast a wide net on the scope of facts that would be considered as 'deemed' to be admitted in the settlement or commitment proceedings, including other India and outside India proceedings.
• The undertaking furnished by a party requires waiver of these findings of fact. In case settlement or commitment proceedings are unsuccessful, the party will continue to be bound by the 'findings of facts' that are deemed to be admitted and would make it difficult for the parties to defend themselves against such facts, if the CCI proceeds with the inquiry.

8.

Revocation and withdrawal of a settlement or a commitment order. The Regulations provide that the settlement or commitment order shall stand revoked if:

• Applicant fails to comply with the settlement or commitment order;
• Applicant has not made true and full disclosures; or
• Facts have materially changed.

Before revoking a settlement or commitment order, the CCI shall grant an opportunity to show cause to the settlement or commitment applicant.

• The Regulations do not expressly clarify if undertaking and waivers submitted along with the settlement or commitment application shall continue to bind the applicant beyond such revocation. Whereas, in case of a rejection of a settlement or commitment application (the threshold for which is lower than the threshold for revocation) you will be expressly bound by your undertakings and waivers beyond the rejection. Logically speaking, based on the theme of the Regulations, this should have been reverse i.e., waivers continue to apply in cases of revocation and withdrawal of settlement or commitment order by the CCI and waiver cease to apply if settlement or commitment application is rejected by the CCI.

9.

Determination of settlement amount. The Settlement Regulations provide that the range of the settlement amount shall be guided by the Penalty Guidelines, under which the 'base penalty amount' can be 30% of the relevant turnover and the penalty determined by the CCI can extend up to 10% of the global turnover. Also, only a flat 15% discount shall be allowed on such settlement amount as determined.

• Under the Amended Act, the penalty can extend up to a maximum of 10% of the overall global turnover. Considering that there's a possibility of the settlement proceedings failing, parties would weigh the pros and cons before deciding to opt for settlement.
• Considering the potential maximum penalty, a maximum discount of only 15% on such penalty might not act as a lucrative incentive for parties to consider settling proceedings with the CCI.

Steps for calculation

Illustration

Step 1: The CCI would ascertain 'relevant turnover' of an enterprise.

'Relevant turnover' is turnover derived 'directly or indirectly' from the sale of goods and services to which the contravention relates.

Notes:

In appropriate cases, the CCI may consider relevant turnover of three years of the enterprise preceding the year in which the DG's investigation report is received by the CCI.

In cases where the determination of relevant turnover is not feasible, the CCI may consider "global turnover" (i.e., turnover derived from sales of all goods and services of an enterprise).

X's average turnover for the past 3 preceding years is INR 100,000 while the average turnover generated from the infringing products/ services is INR 80,000.

Under the Penalty Guidelines, the 'relevant turnover' would be INR 80,000.

Step 2: The CCI would compute the 'base penalty amount' which can be up to 30% of the 'relevant turnover', considering factors like nature and gravity of the contravention; nature of the industry; its implications on economy; and any other factor which CCI deems appropriate.

The CCI, after looking at the nature of the contravention and other factors, can arrive at a maximum base penalty amount of INR 24,000.

Step 3: The CCI may further adjust the 'base penalty amount' determined in the step above based on the following factors:

Nature of contravention: Duration of the contravention, role of the enterprise in orchestrating it, whether it is a repeated contravention and whether the party admitted to the contravention.

Behaviour of the contravening party: Extent of cooperation in the DG's investigation and CCI proceeding, voluntary measures to address the anti-competitive behaviour, and implementation of a compliance programme.

Based on the factors mentioned in Para. 3(2) of the Penalty Guidelines, CCI will take further consider aggravating and mitigating factors in the instant case to adjust the penalty.

Let's assume that this was X's first violation and it has put in place an internal compliance program to make sure this does not happen again. The CCI can consider these mitigating factors and adjust the penalty amount to INR 20,000.

Step 4: If the amount determined in the above step exceeds the 'legal maximum', then CCI will adjust it to reduce it to the legal maximum.

'Legal maximum' is the ceiling for any monetary penalty determined under the Penalty Guidelines and cannot exceed the maximum amount of penalty envisaged under the Act i.e., in context of Section 27(b) of the Act, 10% of the global turnover of an enterprise.

The penalty calculated above (INR 20,000) is higher than the legal maximum in the present case (i.e., INR 10, being 10% of the total turnover of the entity). The CCI will adjust it downwards and bring it to the legal maximum.

Therefore, the final penalty that the CCI may impose on X would not exceed INR 10,000.

Step 5: Under the Penalty Guidelines, after calculating the penalty based on the factors enumerated under Para. 3(1) and (2), if the CCI is of the opinion that the determined penalty would not result in sufficient deterrence, it may increase the penalty up to the 'legal maximum'. However, the Penalty Guidelines do not provide any factors that it would consider to measure the deterrent effect.

For example, if a contravening enterprise 'Y', global turnover is INR 1000 and relevant turnover is INR 100. The legal maximum in the present case is INR 100. Under Para. 3(1) of the Penalty Guidelines, the CCI may begin with a penalty base of INR 30 and post adjustments under Para. 3(2), it considers that adjusted penalty amount is not sufficient, it could raise the penalty to up to legal maximum i.e. INR 100.

Penalty

Factors provided by the Penalty Guidelines

Penalty imposed on individuals.

• Nature and gravity of contravention of the Act by the enterprise employing the individual.
• Role, extent and duration of involvement of the individual in the contravening conduct and repeated contraventions if any.
• Extent of cooperation of the individual with the DG investigation or the CCI proceeding.

Penalty imposed for gun-jumping or not submitting information under Section 20(1) of the Act.

• Any consummation or part consummation of the combination without giving notice.
• Violation of any substantive or procedural standstill obligations prior to or after filing notice with the CCI under Section 6(2A) of the Act.
• Not submitting information during an inquiry under Section 20(1) of the Act.
• Voluntary filing of notice with the CCI.
• Conduct of the parties Including making voluntary disclosures, cooperation during the inquiry, furnishing all requisite material or documents in response to the information sought by the CCI.
• Any other factor deemed appropriate by the CCI.

Non-compliance with the CCI's order.

• Minimum and maximum penalty under the Act.
• Extent of non-compliance or non-cooperation and the reasons.
• Nature of misleading information.
• Knowledge about the information furnished being untrue or incomplete.
• Repeated contravention of the Act.
• Any other factor deemed appropriate by the CCI.

Failure to comply with the directions of the CCI and the DG.

Making a false statement or omission to furnish material information.

Contraventions related to submission of information.

ELP COMMENTS

Implication of broadening the scope of 'Relevant Turnover'. The broadened definition of 'relevant turnover', which also includes the turnover generated 'indirectly' from the sale of goods or provision of services, may have a significant bearing on entities in certain cases, in particular entities in the digital and tech sectors. The CCI may likely account for the 'network effects' from the infringing products as being attributable to sales of non-infringing products, in which case, revenues from sale of non-infringing products may be included in relevant turnover. This may significantly increase the 'relevant turnover' for companies and consequently the final penalty amounts that the CCI might determine.

Implication of the CCI's flexibility to calculate penalty based on financial statements submitted either 3 years (1) before the DG Report or (1) before the CCI's final order. In cases where there is a time-gap between receipt of the DG Report by the CCI and the eventual final order by the CCI, the Penalty Guidelines allow the CCI to base its penalty on more recent financial statements instead of financial statements preceding the submission of the DG investigation Report. In scenarios where an enterprise has witnessed an increase in revenues in the period between when the DG Report was received and the CCI's final order, CCI could take into account more recent financial statements leading to higher penalty amount.

Revised thresholds for de-minimis exemption*

Target

Assets (in India)

Turnover (in India)

INR 450 Crores (~ USD 54 million)

INR 1250 Crores (~ USD 150 million)

Revised jurisdictional thresholds*

Assets

Turnover

Enterprise Level

India

> INR 2500 crores (~ USD 301 million)

> INR 7500 crores (~ USD 902 million)

Worldwide with India leg

> USD 1.25 billion and;

at least INR 1250 crores (~USD 150 million) in India

> USD 3.75 billion and;

at least INR 3750 crores (~USD 451 million) in India

OR

Group Level

India

> INR 10000 crores (~USD 1.2 billion)

> INR 30000 crores (~USD 3.6 billion)

Worldwide with India leg

> USD 5 billion and;

at least INR 1250 crores (~USD 150 million) in India

> USD 15 billion and;

at least INR 3750 crores (~USD 451 million) in India