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"Control" Conundrum Continues: Competition Amendment Act, 2023

The author is Pranjal Kushwaha, a second year student at National Law Institute University, Bhopal.


The concept of “control” plays a crucial role in competition law. Control refers to the ability to manage or control the affairs of one or more enterprises or groups over another. The acquisition of control triggers mandatory notifications to the Competition Commission of India (CCI), making it a vital aspect of the competition law framework. However, the definition of control in the Act is vague, leading to inconsistent interpretations and delays in transactions. Over the years, the CCI has gradually shifted from the "decisive influence" test to a lower standard called "material influence." While the recent Competition Amendment Act, 2023 aimed to align the Act with the CCI's practice, it failed to provide clarity on what constitutes material influence. This blog will analyse the implications of this change, and suggest the way forward by drawing parallels with various jurisdictions to ensure ease of doing business and promote competition.

The Concept of “Control” and its Relevance in Competition Law

Within the realm of competition law, the concept of “control” holds significant importance, particularly in the context of mergers and acquisitions. Control, in this context, refers to the ability to exert influence over the strategic commercial behaviour of another company. When companies engage in mergers or acquire other companies, there is a possibility of creating or strengthening market power, which can have adverse effects on competition and ultimately impact consumers negatively.

Therefore, the control test serves as a fundamental tool employed in competition law to determine the anti-competitive nature of a merger or acquisition. It involves evaluating whether the acquiring company would attain control over the target company and, subsequently, whether this control would substantially diminish competition.

Through the application of the test, authorities can assess whether the merging parties would possess the capability to coordinate their actions, manipulate prices, restrict production, or engage in other practices that hinder competition. If it is determined that the proposed merger or acquisition would lead to a significant reduction in competition, it may be subject to regulatory scrutiny or even prevented from proceeding.

Shifting Paradigms: From "Decisive Influence" to "Material Influence"

The Indian merger control regime took inspiration from the US system initially but had its unique characteristics, especially regarding the definition of "control". However, this definition ambiguity led to challenges during its practical implementation. To address this the CCI adopted a similar approach to the ECJ's test for decisive influence, considering factors such as board representation, special rights, shareholding patterns, and commercial agreements to assess control.

However, notable differences existed between the CCI and the ECJ. The CCI found that the threshold for meeting the minimum standards was too high, providing an easy escape. As a result, the CCI took a broader view of control, extending beyond shareholding and focusing on overall influence on strategic decision-making, while the ECJ emphasized shareholding and veto rights.

The lower standard of control in Indian competition law has two primary justifications. Firstly, as the Indian market continues to develop, the CCI aims to intervene in mergers and acquisitions that could harm competition, even if the acquirer lacks controlling influence over the target company.

Secondly, the economic realities of the Indian market provide that significant influence can be exerted without full control. For instance, a minority stakeholder with a board seat or a long-term supply contract may still affect a target company's affairs and management. Unlike the European competition law's higher standard of control based on proportionality, the CCI believes the lower standard is necessary to safeguard competition in India.

Over time, the CCI gradually expanded the scope of control beyond traditional forms, moving towards a concept called "material influence". This shift is evident in landmark cases such as the Ultratech/Jaiprakash, where material influence was defined as the lowest level of control, taking into account various factors such as shareholding, special rights, expertise, board representation, and financial arrangements.

CCI further shifted towards material influence as the threshold for determining control in the Argium Inc. and Potash Corporation of Saskatchewan, Inc., where, despite holding only a 14% interest, Potash Corp. was considered to have the capacity to control affairs due to its leading position in global production, indicating its ability to exert influence. Similarly, in the Meru Travel Solutions v. ANI Technologies in 2018, the CCI ruled that even minority shareholding for investment purposes may attract scrutiny under Sections 5 and 6 of the Competition Act, as it was deemed to enable material influence over Ola and Uber.

While the shift towards material influence allows for a broader interpretation of control, it also presents certain challenges. The expansive scope and lack of precise definitions provide the CCI with discretionary power, leading to inconsistencies in factual determinations and uncertainty for businesses. Although the flexible approach aligns with competition law objectives, the absence of clear legislative guidance hampers predictability and raises concerns about excessive discretion.

Ultimately, striking the right balance between flexibility and clarity in determining control is crucial to ensure effective competition law enforcement and foster fair and competitive markets in India.

Implications and Concerns of the Vague Definition of Material Influence

The Competition Amendment Act acknowledges this shift by adding the term "material influence" to the definition of "control" under Section 5 of the competition act. However, it lacks clarity in defining what constitutes material influence. While the aim of the Competition Amendment Act is to facilitate ease of doing business, the inclusion of material influence without clear guidelines may have unintended consequences and hinder business operations. The lack of jurisdictional clarity can result in subjective interpretations by the CCI, leading to inconsistent decisions and uncertainty for businesses.

For instance, in UltraTech, the CCI appeared to take a narrow view of control, focusing on factors such as shareholding and board representation. However, in Agrium Potash and Meru Travel Solutions, the CCI took a broader view, considering factors such as the ability to influence the affairs and management of the target company, even if the acquirer does not have a majority stake.

One implication of the vague definition of material influence is the potential for excessive notifications. Without a clear threshold, businesses may opt to notify the CCI even in cases where the level of influence is minimal, causing an increase in notifications, administrative burdens, and transaction delays. This undermines the objective of streamlining the merger review process and reducing regulatory burdens.

Furthermore, the absence of clear guidelines on material influence may discourage foreign investment. International investors prioritize legal certainty and predictability when making investment decisions. The ambiguity surrounding the definition of control raises concerns among foreign investors, resulting in a decrease in investment flows. Countries that provide clear and transparent regulatory frameworks tend to attract more foreign investment, thereby stimulating economic growth.

Way Forward

India can learn valuable lessons from foreign jurisdictions that have faced similar challenges in defining and assessing control. The European Union (EU) provides a well-established merger control regime with clear guidance on control assessment, including specific thresholds for shareholding, voting rights, and board representation. Drawing inspiration from the EU's approach, India can develop its own test for determining material influence with lower standards but well-defined criteria, while acknowledging the economic realities of the Indian market, which demands higher safeguards to promote fair competition.

The United States antitrust laws recognize the concept of "de facto control" focusing on the ability to exercise influence over strategic decisions regardless of formal ownership. India can explore incorporating elements of the US approach to ensure a comprehensive assessment of material influence.

Australia's competition law framework also offers useful insights. The Australian Competition and Consumer Commission (ACCC) has issued detailed guidelines on assessing control in merger transactions, including factors like shareholding, rights, and board representation. India can examine these guidelines and adapt them to suit its legal and business context.

In addition to studying specific jurisdictions, India can benefit from observing international initiatives and best practices in merger control. Organizations like the International Competition Network (ICN) and the Organisation for Economic Co-operation and Development (OECD) have developed guidelines and recommendations on control assessment methodologies.

To address the issue of vagueness and provide clarity, it is crucial to establish clear guidelines through subordinate legislation, as proposed by the Competition Law Review Committee. The guidelines should provide detailed instructions, including a numeric threshold of 25%, like the CMA, which can be valuable in determining control within competition law. However, it is crucial to avoid relying solely on this measure, as it may lack flexibility and overlook the wide array of circumstances in which control can manifest. To conduct a comprehensive evaluation, other factors should be considered, such as the ability to influence target company affairs and management, access to financial information, and the capacity to block critical decisions.

While quantifying these factors may present challenges, incorporating them into the assessment would yield a more nuanced understanding of control. Additionally, by introducing subjective criteria, the CCI can account for the unique circumstances of each case, including factors like the target company's size, market share, business nature, and the competitive landscape in the relevant market. This approach aligns with the CCI's objective of setting a lower standard and allowing greater flexibility to prevent anti-competitive practices in the Indian market. By adopting such a test, the CCI ensures a fair and consistent application across different cases.

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