The weakening of the competition law

From who can be a complainant in a competition case to how penalty for cartelisation is to be arrived at, a host of court and tribunal rulings have enfeebled the competition law’s provisions.

The weakening of the competition law
While the recourse to writ jurisdiction of courts is fully recognised, courts equally have a responsibility to ensure that the CCI’s proceedings are not impeded

By Vinod Dhall

When the Competition Act was enacted in January 2003, few people really understood what it was all about. In its early years, people asked me with genuine curiosity as to what the Competition Commission of India (CCI) would do: Conduct competitive examinations? Conduct music or sports competitions? In the command-and-control era of economic policy free competition in markets was as yet a novel concept, and the idea of a law to promote this was not easy to understand. Even when economic reforms were introduced in the early 1990s, the new competition law to replace the archaic MRTP Act came only in the next decade! And then it faced numerous hurdles in starting its enforcement which ultimately could commence only in 2009.

Unfortunately, even after a full decade of its existence, the competition law has gained few friends or supporters or in the number of those who truly appreciate its role in the economy. Its numerous hurdles have come from the industry, from political leaders, from the judiciary, even from other regulators. It has been dealt some heavy blows to its effectiveness.

In a high-profile case between telecom companies, the Supreme Court in a detailed judgment ruled that the CCI and the TRAI (which had challenged CCI jurisdiction in telecom cases) each had its own area of jurisdiction. However, in an effort to harmonise the roles of both the regulators, the court decided that the TRAI being the expert regulator in telecom, it should first be allowed to decide on the disputed issue; the jurisdiction of the CCI was not excluded but pushed back to a later stage after completion of TRAI proceedings.

The court did not appreciate that, even in regulated sectors like telecom, the CCI must necessarily keep an overarching oversight so that while complying with the sectoral law, the competition law is not violated. For example, broadcasting companies may well be within the price caps set by the TRAI, but by colluding with each other they may decide to charge not below the maximum level permitted by the TRAI. Thus, they would be compliant with TRAI regulations but would be guilty of running a cartel under the competition law. Nonetheless, consequent to the court’s ruling, the CCI will be left a mute spectator while the case might take years to wind through appeals to the TDSAT and the Supreme Court.

On the other hand, while maintaining the concurrent jurisdiction of the CCI, the court could have made it mandatory for the two regulators to consult each other or enter into a MoU in terms of Sections 21 and 21A of the Competition Act enacted for this very purpose. The judgment effectively renders these sections ineffective or superfluous as far as the telecom sector is concerned, and reduces the CCI to a secondary status.

In contrast, in a landmark case, the Delhi High Court, in a writ challenging the jurisdiction of the CCI to inquire into an abuse of dominant position flowing from a patent, ruled that there was no conflict in that case between the Competition Act and the patents law, and the CCI could well proceed against the concerned party.

Recently, the NCLAT ruled that any person who files a complaint before the CCI ought to be one who has suffered on account of the alleged violation, otherwise she would not have the locus standi to complain. The NCLAT failed to appreciate that the CCI has the mandate to rid markets of anticompetitive practices, which are regarded as offences in rem and not in personam, and the duty of the CCI is towards the market and the economy at large and not towards any particular complainant who approaches the CCI. The constricting effect of the NCLAT judgment on the ability of the CCI to act on complaints (even if anonymous) must cause serious concern not only to the CCI but to all who have a stake in maintaining robust competitive markets in the country.

In numerous cases, parties have succeeded in stalling the proceedings of the CCI/DG for months through writ petitions filed before high courts where a stay order has been issued by the court. Such has been the case both in cartel proceedings and cases of abuse of dominance. While recourse to writ jurisdiction of courts is fully recognised, courts equally have the responsibility to ensure that the proceedings of the CCI are not unduly impeded or delayed on this account.

A cartel is regarded as the most egregious of offences under the competition law in all regimes. Bidding cartels, especially in supplies to the government, are endemic in India. The law provides that parties to a cartel can be punished with a penalty up to 10% of the annual turnover of the company for each year of the cartel. However, in an appeal, the Supreme Court held that the turnover must be interpreted to mean only the ‘relevant turnover’ in the product whose supply was the subject of the cartel arguing that this would be in conformity with the constitutional principles of proportionality and equity.

However, the court overlooked the fact that setting a penalty in proportion to the turnover of each company itself reflects the principle of proportionality. The court seems to have misunderstood the cited practices in important overseas jurisdictions such as South Africa, the UK and the EU. In these jurisdictions, assessing the ‘relevant turnover’ is only the starting point for the computation of penalty; the maximum penalty leviable still remains at 10% of the total (worldwide in the UK) turnover. In the UK, for instance, even at the starting point the penalty for cartels is computed at 21-30% of the relevant turnover; to this another amount of 15-25% of the relevant turnover can be added specifically for deterrence. Thereafter the penalty can be increased for aggravating factors such as the duration of the cartel, repetitive violations, role of a cartel leader, coercion et al. Similarly, mitigating factors and proportionality are specifically kept in mind.

The short point is that the Supreme Court’s ruling has effectively tied the hands of the CCI in imposing appropriate penalties on cartels and in effectively deterring further violations.

It is somewhat perplexing that the CCI itself, in some recent cases, has gone inexplicably soft on cartels. After concluding that a cartel in supplies of bearings was proved on the basis of secret meetings, telephone calls and email exchanges, the CCI let off the guilty parties with a mere warning. In another case in supply to a government entity, the CCI again let off the parties, including those that falsely denied any cartel ever existed, with a mere rap on the knuckles. The CCI seems to have overlooked the injury caused to the parties that were victims of the cartels.

If the CCI is to effectively discharge its oversight function against anticompetitive practices, especially against cartels, its ability to impose appropriate penalties extending up to a maximum of 10% of the company’s turnover needs to be restored, if necessary through an express amendment to the Competition Act (an amendment Bill is under consideration of the government). At the same time, it is opportune for the CCI to come out with detailed guidelines on computation of penalties, much as many other authorities have done. The guidelines should, inter alia, keep in mind the principles of proportionality and equity averred to by the Supreme Court in its judgment referred above.

(With inputs from Apurva Badoni, associate, Platinum Partners)

The author is former member and acting chairman of the Competition Commission of India, and senior adviser, Platinum Partners

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First published on: 31-07-2020 at 06:15 IST