India: Sectoral Interplay And The Anti Trust Regime

Last Updated: 6 July 2011
Article by Zerick Dastur

With the country's anti trust regulator up and rolling the number of investigations launched into the affairs of various corporate business houses operating in different sectors of the economy have multiplied. The Competition Commission has already commenced investigations in sectors including civil aviation, stock exchanges, private sector banks, housing finance companies, DTH service providers and disputes between film producers and multiplex owners. The Act also provides for regulation of mergers and acquisitions of parties exceeding prescribed thresholds of assets and turnover. However, the provisions relating to regulation of mergers and acquisitions, which require prior notification to be made to the Commission prior to consummation of a transaction, are yet to be brought into force.

With the increase in the activities of the Commission, conflict between the various sectoral regulators who regulate many of the entities which are being investigated, and the Commission cannot be ruled out. The era of globalization and liberalization has seen a number of specialized regulators like SEBI, IRDA and TRAI being established with statutory powers and specialized objects. The powers of the Competition Commission under the Competition Act are wide with its reach unimpeded by any restriction on areas of operation. It has the jurisdiction to investigate violations under the Act, including violations by Government departments.

Recently it appears that the Committee of Secretaries set up to look into the issues of mergers and acquisitions of banks, has ruled out exempting the banking sector from the purview of the Competition Act, 2002. Thus a blanket exemption as lobbied by the Reserve Bank of India, the banking sector regulator, has been disapproved. Any merger of a bank requires the prior approval of the Reserve Bank. With the provisions relating to combination regulation under the competition Act being brought into force, the approval of the anti trust regulator will also be required prior to effecting any such merger or acquisition where the prescribed threshold limits of assets and turnover are exceeded. However in line with the internationally recognized doctrine of "failing firm", the Committee has recommended exempting crisis mergers affected under emergency circumstances from the purview of the Commission. The recommendation does seem plausible given the fact that the Competition Act provides for a period of 210 days from the date of notification of a transaction which may be taken by the Commission to approve a combination in a given case.

The Reserve Bank of India being a specialized regulator may argue that mergers and acquisitions in the banking space are best handled by it. However, it appears that no particular class of entities may be given a blanket exemption from the regulatory ambit of the Commission. The Competition Act however does provide for exemption from the application of the Act by the Central Government in a fit case inter alia in public interest or in the interest of security of the state.

A blanket exemption to any class of regulated entities from the provisions of the Act relating to combination regulation may lead to demands of other regulators for similar exemptions for entities falling within the purview of their regulatory framework. A situation which may not be desirable. The Competition Act has been passed with the object of sustaining free and fair competition within the market, to protect the interest of consumers and to prevent practices which may lead to an appreciable adverse effect on competition within the market. A number of such practices may surface in the form of anti competitive agreements between competitors in an attempt to fix prices or control or limit the production, distribution or supply of goods and services. The anti competitive practices may also emerge in cases where an enterprise in a dominant position abuses such a position to eliminate competition to the detriment of the consumers. One of the legislative objects of merger regulation under the Competition Act is to preempt an eventuality where a merger may give rise to a dominant undertaking which may exploit the market and defeat the ideals of free and fair competition.

It may also be noted that the objectives of the Commission and sectoral regulators are complementary. The functions of the Commission and the sectoral regulators are substantially different. The latter having expertise in their designated field and the former entrusted with the responsibility of maintaining and sustaining competition in the market. A slight overlap in the execution of these functions is nevertheless inevitable. Both have their own statutory responsibilities and both cannot replace each other. The Act also provides that it shall not be in derogation of but in addition to other laws. It is important that the anti trust regulator acts independently and effectively, transcending the sectoral barriers and unimpeded by potential conflicts with other regulators operating in their domain. It is desirable to have a mechanism for constant dialogue between the sectoral regulators and the Commission to amicably work out any situation which may lead to potential turf wars.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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