By Augustine Peter
Section 22 of Competition Act, 2002 specifies that there shall be three members to form the quorum. The retirement of former chairman some three months back left the Commission with only two sitting members, not sufficient to form the statutory quorum.
Competition law provides for two separate sets of regulations differing in nature and rigour. The first is prohibition of anti-competitive agreements and abuse of dominance. This prohibition is rooted in the knowledge, understanding and conviction over long periods of the economic development of nations that competitive conduct of enterprises advances the cause of economic development and welfare of all sections of people (consumers, producers and competitors) in the medium to long term.
Second, is regulation of combinations (mergers, amalgamations and acquisitions). Regulation of combination was an afterthought in the history of antitrust/competition laws. It is not an antitrust issue as rigorous as anti-competitive agreements or abuse of dominance. Prohibited conduct invites the ire of the Commission and heavy penalties linked to asset /turnover is specified.
Cartelisation, in particular, is visited with severe penalties. In some jurisdictions, cartels still remain criminalised. Regulations of combinations, on the other hand, only stipulate that enterprises should notify proposed combinations to the Commission and wait for its nod before consummating them, when the assets/turnover are above specified threshold value. Combinations as such are not anti-competitive.
Commission would assess the combination based the on factors provided in section 20 of the Act, and suggest modifications where relevant, and if such modifications are accepted by the parties, approval is given. As distinct from prohibited anti-competitive practices which are looked at by the Commission on an ex-ante basis, combinations are examined on an ex-post basis.
The proposal currently is to reduce the required quorum under section 22, from 3 to 2 Members on the ground of ‘doctrine of necessity’, for approval of combinations. Why only combinations, for the application of the doctrine of necessity?
They are legitimate business conduct by enterprises and are only subjected to scrutiny by the Commission to ensure that in the process of combination competition in the market is not unduly diluted. Thus, competition law envisages a totally different and more moderate regulatory framework for combinations as distinct from anti-competitive agreements and abuse of dominance. Combinations by their very nature involve business strategies of enterprises and early conclusion of such combinations is of great economic importance. Naturally, the law specifies timelines for approval of combinations by the Commission.
The Competition Law Review Committee (CLRC) had even recommended further reduction in the timelines for the process for approval of combinations. Moreover, ‘Green Channel’ based approval was also mooted, which CCI has already started implementing.
And the most appropriate way to resolve the issue of lack of quorum for combination approvals on an urgent basis is by way of invocating the ‘doctrine of necessity’. First of all, the coverage is only sections 5 and 6 (combinations). In case sections 3 and 4 were also covered eyebrows would have been raised, and legitimately, given the rigour required and also the penalties that can visit the parties in case of adverse findings.
Moreover, the preamble to the Competition Act, 2002 sets out that the law keeps in view the economic development of the country. The law is in place to promote and not to hinder economic development. When a large number of combinations get stalled business gets stalled, foreign investment flows are adversely affected and the level of economic activity gets compressed. The sense of certainty that had been imbued into the Act by specifying time lines gets dented. Hence invoking the doctrine of necessity in the case of reduced quorum for approval of combinations appears justified. In the meanwhile, there is urgency in filling the vacant post(s) in the Commission, as the doctrine of necessity should be invoked only for as short period as necessary.