Going the European Way? Defining ‘Substantial Business Operation’ in Competition Act, 2023 – The RMLNLU Law Review Blog
14, Dec 2022
Going the European Way? Defining ‘Substantial Business Operation’ in Competition Act, 2023 – The RMLNLU Law Review Blog

By- Siddharth Chaturvedi


INTRODUCTION

On 12th April 2023, the President of India gave her assent to the Competition Law Amendment Bill, 2022. This Act marks a significant step in introducing a series of new measures in order to curb the dominance of monopolistic players and introduce fair competition in the market. The Bill has also introduced new concepts such as assets turnover, material influence and other key changes. Another significant change introduced by the Act is the introduction of regulating combinations in light of the ‘substantial business operation’ of the Company. This marks a new shift in the approach of the Competition Commission of India to regulate combinations in the Indian Market.  This piece aims to analyse what is likely to be the scope of the meaning of “substantial business operation” by drawing a comparison with the European Union, specifically European Union’s Digital Market Act, Germany’s Bundeskartellamt and the United Kingdom who all are leading players in enforcing competition law.

 

WHY WAS THERE A NEED TO INTRODUCE THE CLAUSE OF “SUBSTANTIAL BUSINESS OPERATION”?

It is interesting to note that neither Competition Law Review Committee nor Report on Digital Markets identifies criteria like “substantial business operation” in order to review any combination. However, the most plausible reason in order to introduce the concept of “substantial business operation” would have been to truly capture the realities of the proposed and ongoing mergers and how it impacts the markets. Many of the quantitative thresholds have been unable to capture the impact of a combination on the market. Thus, many competition law experts worldwide feel that it is necessary to introduce qualitative thresholds in order to regulate combinations, particularly happening in the digital arena.

Despite the fact that there was no mention of what is meant by “substantial business operation”, the shift from a traditional approach was seen in the Parliamentary Committee Report itself. Other key concepts such as the definition of control, were proposed to be changed.  For example, the report observed that traditional approaches for defining “control” had already become archaic, primarily due to the fact that it relied on decisive influence in order to decide the same. Thus, there was a clear indication that the existing rules governing combinations were about to be changed.

At the same time, India will not be the first country in order to introduce this change. Many countries such as Germany, the EU, the UK and Canada have set different qualitative thresholds to capture the combination’s true essence. The Indian Digital Market has gone through significant transformation in recent times with the emergence of big tech firms dominating the digital landscape. As the author argues, while Competition Laws address the anomalies created by digital platforms, they are too slow to respond to various anomalies which may arise. Thus, it becomes imperative in order to address the problems arising in the digital market, with the help of qualitative thresholds like substantial business operations in order to regulate combinations.

 

GOING THE EUROPEAN WAY?

The European Union has set out many qualitative thresholds in order to capture combinations. One of the important ways to assess the same is whether a company is in a dominant position or not. EU uses a similar terminology such as that of India in order to designate a company as a “gatekeeper.” Article 3 of the Digital Markets Act states that an undertaking can be defined as a gatekeeper if it has a significant impact’ on the internal market.  The statement of objectives and reasons provides a rationale for setting out the qualitative threshold of “significant impact player.” Point no (6) states that gatekeepers have a significant impact since it provides a gateway to a large number of users. Point no (15) further clarifies that a company will only be designated as an essential gateway when it has a significant impact on the internal market along with an entrenched position. Thus, the condition is conjunctive in nature.

The United Kingdom also uses similar criteria as that of the European Union in order to designate a company with a strategic market status provided that they enjoy a substantial and entrenched market (Section 5), and other important thresholds such as position of strategic importance (Section 6).

It is important to highlight here that  Section 35 of Germany’s Bundeskartellamt uses a similar terminology substantial operations’ of regulating concentrations. However, in Germany, one also gets to see that the firms are also designated as dominant on the account of whether they are of significant paramount importance or not. Thus, substantial operations will have to be determined along with whether the activities of the firm are of paramount importance or not.

However, Indian regulators have to be cautious in adopting the EU’s approach of qualitative approach considering the fact that the market conditions of both regions are completely different. The next section analyses India’s own path in dissecting and applying the meaning of global turnover.

 

FINDING INDIA’S OWN TRAJECTORY

In order for India’s regulatory authority to implement a qualitative threshold like “substantial business operation”, it is imperative that CCI lays down regulations for the effective implementation of the same provision. CCI will need to take into account the unique characteristics of the Indian market where although various digital platforms such as Meta and Google enjoy an entrenched position, they still are very important to the growth of India’s digital market. Thus, any kind of overregulation may lead to negative effects such as possible curtailment in innovation and over-compliance with laws. Such an effect may eventually lead to hurdles for emerging startups as well.

At the same time, one has to be mindful of the fact that any definition of “substantial business operations” will eventually have to read conjunctively with specified deal value thresholds mentioned in amended Section 5 of the Competition Act. The authorities will have to cover which activities will fall within the domain of substantial business operations such as social media platforms, search engines and so forth. This is certainly a complex question which will require CCI to take into account the views of different stakeholders. Thus, the author suggests that in order for effective implementation of the definition of substantial business operations, CCI has to tread carefully and steadily.

An overview of the approaches described in the previous section offers an idea of how to define substantial business operations. Many key concepts while defining such as substantial and entrenched position in the market, and providing core platforms services can be set as criteria while defining the meaning of substantial business operation.  However, still, the contours of which approach caters best to Indian markets will have to be a holistic one, taking into consideration the needs of the unique Indian market.

 

CONCLUSION

This piece makes an attempt to craft India’s own trajectory while deciding the execution of qualitative threshold i.e., substantial business operation. It is hoped that CCI will soon be releasing its guidelines in order to define what is meant by substantial business operation. Otherwise, any further delay in releasing regulations will only lead to confusion among different companies on what is the correct meaning of substantial business operation.  The author suggests that CCI may enforce the qualitative threshold of ‘substantial business operation’ by possibly exempting companies, for example in various sectors such as the Cement, Oil, etc. where quantitative thresholds maybe sufficient to deal with the issue of regulations. Thus, such an exemption will allow the companies to not be put in a state of unnecessary compliance. In the coming days, it will be interesting to see how the role of ‘substantial business operation’ plays out while regulating combinations.


(Siddharth Chaturvedi is a law undergraduates at Dharmashastra National Law University. The author may be contacted via email at [email protected]).

Cite as: Siddharth Chaturvedi, Going the European Way? Defining ‘Substantial Business Operation’ in Competition Act, 2023, 27 July 2023) <https://rmlnlulawreview.com/2023/07/27/going-the-european-way-defining-substantial-business-operation-in-competition-act-2023/>date of access.