A look at the Draft (Competition) Amendment Bill, 2020 – Clarity, transparency, robustness, and bit more to be desired
Recent times have seen much public debate around the necessity of competition. In a time when we are suddenly faced with a possibility of a monopoly in a sector which back in 2000 had over 10 players (aka telecom), attention has been invited to the implications of a monopoly and the role of the competition regulator i.e., the Competition Commission of India (CCI). The main question being whether the CCI can provide a quantum of solace to many anxious souls.
In this background, it seems opportune for the Ministry of Corporate Affairs (MCA) to have come out with the proposed amendments to the Competition Act, 2002 (Act).
The suggested amendments however, are a culmination of a process that started in October 2018 when the MCA set up an independent committee aptly called, the Competition Law Review Committee (CLRC) to examine the Act and accompanying rules and regulations. The formation of CLRC was in recognition of a need to review the regime in wake of changing business landscape as well as completion of a decade of enforcement by the CCI. Armed with the experience of around ten years of enforcement and with the aim to prepare for future challenges, the CLRC undertook a detailed assessment of the Act. In its report submitted to the MCA in August 2019 (CLRC Report), the CLRC gave various recommendations for amendments to substantive and procedural provisions of the Act.
After consideration of the CLRC Report, the MCA has now prepared the draft Competition (Amendment) Bill, 2020 (Bill). The Bill was released in the public domain on 20 February 2020 for public comments. A first look of the Bill reveals that it seeks to bring about the much-needed clarity to certain provisions, increase the transparency in the regime and, improve the robustness and efficiency of the system to better prepare it for what the Hon’ble Finance Ministry referred to as CCI 2.0. But perfection is elusive, almost always. And the Bill does not disappoint in that aspect, leavening something to be desired.
We take a look at the most significant changes suggested in the Bill and briefly give you our wish list of what all is desired.
Significant changes proposed in the Bill
A quick look at the Bill and any competition practitioner would tell you that it is a moment of pride for the CLRC. An assessment indicates that of the over 50 recommendations suggested by the CLRC, around 45 have accepted by the MCA and included in the Bill. Some of the most significant changes that have been proposed include:
Change in the regulatory structure of the CCI: the CCI has been wearing many hats since its inception. It had been vested with adjudicatory, advisory, investigative, quasi-legislative, and advocacy functions. Recognizing this, the CLRC recommended a change in the regulatory structure to make it more robust and effective to deal with the new age issues.
Accepting the recommendation, the Bill provides for the constitution of a Governing Body. The Governing Body would comprise the Chairperson of the CCI, its six whole time members, the Secretary of the Department of Economic Affairs, Ministry of Finance or his nominee, Secretary of the Ministry of Corporate Affairs and his nominee, and four (4) other part-time members to be nominated by the Central Government. Vested with the power to make regulations, take measures to promote awareness and create a National Competition Policy, the Governing Board will exercise general superintendence, direction and management of the affairs of the CCI. The CCI will now discharge only the adjudicatory functions. The Bill also permits formation of panels with a quorum of three members.
Given the broad nature of functions to be exercised by the Governing Board, its independence is paramount. The Bill however is silent on the manner of nomination of these members. Interestingly, the selection committee formed under Section 9 of the Act, which makes recommendations for the post of Chairperson and the other members, will not make any such recommendation for the part-time members. In the interests of transparency and for ensuring independence of the Governing Board, the Selection Committee should be tasked with recommending part time members as well.
Statutory provision to invite public comments: In a very welcome move, the Bill creates an obligation on the Governing Board to seek public comments on all regulations. With a limited exception of urgency in public interests, and regulations pertaining to internal working of the CCI, this provision will bring elements transparency and democratic rule making to the system.
Issuing the penalty guidance: the Bill requires the CCI to issue the much awaited penalty guidelines. The penalty guidance (like its counterpart in the European Union) is expected to give recognition to the relevant turnover principles and lay down the manner of determination of the percentage of the penalty and application of aggravating and mitigating factors. The CCI has the power to impose prohibitive penalties and in the absence of any guidance the manner in which this penalty was being imposed was shrouded with ambiguities. The guidance may provide the much-needed clarity, even though the Bill falls short of imposing a mandatory time limit within which the penalty guidelines will be issued.
Streamlining procedure for regulation of combinations: The Bill makes a large number of changes to regulation of combinations. Some of these, such as, reducing the time-limit for deemed approval from two hundred and ten days (210) days to one hundred and fifty days (150) days, make substantive changes. A large part however can broadly be categorized into:
(i) amendments to streamline the procedure for inquiry into combinations: currently the sections in the Act leave a lot of glaring gaps in the inquiry procedure. Despite this, the CCI through regulations, notifications and practice has been conducting inquiries into combinations. The Bill seeks to fill some of these gaps, giving statutory sanctity to the practices followed by the CCI. This will also reduce the possibility of appeals against combination orders which have been in the past on account of insufficiency of the statutory provisions. Prominent among these was the appeal filed against the Holcim/Lafarge merger which was eventually withdrawn.
(ii) providing a statutory basis to various exemptions issued by the CCI: the Bill was an opportune moment to grant a specific statutory basis to the de minimis exemption or target based exemption; the newly introduced green channel of approval and certain sector specific exemptions granted by the CCI (for instance, to public sector enterprises in oil and gas sector and nationalized banks). Till now the CCI has passed these notifications under Section 54 of the Act which is more general in nature.
New thresholds for merger control: The Bill empowers the CCI and Central Government to define new thresholds for merger notification by introducing a proviso to Section 5. The new thresholds, which can be notified in public interest, will now enable the CCI to make sector specific thresholds based on deal value or size of transaction or any other criterion. The amendment appears to be in furtherance of the CLRC’s recommendation to capture transactions in the digital market.
Given the dynamic nature of the digital markets, application of this power requires exercise of caution. This may result in increasing compliance costs for businesses and impact the ease of doing business. It is necessary that the introduction of objective thresholds or criterion is preceded by a detailed economic and legal assessment of the necessity of such thresholds, the basis of the thresholds and the value of the thresholds.
Expansion of definition of a cartel: the Bill expands the definition of a cartel to include a buyer’s cartel as well. This implies that even in cases of buyer’s cartel, the presumption of appreciable adverse effect on competition (AAEC) will apply to buyer’s cartel as well. The inclusion of buyer’s cartel as well as the presumption of AAEC is however, in stark contrast to the CCI’s stated position that, “though the Act covers buyers’ cartel within the purview of Section 3(1) read with Section 3(3) of the Act, treating buyers’ arrangement/cartel at par with sellers’ cartel may not be appropriate. For assessment of such cases, it is imperative to first, look at the potential theories of harm and then the conditions necessary for infliction of competitive harm need to be examined.”
Extending protection to holders of intellection property rights: In line with the recommendations of the CLRC, the Bill, seeks to widen protection offered to holders of IPR. The exemption for IPR holders is currently restricted to anti-competitive agreements. As per Clause 4A, the right of a holder of IPR (under legislation relating to IPR in India) to (i) restrain any infringement and (ii) to impose reasonable conditions, as may be necessary for protecting their rights, will be unaffected by Section 3 (which deals with anti-competitive agreements) and Section 4 (which deals in abuse of dominant position).
This brings the much-needed parity between the treatment of anti-competitive agreements and abuse of dominant position.
The Bill also expands the scope of IPRs for which protection is available to IPR holders. Currently, this is restricted to 5 statues listed in Section 3(5). Now the list has been expanded to 6 statutes and 1 residual clause covering “any other law relating to the protection of intellectual property rights that may be in force.”
The regime of settlements and commitments: In a very significant development, the Bill introduces a system for settlements and commitments permitting the CCI to close the investigation on basis of an application for settlement or commitment moved by the investigated party.
However, there is a lack of clarity on various aspect such as, whether settlements and commitments would apply to existing cases; whether commitments would be without prejudice and settlements with prejudice; and whether right to claim compensation survives in case of settlements. These should best be addressed in the Act itself as opposed to the regulations. The Bill also specifies that commitments have to be made after CCI passes an order of investigation, within a specified time prior to receipt of DG Report. This in contrast with the CLRC recommendations. If the period is insufficient it may no allow parties to fully weigh their option.
A wish list of a competition lawyer
Not all wishes can be fulfilled and the Bill does leave stakeholders wishing for just a little more. A few important things in the wish list include:
Statutory recognition of an effects-based approach in abuse of dominance: Absence of a specific obligation on the CCI to adopt an effect-based approach while determining an abuse of dominant position, still leaves much to be desired. The CCI’s decisional practice reveals lack of uniformity in application of the effects-based approach. Interestingly, regulatory authorities in other jurisdiction viz., European Union, Brazil, United States, Australia, Canada and Singapore have all adopted rule of reason to analyze the effects of activities whole adjudging them to an abuse of dominant position
A statutory provision requiring separate bench of the National Companies Law Appellate Tribunal to hear competition appeals would greatly assist in faster disposal of competition cases.
Clarity on procedure of inquiry by the CCI: the Act currently has some gaping holes in the procedure of inquiry adopted by the CCI. The CCI’s jurisdiction to pass certain orders has in fact been challenged on various occasions. The Bill sought to address these but has failed to do so with respect to Section 26. The provision in the Bill still leaves many gaping holes and is defined by vagueness. A more lucid framework is highly desirable.
Permitting an informant to withdraw a complaint: Currently the Act does not permit the informant or a complainant to withdraw his complaint. An inquiry by the CCI once started can only end after the DG has completed investigation and the CCI has passed an order agreeing or disagreeing with the DG recommendation. This is the situation even when the informant’s concerns with the investigated party have been addressed via settlements. Notably, such settlements between the parties have on numerous occasions lead to requests for withdrawal of information/termination of the inquiry, before the CCI (see here, here and here), which the CCI has denied citing lack of statutory power. The inclusion of a separate provision permitting the informant/complainant to withdraw the information, prior to an order directing an investigation being passed would have given CCI a power which could save precious regulatory resources.
The Bill is a positive step in the direction of an efficient CCI 2.0. While there are somethings which remain desired, one can hope that the consultation process leads to beneficial outcomes and most concerns raised by the stakeholders are appropriately addressed.
The Bill is available here. Public comments have been invited by the MCA. The last date submission for comments is March 6, 2020. Chandhiok and Mahajan is preparing detailed comments to the provisions of the Bill. If you have any comments or concerns, please reach out to us at competitionlaw@chandhiok.com.
Karan is a Partner at Chandhiok & Mahajan and heads the disputes and competition law practice groups. Deeksha is a Counsel in the competition and privacy law practice groups.