What Are MCA Panel’s Key Recommendations On Digital Competition Law?

India’s Ministry of Corporate Affairs (MCA) is seeking comments from the public on its constituted committee’s report on Digital Competition Law and its draft bill.

The MCA had constituted a committee on Digital Competition Law on the recommendations of the Parliamentary Standing Committee on Finance’s report on the “Anti-Competitive Practices by Big Tech Companies” to examine the need for a separate law on competition in digital markets, according to a government statement.

The Parliamentary Standing Committee’s recommendations in December 2022 came amid the backdrop of rapid pace of digitalization in the county owing to internet accessibility and rise of large digital enterprises, which often operate as platforms that provide services on multiple sides of a market.

The growth of large digital enterprises and their unique business models prompted a variety of anti-competitive concerns -- including unilateral and opaque policies on search rankings, and anti-competitive usage of aggregated data – which have been brought before the Competition Commission of India (CCI).

However, the Competition Act 2002 -- which primarily envisages an ex-post framework of intervention wherein the CCI intervenes after the occurrence of an anti-competitive conduct -- was designed at a time when the extent and pace of digitalization as is witnessed today could not be foreseen.

As a result, the need to examine for a separate law on competition in digital markets was felt.

The MCA said the committee --- which was formed to review whether existing provisions in the Competition Act are sufficient to address the challenges in the digital economy and to examine whether an ex-ante digital competition law is required -- submitted its report along with the draft bill on Digital Competition Law.

The government asked the public to submit their comments on the committee’s recommendations by 15 April.

Following are the committee’s key recommendations:

Introduction of Digital Competition Act with ex-ante measures

• Introduction of an ex-ante legislation specifically applicable to large digital enterprises to supplement the Competition Act. The law should ensure that behaviors of large digital enterprises are proactively monitored, and that the CCI intervenes before instances of anti-competitive conduct transpire.

Scope and applicability

• The Draft Digital Competition Bill (DCB) should apply to a pre-identified list of core digital services that are susceptible to concentration. This list should be made on the basis of CCI’s enforcement experience, market studies, and emerging global practices.

Regulation of digital enterprises with ‘significant presence’

• The Draft DCB should only regulate enterprises, which have a ‘significant presence’ in the provision of a core digital service in India and the ability to influence the Indian digital market. Such enterprises should be designated as “Systemically Significant Digital Enterprises” (SSDEs).

Thresholds and criteria for designation as SSDEs

• An enterprise is deemed an SSDE if it passes a twin test demonstrating ‘significant presence’:

  • (a) the ‘significant financial strength’ test, which comprises quantitative proxies of economic power i.e., India-specific turnover, global turnover, global market capitalization, and gross merchandise value, and

  • (b) the ‘significant spread’ test that evaluates the extent to which an enterprise has been present in the provision of a core digital service in India on the basis of the number of end-users and business users.

• The enterprises must self-assess their fulfilment of these thresholds and report the same to the CCI.

• The Draft DCB also envisages residuary powers for designation in the form of ‘qualitative’ criteria for designating certain enterprises as SSDEs that do not meet the quantitative thresholds, but nonetheless have the ability to significantly influence the market in which they operate.

Associate Digital Enterprises

• In cases where enterprises providing core digital services are part of a group, designation may not be limited to just one enterprise in the group. There could be two scenarios:

  • (a) First, where the holding enterprise is designated as an SSDE and other enterprises within the group, directly or indirectly involved in provision of the same core digital services, are designated as Associate Digital Enterprises to the SSDE (ADEs), and

  • (b) Second, a non-holding enterprise most directly involved in providing the core digital service is designated as an SSDE and its holding enterprise and other group entities directly or indirectly involved in providing the same core digital services are designated as its ADEs.

• The CCI should be given flexibility to identify the appropriate enterprises for SSDE and ADE designations.

Obligations

• There should be an agile and principle-based framework of ex-ante obligations under the Draft DCB. The specificities of the obligations as applicable to each core digital service would be specified through regulations drafted by the CCI through a consultative process.

• The regulations may provide for differential obligations upon different SSDEs and ADEs depending on factors such as their business models and size of their user base, as not all SSDEs and ADEs providing the same core digital service have the same degree of influence on the market within which they operate.

Exemptions

• The grounds for exemption from complying with the ex-ante obligations should be provided for in the statute itself.

• The features of such exemptions should be specified through regulations framed by the CCI, taking into account the particular core digital service and related business models of SSDEs and their ADEs.

• Inclusion of a provision similar to Section 54 of the Competition Act exempting certain classes of enterprises from the applicability of the statute.

Enforcement

• Borrowing the procedural framework from the Competition Act for the purposes of the Draft DCB, given that the enforcement of both these laws is to be entrusted with the CCI.

• The CCI also must strengthen the capacity of its Digital Markets and Data Unit with experts from the field of technology to keep pace with the rapid evolution of digital markets.

• Establishment of a separate bench within the National Company Law Appellate Tribunal (NCLAT) to ensure timely disposal of appeals filed against the CCI’s orders, particularly those relating to digital markets.

Remedies

• A monetary penalty for non-compliance with ex-ante obligations should be restricted to a maximum of 10% of the global turnover of the SSDE, in line with the penalty regime under the Competition Act.

• In cases where the SSDE is part of a group of enterprises, the ‘global turnover’ cap should be calculated in relation to the turnover of the entire group.

• The precise quantum of penalty should be determined by the CCI with due regard to the penalty guidelines under the Draft DCB.

• In addition, there are separate penalties for contraventions resulting from incorrect reporting and vicarious liability of key managerial persons.

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