Opportunities for Company Secretaries under Indian Competition Act, - PowerPoint PPT Presentation

“Opportunities for Company Secretaries under Indian Competition Act, 2002” ANNUAL REGIONAL CONFERENCE OF NIRC at GURGAON on 26 TH September, 2015 M.M. SHARMA Head-Competition Law & Policy

COMPETITION LAW-AN ECONOMIC LAW- BRIEF INTRO WHAT IS “PERFECT COMPETITION ” - 1. MULTIPLE BUYERS. 2. MULTIPLE SELLERS 3. AVAILABILITY OF DIVERSE SUBSTITUTABLE PRODUCTS/ SERVICES 4. BOTH BUYERS AND SELLERS HAVE PERFECT INFORMATIONS 5. NO BARRIERS TO ENTRY/EXPANSION/EXIT 6. FREE MARKET ECONOMY DRIVEN BY COMPETITION ALONE 7. AN UTOPIAN CONCEPT

COMPETITION LAW-AN ECONOMIC LAW- BRIEF INTRO WHAT IS UNFAIR COMPETITION- ADOPTION OF ANTI- COMPETITIVE PRACTICES- 1. COLLUSIVE PRICE FIXING – CARTELS 2. DELIBERATE REDUCTION IN OUTPUT – TO CREATE ARTIFICIAL DEMAND AND TO INCREASE PRICES 3. CREATION OF BARRIERS TO ENTRY FOR NEW PLAYERS. 4. ALLOCATION OF MARKETS. 5. TIE- IN SALES, EXCLUSIVE SUPPLY AND DISTRIBUTION AGREEMENTS, REFUSAL TO DEAL, RESALE PRICE MAINTENANCE 6. PREDATORY PRICING – SELLING BELOW COST 7. DISCRIMINATORY OR UNFAIR PRICING 8. DENIAL OF MARKET ACCESS 9. CONTRACTS WITH SUPPLEMENTARY OBLIGATIONS ETC.

OBJECTIVES OF COMPETITION LAW  To promote economic efficiency  Promotion and maintenance of effective competition in markets.  Competitive markets to achieve a more efficient allocation of resources.  To promote, preserve and sustain competition in markets  To prevent creation of excessive market power by preventing abuse of dominance in market.  To protect fair competition in market (and not competitors).  To prevent practices having adverse effect on competition.  To protect the interest of consumers.  To ensure freedom of trade carried on by other participants in markets. (Fundamental right guaranteed under Article 19(1)(g) of the Constitution Of India)

COMPETITION ACT, 2002 - OBJECTIVES Competition Act, 2002 notified in January, 2003. Stated objective in Preamble is to provide “for the establishment of a Commission” to:  Eliminate practices having adverse effect on competition.  Promote and sustain competition.  Protect interests of consumers.  Ensure freedom of trade carried on by other participants in markets in India. [Section 18]

COMPETITION ACT, 2002 - MAIN FEATURES I Prohibits Anti - Competitive Agreements. II Prohibits Abuse of Dominant Position. III Provides for Regulation of Combinations. IV Enjoins Competition Advocacy. [Sections 3, 4, 5, 6 and 49 ] *Off-market, not in-market. Ex-post, not ex-ante,, except in combinations.

I - ANTI-COMPETITIVE AGREEMENTS  Agreement amongst competitors ( horizontal agreement ), including cartels – presumed to have appreciable adverse effect on competition. Cartels most pernicious violation-subject to per se rule  Price fixing, sharing of market, limiting production, supply, etc., bid rigging, collusive bidding.  Agreement such as between manufacturer and distributor ( vertical agreement ) – subject to Rule of Reason; burden of poof lies on prosecutor.  Tie-in arrangement, exclusive supply/distribution agreement, refusal to deal, resale price maintenance.  Agreement includes arrangement or understanding, oral, or in writing, not necessarily enforceable by law [Section 3]

II - ABUSE OF DOMINANCE  Not dominance, but its abuse is prohibited by any enterprise or group.  Acts deemed to be abuse are (Sec.4):  Unfair or discriminatory pricing (including predatory pricing).  Limiting production or technical development  Denial of market access.  Conclusion of contracts subject to supplementary obligations.  Use of dominant position in one market to enter into or protect the other market.  Dominance not based on arithmetical figure, but on several factors listed in Act (Sec. 19).  False or misleading facts disparaging the goods, services or trade of another by a dominant enterprise needs to be included amongst ‘Abuses’

III-REGULATION OF COMBINATIONS  Combination is a broad term: includes  Mergers  Amalgamation  Acquisition of shares  Acquiring of control, etc.  High threshold limits – only large combinations subject to regulation. [Section 5]  Mandatory notification regime.  Commission to decide in 210 days, else combination is deemed approved. [ Section 6]  However, Commission can take suo moto action within 1 yr after combination. [ Section 20]

THRESHOLDS FOR NOTIFICATION TO CC I Current thresholds for the purpose of Section 5 of the Act are as follows: Criteria Assets Turnover Only within India These thresholds are at revised value enhanced by fifty percent vide Govt. Notification S.O. 480(E), dated 4 th March 2011. 10

TRIGGERING EVENTS FOR NOTIFICATION • If the threshold limits are met, then a “ Notice ” is required to be given to the CCI , in the “ form ” and with the “fee” (prescribed by Combination Regulations by CCI) , within 30 days of the occurrence of the following event under Section 6 (2):  Approval of a proposal relating to the merger or amalgamation by the “board of directors” (term explained now in Combination Regulations) of the enterprises concerned. [relates to section 5( c).] OR  Execution of any agreement or “other document” (term explained now in Combination Regulations) for acquisition of shares, control, voting rights or assets [relates to Section 5(a) and 5(b)]. 11

COMBINATION REGULATIONS,2011 • Notified by CCI on 11th May, 2011. • Major Provisions of Combination Regulations:  Regulation 31 – provides certainty on the applicability of the law. Only those mergers or amalgamations or acquisitions, where the proposals have been approved by the respective boards or binding documents have been executed on or after June 1, 2011 are required to make a filing to the Commission.  Regulation 19 – provides for an initial review period - “prima facie opinion” on whether the combination is likely to cause or has caused AAEC within 30 days of receiving a valid Form, regardless of Form I or Form II; also provides for modifications which can be proposed by the parties for an early decision on the matter, in this initial review period. 12

COMBINATION REGULATIONS, 2011 • Regulation 9 - provides for obligation to file details of the combination. In cases of merger and amalgamation , the notice has to be filed by both the interested parties . In cases of acquisition of control, shares, voting rights or assets, the notice has to be filed by the acquirer . The regulation also lays down the framework for seeking information from other parties of combination even in the case of hostile takeovers . • Regulation 5* – provides for two Forms i.e. Form I & Form II in which the parties intending to enter into a combination may file notice of the combination to the Commission. Form I is a short Form whereas Form II is a complete Form- the parties have the option to file the notice in either Form. • Regulation 11 – provides for the fee payable along with the notice in either Form I or Form II. The fee for filing notice in Form I is Rs. 15,00,000( $23,076) while the fee for filing notice in Form II is Rs. 50,00,000 ($ 76,923). (1 USD = INR 65.00) 13

COMBINATION REGULATIONS, 2011 • Stopping of Clock – Under regulation 5 and regulation 19, a direction may be given by CCI to the parties to file notice in Form II instead of Form I or remove defects in the notice or furnish additional information- the time taken by the parties to comply with the directions of the Commission for the same is to be excluded from the relevant review period i.e. the clock will stop during this period. • Regulation 8 - provides for suo- motu action by the Commission to call for notice from the parties who failed to comply with the mandatory filing requirement. • Regulation 28(6) – provides that the Commission shall endeavor to make its final determination on the combination notice within 180 days of filing of the notice. 14

EXEMPTIONS-SCHEDULE I CATEGORIES • Regulation 4 – Certain transactions ordinarily not likely to cause an AAEC in India, and the parties need not normally file a notice with the Commission-  Acquisitions of less than 15%* of the shares or voting rights in the ordinary course of business provided no other controlling rights are acquired;  Acquisition of shares or voting rights, where the acquirer prior to acquisition has 50% or more shares and voting rights except when it results in transfer from joint to sole control;  Intra-group acquisition relating to control, shares, voting rights or assets ( Mergers & Amalgamations not included) * (Amended now) 15

EXEMPTIONS-SCHEDULE I CATEGORIES  Combinations taking place entirely outside India with insignificant local nexus  Acquisitions of stock-in-trade , raw materials, stores, spares or current assets in the ordinary course of business;  Acquisitions of shares or voting rights by a securities underwriter or pursuant to a bonus issue, stock split/consolidation, or rights issue, to the extent of the entitled proportion, provided no control is acquired;  Acquisitions of assets "not directly related to the business activity and not leading to control” except where the assets acquired are substantial; 16