The Competition (Amendment) Bill, 2022 ('Bill')1 introduces key provisions that allow parties to offer settlements or commitments to address potential concerns arising from their conduct / practices, at different stages of the inquiry. Commitments or settlements can be offered for both cases concerning anti-competitive vertical agreements and abuse of dominant position, but not cartelization. Having been tested in more mature jurisdictions, such as the European Union and United Kingdom, these effective antitrust enforcement tools are essential to efficiently utilize the Competition Commission of India's ('CCI') resources that are expended on protracted and long-drawn investigations/appeals.
This Article explores: (i) why introducing settlements and commitments is necessary, and (ii) suggestions to make these draft provisions more robust.
Enforcement Challenges that CCI Faces
Low Realisation of Penalties: The CCI's Annual Report for 2020-21 ('Annual Report')2 reflects that between 2018-19 to 2020-21, the CCI imposed penalties totaling approximately INR 810 crores (approx. US$ 99.04 million). Against these orders, the CCI realised penalties only worth approximately INR 19.5 crore (approx. US$ 2.3 million) (i.e., less than 2.5%). Other orders are under challenge before the National Company Law Appellate Tribunal ('NCLAT') or the Supreme Court of India ('SC').
Pendency at Appellate Stage: The Annual Report acknowledges that 253 appeals were pending at the NCLAT as on March 31, 20213. This demonstrates an increase in the pendency of cases at the appellate stage – on March 31, 2020, the total number of pending appeals were 241,4 and on March 31, 2019, the total number of pending appeals were 163.5
Apart from the pendency at the NCLAT, resolving cases at the Supreme Court typically take several years. For example, appeals by the National Stock Exchange and DLF have been pending before the SC since 2014 and 2016, respectively. Further, even for a pivotal issue like "relevant turnover" for calculating penalties under the Competition Act, 2002 ('Act') for multi-product companies was brought before the SC in 2014 but was only decided in 2017.
Ease Regulatory Costs: With the regulator becoming increasingly active, CCI's/ Director General's ('DG's') caseload has only increased in the recent past – putting a significant burden on the existing resources of the CCI/DG. This has a natural repercussion on investigation timelines.
Each of the factors identified above are important to achieve efficiency in the regulatory process, including quicker implementation of market corrections (particularly, in dynamic digital markets). Properly implemented settlement/ commitment mechanisms can ensure that the adjudication of cases is fast-tracked efficiently while maintaining the quality of adjudication and investigation.
Settlements and Commitments Under Proposed Bill
Under the Bill, settlements can be offered only after the DG's investigation report is issued but prior to CCI's final decision. Whereas commitments can be offered at any time after an investigation has been initiated but before the DG's investigation report is issued. The difference in timing has certain implications – the earlier a party approaches the CCI, the more resources the CCI saves (in terms of carrying out a drawn-out investigation). Additionally, once the DG concludes its investigation, relevant evidence has been placed on the record for CCI's adjudication. As a result, settlement provisions may involve an admission of guilt, while the commitment provisions do not (the settlement provisions use the phrase 'contravention', while the provisions on commitment use instead of the phrase 'alleged contravention').
Both settlements and commitments are important antitrust tools to reduce the investigation / adjudication timelines and achieve swifter market corrections. These tools are also beneficial for the ease of doing business in India and dispense with resource intensive investigation processes for regulators and the regulated. While these are undoubtedly welcome proposals, we set out below a few additional considerations that may be considered for the Bill's settlement and commitment provisions.
Settlements: The Bill proposes that the CCI will be empowered to terminate proceedings of anticompetitive vertical restraints and abuse of dominance upon the payment of a monetary amount or other terms, based on the nature, gravity, and impact of the contravention. We've set out a few suggestions on the settlement process envisaged under the Bill –
i. Process of Obtaining Comments and Suggestions: The Bill proposes that while considering the settlement proposal the CCI will provide an opportunity to the involved parties, the DG, and third parties to submit comments and objections. Although it is necessary to seek comments and objections from the parties involved in the dispute (including the party proposing settlements), third parties may be consulted only where obtaining their views is demonstrably critical, for example where CCI is unable to objectively assess market dynamics. This is also important to preserve legitimate confidentiality concerns.
ii. Rejection of the Settlement Application: The Bill allows the CCI to reject the settlement if the applicant and the CCI do not reach an agreement and proceed with its inquiry (after which it can nevertheless issue an infringement decision). In such cases, the applicant should be protected from any prejudice including by using materials offered during the settlement process. Otherwise, the subsequent inquiry will be influenced by the information/ knowledge of the settlement process impacting the parties' legitimate rights of defence before the CCI.
iii. Future Proceedings on Same Grounds: If the CCI accepts the settlement, the settlement order should prevent initiation of subsequent proceedings arising out of the same conduct.
iv. Guidelines for Deciding Settlement Amounts: The Competition Act empowers the CCI to impose a penalty of up to 10% of infringing company's average relevant turnover for the past three years (in abuse of dominance and anticompetitive vertical restraint cases). Indian competition law jurisprudence requires the CCI to impose penalties only on the relevant turnover of an infringing company (i.e., revenues/ profits generated from the allegedly infringing product or service). Further, the Bill proposes to introduce further guidance on the imposition of penalties.
a. It would be important to have guardrails or guidelines prescribed for a settlement amount under the Bill's provisions to appropriately balance the considerations of 'guilt' with 'concessions'.
b. It would also be helpful to have clear guidelines for potential applicants to enable them to assess the costs and benefits of entering into a settlement. For example, the European Commission's ('EC') settlement mechanism (that only applies to cartels) allows a 10% reduction in fines to the applicant, and the Competition and Market Authority's ('CMA') settlement mechanism allows up to 20% reduction in fines for an admission of guilt.
Commitments: The Bill proposes that the CCI will be empowered to terminate an investigation of anticompetitive vertical restraints and abuse of dominance upon offering of such effective terms and manner of implementation to address the nature, gravity, and impact of the alleged contraventions. A few other considerations to consider in the commitment process are set out below –
i. Offer Preliminary Findings Before Commitments: Subsequent to a party communicating its willingness to offer commitments, the CCI should issue a preliminary assessment report summarising the facts and potential contravention(s) in the case. This would enable the party to offer more comprehensive commitments to address all the concerns highlighted in the preliminary assessment report. A similar process is followed by the EC where the Commission's initial competition concerns are expressed in a preliminary assessment.
ii. Clarify that Commitments Do Not Entail a Finding of Guilt: Consistent with commitment mechanisms implemented by other agencies, the Bill should clarify that an acceptance of a commitment proposal would not entail a finding of infringement. An Organisation for Economic Co-operation and Development ('OECD') analysis of commitments across jurisdictions states that one of the most common features of commitment decisions is the "adoption of legally binding commitment decisions without sanctions"6.
From an enterprise's perspective, the primary advantage of settlements and commitments is the ability to expedite the resolution of disputes with regulators. For a successful implementation of these antitrust tools, it is important that the processes are transparent, predictable, and industry-friendly (e.g. by negating the impact on their reputation). Introduction of these tools under the Bill are a very welcome step, reflect the increasing maturity of the antitrust regime in India and are consistent with mature antitrust regimes across the world, and even other efficient regulators in India such as the Securities Exchange Board of India.7
1. The Government of India recently introduced the Bill in the Lok Sabha, that has now been referred to the Parliamentary Standing Committee on Finance for further deliberation. The Bill proposes significant changes to the Act, but primarily tracks the draft Competition (Amendment) Bill, 2020 ('2020 Draft Bill'), with some incremental changes.
3. The NCLAT disposed 7 appeals during 2020-21.
7. The Securities and Exchange Board of India ('SEBI') has already implemented a mechanism for settlements. The SEBI Act, 1992 ('SEBI Act') read with the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 ('SEBI Settlement Regulations'), provide a mechanism for settlement of specific violations of various laws concerning the securities market, by the payment of fees without admitting guilt. Similar to the proposed Bill, SEBI is empowered to agree to settlement proposals after considering the nature, gravity and impact of defaults, on payment of such sum by the alleged defaulter or on such other terms as may be determined by SEBI.
Originally Published by 30 September 2022
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