Amendment to the Competition Act

The Union Cabinet has approved a proposal of the Ministry of Corporate Affairs to amend the Competition Act 2002.

Some of major amendments are:

1. revising the definition of ‘turnover’ and ‘group’;
2. reducing the overall time limit for finalising combinations from 210 days to 180 days; and
3. inserting a new Section 5A that will enable the central government to lay down, in consultation with the commission, different thresholds for any class or classes of enterprise for the purpose of examining acquisitions, mergers and amalgamations.

Details of the amendments proposed are not yet in the public domain.

FDI from Pakistan allowed

The Reserve Bank of India wide its Circular RBI/2012-13/173 A. P. (DIR Series) Circular No. 16 dated August 22, 2012 has allowed a person who is a citizen of Pakistan or an entity incorporated in Pakistan, with the prior approval of the Foreign Investment Promotion Board of the Government of India, purchase shares and convertible debentures of an Indian company under Foreign Direct Investment Scheme, provided that such FDI is not allowed in defence,space and atomic energy and sectors/ activities prohibited for foreign investment.

CCI Chairman Reveals it

The Chairman of Competition Commission of India, Mr. Ashok Chawla reveals the following information to the media, reports Business Standard.

1. CCI has initiated a suo motu inquiry against milk retailers for frequent price rise;
2.  Further, Real estate, pharmaceuticals, aviation, telecom and tyre industries are on its radar;
3. The inquiry against tyre companies is in an advanced stage and a decision is expected soon;
4. CCI hinted that it would take note of the increase in petroleum prices by oil companies;
5. A proposal has been mooted to form a cabinet committee on competition under the chairmanship of the prime minister to overcome the disconnect between the government policy and competition law;
6.  CCI has so far investigated about 267 matters relating to violation of Section 3 and 4 out of which final order has been issued in 200 cases imposing penalty when needed. The cases are mainly from the sectors like insurance, automobiles, real estate, pharmaceuticals, financial services and the entertainment industry.

Technology transfer is not mandatory for FDI in Pharma

An inter-ministerial group set up to resolve issues on FDI cap in Pharma sector for brownfield investment has taken a decision to remove the condition of mandatory transfer of technology by the foreign investor to the target company. Brownfield investment means investment into an existing company. The group has however imposed following conditions: 1.     The level of generic medicines produced for domestic use (other than for exports) after FDI should not fall below the average level for the last five financial years preceding the induction of FDI  or the period since the date of commencement of production by the company. The word level will be deemed to mean the percentage of the total turnover of the pharma company and the total quantity of production of generic medicines; 2.      That the level of investment in research for “diseases relevant to India” expressed as a percentage of the total cost of production shall, after induction of FDI, increase by at least five percentage points over the average level for the last five financial years preceding the induction of FDI or the period since the commencement of production by the company. The condition has to be met within a period of three years of the induction of FDI.

It is pertinent to recollect that this inter-ministerial group was formed as there was inordinate delay in clearing of FDI proposal. Such delay was mainly attributed to the differences between health ministry and other departments. While health ministry wanted a strict policy, other departments recommended for a liberal regime. This difference caused delay in investment from major pharma companies such as Akorn Inc (the US), Chemo Espana (Spain) and Global Par Pharma (the US).

The group also agreed that instead of using the term generic the phrase “national list of essential medicines", which could be modified from time to time, should be used. The group further requires the health ministry to come out with some classification specifying diseases relevant to India.

CCI Penalizes Goa Chemist & Druggist Association for anti-competitive practice

The Competition Commission of India (CCI) has discovered the Chemist & Druggist Association, Goa (CDAG) violating the Section 3 of the Competition Act, 2002 ("Act") for indulging in anti-competitive practices and imposed penalty of Rs. 2 Lakhs @10% on the average of the receipts for financial 2008-09, & 2009-10. CDAG'd guidelines that lays down the margins for wholesalers and retailers was found to be anti competitive affecting the interests of the consumers.CDAG had also prescribed a cap on the amount of the discount a wholesaler can give to the retailer and prohibited the retailer from giving any discounts to the consumers. CCI has directed CDAG to remove the clauses in the circulars, MoU and Guidelines and file an undertaking to this effect within 60 days from the date of receipt of the order. Full order of the CCI can be found here.

RBI Allows Exporters to Receive Advance Amount Beyond One Year

In a recent Circular Issued by RBI, it has permitted the AD Category- I banks to allow exporters to receive advance payment for export of goods which would take more than one year to manufacture and ship and where the ‘export agreement’ provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment subject to the flowing conditions:

1. the KYC and due diligence exercise has been done by the AD Category –I bank for the overseas buyer;
2. compliance with the Anti Money Laundering standards has been ensured;
3. the AD Category-I bank should ensure that export advance received by the exporter should be utilized to execute export and not for any other purpose i.e., the transaction is a bona-fide transaction;
4. progress payment, if any, should be received directly from the overseas buyer strictly in terms of the contract;
5. the rate of interest, if any, payable on the advance payment shall not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points;
6. there should be no instance of refund exceeding 10% of the advance payment received in the last three years;
7. the documents covering the shipment should be routed through the same authorised dealer bank; and
8. in the event of the exporter's inability to make the shipment, partly or fully, no remittance towards refund of unutilized portion of advance payment or towards payment of interest should be made without the prior approval of the Reserve Bank

This would ease the financial burden of the manufacturers in such a way that they can receive the advance amount from the foreign importer well in advance and adjust the manufacture of the goods accordingly. Necessary amendments will be made to the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000.

Union Budget and its impact on Foreign Exchange Laws of India

Following are some of the highlights of the Union Budget of India, 2012-13 which will have an impact on the foreign exchange laws of India.

1. Efforts to arrive at a broad-based consensus in consultation with the State Governments in respect of decision to allow FDI in multi-brand retail up to 51 per cent.
2. External Commercial Borrowings (ECB) to be allowed to part finance Rupee debt of existing power projects.
3. ECB proposed to be allowed for capital expenditure on the maintenance and operations of toll systems for roads and highways, if they are part of original project.
4. ECB to be permitted for working capital requirement of airline industry for a period of one year, subject to a total ceiling of US $ 1 billion.
5. Proposal to allow foreign airlines to participate up to 49 per cent in the equity of an air transport undertaking under active consideration of the government.
6. Various proposals to address the shortage of housing for low income groups in major cities and towns including allowing ECB for low cost housing projects and setting up of a credit guarantee trust fund etc.
7. To provide low cost funds to stressed infrastructure sectors, rate of withholding tax on interest payment on ECBs proposed to be reduced from 20 per cent to 5 per cent for 3 years for certain sectors.
8. Proposal to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies at a lower tax rate of 15 per cent up to 31.3.2013.

CCI Takes Suo-Motu Action: Fines LPG Manufacturers for Cartel

The Competition Commission of India(CCI), on 24th February 2012, by its order, has imposed a penalty of INR 165,58,60,749 crore on 48 Liquid Petroleum Gas (LPG) cylinder manufacturers for forming a cartel to rig the bid. The order of the CCI can be found here.

To give brief facts of the case, the Director General (DG) of CCI during his investigation in the case of M/s Pankaj Gas Cylinder Ltd V Indian Oil Corporation Ltd (Case No. 10 of 2012) had observed that in a tender floated by the Indian Oil Corporation Ltd (IOCL) for the year 2010-11 for the supply of LPG cylinders, the manufacturers of LPG cylinders had manipulated the bids and quoted identical rates in groups through an understanding and collusive action. The DG had alleged that there was a cartel for the bidding. The CCI took serious note of it and by exercising its suo-motu power, referred the matter to the DG for investigation.

The DG Report said that bids of IOCL have been manipulated by 50 participating bidders. The Report said that LPG cylinder manufacturers have procured orders by quoting identical rates in groups, through an understanding and collusive action in violation of Section 3(3)(3)(d) of the Competition Act which has deprived the IOCL from getting competitive prices and resulted in to raising its cost of procurement.

The manufacturers filed a common reply, individual submissions and also the Commission heard the oral argument. Some of the contention of the manufacturers can be summarized as below:

1. Only few manufacturers are the members of the Indian LPG cylinder manufacturer’s association. Hence the conclusion that all the 50 manufacturers were in collusion is erroneouw;
2. Only 19 bidding companies attended the pre-bidding meeting and therefore it cannot be all the 50 were part of the alleged agreement
3. Allocation is made by IOCL on the basis of isstalled capacity and negotiated rates. Hence, there cannot be any possibility or incentive to collude;
4. IOCL was never investigated which was a mandate of the order under Section 26(1) of the Act;
5. It was also argued that price parallelism is a common phenomenon in oligopolistic market;

However, the CCI, after analyzing the facts and evidences, came to the conclusion that the identity of rates was due to an agreement between the bidders (except two companies), who formed a cartel to rig the bid and the bidders have violated Section 3(3) read with Section 3(1) of the Competition Act. It imposed a penalty on each violating company at the rate 7% of its annual turnover.

Revised Combination Regulations

Subsequent to my post on March 5th on Amendment to Combination Regulations , the revised Combination Regulations has been published by CCI and can be found here

Amendment to Combination Regulations

The Competition Commission of India, on 23rd February 2012, has amended the Combination Regulations with a view to provide relief to the corporate entities from making filings for combinations which are unlikely to raise adverse competition concerns, reduce their compliance requirements, make filings simpler and to move towards certainty in the application of the Act and the Regulations.

Following are some of the major changes in the Combination Regulations:

1. To reduce the compliance burden to the companies that are looking for intra-group restructuring, the Regulations have now dispensed with the requirement of filing a notice in respect of intra-group mergers or amalgamations involving enterprises wholly owned by the group companies.

2. Acquisitions of shares or voting rights pursuant to buy backs and acquisition of shares or voting rights pursuant to subscription of rights issue (without the restriction of their ‘entitled proportion’), not leading to acquisition of control, are now included in the list of transactions in Schedule I, that normally would not require a filing with the Commission.

3. The Company Secretary of the company, duly authorised by the Board, has been authorised to sign the Form I or Form II, in addition to those persons specified under the general regulations (i.e. the Managing Director or the Director authorized by the Board).

4. Form I remains the default form, wherein some simplifications have been introduced.

5. In Form I, the distinction for filling up Part I for certain types of transactions and Part II for the remaining transactions has been removed, leading to clarity and uniformity.

6. Form I has been amended and a provision has been introduced for parties to provide details of value of the assets and turnovers for the purpose of Section 5 and to provide a copy of the agreement, board resolution etc. as mentioned in Section 6(2).

7. Parties retain the option of filing Form II, especially in those cases where there may be significant horizontal overlap (>15%) and/or significant vertical relationship (>25%) between the parties.

8. In order to provide certainty about transactions involving asset transfers and calculation of value of assets and turnover for the purposes of Section 5 of the Act, a new provision has been introduced for attribution of value of assets and turnover of a transferor company to the transferee company where assets are transferred to the transferee company for the purpose of effecting a combination.

9. A provision has been made for admission of belated filing of Form III in respect of transactions covered under Section 6(5). Further, Form III would now be filed along with a copy of the loan or investment agreement.

10. The Fee has been increased from INR 50,000 to INR 10,00,000 in respect of Form I and from INR 10,00,000 to INR 40,00,000 in respect of Form II.