India: Private Enforcement Under Indian Competition Law – A Roadmap

Last Updated: 30 August 2017
Article by Anshuman Sakle

The Competition Act, 2002 (the Act) was brought into force inter alia with the objective of curbing anti-competitive behaviour which causes appreciable adverse effect on competition in the Indian market, to ensure a fair competitive environment.1 Although one does not find any mention of consumer welfare in the Statement of Objects and Reasons of the Act, the preface to the Act unequivocally lays down its spirit by providing that it intends to promote and sustain competition in the markets, to protect the interest of consumers and to ensure freedom of trade carried on by other participants in the market...

In furtherance of this objective, the Act empowers the Competition Commission of India (CCI) with multifarious penal powers to ensure compliance with the legal regime. However, such provisions are predominantly directed towards penalising the violators rather than compensating the parties affected by the anti-competitive behaviour of one or more market players. To ensure that the victims of anti-competitive behaviour receive their dues, the Act also lays down a mechanism for such parties to seek compensation for the losses that they may have suffered due to the anti-competitive behaviour.

The private damages regime under the Indian competition law, which came into force in 2009, lays down the legislative foundation for consumers and competitors to sue for compensation in relation to the damages suffered as a result of the anti-competitive behaviour. Considering that the Competition Law is still in nascent stages in India, there has been no ruling pronounced in this space until date. While the case involving the National Stock Exchange (NSE) and the MCX Stock Exchange (MCX- SX)2 remains the sole case to utilise the private enforcement provisions of the Act, the matter remains sub judice. Curiously, in the celebrated case involving DLF3, while private damages litigation was drawn up against DLF, it was consequently withdrawn.

Background to the private damages litigation in India

Before diving into the details of the NSE case4, by way of back- ground, the private damages regime is largely encased within Chapters VI and VIII-A of the Act.5

Post the recent amendment to the law, where the powers of the Competition Appellate Tribunal (COMPAT) stand transferred to the National Company Law Appellate Tribunal (NCLAT), the NCLAT now has original jurisdiction to hear applications from the Central or State Government or any person or enterprise who has suffered any loss or damage as a result of any contravention of Sections 3, 4, 5 and 6 of the Act, which has been established as a violation by the CCI or the COMPAT.6

The private litigation regime makes it mandatory that any claim can only arise after a finding of the violation of the substantive provisions of the Act has been established by the regulator or the appellate authority. Additionally, the enactment also provides for a application to be filed against enterprises when any damage is suffered by the applicant as a con- sequence of the enterprise violating any order or direction of the CCI or the appellate authority for seeking compensation.7

The Act, as drafted and amended, is significantly forward looking and provides for remedial actions, such as class action suits, which are at par with global best practices. In a situation where a group of persons have the same claim against the defaulter of the substantive provisions of the Act, a class action suit can be instituted to seek remedy. Although the Act allows one or more persons to file the application on behalf of all interested parties, this is subject to the Civil Procedure Code, 19088.

On the procedural front, though the Act does not stipulate the time period within which an application is to be filed for private compensation, guidance may be sought from the erstwhile monopolies and restrictive trade practices (MRTP) cases. In Director General (Investigation and Registration) v. Thermax (P) Ltd.9 and M.S. Shoes East Ltd. v. Indian Bank10, the MRTP Commission referred to the Supreme Court case of Corporation Bank v. Navin J. Shah11, which lays down the "doctrine of laches" i.e., if a claim is to be made, the same must be done within a reasonable time period. Although the scope of "reasonable time" is a matter of factual consideration, in the above- mentioned precedents of the MRTP, the private compensation claims were rejected since they were brought after a delay of more than 5 years.

Background to the NSE case

In the 9 years of the Act being in force, several landmark CCI decisions are pending in appeal before the Supreme Court of India for final adjudication. The NSE case12 was one of the first major abuse of dominance cases examined in the country and though the violation of the Act was upheld by the CCI and the COMPAT, it is presently sub judice before the Supreme Court

However, since the violation was upheld by the CCI and the COMPAT, under the scheme of the Act, a private damages claim was permissible to be brought before the COMPAT and the same was done by MCX-SX.13

By way of context, MCX-SX had filed an application against the NSE, alleging that NSE had abused its dominance in the market by engaging in predatory pricing to drive MCX-SX out of the market in the currency derivative (CD) segment. The CCI noted that NSE was dominant in the CD market and accordingly ordered NSE to modify its zero price policy in the relevant market and to cease and desist from its unfair pricing, exclusionary con- duct and unfairly using its dominant position in the other market(s) to protect its own CD market with immediate effect. Additionally, a penalty of INR 55.5 crore was also imposed on NSE.

In the appeal, the COMPAT upheld the CCI's finding that NSE had abused its dominant position, as well as the penalty and directions given by the CCI.

Private enforcement claim based out of the NSE case

Consequent to the findings of the CCI and the COMPAT, MCX-SX filed an application with the COMPAT for compensation to the tune of INR 588.65 crore from NSE for the damages suffered as a result of the abusive conduct of NSE. Accordingly, when the matter came up for hearing, the same was adjourned as MCX-SX wanted to make amendments to the amount of compensation claimed from the NSE.14 Subsequently, MCX-SX filed a compensation claim for a monetary sum of INR 856 crore based on the evaluation done by the industry experts.15 Media report suggests that the revised compensation amount was submitted pursuant to an independent report by a chartered accountant validating the claims and calculating the compensation amount based on that.16

Future course of action

As the matter is pending consideration, keen eyes from across the industry will be awaiting a few key observations of the NCLAT, including in relation to the issue of damages under the Act. It remains to be seen what standard will be adopted by the NCLAT to determine the amount of compensation that can be legitimately granted to or claimed by MCX-SX. Although the Act does not provide for punitive damages, it will be interesting to see whether the NCLAT makes any observation on the "passing-on" defence. "Passing-on" defence stipulates that if the person suffering losses from the anti-competitive concerns has passed on the losses to its consumers or other downstream stakeholders, then he is not entitled to claim the amount of losses which he has passed on.

Further, considering that punitive claims are not specifically envisaged under the scheme of the Act, it remains to be seen whether the compensation provided under the Act makes this remedy a viable one compared to the costs incurred (in terms of time and money for achieving so); or whether this provision will remain a paper tiger in the statute book. In either scenario, the NSE case17 will continue to remain under sharp scrutiny and will lay the road map for the efficiency and mobility of the private damages regime in India.

Footnotes

1              Recital 3 to the Statement of Objects and Reasons, Competition Act, 2002.

2              MCX Stock Exhange Ltd. v. National Stock Exchange of India Ltd., 2011 SCC Online CCI 52

3              Belaire Owner's Assn. v. DLF Ltd., Case No. 19 of 2010

4              2011 SCC Online CCI 52

5              Sections 53-N, 53-Q and 42-A of the Act

6              With effect from 26-5-2017, the appellate authority for all matter relating to the Act is the NCLAT. Originally,   this power was vested in the COMPAT.

7              Sections 42-A and 53-Q(2) of the Act.

8              Rule 8 of Order 1 of the First Schedule

9              (2003) 1 CPJ 158 (MRTP)

10            (2003) 1 CPJ 131 (MRTP).

11            (2000) 2 SCC 628 : (2000) 2 CPR 13

12            2011 SCC Online CCI 52

13            MCX-SX has since been renamed as Metropolitan Stock Exchange of India

14             http://www.livemint.com/Money/5R5peScNEEdd1qcKJJbtbO/MCXSX-plans-to-claim-damages-of-nearly-Rs800-crore-from-NSE.html

15            http://www.thehindu.com/business/ msei -to – submit- report- to – compat- on-856 -crore-claim-against-nse/article18525916.ece.

16            Ibid.

17            2011 SCC Online CCI 52.

* The article was co-authored by Anisha Chand, Principal Associate

This article was first published in The Practical Lawyer

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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