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

• n

26TH 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 CCI

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 4th March 2011.

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TRIGGERING EVENTS FOR NOTIFICATION

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• 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

• f the occurrence of the following event under Section 6 (2):
• Approval
• f

a proposal relating to the merger

• r

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)].

• 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
• pinion” 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.

COMBINATION REGULATIONS,2011

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• 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)

COMBINATION REGULATIONS, 2011

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• 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.

COMBINATION REGULATIONS, 2011

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• 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
• rdinary

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)

EXEMPTIONS-SCHEDULE I CATEGORIES

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• 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;

EXEMPTIONS-SCHEDULE I CATEGORIES

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• Central Government has , on 4 March,2011, also notified

certain specific exemptions ,in public interest, from the definition of combination under the Act, for a period of 5 years , as under :

• An enterprise, whose control, shares, voting rights or assets

are being acquired (“target enterprise”) having assets of the value of not more than Rupees 250 Crores (INR 2.50 billion) in India or turnover of not more than Rupees 750 crores (INR 7.50 billion);

• A ‘Group’ exercising less than 50% of voting rights in other

enterprise.

OTHER EXEMPTIONS-BY GOVERNMENT

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IV-COMPETITION ADVOCACY

 The Commission shall take suitable measures to:

• Promote competition advocacy.
• Create public awareness.
• Impart training about competition issues.

 The Commission shall render opinion on a reference from the Central Government or a State Government on a policy / law on competition within 60 days though the opinion is not binding on such government . [Section 49]

POWERS OF COMMISSION

 Cease and desist order  Penalty up to 10% of average turnover for last three preceding

financial years

 In case of cartels, penalty up to 3 times of the cartelized profit

for each year of continuation of the cartel or 10% of its turnover for each year of the continuance of the cartel agreement, whichever is higher.

 To declare agreement having AAEC as void  Order can modify agreement { Section 27}.  In case of Combination – can be approved, approved with

modification, or refused approval. { Section 31}.

 In case of dominant enterprise – can order for division of

dominant enterprise. { Section 28}.

ROLE OF COMPANY SECRETARIES IN COMPLIANCE

 Section 35 authorizes

a company secretary holding a certificate of practice under Section 6(1)of the Company Secretaries Act, 1980 to appear before CCI.

Company Secretary is responsible for ensuring all legal compliances including

compliance of all statutes.

Clause 49 of the Listing agreement of SEBI includes compliance of Competition

Act, 2002.

It becomes a duty of a company secretary to advise the company to comply

with provisions of the Competition Act, 2002.

Company Secretary is best suited to be appointed as “Compliance Officer”

under the Competition Compliance Program (CCP)

COMPETITION COMPLIANCE PROGRAMME –BENEFITS TO CORPORATES

 COMPLIANCE WITH EVERY LAW IS A DUTY OF EVERY PERSON INCLUDING

• COMPANIES. IGNORANCE OF LAW NO EXCUSE. ADVANCE COMPLIANCE BY CO.

SAVES IT FROM AVOIDABLE CONSEQUENCES INCLUDING PENALTIES.  A SPECIFIC COMPETITION COMPLIANCE PROGRAMME (CCP) MAKES IT EASY FOR ENTERPRISE TO REMAIN COMPLIANT.  CCP PROVIDES INTERNAL FRAMEWORK BY IDENTIFYING ACTUAL AND POTENTIAL INFRINGEMENTS BY MANAGEMENT AND EMPLOYEES AT EARLY STAGE ,ENABLING THEM TO TAKE REMEDIAL STEPS IN ADVANCE THROUGH CO. CIRCULARS ETC.  CCP INVOLVES ACTIVE EFFORTS BY AN ENTERPRISE TO ENSURE COMPLIANCE ,THROUGH CONCRETE STEPS TO PREVENT ANY VOLIATION OF THE COMPETITION ACT , KNOWINGLY OR UNKNOWINGLY.

COMPETITION COMPLIANCE PROGRAMME –BENEFITS TO CORPORATES

OBJECTIVES OF CCP-

• 1. PREVENT VIOLATION OF LAW, i.e. THE COMPETITION ACT, 2002

AND ALL RULES, REGULATIONS & ORDERS MADE THERE-UNDER.

• 2. PROMOTE A CULTURE OF COMPLIANCE.
• 3. ENCOURAGE GOOD CORPORATE CITIZENSHIP.

BENEFITS OF CCP – HELPS AVOID FINES OR MITIGATE THE LEVEL OF THE FINE. POTENTIALLY VOID AGREEMENTS CAN BE AVOIDED. POTENTIAL ACTION FOR COMPENSATION CAN BE AVOIDED. A NUMBER OF INDIRECT COSTS, THAT MAY OTHERWISE BE AVOIDABLE, CAN BE AVOIDED.  IN CARTELS-HELPS BENEFIT FROM ‘LENIENCY’ PROVISIONS IN THE ACT.{ Section 46}. CCI’s “ LENIENCY PROGRAMME” HELPS INCREASED AWARENESS ON COMPANY LAW AMONG EMPLOYEES.

COMPETITION COMPLIANCE PROGRAMME –BENEFITS TO CORPORATES

ESSENTIAL FEATURES OF CCP –

 EXPLICIT STATEMENT OF THE COMMITMENT OF SENIOR MANAGEMENT TO THE COMPLIANCE PROGRAMME.

• THROUGH PERSONAL MESSAGE FROM CEO/TOP MANAGEMENT
• INCLUDING COMPLIANCE POLICY IN CO.’S “MISSION STATEMENT”
• DESIGNATING A SENIOR OFFICER AS “COMPLIANCE OFFICER”TO
• DESIGN COMPLIANCE PROGRAMME
• MONITOR ITS IMPLEMENTATION
• REGULAR AND PERIODIC REPORTING ON IMPLEMENTATION TO BOARD .

 AVAILABILITY OF AN ENTERPRISE’S COMPLIANCE POLICY ( BY LINKING IT WITH CO.’S HR POLICY AND DISCIPLINARY POLICIES.)  TRAINING & EDUCATION OF EMPLOYEES.  COMPLIANCE MANUAL. [ SOURCE: CCI WEBSITE- WWW.CCI.GOV.IN]

COMPETITION COMPLIANCE PROGRAMME –BENEFITS TO CORPORATES

ESSENTIAL FEATURES OF CCP –

EXPLICIT STATEMENT OF THE COMMITMENT OF SENIOR MANAGEMENT TO THE COMPLIANCE PROGRAMME.

• THROUGH PERSONAL MESSAGE FROM CEO/TOP MANAGEMENT
• INCLUDING COMPLIANCE POLICY IN CO.’S “MISSION STATEMENT”
• DESIGNATING A SENIOR OFFICER AS “COMPLIANCE OFFICER”TO
• DESIGN COMPLIANCE PROGRAMME
• MONITOR ITS IMPLEMENTATION
• REGULAR AND PERIODIC REPORTING ON IMPLEMENTATION TO BOARD .

 AVAILABILITY OF AN ENTERPRISE’S COMPLIANCE POLICY ( BY LINKING IT WITH CO.’S HR POLICY AND DISCIPLINARY POLICIES.)  TRAINING & EDUCATION OF EMPLOYEES.  COMPLIANCE MANUAL. [ SOURCE: CCI WEBSITE- WWW.CCI.GOV.IN]

COMPETITION COMPLIANCE PROGRAMME –BENEFITS TO CORPORATES

Views in Media Bid Rigging

DISCLAIMER This presentation provides only an introduction to competition law, and should not be relied on as a substitute for the law itself. Further, this presentation is subject to any amendments which may be made in the competition law at anytime in future.

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Email: mmsharma@vaishlaw.com

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