Author: Digvijay Singh
Fourth-year law student at Gujarat National Law University, Gandhinagar
I. Introduction
It is undeniable that competition is good for the markets; it acts as a stepping stone in increasing productivity and innovation, leading to better yields for businesses. The Indian jurisprudence post the liberalization reforms of 1991 has aimed to ensure that a more competitive spirit of the markets is promoted and the ecosystem of innovation and creative destruction keeps pace. The Competition Act, 2002 (‘Act’), perhaps, is a critical legislation which provided this nuance. But in the last decade, as the markets moved to a virtual sphere, the Ministry of Corporate Affairs (‘MCA’) has proposed that separate legislation for digital markets aimed at deal with the evolving nature of digital markets.
The draft of Digital Competition Bill (‘Bill’) was unveiled as a result by the MCA. The Bill is comprehensive and proposes the regulations to be ex-ante in nature, deviating from the current ex-post modus operandi of the Competition Commission of India (‘CCI’), which creates significant liabilities on stakeholders in the market. The Bill also has several significant provisions which might have a cascading effect on innovation and productivity defying the purpose and intention of the Act which would be discussed in this Blog.
II. Gaps in the Designation of Systemically Significant Digital Enterprises (SSDEs)
The Bill, in its proposed section 4, elucidates that an enterprise offering a Core Digital Service (‘CDS’) in India with a significant presence in the Indian market will be designated as an SSDE by the CCI. The categorized method for evaluation of the same would be done based on a financial threshold based on turnover or a subscriber threshold of 1 crore end users or 10,000 business users.
The primal issue with the second condition is that in India, multiple firms have crossed this threshold due to the availability of cheap internet to end users. Still, the same is not indicative of financial viability or success. The Bill does not delve into whether the end users should be active or not; in the lack of explanation of the same, it creates a scenario where firms are characterized as SSDEs and are burdened with greater regulations as self-referencing and cross-usage of data would be prohibited, but the firms do not enjoy the financial prowess expected.
These provisions further create a scope of ambiguity as the Digital Data Protection Act, 2023 (‘DDPA’) does not prohibit the usage of all data but personal data under section 2(f) of the DDPA, which lays that ‘any data about an individual who is identifiable by or in relation to such data’ and hence there remain ambiguity on the usage of data which is non-personal or non- attributable in nature to any person. The DDPA and the Bill remain silent on this, but due to the ambiguity, lacunae in the law can be created.
III. Associate Digital Enterprises and their Role
The Bill takes a very myopic lens in its characterization of Associate Digital enterprises (‘ADEs’). The Bill under section 4(1) provides “that the enterprise shall also notify the Commission of such other enterprises within the group the enterprise belongs to, which are directly or indirectly involved in the provision of the Core Digital Service, as Associate Digital Enterprises.”
This effectively is the initiation of the induction of the ‘group of companies’ doctrine into the realm of competition law, where a company which is relatively newer and younger would also be characterized as an ADE by virtue as an affiliate of the SSDEs and subject to the same liabilities as imposed on SSDEs as per section 4(2) of the Bill. This is a move that would entail the CCI piercing the corporate veil in cases of breach. The CCI, hence, would be empowered to impose a fine of as much as 10 per cent of the global turnover of the SSDE in case of breach on an ADE.
This, perhaps, should be seen as a violation of the sanctity of a separate legal personality of the company, as seen in the judgement of Cox and Kings Ltd. v. SAP India Pvt. Ltd. & Anr. The Supreme Court, while emphasizing the doctrine, had noted that the actions, rights and conduct of the companies should be observed before lifting the corporate veil, which is not a consideration in the Bill. The Bill, while ascertaining the penalties, operates with the assumption that the ADEs and SSDEs, are inherently bundled. Hence, the penalties of the turnover of the SSDE should be imposed. This provision can lead to subsequent litigation when passed by the parliament in its current form.
It is stipulated in the Bill that SSDEs are prohibited from data sharing, tying and bundling, preferencing and restriction of data usage by third parties and cannot export non-public data as per chapter III of the Bill. Following these provisions, an SSDE cannot burgeon the growth of ADEs, and hence, the ADEs are to be treated as separate entities as per the Bill but a collective entity for levying of penalties. This creates a grey area in the law, which creates an inherent contradiction in the provisions of the Bill.
The primary aim of the Act and the Bill remains to ensure that markets are competitive in nature and firms do not witness any difficulties in accessing the markets due to entry barriers and anti-competitive practices. Still, the Bill in its current form can lead to a position where innovation is stifled as conditions are imposed on SSDEs. The proposed law must uphold the value of competition and ensure that state regulation in its aim of prevention of unfair practices does not create impediments in the jurisprudence.
IV. A Qualitative Comparison with the Digital Markets Act and the Powers of the State
The Indian Competition bill draws heavily from the Digital Markets Act (‘DMA’). The DMA under Article 3 lays down qualifications for the designation of ‘gatekeepers’ (akin to SSDEs in the Bill). On a comparative analysis of designations of SSDEs and gatekeepers, the DMA is similar in nature to the Bill, but a unique aspect about the bill remains the exemptions it provides to state-owned enterprises, giving an effective virtue monopoly to the state in the industries and markets the state deems fit under section 38 of the Bill.
The Bill provides a threefold criterion for the same, i.e. (a) interest of the security of the State or public interest, (b) accordance with any obligation assumed by India, (c) only in respect of activities relatable to the discharge of the sovereign functions. The criteria are certainly vague in nature, but the assumption for the same based on the Manoj Govil Committee is economic viability and stability of several state-owned Industries; this is starkly in contrast with the DMA, where the state considers exceptions only in the cases of public health and security under its Article 3.
The bill's provision of exemptions can act against the interest of the market; such special privileges to state-owned enterprises can create disparity in the market and act against the interest of the economy, and hence, they should be well–defined and scantly used.
V. Conclusion
The liberalization of markets in 1991 led to immense wealth and employment creation in India, it marked India’s foray into a competitive world where innovation was promoted, the Competition Act and subsequent jurisprudence laid out post-2002 added to the success of markets in India with regulations fit and apt for the markets and the CCI and the competition jurisprudence should move in the same direction.
While reforms are needed to ensure free and fair markets, especially with the rise of BigTech, the DCB in its current form can lead to throttling of innovation and the spirit of growth of start-ups in India. The copy-pasting of the European DMA with tweaks for the Indian markets can have contrary effects to what is expected. A lenient approach by the central government and the CCI is key in ensuring that the thresholds are applied in a manner which does not curtail competition in India.
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