This is an article written by Anushka Yadav from the Faculty of Law, Aligarh Muslim University. This is an analytical article on the draft of the Competition Amendment Bill of 2020. The article is going to focus on provisions which the Bill wants to introduce. It is going through the major changes that the Bill seeks to amend.
The Competition Act of 2002 was passed by the legislature to prevent the anti-competitive activities in the market and make the markets more consumer-friendly. The market economy has changed a lot from the time of liberalization. The policies of liberalized trade have evolved the markets in a different direction.
The economy has an impact on law and policies always. Law changes according to the changing market to have effective economic policies. Today, technology has made the markets digital and online shopping has become an evolving market. By keeping in mind the evolving changes in the economy, the Central Government has evolved the Competition (Amendment) Bill, 2020. The Government has introduced some significant changes in the Bill to be introduced and also called the public grievances on the Bill to acknowledge the feedback for it. This article is going to focus on the major changes that the Bill seeks to amend in the Act of 2002 and the rationale behind the changes. An analysis is made in the article about the positive and negative effects of the Bill of 2020.
The Competition Act, 2002
The introduction of the Competition Act of 2002 was done on the recommendation of the Raghavan Committee. The Raghavan Committee released its report in 2000. The report found the Monopolies and Restrictive Trade Practices Act of 1969 (MRTP Act) as inadequate to deal with the new economic policies that had evolved with time. This leads to the introduction of the Competition Act by the legislature in 2002. With the introduction of this Act, the ‘command and control’ regime was changed into a ‘competition regime’. The main functions of the Competition Act were to deal with as follows:
- Anti-competitive agreements
- Abuse of dominance
- Regulation of combinations
- Competitive advocacy
For the regulation of the Act, two main regulatory bodies were introduced by the Act itself:
These are the two regulatory bodies that function under the Act to ensure the better functioning of the competitive regime.
On 1st October 2018, a committee was set up by the Ministry of Corporate Affairs. The committee is called the Competition Law Review Committee of 2018. The objective of setting up a committee was to review the Competition Act of 2002. The Committee was assigned to review whether the Act of 2002 was effective enough to deal with the changing market policies or not. The changing economy with digitalization was kept in mind. The Committee sought to suggest the structural and procedural changes in the Act to deal with the current market situations. The Committee submitted its report in 2019. It suggested many changes in the Act and also provided the rationale behind the changes. On behalf of the suggestions of the Committee, the Government drafted the Competition (Amendment) Bill in 2020.
The changes suggested by the Committee were as follows:
- The first suggestion from the Committee was to introduce some structural changes in the Competition Commission of India (CCI). The CCI is a regulatory body that performs all the tasks to regulate the Competition Act in the country. It performs the following functions to regulate the provisions of the Act:
- Advocacy Functions.
- Regulatory Functions.
- Investigative Functions.
- Adjudicatory Functions.
- The Committee found that the burden on the CCI should be reduced by the introduction of a governing body in the structure of it. The governing body could be supposed to perform the advocacy and quasi-legislative functions of the CCI.
- The second suggestion was the integration of the Director-General (DG) office with the CCI. The Committee found that the DG office is in no way a separate part from the CCI. It is a ‘specialized investigative wing of the CCI. Thus, the office of DG should be merged with the CCI to aid it.
- The third important suggestion of the Committee was to increase the accessibility of the CCI by introducing some regional offices in different geographical areas. At present, the CCI only works in Delhi. The opening of some regional offices would increase the accessibility of common people to the CCI easily.
- The introduction of “Green Channel” was also suggested by the Committee. It has an effect on the approval of the combinations (mergers and acquisitions) in less time and less cost.
- One of the main functions of the CCI is to identify anti-competitive conduct. The two types of anti-competitive agreements that are identified by the CCI are horizontal and vertical anti-competitive agreements. The Committee suggested the introduction of the identification of ‘hub and spoke’ agreements also. This would increase the effectiveness of the CCI to prevent anti-competitive agreements.
- The compliance of the CCI was focused on by the Committee. And it was suggested that the CCI should be mandated to issue guidelines on the imposition of penalty.
- The Committee suggested the introduction of additional enforcement mechanisms for the resolution of the anti-competitive conduct cases in a speedier way. The settlement and commitment mechanism was suggested by the Committee as an effective way to resolve the cases through settlement.
- One of the major suggestions of the Committee was the recognition of digital markets. This is an important suggestion that might change the restrictive approach of the Competition Act to make it comply with new-age technology.
Changes introduced in Bill
On the suggestions made by the Committee in its report, a draft of the Competition (Amendment) Bill was issued on 20th February 2020. The Bill seeks to amend the Competition Act, 2002, to make it more effective and efficient to deal with emerging changes in the economy. The Bill was asked for public comments. Many of the suggestions of the Committee were accepted as amendments in the Bill. Some of the major amendments that the Bill seeks to introduce in the Act are discussed below:
Changes in the structure of Regulatory Framework
The Bill seeks to amend the structure of the regulatory framework of the CCI. The CCI is not a judicial body but it is only a regulatory body. It was held in the major decision of the Supreme Court in Brahm Dutt v. Union of India (2005) 2 SCC 431, that the CCI is an expert regulatory body and not a judicial body. It was also settled down by the Delhi High Court in Mahindra & Mahindra Ltd. v. CCI & Amr. SLP (C) No. 12938/2019. There are two major structural changes that the Bill seeks to introduce in the regulatory structure provided in the Competition Bill.
Introduction of Governing Body
The Bill, on the recommendation of the Committee, provides for the introduction of the Governing Body by the introduction of a new Clause (1A) under Section 8 of the Competition Act.
Composition: The composition of the CCI consists of the Chairperson and six other members, appointed by the Central Government. The members of the CCI are Whole Time Members (WTMs). The Bill introduces the Part-Time Members (PTMs) as the composition of members of the Governing Body.
The composition of the Governing Body is provided under Section 8 (1A) of the Bill. The Governing Body shall include the following members according to the Bill:
- The Members of the Commission;
- Secretary of the Ministry of Finance and the Secretary of the Ministry of Corporate Affairs or the nominee of the Secretary, not below the rank of Joint-Secretary, in both cases; and
- Four other Part-Time Members, appointed by the Central Government.
Qualifications: The qualifications for the members of the Commission are provided in Sub-Section 2 of Section 8. The qualifications include an experience of at least fifteen years and special knowledge in the field of international trade, economics, business, commerce, law, finance, accountancy, management, industry, public affairs or competition law and policy. On the recommendation of the Committee, the Bill seeks to include the knowledge of “administration” or “technology” as the qualification criteria for the appointment of the members of both the CCI and the Governing Body in Section 8 (2).
Functions: The Bill imposes the Governing Body with advocacy and quasi-legislative functions by introducing new Section 18A in the Bill. The CCI is still to perform the quasi-judicial functions and it is not on the part of the Governing Body. The Governing Body is supposed to perform quasi-legislative or say, regulation-making functions according to the Bill. The following functions are supposed to be done by the Governing Body under Section 18A (2) of the Bill:
- Regulation-making on matters relating to competition and the administrative affairs of the CCI (quasi-legislative function);
- Dealing with the memorandums, arrangements, and contracts on behalf of the CCI with any statutory authority or department of Government;
- Performing competition advocacy. Creating awareness and training programs on competition issues;
- Aid the Central Government in policy-making on competition issues. And the effective implementation of these policies; and
- Functions prescribed by the Central Government, if any.
Thus, the functions of the Governing Body only include quasi-legislative, policy-making, and competitive advocacy. It cannot interfere in the adjudicatory functions that are only to be performed by the CCI.
Rationale: The rationale behind the introduction of the Governing Body within the regulatory framework of the CCI is to reduce the burden over the CCI. The CCI has to perform the adjudicatory functions and also the functions of policy-making and advocacy. The division of functions between two regulatory bodies would increase the efficiency of the work performed by them.
Integration of the DG office with the CCI
Another structural change that is aimed to be introduced by the Bill is the merger of the office of the Director-General with the CCI. The appointment of the Director-General is provided under Section 16 of the Competition Act. The Director-General is to be appointed by the Central Government under Section 16. The function of the DG office is to aid the CCI in the investigation. The DG office is governed by the CCI (DG) Recruitment Rules, 2009, and the CCI Rule, 2009 (DG Office Rules). On the suggestion of the Committee, the Bill introduced the merger of the DG office with the CCI.
Integrated Agency Model – The Committee took into account the model which is followed internationally by the regulators of competition in different nations. The Committee found that many developed countries like European Union (EU), UK, the US, and Brazil follow the Integrated Agency Model and there is no such separation of the investigation wing with the regulating body like India. The Committee noticed that many domestic regulatory bodies such as SEBI, IRDAI, PFRDA do not have such separation in their regulatory framework. On this basis, the Committee found the division of the DG office from the CCI as useless.
Judgment – In the case of CCI v Steel Authority of India Ltd. (2010) 10 SCC 744 (SAIL Judgment), the Supreme Court observed that the DG office is a “specialized investigating wing of the CCI”. This makes it clear that the office of DG is a part of the CCI and not a separate entity. The separation of the DG office from the CCI is only de jure (state of affairs that is in accordance with the law) but not de facto (state of affairs that is true in fact).
Delegation of Functions
The executive and administrative functions are allowed in India to be delegated. The permission of delegation of such functions is also provided in the Indian Contract Act, 1872. The Bill of 2020 provides the power to the CCI and the Governing Body to delegate their executive and administrative functions. The Bill sought the insertion of Sub-Section 13A under Section 13 that specifically deals with the provisions of the power of delegation of the CCI and the Governing Body. It allows both to delegate their power through special or general order in writing to lower officers.
But there is some limit on the power of delegation, as only the executive and administrative functions are supposed to be delegated. The CCI is not allowed to delegate its quasi-judicial function and the Governing Body is not allowed to delegate its quasi-legislative function, as per the recommendation of the Committee.
Rationale: The Committee focused on the reduction of burden on the CCI. The delegation power might reduce the burden on the CCI and help it for effective working. The regional bodies like SEBI (by virtue of Section 19 of the SEBI Act), IBBI ( by virtue of Section 240 of the IBC) and PFRDA (by virtue of Section 49 of the PFRDA Act), delegate their powers. The delegation of power is an effective mechanism to deal with the workload.
One of the main purposes of the Competition Act of 2002 is to prevent anti-competitive activities in markets to ensure a healthy competitive environment. Such activities are said to have an Appreciable Adverse Effect on Competition (AAEC). For the regulation of such anti-competitive agreements or activities, the Act has its regulatory body – the CCI. The CCI plays a major role in the prevention of such activities. Section 3 of the Act deals with the anti-competitive agreements that are in need to be prevented for ensuring a competitive atmosphere.
Identifying Hub and Spoke Cartels
Section 3 of the Act provides for two types of anti-competitive agreements to be prevented:
- Horizontal Agreements [Section 3 (3)]
- Vertical Agreements [Section 3 (4)]
These agreements are with regard to the determination of prices or limit or control production, supply, markets, technical development, investment, or provisions of services. The difference between the two types of agreements is that the horizontal agreement is an agreement between enterprises engaged in the identical or same trade of goods and on the other hand, the vertical agreement is an agreement between enterprises of different levels of production or different markets of production. The committee recognizes that apart from these two types of agreements there are other types of agreements also that are anti-competitive in nature.
The “hub and spoke” agreement is one such agreement that is considered as anti-competitive. In this arrangement, the third-party (hub) passes the sensitive information among two or more competitors (spokes) and leads to collusion among them. This may lead to price determination and other anti-competitive activities. The observation of the Committee found that there is the possibility that the hub can escape in lack of any provision to punish such practices. Thus, on the recommendation of the Committee, the introduction of ‘hub and spoke’ anti-competitive activities were done in the draft of the Competition Bill.
It is done by widening the scope of Section 3 (3) and Section 3 (4) by including the anti-competitive activities to be recognized even if those do not come under the scope of horizontal and vertical agreements respectively.
Rationale: The rationale behind the insertion of this anti-competitive agreement is clear to have a better competitive market. The main objective to prevent anti-competitive activities of the Competition Act can be strengthened by this amendment in the Act.
Judgment – In the cases of Hyundai Motors Case, Case No. 36 and 82 of 2014 and the Uber Case, Case No. 37 of 2018, the CCI has recognized the instances of ‘hub and spokes’ agreements. The CCI has elaborated it in the Uber Case and observed such practices as anti-competitive.
Also in the case of Hiranandani, Case No. 39 of 2012, the Court observed that an agreement between a hospital and a stem cell bank was not coming under any of the agreement, neither horizontal nor vertical agreements. Such types of instances need to widen the scope of Section 3 of the Competition Act to include other types of agreements that are anti-competitive.
Other Countries – The countries like the UK [by virtue of Section 2 (1) of the UK Competition Act] and the US [by virtue of Section 1 of the Sherman Act] strictly prohibit the anti-competitive practices. These countries even not make difference between horizontal and vertical agreements and they widely adopt the approach to prohibit any such activity even not fitting in horizontal and vertical agreements. This shows a broader view to prohibit such practices.
The Bill seeks to widen the scope of the definition of “cartel” provided in Section 2 (c) of the Competition Act. Cartel is a very serious offence for restricting competition. The definition of the cartel was earlier restricted to the sellers, producers, distributors, service providers only but in the Bill, the definition seeks to include buyers in its ambit. There is no doubt in the existence of a buyer’s cartel which the Competition Act of 2002 excludes from its ambit. Section 27 (b) of the Act, which deals with the penalty of cartels, is also amended to include buyers in the Bill.
The EU and the US also recognize the liability of buyer cartels.
Section 27 of the Competition Act provides for the power of the CCI to pass orders imposing penalty. The persons found in anti-competitive activities are liable to get a penalty under this Section.
Insertion of “Income” in Section 27
The word “income” is introduced by the Bill under Section 27 of the Act. The reason behind its insertion was that the enterprises also included proprietorships and individuals. And individuals do not have “turnover” as specified in Section 27. Individuals only have income. This excludes them from the penalty purview of Section 27. The inclusion of the term “income” would increase the scope of Section 27 as deemed necessary.
Determining the Scope of “Control”
Explanation (a) attached to Section 5 of the Act provides the definition of “control”. But the standard of control is not clearly defined in this Section. The CCI recognizes it through recognizing the ‘decisive influence’, under Section 31 (2) of the Act, of one enterprise over another in some cases. And in some cases, the CCI recognizes the ‘material influence’, under Section 31 (3), of one enterprise over the other. The standards of the ‘market influence’ are not clearly defined in the Act. Thus, on the recommendation of the Committee, the standards of ‘material influence’ to determine control over enterprise were introduced through the draft Bill.
The introduction of “Green Channel” is one of the major changes that the Bill is supposed to do in the field of combinations. It is an effective way for the approval of combinations. The Competition Act of 2002 was having the provision of voluntary notification of mergers in its original form. But Section 6 (2) of the Act was amended in 2007 and the provision of mandatory notification of mergers was introduced. The Green Channel for combinations could provide the parties to waive the need of waiting for the statutory period of 210 days of expiration. If the parties qualify for the channel, they can notify the CCI about the merger through the Green Channel. The pre-consultation of the parties with the CCI is required for filling the notification through the channel. One of the strict requirements of this process is to correct and accurate information about the combination.
The timeline for phase 1 for the merger review procedure under Section 19 (1) of the Act is supposed to be reduced to 150 days in the drafted Bill from the 210 days timeline in the Act.
Rationale: There are many advantages of the Green Channel that were highlighted by the Committee in its report:
- Automatic route for the approval of combinations
- Reduce the time and cost of transactions
- Minimal regulatory compliance
- No adverse effect on the function of the CCI
Settlement and Commitments
One of the major changes that the Bill seeks to introduce in the Competition Act of 2002 is the introduction of the settlement and commitment mechanism in the antitrust proceedings. This is a mechanism to seek remedies from the parties to an antitrust proceeding. There is no express provision of settlement and commitment mechanism in the Competition Act but in implied form, the CCI is empowered to provide some settlement in the cartel cases.
Faster and Cheaper resolution of cases – The main rationale behind the insertion of the settlement and commitment mechanism in the antitrust cases is the need for the speedy resolution of cases. The settlement mechanism requires the party to agree on the commission of guilt and make a remedy for the victim itself.
Judgment – In the case of the Tamil Nadu Film Exhibitor Association v CCI, 2015, the Madras High Court recognized the powers of the CCI to do settlement by virtue of Section 27 of the Competition Act, 2002. The Committee took it as a support for the need for the introduction of express provisions for the settlement mechanism in the Act.
Other Regulatory Bodies – There are many regional regulatory bodies that provide for the settlement mechanism for the resolution of cases. SEBI [by virtue of Section 15B of the Settlement Mechanism SEBI Act, 1992 and SEBI (Settlement Proceedings) Regulation, 2018] and Income Tax Act [ by virtue of Section 245 B of the Income Tax Act, 1961 and the Income Tax Settlement Commission (Procedure) Rules, 1997] provides for the settlement mechanism.
Not only the regional regulatory bodies but also the international regulatory bodies follow up on the settlement mechanism. The countries like the EU, UK, and Singapore are examples of this.
Bill is very effective. But still, there are some drawbacks to the proposed Bill. Some of the issues are left untouched in the Bill and some issues are not presented in a detailed manner to prevent confusion. Some of the drawbacks are discussed here:
- One of the drawbacks of the Bill is that the inadequacy to deal with the procedure for the election of the Governing Body it sought to introduce. One of the main issues it raises is the appointment of the members of the Governing Body by deputation. The appointment of members through deputation always has the possibility of lacking the best qualification for the position. The election for a position is always a better way to choose the best.
- The issue of irrevocable proceeding is one of the main issues that has been left untouched. The CCI has no power to revoke the proceeding filed at the request of the parties. The parties have to face the trial and investigation once the process of proceedings is started. The settlement mechanism introduced by the Bill also does not seek any such provision in which parties can step back from their proceedings.
- The integration of the office of DG with the CCI is one of such aspects that need much clarity. The Committee recognized the functional autonomy of the office of DG. But the Bill does not make any specific provision for ensuring the autonomy of the office to achieve greater transparency.
- The NCLAT has the appellate authority to the decisions of the CCI by the virtue of the Finance Act, 2017. Before the Finance Act of 2017, the COMPAT (Competition Appellate Tribunal) was the appellate body to the CCI. The major issue regarding this is that the NCLAT is the body that deals only with the cases of company laws and insolvency. The body is not an expert in dealing with the cases of the competition law specifically. This issue regards the specific dealing to make the better disposal of appeals in competition cases. A body like COMPAT which has expertise in this particular area can better deal with such cases. If the cases are to be dealt with by the NCLAT then the need to set up a different bench having expertise in this particular field should be taken into account. However, Bill seeks no provision in this regard.
- The Committee has suggested the widening of the definition of “price” under Section 2 (o) of the Act. The suggestion of the Committee sought to introduce non-monetary considerations such as ‘data’. But the Bill has not implied the suggestion in it. The suggestion of the Committee was significant to deal with the new age of technology and should be focused.
The Competition (Amendment) Bill of 2020 based on the suggestions of the Competition Law Review Committee of 2018, is a comprehensive Amendment Bill that deals with many significant areas of the newly emerging market economy. It is relevant to be introduced to make the Competition Act, 2002 more effective in the current situations. However, some of the aspects of the law that need changes are kept untouched but it in no way reduces its significance in this emerging economy. The Government should take steps in direction of making this Bill into an Act.
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