India: Investing In A Robust Competition Regulator For India

Last Updated: 4 September 2017
Article by Ravi Kulkarni and Avaantika Kakkar

Most Read Contributor in India, October 2017

A recent news report suggests that the Ministry of Corporate Affairs (MCA) has proposed reducing the number of members at the Competition Commission of India (CCI) to a Chairperson and three members as opposed to a Chairperson and six members as the law currently provides.

This action will deliver a death blow to the competition regime signaling we are no longer investing in this nascent regime, which was established under India's international trade commitments.

As it is, the recent merger of the Competition Appellate Tribunal (COMPAT) with the National Company Law Appellate (NCLAT) will do irreparable and lasting damage. The generality and scope of the NCLAT's authority (including hearing appeals against the orders of NCLT passed under the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016, and appeals against the orders passed by Insolvency and Bankruptcy Board of India) will not allow its members the time and effort needed to understand the niceties of competition law and principles, which appear deceptively simple.

The COMPAT was a specialized tribunal for appeals from the CCI and had made great leaps in developing competition jurisprudence. It's merger with the NCLAT has set the clock back.

The question then, is: would a death blow to our competition regime be welcome?

Undoubtedly, some stakeholders will rejoice at an ineffective competition regime in India. The CCI, with its vast power, was never a welcome regulator. Let us examine some hitherto understated facts:

  • The CCI is 8 years old (for provisions prohibiting anti-competitive agreements and the abuse of dominance, effective since May 2009) and 6 years old (for the regulation of mergers, effective since June 2011).
  • Notable orders on the conduct of business include guidance for operation of dominant companies; recommendations for the real estate sector noting its rampant unfair practices; a decision with far reaching consequences on pricing policies for companies not just in the auto sector but across sectors such as FMCG, white goods etc. and therefore, impacting prices consumers will pay.
  • The CCI has reiterated zero tolerance for anti-competitive cartels. At the same time, the CCI shies away from playing regulator – it has emphasized that it will not regulate price or practices but instead examine any anticompetitive effects of conduct on a case-to-case basis. This is in line with the minimalist intervention approach that we prefer with all regulators.
  • The CCI has examined complex mergers across sectors such as cement, pharma, media, agri-chemicals, chemicals, etc. and clearly prefers finding workable solutions (including divestitures of products likely to create unwelcome dominance) to blocking mergers. Most cases are disposed of expeditiously. Again, in line with a minimalist intervention approach.
  • The CCI's merger regulation processes allow its officers to secure clarifications and additional information, where necessary, over quick exchanges of emails and over the phone.
  • The CCI encourages merging parties to meet with it and explain the proposed transaction. With MCA's recent clarifications easing the filing burden on merging parties, consultations with the CCI will become even more relaxed and meaningful.
  • The CCI regularly amends its regulations. Changing scenarios, previously unanticipated developments, and avoidance of unnecessary inconvenience to stakeholders prompt these amendments. A study will show that it is not a fickle regulator but a responsive and facilitative one that issues these amendments.
  • The CCI has been short on strength for many years now. Its officers work late into the evening and work weekends. The CCI sometimes employs external agencies for its more specialized functions. Its officers are clued in on each international development. They study these developments regularly to implement international best practices.
  • The CCI was criticized for not following 'due process' or what lawyers refer to as the 'principles of natural justice' (the right to be given a fair hearing). With the passage of time and experience gained in administering the law, with a few exceptions, the CCI takes pains to ensure a fair hearing.
  • The COMPAT has upheld numerous orders of the CCI in appeal.
  • The CCI's members spend substantial time in their advocacy functions, making persons aware of the law and its implications.
  • Some of the CCI's orders have given solace to consumers which they may not have received at the consumer fora.

But, the CCI is still another authority that companies must deal with. Is it any comfort that a good number of large companies have been approaching the CCI with their grievances against competitors and suppliers?

The CCI may be used as another tool in corporate warfare but, does this tool break more eggs than intended? Isn't  the fall out of most decisions one more step toward developed and free markets, and ultimately consumer welfare? 

Most international investors feel secure in the knowledge that the country has a robust competition regulator. They are keen to know the nuances and usually, eager to comply with its requirements.

The CCI grapples with a constant churn of its members and officers and therefore a possible loss of institutional memory. It is the Government's responsibility to appoint members of the CCI, on time. Perhaps the Government should make some effort to remedy this state of affairs - not by reducing the number of members at the CCI, but by expeditiously filling vacancies, by ensuring longer terms for the members, and by aiding the recruitment of more experts at the CCI and the office of the Director General (the investigation arm of the CCI).

At the same time, the CCI could consider using the total strength of its members to ensure that things move faster. For instance, members could, constitute separate benches for merger cases and enforcement matters that work simultaneously to hurry things along. As it is, there is significant division of labour among its members even today. Why are seven members preferable to three? Perhaps because of the numerous sectors and industries that the CCI is constrained to review competitive practices in, because of the policy and advocacy initiatives that it is also required to undertake, and a host of other meaningful reasons that the CCI is best placed to explain.

New regulators will take a decade or two to settle down. Drawing a parallel, let us look at the Securities and Exchange Board of India (SEBI).It takes inconvenient decisions and its regulations present hurdles to the absolute freedom in financial markets that stakeholders want. Does this mean that SEBI's role and effectiveness be curbed? Let us not answer this question as if it were put to us today – let us pretend that it is 12th April 2000 (8 years into SEBI's establishment). What would the state of our financial markets have been if it was no longer around or, worse, not invested with the powers that it has today? Would the Indian market inspire the confidence of domestic and international companies, alike? Surely, the Government of India will not compromise important institutions even under a misplaced austerity drive, if there is one underway!

There are costs to compliance– this is a fundamental truth about law and regulation. Most businesses would agree that costs cannot be treated as unnecessary evils merely because they are well, costs.

The CCI is a regulator that will help companies help themselves –it is entrusted with the mandate to secure free and fair competition. This can only be a good thing.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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