COMPETITION (AMENDMENT) BILL, 2020: IS PERFECTION ELUSIVE?

THIS ARTICLE WAS WRITTEN BY NAINA AGARWAL, A STUDENT OF RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, PATIALA.

 

Indian economic policies, post Economic Reforms of 1991 had to undergo drastic changes to meet the national agenda and cater to global practices. Competition Act came into force in 2002 by replacing Monopolies and Restrictive Trade Practices Act, 1969, since it was incompetent to control anti-competition practices. The Act aimed to focus on abuse of dominance, regulation of combinations, agreements pertaining to anti-competition and competition advocacy. However, with the passage of time, change in technology and market trends, a need was felt to bring amendments in the light of current situations and encompass debatable issues. Therefore, government constituted the Competition Law Review Committee in 2018 to analyze the current trends and bring the same in consonance with law. The Committee submitted its report in 2019 to Ministry of Corporate Affairs[1]. Therefore, it is upon the recommendations of the Committee headed by Mr. Injeti Srinivas, that the changes related to competition issues were given shape in Competition (Amendment) Bill, 2020[2].

Key Takeaways and Critical Assessment

Change in the Structure

Honorable Supreme Court in Brahm Dutt v. Union of India[3] and Delhi High Court in Mahindra Electric Mobility Ltd. v. Competition Commission of India[4] have emphasized that there lies a need to free CCI from some responsibilities as it tends to underperform due to its multifarious functions. It was suggested to devise a regulatory body like other regulatory bodies in the country. Hence, the recommendation was accepted and led to the establishment of a governing body[5] with ex-officio and part time members. This will serve twin purposes, i.e. reduction in burden on CCI as it will now perform quasi-legislative functions and policy-making and it will lead to accountability and democracy in the functioning with the introduction of part time members.

The Bill facilitates the office of Director General under Section 16 of the Competition Act, 2002 as an investigative branch of CCI. But earlier the office was answerable to the central government and not the CCI thereby implying that the classification was just de jure. The same has gained impetus due to such suggestion by the Supreme Court in CCI v. Steel Authority of India[6]. It was also inspired from the practices taken into account in US, Brazil, European Union and China.

The recommendations emphasize on such division of powers, i.e. the duty to perform quasi-legislative functions along with policy decisions and not entitled to perform adjudicatory functions. However, the Bill fails to demarcate the same. It doesn’t take into consideration the process of election of the ex-officio and part time members which perhaps raises the conundrum between independence and transparency of such members.

Change in Functions of CCI    

The Bill in cases of anti-trust proceedings have introduced cases pertaining to settlement or consent orders. It aims to introduce provisions to allow an investigated party to offer a settlement[7] or voluntary undertake of commitments[8] with respect to anti-competitive vertical agreement or abuse of dominance proceeding. Hence, it calls for such mechanism to allow for settlement or commitment mechanism. The objective underlying this provision is to enable CCI to solve anti-trust cases smoothly and faster. This in turn would avoid uncertainty and prolonged investigation procedure. This proposed procedural change is welcome and seems to be a sign of relief for the corporate world.

Nonetheless, the Bill does not take into consideration the number of aspects of commitment or settlement order, if such an order would have precedential aspect, i.e. if such orders shall be taken into account at the time of deciding similar pending cases. Also, it silent on whether the right to compensation would survive in case of such settlements. The Bill highlights that the commitments have to be made once CCI passes an order of investigation, within a time frame before the receipt of DG Report. This, however, runs in contravention to the recommendations of CLRC. The insufficient period may not give room to the parties to weigh their option fully.

Combinations: Change in Provisions

The definition of ‘control’ fails to provide for the minimum standards required to establish control. Hence, CCI considered the ability to exercise ‘decisive influence’ along with ‘material influence’. But, the Bill now gives a statutorily framework to recognise the standards of ‘material influence’[9] This would bring certainty and consistency in the decisions and ensure that the maximum transactions are scrutinized to maintain an investment friendly economy.

The Bill has proposed many changes pertaining to combinations. Most of which are, specific grounds are mentioned for principal act and the parties thereafter involved in a transaction are required to notify CCI before any such execution of the agreement. There shall lie power with the central government in consultation with CCI to find out any such other ground to constitute the combination[10]. They shall also be entitled the power to delist any ground[11] which otherwise would constitute combination. This would help in tapping the digital markets and promote ease of doing business. Moreover, the inquiry procedure has a huge gap and thus, in order to fill the same, the Bill provides for statutory structure to the practices followed by CCI up till now by the way of notifications and circulars. This has a chance to reduce the number of appeals against combination orders existing earlier due to insufficient provisions like withdrawal of appeal in Holcim/Lafarge merger.[12] This is a laudable proposal since it enhances the jurisdictional threshold of CCI. This would help in encompassing the digital transactions which at present are out of scope of CCI’s scrutiny since, it did not possess any residuary power under the Act.

Green Channel Process

The Bill provides for the statutory framework to Green Channel Process. The objective behind such an introduction was to enable a fast-paced regulatory approvals for mergers and acquisitions that does not have major concerns pertaining to the adverse impacts on competition. This visualizes to move towards the disclosure based regime wherein stricter consequences have to be faced by them, in case incomplete or inaccurate information is provided. This would also encompass the power to approve an insolvency resolution process under IBC. To make sure of time bound assessment of a combination, a time frame of mandatory 30 days is incorporated in the Act.[13] The Bill also proposes for reduction in time from 30 days to 20 days wherein CCI is bound to give its preliminary opinion as to whether the combination has adverse effect on combination or not[14]. This would plummet the burden on the parties involved in such transaction.

Inclusion of Technology and Current Markets

The Bill takes into account the changes to be made in the existing system to accommodate the new age digital markets. Such changes include inclusion of hub and spoke agreements under Section 3(3) along with ‘buyer’s cartel’. The Bill widens the definition of ‘cartel’ to include ‘buyer’s cartel’. This exclusively spells out that the presumption of adverse effect of competition shall be applicable on buyer’s cartel as well. However, such inclusion and presumption runs counter to the CCI’s position which states,

“Though the act covers buyers’ cartel within the purview of Section 3(1) read with the Section 3(3) of the Act, treating buyers’ arrangement/cartel at par with sellers’ cartel may not be appropriate”.[15]

Therefore, in such cases, it is imperative to first assess the harm, its relevant theories and then the conditions necessary of the same shall be examined.  

The Committee took cognizance of the orders issued by the CCI in Samir Agrawal v. ANI Technologies Pvt. Ltd. (Uber case)[16] and Fx Enterprise Solutions India Pvt. Ltd. v. Hyundai Motor India Ltd.[17], since, it understood the tactics of the companies finding an escape route under the Act. Therefore, they suggested that the elements of ‘intention’ or ‘knowledge’ will not play an important role in such agreements.

The Section 3 has earlier a narrowed scope but as the time requires, the Bill looks forward to include agreements other than the horizontal and vertical agreements that have adverse impact on competition in the market as also emphasized in Ramakant Kini v. Dr. L.K. Hiranandani Hospital[18]. The Bill comprises of ‘control over data’ and ‘specialized assets’ under conditions mentioned for constituting dominance of a company in the market.[19] The intent of the Committee behind such a move was to broaden the scope of the section to include online businesses that collects consumer data by way of feedback loops or other such targeted methods.

Striking a Balance

The digital companies globally have undergone a large number of mergers and acquisitions. Between 2008-18, Google acquired 168 companies, Facebook 71 companies and Amazon acquired 60 companies.[20] In last 10 years, 5 major technological companies have made about 400 acquisitions across globe.[21] Seeing the power imbalance, CCI have initiated a probe into such mergers and acquisitions in the digital markets since 2018.[22] Also in 2019, Competition Law Review Committee released a report[23] which encompasses the criteria of deal value threshold to include data driven companies. Along with the consideration of competitive benefits due to data advantage, the abuse of competition must be catered to. The dominant platform tends to make anti-competitive moves which creates a barrier to the entry for rivals that lack such data. For instance, in WhatsApp and Facebook merger, they were fined exorbitantly by EU Competitive Commission.[24] Facebook was charged for providing incorrect information as it claimed that no data has been shared among the entities, however, it proved to be otherwise. Similarly, in Indian digital market, the merger of Jio and Facebook[25] represents the apt example. This calls for attention to be paid by CCI and be mindful of the fact whether Facebook uses such a trick again. Therefore, there has to be an equilibrium between anti-competitive checks and competitive market to ameliorate consumer welfare. CCI has rightly remarked in Flipkart’s case;

“Recognizing the growth potential as well as the efficiencies and consumer benefits that such markets can provide, any intervention in such markets needs to be carefully crafted lest it stifles innovation.”[26]

Enforcement Functions: Change in Provisions

The office of DG and CCI was toothless on the ground that the Act does not provide for the grant of punitive powers in circumstances of non-compliance of its orders. Therefore, the Bill aims to introduce wide array of powers for them. The Bill under Section 41(8) states that any person who; (a) fails to produce information, document or record, (b) fails to answer the question by DG or does not appear in front of DG, (c) fails to sign the note of cross-examination, shall be entitled to pay a fine upto one crore along with imprisonment extending upto 6 months. The Bill under Sections 27 and 48 highlights about the maximum cap of penalty to be fixed at 10% of the individual’s income in preceding 3 years, in formation of cartels.

The move is inspired from the practices already prevailing in the foreign countries like European Union[27], US, UK, Brazil and Singapore wherein the cartels under investigation, if discloses relevant information pertaining to other existing cartels shall be liable for lesser punishment.[28] Section 59(A) also allows for compounding of the offences by NCLAT. However, it merely introduces it, but fails to shed light on the procedure for such compounding of offences. It falls short of imposing compulsory time limit within which the penalty guidelines will be issued. Also, it does not consider the recommendation of the committee wherein it suggested to make a Bench of NCLAT dedicated to just hearing appeals. This would have a negative impact since with the removal of COMPAT, the rate of disposal of appeals have plummeted drastically. This in turn would hamper remarkable initiatives like Make in India.

Competition Law and Intellectual Property Rights (IPR)    

The Bill aims to widen the protection to the holders of IPR. Currently, the exemption is restricted to just the anti-competitive agreements. Section 4A empowers the holder of IPR to (a) restrain any infringement (b) impose reasonable conditions under Section 3 which relates to anti-competitive agreements and Section 4 which pertains to abuse in dominant position. This attains the parity between the treatment of abuse of dominant position and anti-competitive agreements.

However, there is a distrust of IPR which arises from misguided stance that IPR are just monopolies and seeks to dominate the market.[29] But mere use of IPR does not imply the abuse of dominant position.[30] Even European Court of Justice asserted that it is imperative at the time of deciding whether an IPR holder has violated and abused its dominant stand, a balance has to be struck to maintain free competition along with safeguarding the rights of the holder of IPR.[31]

The Act does not provide for any defense in relation to the ‘reasonable’ exercise of IPR in circumstances of abuse of dominance. The need for such defense has been sought through judicial and quasi-judicial authorities, however, they preferred to remain silent by showing their inability to extend such protections under Section 4 of the said Act. In Shamsher Kataria Informant v. Honda Siel Cars India Ltd.[32], the CCI expressed its inability to such defense in IPR and asserted;

“Unlike Section 3(5) of the Act, there is no exception to Section 4(2) of the Act. Therefore, if an enterprise is found to be dominant pursuant to explanation (a) to Section 4(2) and indulges in practices that amount to denial of market access to customers in the relevant market; it is no defense to suggest that such exclusionary conduct is within the scope of IPR.”[33]    

Effects-based Approach in case of Abuse of Dominance

The most desirable obligation on CCI to adopt an effect-based approach while determining the abuse of dominant position is still a far-fetched idea. Different nations like US, Brazil, Canada, Singapore, European Union have analyzed and adopted the effects of such activities in order to prevent the abuse of dominant position. The statutory framework does not provide for such an approach. And as the need arises in various cases of abuse of dominant position, the CCI has deployed such principle to cater the situation. For instance, in Schott Glass Case[34], CCI invoked Section 4 on the grounds of discriminatory pricing of glass tubes. On appeal, Competition Appellate Tribunal was of the opinion that mere charging of discriminatory prices is not enough to prove abuse of dominance, instead the effect of conduct on market must be taken into consideration. The tribunal remarked that in the present case, the conduct has not caused any disadvantage to the consumers and did not cause a harm to the competition. Similarly, in Intel Corporation Case[35] and The Board of Control for Cricket in India Case[36] the CCI remarked that a conduct can be proved as abusive only after enough evidence of anti-competitive effects are visible. But due to unavailability of such an explicit provision have led CCI erred in its findings, thereby forestalling pro-competitive business strategies as in the case of Rico Industries[37] and Adani Gas Limited Case.

Concluding Remarks

The Bill seems to be a welcome step amidst growing concerns in the arena of competition law. It is however, recommended that the government must imperatively assess recommendations put forth for successful enforcement and implementation. It shall strive to strike a balance between market friendly arrangement and vigorous administration. The further issue of problems in inquiry procedure, power to review, integrated agency policy, absence of protective measures for autonomy in functions etc. must be looked into. It must assure a balance with respect to Intellectual Property Rights and take into consideration the effect based approach in order to prevent abuse of dominance.

[1] Report of the Competition Law Review Committee, July 2019, Ministry of Corporate Affairs, http://mca.gov.in/Ministry/pdf/ReportCLRC_14082019.pdf.

[2] The Competition (Amendment) Bill, 2020, https://www.taxmanagementindia.com/file_folder/folder_5/Draft_Competition_Amendment_Bill_2020.pdf.

[3] Brahm Dutt v. Union of India, (2005) 2 SCC 431.

[4] Mahindra Electric Mobility Ltd. v. Competition Commission of India, (2019) SCC Online Del 8032.

[5] Section 8.

[6] CCI v. Steel Authority of India, (2010) 10 SCC 744, ¶ 8.

[7] Section 48 A.

[8] Section 48 B.

[9] Section 5(a).

[10] Proviso to Section 5.

[11] Second Proviso to Section 5.

[12] Rajat Arora, Arijit Barman & Baiju Kalesh, Lafarge India sale stuck as CCI role comes under lens in COMPAT, The Economic Times, https://economictimes.indiatimes.com/industry/indl-goods/svs/cement/lafarge-india-sale-stuck-as-cci-role-comes-under-lens-in-compat/articleshow/51817615.cms.

[13] Section 6(2).

[14] Section 29(1-A).

[15] XYZ v. Indian Oil Corporation Ltd. and Bharat Petroleum Corporation Ltd., Case No. 05 of 2018, https://www.cci.gov.in/sites/default/files/Case%20No.%2005%20of%202018.pdf.

[16] Samir Agrawal v. ANI Technologies Pvt. Ltd., 2018 SCC OnLine CCI 86.

[17] Fx Enterprise Solutions India Pvt. Ltd. v. Hyundai Motor India Ltd, 2017 SCC OnLine CCI 26.

[18] Ramakant Kini v. Dr. L.K. Hiranandani Hospital, 2014 SCC OnLine CCI 17.

[19] Section 19(4).

[20] Elena Argentesi, Paolo Buccirossi, Emilio Calvano, Tomaso Duso, Alessia Marrazzo, Salvatore Nava, Tech-over: Mergers and merger policy in digital markets, VOX EU CEPR,  https://voxeu.org/article/mergers-and-merger-policy-digital-markets.

[21] Katie Jones, The Big Five: Largest Acquisitions by Tech Company, Visual Capitalist, https://www.visualcapitalist.com/the-big-five-largest-acquisitions-by-tech-company/.

[22] Dealing with competition issues in new age markers a ‘nuanced task’: CCI Chief, The Economics Times, https://m.economictimes.com/news/economy/policy/dealing-with-competition-issues-in-new-age-markets-a-nuanced-task-cci-chief/articleshow/63865600.cms.

[23] Report of the Competition Law Review Committee, July 2019, Ministry of Corporate Affairs, http://mca.gov.in/Ministry/pdf/ReportCLRC_14082019.pdf.

[24] Commission fines Facebook 110 million euros providing misleading information about WhatsApp takeover, European Commission, https://europa.eu/rapid/press-release_IP-17-1369_en.htm.

[25] Facebook buys 9.99% stake in Reliance Jio for Rs 43,574 crore, The Economic Times, https://economictimes.indiatimes.com/tech/internet/facebook-buys-9-99-stake-in-reliance-jio-for-5-7-billion/articleshow/75283735.cms.

[26] All India Online Vendors Association v. Flipkart India Private Limited, Case No. 20 of 2018, https://www.cci.gov.in/sites/default/files/20-of-2018.pdf.

[27] Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation, Official Journal of the European Union, (2006/C 210/02), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52006XC0901(01)&from=EN.

[28] Section 46(3).

[29] Refusals to License IP Rights – A Comparative Note on Possible Approaches, WIPO Secretariat, http://www.wipo.int/export/sites/www/ipcompetition/en/studies/refusals_license_IPRs.pdf.

[30] Steve Anderman and Hedvig Schmidt, EC Competition Policy and IPRs, The Interface Between Intellectual Property Rights & Competition Policy 40 (2007).

[31] Huawei Technologies Co. Ltd. v. ZTE Corporation, Case C-170/13, EU:C:2015:477, ¶42.

[32] Shamsher Kataria Informant v. Honda Siel Cars India Ltd., 2014 CompLR 1 (CCI).

[33] Ibid, ¶20.5.85.

[34] Kapoor Glass (India) Private Limited v. Schott Glass India Private Limited, Case No. 22/2010,    https://www.cci.gov.in/sites/default/files/Case22of2010OrderMemberGG.pdf.

[35] M/S ESYS Information Technologies Pvt. Ltd. v. Intel Corporation of India, Case No. 48 of 2011, https://www.cci.gov.in/sites/default/files/482011_0.pdf.

[36] Surinder Singh Barmi v. The Board of Control for Cricket in India, Case No. 61/2010, https://www.cci.gov.in/sites/default/files/61%20of%202010.pdf.

[37] Rico Auto Industries Ltd. v. GAIL (India) Ltd., Case No. 16/2016, https://www.cci.gov.in/sites/default/files/Final-Order-Gail.pdf.