Systematizing Fairplay – Key Issues in the Indian Competition Law Regime

Reports by Corporate & Financial Law · November 25, 2017
Author(s): Vedika Mittal, Shehnaz Ahmed, Param Pandya, Debanshu Mukherjee, Joyjayanti Chatterjee and Ritwika Sharma

Since the enactment of the Competition Act, 2002 (‘Competition Act’), the business milieu has changed considerably globally and in India. More and more businesses are now being run in the virtual world and newer models of business exist now which would have been inconceivable a decade ago.

The pace of innovation in high-technology disruptive markets has also presented unique problems for competition law by challenging the traditional understanding of concepts such as ‘market’, ‘monopoly’, ‘dominance’, and ‘agreement’. Another cause for concern is the current trend of creation of silos among regulators in India, wherein each regulator, be it the Competition Commission of India (CCI) or the Telecom Regulatory Authority of India (TRAI’), unilaterally attempts to regulate enterprises in its domain. Lack of compliance with due process and principles of natural justice during investigation and decision-making by the Director General (DG) and the CCI has also been highlighted as one of the shortcomings of the present regime. To compound matters, the rapid pace of modern business has made timely adjudication of cases non-negotiable for the competition law framework to remain relevant. Given the intertwined relationship of competition law and the markets, in order for the law to remain relevant, it is imperative that it develops in line with market realities and revamps from time to time. Vidhi’s report ‘Systematizing Fairplay – Key Issues in the Indian Competition Law Regime‘ outlines key issues in the competition law regime in India that need to be addressed. The report also includes a snapshot of international best practice and key action points recommended for fairer competition law in India. 

Revisiting CCI’s regulation-making power

Regulations framed by an authority in the exercise of powers granted by the enabling statute are a widely accepted form of delegated legislation. Several regulations have been framed by the CCI as well, in exercise of the powers conferred by the Competition Act.

However, a close scrutiny of the content of these regulations would reveal that, in certain cases, the limits of permissible delegation of legislative power are not adhered to. For example, the CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (‘Combinations Regulations’) exempt several transactions from the mandatory prior notification requirement under merger control provisions of the Competition Act. Neither is there any specific provision in the Competition Act that empowers the CCI to exempt combinations nor has any guidance been provided by the legislature for exercise of such power by CCI. It may be argued that in light of the above, these regulations are not a valid form of delegated legislation and are susceptible to a challenge to their constitutional validity.

Compliance with Due Process of Law by the CCI and DG

Even a brief analysis of competition law jurisprudence demonstrates several instances where the Competition Appellate Tribunal (COMPAT) has noted non-compliance of principles of natural justice by the CCI and the DG. Examples include lack of a fair hearing to parties, failure to meet quorum requirements while passing orders, and abuse of search and seizure powers by the DG. For instance, in the Cement Cartel case (COMPAT Order dated December 11, 2015 in Appeal no.105 of 2012) the Chairperson of the CCI became a party to the final order that imposed penalties of hefty amounts without being a part of the quorum which heard the arguments of the parties. To avoid such situations, in several jurisdictions overseas, the procedure to be followed during investigation and proceedings of competition authorities are laid down in detail. Eventually, confidence of the business community in competition law enforcement in India will erode if the CCI and the DG are perceived to be arbitrary in their approach with no regard to compliance with principles of natural justice and due procedure.

Overload on the office of the DG and need for the CCI to exercise discretion in ordering investigations

Data provided in the Annual Reports of the CCI demonstrate that contravention of the Competition Act was found in only about 50% of the cases ordered to be investigated by the CCI regarding violation of section 3 (anti-competitive agreements) and section 4 (abuse of dominance) of the Competition Act. Studies suggest that unwarranted investigations by the DG have an adverse effect on businesses as they impair the reputation and prospects of a company even though it may be ultimately exonerated. The United Kingdom (UK) has adopted the ‘Prioritisation Principles’ of the Competition and Markets Authority (CMA) to deal with the issue of burgeoning caseload on competition authorities. The Prioritisation Principles ensure that the CMA only investigates such complaints which would directly or indirectly affect UK’s desired competition law outcomes or are strategically significant or there is likelihood of a successful outcome within available resources. India must consider formulating similar principles to avoid wasting its limited regulatory bandwidth. Additionally, the CCI must record reasons in writing for ordering investigations by the DG. With respect to the DG, its office must be adequately staffed with experienced persons. Time, resources and reputation of businesses must not indented without concrete reasons for doing so.

Issues at the appellate stage

The Competition Act has a six-month indicative timeline for disposal of appeals. However, figures in the Annual Reports of the CCI suggest that over 46% cases remain pending with the appellate authority for over a year.

None of the relevant rules or regulations, including the CCI (General) Regulations, 2009, the Competition Appellate Tribunal (Form and Fee for Filing an Appeal and Fee for Filing Compensation Applications), Rules 2009 and the Competition Appellate Tribunal (Procedure) Regulations, 2011 provide stage-wise timelines for the appellate process. The Companies Act2013 (Companies Act) and the rules thereunder require the NCLAT to make every endeavour to dispose an appeal within three months from the date of filling but do not provide any indicative stage-wise timelines to dispose appeals. Moreover, unlike certain jurisdictions such as the UK and Singapore, there is no requirement in India for either the NCLAT or the CCI to conduct case management conferences which are known to maximise efficiency.

In fact, the NCLAT was originally envisaged as an appellate authority for only company law related appeals. Accordingly, section 411(3) of the Companies Act which provides for qualifications of a technical member of the NCLAT does not require her to possess expertise in competition law and policy or economics. Unsurprisingly, the profile of the present NCLAT members (as provided on NCLAT’s website) indicates that there is no technical member who has prior experience in the domain of competition law and economics. In this regard, reference may be made to the 272nd Report of the Law Commission of India which has recommended that ‘appointments to specialised tribunals should comprise of persons of proven ability, integrity and standing having special knowledge and professional experience or expertise of not less than fifteen years in the particular field‘.

Further, while the maximum permissible strength of the NCLAT is 11 members, it currently comprises only three members. Considering that the NCLAT is the appellate authority for the purposes of the Companies Act, the Insolvency and Insolvency and Bankruptcy Code, 2016 and the Competition Act, there is an urgent need to appoint more members to ensure that the volume of appeals pending before the NCLAT does not spiral into an untameable problem as has been the experience with several other tribunals in India such as the Customs, Excise and Service Tax Appellate Tribunals (CESTATs) and Debt Recovery Tribunals (DRTs).

Interface with other sectoral regulators

The interface between competition policy and sector-specific regulation poses complex questions, particularly concerning the jurisdictional mandate for competition law issues. There have been several instances of turf conflicts between the CCI and various regulators and forum shopping by plaintiffs, stemming from a lack of clarity with respect to a delineation of roles and responsibilities between the CCI and sectoral regulators.

To homogenise decision making, it must be made mandatory for regulators to employ the cooperation/ consultation mechanism by necessary amendments to the Competition Act and sectoral laws. Moreover, following the example of the UK Enterprise Reform Act, the Central Government can lay down conclusively which regulator shall have primary jurisdiction in competition law matters in case of concurrent powers. Clarifying role of the CCI and sectoral regulators in competition law matters will prevent contradictory views being pronounced by various regulators and the resultant forum shopping.

Technology and competition law

Recent large scale mergers, particularly the Facebook/WhatsApp merger have encouraged discussions regarding the competition law impact of gaining control over ‘big data’ and its treatment as an asset in determining market power. Further, it has been observed that there is the risk that some algorithms with powerful predictive capacity will be able to collude and control markets without the need for any human intervention. In order to maintain competitive markets there must be periodic analysis and overhaul of competition law in the context of technological advances that have not been envisaged while formulating the law in its original form. The importance of conducting market studies to understand the effects of these technological developments on the Indian competition landscape cannot be over-emphasised in this regard. Efforts must also be made to build technical expertise among the competition law authorities by engaging expert advisors, participating in industry-wide coordinative processes and training exercises.

Download the full report on Systematizing Fairplay – ‘Key Issues in the Indian Competition Law Regime

About Vedika Mittal:

Vedika is a Senior Resident Fellow with the Corporate Law and Financial Regulation team. Her areas of interest are competition law, insolvency law and corporate governance. At Vidhi, she has worked on a diverse range of projects including research and drafting support for amendments to the Competition Act, 2002 and the Insolvency and Bankruptcy Code 2016, adoption of the UNCITRAL Model Law on Cross-Border Insolvency, review of offences under the Companies Act, 2013 and simplification of the GST returns filing system. Vedika completed her B.A. LL.B. (Hons.) from Gujarat National Law University in 2011 and an MCL from University of Cambridge in 2014 where she was ranked 2nd in her cohort. Apart from writing for leading newspapers, Vedika has contributed to panel discussions and conferences in the area of cross-border insolvency including the Annual Global Insolvency and Restructuring Conference organised by the International Bar Association. Prior to joining Vidhi, she worked in the Chambers of Mr. Dayan Krishnan, Senior Advocate. She has also worked as the Khaitan & Co. Research Fellow for Mergers and Acquisition at Gujarat National Law University and as an associate in the Capital Markets team at Amarchand Mangaldas, Mumbai.. She has also authored independent reports in areas including competition law and corporate governance of PSU’s.

About Shehnaz Ahmed:

Shehnaz is a Senior Resident Fellow with the Corporate Law and Financial Regulation vertical. Her areas of interest include the intersection of law and digital economy and business and human rights. At Vidhi, she has worked with various Ministries/Departments and a multilateral institution on various projects involving research and drafting support on areas diverse areas including financial resolution, digital economy (including payment systems law), business and human rights and competition law. Shehnaz graduated from RML National Law University in 2011. She has authored independent projects on tech-based interventions for regulating payment wallets, blueprint of a National Health Insurance Law and reforms for competition law. Prior to joining Vidhi, she headed a law firm (Zeta Law Chambers) co-founded by her, the Financial Regulatory Practice at Cyril Amarchand Mangaldas, Mumbai and the Dispute Resolution team at J. Sagar Associates. She has written for publications such as Oxford Business Law Blog, Financial Express, Firstpost and Business Standard.

About Param Pandya:

Param is a Research Fellow in the Corporate Law and Financial Regulation vertical. Prior to joining Vidhi, he worked in the General Corporate team at Cyril Amarchand Mangaldas, Mumbai (CAM), a leading law firm. His areas of interest include banking and corporate governance. He graduated with a B.Com. (LL.B.) (Hons.) from the Gujarat National Law University, Gandhinagar in 2015.

About Debanshu Mukherjee:

Debanshu is part of the founding team at Vidhi and leads its Corporate Law and Financial Regulation vertical. He graduated from the Hidayatullah National Law University and completed his graduate studies at Harvard University and the University of Oxford. He attended Harvard Law School as a Fulbright- Nehru Fellow where he was awarded the Irving Oberman Memorial Writing Prize in Bankruptcy and the Dean's Scholar Prize in Corporations. He has advised the Ministry of Finance, the Ministry of Corporate Affairs, the RBI and the IBBI on projects relating to bankruptcy, corporate law, and financial regulation. He was previously a lawyer with AZB & Partners. Link to full bio

About Joyjayanti Chatterjee:

About Ritwika Sharma: