Column: Shackling competition

Written by Vinod Dhall | Updated: Jun 5 2014, 07:00am hrs
The recent order of the Competition Appellate Tribunal (COMPAT), disagreeing with the Competition Commission of India (CCI) but upholding the R630-crore penalty imposed on DLF Limited by CCI for abusive conduct in its apartment-buyers agreements (ABAs) for three residential complexes in Gurgaon, raises important issues about the interpretation of the Competition Act. Without meaning any disrespect to COMPATs extensively argued order, these issues have broader implications, beyond the DLF case.

First, COMPAT has observed that the Act gives CCI the power to modify only those agreements which are in contravention of Section 3 of the Act (anti-competitive agreements). For contraventions of Section 4 (abuse of dominanceAOD), CCI can only direct the guilty party to discontinue the abuse and impose a penalty. This observation is perplexing given that COMPAT had itself remitted the matter in March 2012 to CCI, and instructed it to specify the extent and manner in which the terms of the impugned agreement should be modified. Thus, apparently, in March 2012, COMPAT held the view that the latter had the power to direct modification to an agreement in an AOD case. When and why this view changed has not been explained by COMPAT; therefore, an air of uncertainty hangs over this issue of law.

Secondly, COMPATs narrow interpretation can significantly fetter the powers of CCI. While Section 27(d) specifically allows CCI to modify any agreement under Section 3 of the Act, Sections 27 (e) and (g) give wider powers to CCI to pass such other orders as may be warranted. The intent of the Act clearly is to allow the it enough elbow-room in dealing with situations that do not fall squarely within the narrow wordings of the other provisions of the Act. Besides, the COMPAT order misses the economic dynamic of the matter. A one-sided agreement may be the result of an abusive imposition by the dominant party. If CCI finds parts of the agreement to be abusive, it has the power to direct the dominant party to end the said abuse, that is, remove or modify the offending part of the agreement. A practical difficulty could arise, for instance, in cases with only one abusive clause: CCI will be forced to strike down the entire agreement, as opposed to modifying or deleting just the impugned clause. In overseas jurisdictions, dominant parties are often allowed to agree with the competition authority to modify or correct their agreements or conduct.

Thirdly, the COMPAT order also highlights the persisting issue of whether the Act applies to actions or agreements existing before it came into force, but whose effect is continuing after Act came into force.

Going by COMPATs order, in an AOD case, CCI will not be able to discipline a dominant enterprise which continues to operate within the four walls of the abusive agreement, merely because the act or agreement existed prior to the Act. The Act could not have intended such distinction between a cartel case and an AOD case in that while CCI has jurisdiction over cartels existing from before the Act, it has no such jurisdiction over AOD cases. Consider the example of a tight twenty-year, exclusive supply agreement imposed by a dominant electricity supplier which forecloses other suppliers from supplying to the particular customer. If such an agreement had been entered into say a day prior to the Act, but was binding for, say, almost twenty years after the Act came into force, would it mean that CCI cannot correct this abusive position merely because the agreement was entered into before the Act, even though by just a day This would not only enfeeble CCI but also perpetuate anti-competitive effects in the market.

Apart from the above general issues, specific to this case, COMPAT has held that since CCI had no jurisdiction to inquire into pre-Act ABAs, it could not impose a penalty. However, the COMPAT has upheld the quantum of penalty by relying on additional acts of DLF after the Act. This is odd since the basis for the penalty of R630 crore was that CCI determined as many as sixteen clauses in the ABA to be abusive, which it has struck down. Besides, in this process, the defence of mitigating factors did not receive adequate attention. Thus, instead of maintaining the penalty at R630 crore, it might have been advisable for COMPAT to remit the matter to CCI for fresh examination. Possibly, had CCI considered only the limited violations outlined by COMPAT, its decision on the quantum of the penalty could have been quite different, tending towards a lower figure.

The author, the first head of the Competition Commission of India, is currently in competition law practice