After a long-drawn process which started in October 2018, the Ministry of Corporate Affairs came out with the Competition (Amendment) Bill last week.
This Bill follows the report of the Competition Law Review Committee, which was set up in October 2018 to review of the Competition Act, 2002. The CLRC’s comprehensive report, which was submitted to the MCA in August 2019 suggested various amendments to the Competition Act to make the competition framework more robust while dealing with the changing business landscape.
That included a sort of revised blueprint for an improved version of the Competition Commission of India - CCI 2.0.
The over 16-month effort has resulted in a bill that can best be described as a mixed bag for industry. While there are a certain progressive and commendable changes, some omissions raise concern over the effectiveness of CCI 2.0.
A System For Settlements
Perhaps one of the most positive changes that the Bill proposes, is the introduction of a system for settlements and commitments. Companies faced with the burden of an ongoing investigation by the CCI often desire a way to get out, and the new provisions give them just that.
With the proposed amendments, companies under investigation for anti-competitive vertical agreements (such as, those entered with distributors) and abuse of dominance, will now be able to offer settlements and commitments to the CCI – that is, a voluntary offer to conduct themselves in a manner that addresses the concerns of the CCI. If the CCI accepts the offer, the inquiry will end.
The CCI will, however, monitor the company to ensure compliance with the terms of the settlements and commitments.
Companies will be allowed to offer settlements after the investigation report by the investigative wing of the CCI (the Director-General) has been submitted while commitments, will be permitted to be offered within a specified time before the submission of the DG report.
These new measures will not only allow companies to end time-consuming and costly investigations before the CCI but also save precious regulatory resources. A win-win for both companies and CCI 2.0!
The CLRC Report had noted that settlements in other jurisdictions are with prejudice (parties admitting guilt and may have to pay fines), while commitments are without prejudice (without admission of guilt or wrongdoing and no fines are to be made). However, both, the CLRC Report and the Bill, do not clarify whether the internationally accepted legal position will be applicable in India.
The Bill leaves many similar issues open, including, whether settlements and commitments would apply to existing cases; whether the right to claim compensation survives in case of settlements; and the time period in which commitments can be brought. If these are dealt with by regulations, an accurate determination of the benefit of the proposed amendments for businesses will only be possible once the regulations are made public. Whilst permitting the CCI to draw up regulation offers flexibility, skepticism around over delegation is not misplaced.
The last ten years of enforcement of competition law are littered with instances where regulations have gone beyond the Competition Act, or the mechanisms and procedures created under regulations have been by-passed.
What is also lacking is the power with the CCI to permit the complainant to withdraw the case. Approaching the CCI in the aftermath of a commercial dispute is not uncommon. Nor is it uncommon for the dispute to be amicably resolved after the CCI has been approached. Currently, approaching the CCI is like firing a shot – irretrievable, and so is the damage. Empowering the CCI to permit withdrawal of information in certain cases would have saved much of the investigated party’s and CCI’s resources.
Other Positive Proposals
Some changes to merger control are also laudable.
The amendments reduce the maximum time period within which CCI has to approve a merger from 210 to 150 days.
The Bill also includes a much-needed provision to permit the acquisition of shares by an open offer before CCI’s approval is obtained. Given that in cases of hostile takeovers the purchase of share from the open market has to be instantaneous, waiting for the CCI’s approval created significant problems. Absent such provision, Thomas Cook, Zuari and SCM Soilfert have been penalised for making open market purchases prior to approval, though the CCI was planning to permit this by way of regulations as well.
In another welcome move, holders of intellectual property rights will now be able to claim that their allegedly abusive conduct was to restrain infringement of their IP rights or imposes reasonable conditions for protecting their rights.
Creating a high standard of ensuring transparency and achieving democratic rule-making, the Bill also introduces a provision worth replicating across laws – a mandatory obligation on the regulator to publish regulations for public comments.
Cloud Over Independence
Despite all these laudable proposals, the Bill is still a mixed bag.
The Bill changes the structure of the CCI, establishing an overarching governing board. The seven members of the CCI, Secretary of the Department of Economic Affairs and the MCA (or their nominees), and four part-time members to be appointed by the central government will constitute the Governing Board.
For a body that exercises regulatory and adjudicatory powers over state entities as well, the need for independence from the executive branch is paramount.
Demonstrating Harm To Competition
Further, for an economic law, the Competition Act and now this amendment bill, are conspicuously silent on the need on the CCI to show actual harm to competition. If the conduct of a dominant enterprise has no significant effect on the market, such conduct should not be considered as abuse of dominant position.
For example, a film distributor’s decision not to screen movies in a particular theatre chain for well-founded apprehension of piracy, may not be an abuse of dominance, both, for having an objective justification and since, the movie will be available through other theatres.
The CRLC had wrongly dismissed the need to provide any statutory obligation on the CCI to determine effects whilst dealing with allegations of abuse. The mistake persists in the Bill.
Ignoring the economic realities of a market and not obligating the CCI to determine effects will have a disastrous effect on big businesses.
Process Transparency
Lastly, while some attempts have been made to address the procedural gaps in the Act, the Bill still fails to achieve complete transparency in procedures applicable before the CCI.
Clarity through the Bill, or requiring the CCI to issue regulations to provide procedural clarity on issues such as attorney-client privilege, access to confidential information, is essential. Notably, the CCI is a signatory to the Framework for Competition Agency Procedure issued by the International Competition Network, an international body of competition law enforcers. The Framework provides for a fair and effective procedure with the aim to increase transparency. A lucid procedure of inquiry is necessary to safeguard a business’s right to effectively defend itself before the CCI.
While the Bill, is a mixed bag for businesses, the one clear winner is the CLRC, with almost of its recommendations having been accepted by the MCA. The public consultation may assist in addressing some stark issues with the Bill. However, some more nuanced points may require meeting with stakeholders. Absent this, the Bill, despite some laudable provisions, still leaves much to be desired.
The Bill is available here. Public comments have been invited by the MCA. The last date submission for comments is March 6, 2020. Chandhiok & Mahajan is preparing detailed comments on the provisions of the Bill. If you have any comments or concerns, please reach out at competitionlaw@chandhiok.com.
Karan Singh Chandiok is a Partner and heads the disputes and competition law practice group, and Deeksha Manchanda is a Counsel in the competition and privacy law practice groups, at Chandhiok & Mahajan.
The views expressed here are those of the authors and do not necessarily represent the views of BloombergQuint or its editorial team.
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