By Vikas Srivastava

May 25 – The Indian government has announced the changes to the Competition Act of India dealing with anti-competitive agreements and abuse of dominance.

The details of how the changes affect Indian M&A have yet to be ratified, although it is expected to be brought into law later this year. To strengthen the anti-competition act, the government has also established the Competition Commission of India (CCI), designed to oversee the new regulations. The steps taken are designed to bring India’s competition regulatory framework into line with international best practices.

Domestic Indian and multinationals conducting business in India will need to be aware of the new provisions and ensure conduct does not lead to a breach of law.

Details of the changes are as follows:

Anti-competitive agreements
Section 3 of the act prohibits agreements which restrict the production, supply, distribution, acquisition or control of goods or provision of services, which cause or are likely to cause an appreciable adverse effect on competition within India. A party that is in breach of these provisions may be liable for penalties of up to 10 percent of the average turnover for the last three years. Sanctions relating to proven operation of a cartel may be higher.

Abuse of dominance
Section 4 of the act prohibits the abuse of a dominant position by an enterprise. An entity that contravenes this section may be liable for financial penalties worth 10 percent of the dominant firm’s average turnover for the three proceeding years or remedies such as ordering the restructuring and possibly partial asset sale of the pertinent division of the dominant firm.

Competition Commission of India
The CCI is responsible for the enforcement of the prohibitions on restrictive agreements and abuses of dominant positions. The CCI has a wide scope  of power to assist the commission in determining whether an infringement has occurred. In particular, the CCI has extra-territorial jurisdiction to undertake an inquiry into an agreement or an abuse of dominance that has taken place outside of India so long as there is an adverse effect on competition within India.

The Indian government has appointed five members to the CCI including Mr. Dhanendra Kumar, a former executive of the World Bank, as Chairman.

Impact of the new provisions on foreign enterprises
Indian and foreign enterprises will now need to ensure that existing agreements entered into are compliant with the new provisions. Such entities will also need to ensure their conduct both in and outside of India, does not result in or is not likely to result in, an appreciable adverse effect on competition within India

M&A
Businesses should also note that the section concerning the regulation of mergers is currently under review and is expected to be introduced later this year.

Vikas Srivastava is a legal associate of foreign direct investment at the Mumbai, India office of Dezan Shira & Associates. For more inquiries on the implications of the new anti-competition laws on business, email mumbai@dezshira.com.