Settlement and Commitments: Potential recipe for improving effectiveness of Competition Law in India

Competition Law in India saw a significant transformation by way of the Competition Act, 2002 which moved away from the ‘command and control’ regime under the Monopolies and Restrictive Trade Practices Act to ‘promoting and sustaining competition in markets'.

The philosophy behind the change was to provide a competitive market to players to increase efficiency and innovation, offer choice to consumers, and ensure freedom of trade. The focus shifted towards enabling competitive environment which in turn serves consumers and producers alike.

Current enforcement challenges faced by Competition Commission of India (CCI)

One is the CCI’s realization of monetary penalty, as is evident from the statistics. As per the CCI Annual Report 2018-19, out of Rs. 13,881 crore, only Rs. 60 crore could be realized, which is less than 0.5%. Second, the number of appeals filed against the orders of the CCI has increased from year to year, with an average of 35% cases being appealed against. One of the primary reasons for this was the window available for challenging a prima facie order of the CCI under writ jurisdiction and the basic confusion surrounding the ‘quasi-judicial’ nature of the regulator, arm’s length relationship between the investigative arm, the DG office, etc.

Further, final settlement of jurisprudential points took many years. For example, the crucial ‘relevant turnover’ issue raised in 2011 could only be decided in 2017. Out of the 530 cases appealed, 217 have been allowed with 133 being remanded back to the Commission for reconsideration.

Third, the CCI has received a somewhat cold response to its leniency mechanism, with only about such 10 decisions. Probably, the carrots didn’t work in the absence of sticks .

Agency effectiveness

One of the major purposes of reforms is to improve competition agency effectiveness. William Kovacic, former US-FTC Chairperson, has spoken about two criteria for measuring good agency performance. The first criterion deals with agency’s impact on improving economic performance and social welfare in terms of improvement in quality, reduction in cost and increase in innovation. This aligns with the objective of CCI ‘to promote and sustain competition in markets’. The second one deals with having transparent and superior administrative techniques and a commitment to seeking continuing improvements in its operations and its substantive programs. It is about focusing on outcomes rather than focusing on inputs.

Welcomed Competition Law reforms

Against this background, the Injeti Srinivas Competition Law Review Committee (CLRC) has adequately identified issues requiring reform in Competition Law and policy in India with the prominent ones being promulgation of penalty guidelines and the need of ‘settlement and commitment mechanisms’ for speedier resolution of Competition Law cases. The recommendations are made in view of the new age indicators of business activity (number of procedures, time taken, and cost involved) and the need to have an enforcement regime which focuses more on positive outcome than the allegiance to rigid processes. CLRC is of the view that ‘procedural economy and efficiency of enforcement action shall be the motivating factor’ in Competition Law enforcement. This would also rationalize the scarce resources of the Commission to better use.

Commitment and settlement provisions

These are consensual remedies in antitrust cases used as enforcement tools by competition authorities to terminate an investigation by accepting commitment/settlement proposed by the parties to address the competition concerns identified by the agency. Legally speaking, commitment and settlement are different with respect to accepting/not accepting the antitrust violation and liability. Commitments are offered by parties without admission of guilt, whereas settlement happens when the regulator believes that there are prima facie grounds for a detailed investigation. Commitments are common in combination matters. For other competition law matters, however, this is a relatively recent phenomenon in several jurisdictions, except in the USA, where the first consent decree case (Otis Elevator Company) was witnessed in 1906.

Major international enforcement agencies have strongly endorsed the use of settlement and commitments. For example, a United States submission to an OECD report on Commitment Decisions reported:

“Settlements are an important procedural tool, because they let the agencies and the target parties resolve their disputes effectively, quickly, and thoroughly.”

Former Vice President of the European Commission responsible for Competition Policy Joaquin Almunia said in a speech,

“All this shows that, although still young, settlements … are becoming an established practice and I am determined to build on their good record.”

Private settlement

The above commitment and settlement processes have to be differentiated with a private settlement arrived at between the informant and the alleged violator of antitrust laws. The Competition Act does not have any express provision dealing with settlements. The Madras High Court in Tamil Nadu Film Exhibitors Association case (2015) had read CCI’s power to pass residuary orders to the extent of entering into compromise or settlement by parties. Similarly, in the Lokhandwala Kataria case, the Supreme Court allowed an individual financial creditor to settle after the initiation of the Corporate Insolvency Resolution Process (CIRP) a process much like the CCI operates in rem.

Settlement mechanisms under Securities Law

The Securities and Exchange Board of India (SEBI) had issued regulations on Settlement of Administrative and Civil Proceedings in 2014, which recently got revamped in 2018 on the recommendations of the Justice AR Dave Committee. Interestingly, the Dave Committee also referred to the CCI Lesser Penalty Regulations, 2009 on the point of “settlement with confidentiality”. The settlement mechanism under the SEBI regime has been a success as is evident from the latest SEBI Annual Report 2018-19. SEBI received 419 applications for settlement as compared to 241 applications received in the previous year. During 2018-19, SEBI disposed of 137 applications by passing appropriate settlement order. For 137 applications settled during the year, SEBI collected Rs. 46.1 crore towards charges compared to Rs. 30.9 crore in the previous year.

Current and proposed categories of commitment and settlement

Commitment and settlement under Competition Law are currently available in the following categories:

• Cartel Cases – These are the most pernicious of antitrust violations involving price fixing, bid rigging, market allocation, etc. Leniency provisions (settlement with confidentiality) are available in such cases, which is basically reduction/waiver of penalty for a cartel member which becomes an informer and supports the competition agency in prosecution of the cartel.

• Combination cases – Commitments are common wherein the merging parties offer modifications to their proposal (behavioural remedies) to ameliorate the possible ‘consumer harm’ identified by the competition agency.

For the future, the CLRC has proposed new commitment and settlement provisions in these categories too:

• Vertical agreement cases – There is always scope of examining the appreciable adverse effect on competition (AAEC) and hence rule of reason standards apply.

• Abuse of dominance cases – These are cases in which the dominant player in the relevant market abuses its position.

At present, we do not have settlement/commitment provisions with reference to vertical agreements and abuse of dominance cases in India. Regretfully, this restricts CCI from exploring the imposition of conditions or securing a win-win pro-competitive commitment from the infringing firms. Commitments are available after a prima facie order, but prior to submission of the DG Report, and settlements are available only after submission of the DG Report, except in cases of cartels.

Challenges

One of the greatest challenges in implementing the provisions relating to settlement and commitments is sufficient clarity on the guidelines. Once the substantive provisions are in place, detailed regulations on commitment and settlement would be required. SEBI has done the same with sufficient clarity on the process and formula of arriving at the settlement terms. Secondly, transparency in the process shall be of utmost importance, as the matter would involve consensual discussion between the officials of the commission and the enterprises in conflict with antitrust law. CCI officials are used to negotiating merger commitments and already have an exposure to the nuts and bolts involved.

However, some training on negotiation, mediation and conciliation skills would be essential, including a change in culture and mindset of enforcement. This would enable the officers to use the ‘commercial knowledge advantage’ of the market operators in crafting optimal outcomes. Performance metrics of CCI officials based on the number of cases filed and litigated in courts should be reconsidered. On the flip side, concerns about possible under-enforcement of any major precedent-setting matter would be taken care of by the constitutional courts through cases filed by aggrieved persons, including public interest litigation.

Speed is of the essence

As India is moving rapidly towards Aatmanirbhar Bharat, reforms relating to removing procedural obstacles require swift action. This is in the best interest of securing a high ranking for India in the ‘ease of doing business’, ‘global competitiveness’ and ‘attracting investors’ indices.

Competition Law in India has been awaiting reform for a long time. The Competition Amendment Bill of 2012 lapsed and the Amendment Bill of 2020 is yet to see the light of the day. High among other reforms proposed in the Bill, commitment and settlement provisions require quick attention by policy makers. This is even more important when there is no exclusive appellate authority for competition matters [powers now being exercised by the National Company Law Appellate Tribunal (NCLAT), which also handles matters under the Companies Act and the Insolvency and Bankruptcy Code (IBC)].

‘Economy of procedure’ is the mantra for increasing ease of doing business. The ultimate test for a strong Competition Law regime shall be the amelioration of consumer harm and increase in competitiveness of markets, rather than cases reaching up to Supreme Court for merely vindicating a legal point. While setting precedents on some key issues is important, in the majority of matters, the focus must be rooting out anticompetitive conduct quickly. Commitments and settlement mechanisms offer much needed flexibility to the Commission in this regard, as has been witnessed by several major jurisdictions with these provisions. It would provide a window to the Commission to extract wider-ranging remedies for meeting the long-term goal of promoting and sustaining competition in markets in India leading to economic development.

The author is Dean at UPES School of Law, Dehradun. Views are personal.