The government is planning a major overhaul of the competition law, likely bringing in a framework to ensure greater synergy between sector regulators, including RBI, Sebi, Trai and Irdai, and the Competition Commission of India.
The government is planning a major overhaul of the competition law, likely bringing in a framework to ensure greater synergy between sector regulators, including RBI, Sebi, Trai and Irdai, and the Competition Commission of India (CCI), a senior official told FE. The idea is to remove any overlapping role among watchdogs on regulating competition in a relevant market to ensure faster clearances to large merger & acquisition (M&A) deals and better curtailment of anti-market behaviour.
A review — if not another hike — of thresholds beyond which all M&A deals require the CCI approval and of “deterrent penalties” on anti-competitive practices is also expected, analysts said.
The government spared small deals from the CCI ambit last year. Companies need not notify the CCI if the assets of the target firm is Rs 350 crore or less or the turnover is up to Rs 1,000 crore. This substantially reduced the work load and prompted the government recently to cut the strength of the CCI board from seven to four, including the chairman.
“The next big task is to shape the competition law in such a way that it will reflect today’s realities and be among the best globally,” said the official source. Corporate affairs secretary Injeti Srinivas is learnt to be spearheading this initiative.
The move assumes significance, as companies — and sometimes regulators — in sectors like banking, telecom and shipping have in the past sparred with the CCI over jurisdiction. For instance, analysts said, in a case filed with the CCI by Consumer Online Foundation against Tata Sky and some others around 2011, CCI’s jurisdiction was challenged by DTH operators on the basis that only Trai had exclusive jurisdiction over issues relating to them. But the CCI made it clear that competition-related matters squarely fall within its ambit.
Vinod Dhall, former chief of the CCI, said: “There have been instances where conflicts have arisen between the CCI and sector regulators over who has jurisdiction over anti-competitive behaviour in a regulated sector like banking, stock markets and telecom. Such conflicts are in fact wholly unnecessary and often arise from a misunderstanding of the competition law; the government can consider amending the Competition Act to prevent such conflicts and encourage or mandate mutual consultation between the sector regulators and the CCI.”
The CCI is not by any means a “super regulator” and each sector regulator has its proper role. However, the competition law “hangs like a cloud over the regulated sectors as well” and the CCI’s jurisdiction will come into play where enterprises, while complying with the sector regulations, still do not compete with each other but, instead, collude with each other or abuse their dominance in ways that do not breach the sector rules (such as running a price cartel while keeping prices below regulatory caps), Dhall said. So, the role of the CCI and sector regulators are, in fact, complementary and not contradictory. The CCI is sort of a generalist, focussed mainly on preventing anti-competitive behaviour across sectors, while the sector regulator is a specialist.
As for M&A deals, they currently require the approval of both the CCI and sectoral regulators, apart from complying with relevant sections of the Companies Act.
While the CCI has in recent years improved its record in clearing deals — handing out approvals in many cases within 30 days when the law gives time up to 270 days — greater co-ordination among these watchdogs can further speed up the matter and help companies cut costs and delay, said analysts. The CCI examines if a particular deal has potential to distort competition in a relevant market and spur monopoly, among others.
Manoj Kumar, partner and head (M&A and Insolvency Resolution Services) at consultancy firm Corporate Professionals Capital, said: “The meaning and requirements of compliance under all these regulations are different and sometimes makes the transactions quite complicated. Also, several acquisitions are now happening through the insolvency resolution process but there is no clarity with respect to the applicability of the CCI norms on such cases.”
As for penal provisions, the Supreme Court recently said the penalty imposed by the CCI should be linked to the “affected market” — the maximum penalty can be only 10% of the turnover of each guilty party in the affected market and not 10% of its total turnover. Some analysts said it has effectively reduced the deterrent effect of the CCI penalty. The government may, therefore, consider amending the Act so that the cap on penalty of 10% of the total turnover is restored, although there should be enough built-in provisions to guard against its misuse.
The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, bars anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring of control and M&A) that cause or likely to stoke appreciable adverse effect on competition within India. It has replaced the Monopolies and Restrictive Trade Practices Act, 1969.