National Competition Policy

Shri Dharmendra Kumar committee which was constituted by the MCA for framing the National Competition Policy (NCP) has submitted a draft policy. At first blush one may question the rationale for a National Competition Policy considering that we have a Competition Law (Competition Act, 2002) already in place. Perhaps the answer to this ticklish question lies in the Raghavan Committee Report which observed as follows:

“An effective competition policy promotes the creation of a business environment which improves static and dynamic efficiencies and leads to efficient resource allocation, and in which the abuse of market power is prevented mainly through competition. Where this is not possible, it requires the creation of a suitable regulatory framework for achieving efficiency. In addition, competition law prevents artificial entry barriers and facilitates market access and complements other competition promoting activities. Trade liberalisation alone is not sufficient to promote competition and there is a need for a separate competition policy”

In other words Competition Law is only a subset of an overarching Competition Policy. Be that as it may, the committee lays down the NCP as under:

-Rule bound, fair, transparent and non discriminatory market regulatory procedures.

-Independence of the regulatory body.

-Establishing a ‘level playing field’ for both the government enterprises and the private sector.

-Fair pricing of public utilities and third party access to ‘essential facilities’. In other words it requires the dominant infrastructure owners (electricity, communications etc.) to grant to third parties access to their infrastructure on reasonable and competitive terms and conditions.

-Promotion of competition through regional, national and international co-operation.

The draft policy also mandates the Central and the State Government to undertake a Competition Impact Assessment of the existing policies, statutes, regulation that prima facie undermines competition (an illustrative list of parameters for conducting Competition Impact Assessment has been provided). Further for the implementation of the policy the government is mandated to set up a National Competition Policy Council (NCPC). The role of the NCPC is primarily to provide technical assistance in conducting the Competition Impact Assessment.

The NCP is indeed a necessary and welcome move. However, one may question the legal relevance of such policies i.e. extent to which they are legally enforceable. 

S. 5&6 of the Competition Act Notified

The Ministry of Corporate Affairs ("MCA') has notified S. 5 & 6 of the Competition Act, 2002. This inter alia means that the Competition Commission of India ("CCI") will now have the power to monitor Mergers&Acquisitions. The notification is available here.

In this regard the CCI has also made draft regulations. The draft regulation is available here.

CCI v. SAIL: Conclusions of the SC

Here are some of the important conclusions reached by the Supreme Court in the CCI v. SAIL &Anr.(civil appeal no. 7779 of 2010):


“In terms of Section 53A(1)(a) of the Act appeal shall lie only against such directions, decisions or orders passed by the Commission before the Tribunal which have been specifically stated under the provisions of Section 53A(1)(a). The orders, which have not been specifically made appealable, cannot be treated appealable by implication. For example taking a prima facie view and issuing a direction to the Director General for investigation would not be an order appealable under Section 53A (emphasis mine).”


“Neither any statutory duty is cast on the Commission to issue notice or grant hearing, nor any party can claim, as a matter of right, notice and/or hearing at the stage of formation of opinion by the Commission, in terms of Section 26(1) of the Act that a prima facie case exists for issuance of a direction to the Director General to cause an investigation to be made into the matter.”(emphasis mine)


“The Commission, in cases where the inquiry has been initiated by the Commission suo moto, shall be a necessary party and in all other cases the Commission shall be a proper party in the proceedings before the Competition Tribunal. The presence of the Commission before the Tribunal would help in complete adjudication and effective and expeditious disposal of matters. Being an expert body, its views would be of appropriate assistance to the Tribunal. Thus, the Commission in the proceedings before the Tribunal would be a necessary or a proper party, as the case may be.” (emphasis mine)


“During an inquiry and where the Commission is satisfied that the act is in contravention of the provisions stated in Section 33 of the Act, it may issue an order temporarily restraining the party from carrying on such act, until the conclusion of such inquiry or until further orders without giving notice to such party, where it deems it necessary. This power has to be exercised by the Commission sparingly and under compelling and exceptional circumstances. The Commission, while recording a reasoned order inter alia should : (a) record its satisfaction (which has to be of much higher degree than formation of a prima facie view under Section 26(1) of the Act) in clear terms that an act in contravention of the stated provisions has been committed and continues to be committed or is about to be committed; (b) It is necessary to issue order of restraint and (c) from the record before the Commission, it is apparent that there is every likelihood of the party to the lis, suffering irreparable and irretrievable damage or there is definite apprehension that it would have adverse effect on competition in the market.” (emphasis mine)


“In consonance with the settled principles of administrative jurisprudence, the Commission is expected to record at least some reason even while forming a prima facie view. However, while passing directions and orders dealing with the rights of the parties in its adjudicatory and determinative capacity, it is required of the Commission to pass speaking orders, upon due application of mind, responding to all the contentions raised before it by the rival parties.” (emphasis mine)

At first blush the finding of the Supreme Court seems to be correct. However I shall analyze the decision in greater detail in a subsequent post.

COMPAT's POWERS: SAIL v. JINDAL

The Supreme Court has delivered its judgement in the dispute between the CCI and COMPAT. I will discuss the judgement in a subsequent post.

The order of the COMPAT has been previously discussed on this blog here.
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SAIL v. Jindal Steel: A Historical Judgement

In an earlier post I had discussed the existing spat between the Competition Commission of India (“CCI”) and the Competition Appeallate tribunal (“Compat”). In this post I shall look into the genesis of this dispute i.e. the Compat’s decision in SAIL v. Jindal Steel dated 15th Feb, 2010. The decision is historical in some senses as it lays down the foundation for the Supreme Court to examine some key questions relating to the Competition Act, 2002 for the first time since it became operational in May last year.
Sometime in October last year Jindal steel made a complain to the CCI alleging that SAIL had entered into anti competitive agreements and/or had also abused its dominant position. Pursuant to this complain the CCI had asked SAIL to communicate its views on this matter within two weeks. SAIL had asked for an extension which was denied by the CCI. In the meantime based on the information produced by Jindal, the CCI was satisfied that there existed a prima facie case against SAIL and therefore decided to the refer the matter to the Director General (“DG”) for further investigation [This procedure is prescribed by S. 26(1) of the Act]. It is against this “direction” of the CCI that SAIL preferred an appeal before Compat. Based on the merits of the dispute two questions had arisen before Compat ; (i) Whether the appeallant (SAIL) had been provided with a reasonable opportunity to be heard and (ii) Whether the CCI was under any legal obligation to record its reasons as to why there existed a prima facie case against the appeallant. Both the questions were answered in favour of the appeallant. But the case seems to be of immense legal significance because of two preliminary questions that had arisen before Compat; (i) Whether the appeal was maintainable and (ii) Whether the CCI can be impleaded as a party in the case.

Maintainability

Both Jindal and CCI had contented that the appeal cannot be maintained as only a “direction” was made under s. 26(1) of the Act to the DG to conduct further inquiries and since the CCI had not reached any conclusion on the alleged complain there was no question of Compat exercising its appellate jurisdiction. Rejecting this contention the Compat held that under S. 53A(1) it had the jurisdiction to hear an appeal even against a “direction” under S. 26(1). The reason afforded by Compat in this regard was that S. 53(A)(1) confers power on it to hear appeals against “any direction or decision made or order passed” by the CCI. In this regard compat noted that the use of the word “any” exemplifies the wide powers conferred on it by the legislature. The compat further noted that the use of the word “or” between the words “direction” and “decision” manifests that the clause under 53A(1) is disjunctive in nature. In other words an appeal can be made even against a mere “direction” of the CCI. In my humble view the literal interpretation of the clause by compat may be correct but the eventual finding is against the scheme of the Act. It is submitted that S. 53(A)(1) of the Act requires legislative correction. This can be done by incorporating an exclusionary clause under S. 53(A)(1) stating that the Compat would not have any jurisdiction pending the completion of any inquiry by the CCI. Such a clause would deter vexatious litigation and be administratively efficacious.

Impleadment

In so far as the impleading of the CCI is concerned, the Compat after a perusal of S. 35, 53S and 53T of the Act noted that the former can only be impleaded as a party when it conducts a suo moto inquiry u/s 19(1) of the Act. The reason being that the CCI does not play any adversarial role, instead its role is only limited to that of an investigative nature.

The CCI has preferred an appeal before the Supreme Court against the finding of the Compat primarily on the maintainability issue.

M&A Under The Competition Act: Reasons For Delay in Notification

It has been more than year since S.3 and S. 4 of the competition act, 2002 dealing with anti competitive agreements and abuse of dominant position respectively were notified by the MCA. However, S. 5 and S. 6 of the act dealing with mergers& acquisitions is still to become operational. This post looks at some of the reasons why both the sections dealing with M&A have not been notified.


M&A under the act: A Brief Overview

S.6(1) of the act prohibits any person or enterprise from entering into a combination which has an “appreciable adverse effect” on competition in India (Note, S. 32 also confers the CCI with extra territorial powers) . Further, S. 6(2) stipulates that any enterprise which to enter into a combination (as prescribed in s. 5 of the act) shall give notice to the CCI furnishing details of the proposed merger within thirty days of (i) approval of the merger by the board of directors of the concerned enterprise or (ii) execution of any agreement relating to acquisitions referred to in clause 5(a) & (b) of the act. S. 6(2A) provides a period of 210 days to the CCI to complete the investigation relating to such combinations (if the CCI is unable to come to any conclusion within this period then the combination is deemed to be approved)

S.5 of the Act lays down the transactions which will qualify as combinations for the purposes of the Act. The following is the threshold limit for mergers and amalgamation:

• transactions among Indian companies with combined assets of Rs. 1000 crores or Rs 3000 crores in turnover of the merged entity;

• cross-border transactions involving both Indian and foreign companies with combined assets of $500 million or $1.5 billion in turnover; and

• transactions that have a territorial nexus with India, where the acquirer has $125 million in assets or $375 million in turnover in India.
The following is the threshold limit for acquiring groups:
• Rs 1000 crores in assets and Rs 3000 crores in turnover in India respectively;

• assets in excess of $2 billion; or

• turnover of more than $6 billion outside India
Once any transaction reaches the threshold limit as specified in S.5, the enterprise has to take recourse to the procedure laid down u/s 6 of the Act. S. 5 and S. 6 are primarily ex ante whereas S.3 and s. 4 are ex post facto.


Some Reasons for non notification

The reasons for non notification are directly related to the concerns expressed by the Industry with regard to the provisions relating to M&A under the Act. The following are the suggestions and concerns expressed by FICCI:

• The breadth of Section 5 is so wide that it would require notification of transactions that constitute an increase in shareholding by a promoter of a listed public company (including possible internal reorganizations within a corporate group). It is important to note that these transactions are exempted under the SEBI Takeover Code.


• Section 5 be modified and a single sales/turnover test be adopted along the following lines:


I.
a) Combined world-wide turnover of the parties to the “combination” in excess of Rs.
______________; and
b) each of at least 2 of the parties to the “combination” must have turnover in India in excess of
Rs. ___________;


• Section 6(2)(b) of the Act uses the term “other document” and essentially an execution of such “other document” triggers an obligation to notify the Competition Commission. It is important to clarify that the mere execution of a non-disclosure agreement or a letter of intent or memorandum of understanding (and other similar documents that do not constitute the definitive acquisition agreement) will not trigger the notification requirement. There are cost implications as well because if a non-binding letter of intent were to trigger a notification requirement, the notifying parties would need to pay filing fees of Rs. 20 lakhs, in addition to the devastating impact that such a notification would cause in terms of loss of confidentiality in respect of such a transaction.


• All types of intra-group combinations, mergers, demergers, reorganizations and other similar transactions should be specifically exempted from the notification procedure and appropriate clauses should be incorporated in sub-regulation 5(2) of the Regulations. These transactions do not have any competitive impact on the market for assessment under the Competition Act, Section 6.


• The maximum turnaround time for CCI should be reduced from 210 days to 90 days. To compare anti-trust laws prevalent globally, either the notification is optional as is the case in UK and Australia or the review period is short, where notification is mandatory, for example, in USA review period is 30 days.

(Readers would note that the above mentioned points have been compiled from the article available here)

Apart from this it seems that there would also be a regulatory overlap in the Banking, Insurance and Telecom sector among others. As presently M&A in these sectors are regulated by sector specific regulators such as the RBI, IRDA and TRAI. The article here is useful.

CCI-CAT SPAT

In a recent development the competition commission of India (CCI) has moved an appeal before the Supreme Court against the Competition Appellate tribunal (CAT). The dispute arose when the CAT halted an investigation carried out by CCI pursuant to a complaint lodged by Jindal Steel. It was the case of Jindal steel that SAIL and Indian Railways were engaged in a cartel like behaviour. S. 19(1)(a) confers power on the CCI to inquire into any alleged contravention of S.3 (anti- competitive agreement) and S.4 (abuse of dominant position) either suo moto or on a receipt of a complain from any other person. The matter before the Supreme Court could give rise to interesting questions of law as to the specific powers conferred to the CCI and the CAT under the Competition Act, 2002. This post discusses some of the legal aspects that may arise before the Honourable Supreme Court.


The issue before the Supreme Court would be whether the CAT has powers to halt an investigation carried out by the CCI. Interestingly the CAT did not find a place in the statute as it was originally drafted in 2002. The CAT was only brought about by the Competition (Amendment) Act, 2007 through the incorporation of Chapter VIIA. One of the arguments in this regard could be that the intention of the legislature from the very inception of the Act was to confer all the investigative powers on the CCI and the introduction of the CAT was only to exclude the jurisdiction of the High Court for a faster disposal of competition matters (an appeal from the CAT directly lies before the Supreme Court as u/s 53T). Nevertheless a closer analysis of the relevant provisions of the Act also reveals that CAT has superseded its powers.

S. 53A(1)(a) stipulates that the central government shall by notification establish a Competition Appellate Tribunal to hear appeals against any direction issued or decisions made or order passed by the commission under sub- section (2) and (6) of section 26,S. 27,S. 28,S. 31,S. 32,S. 33, S.38,S. 39, S.43,S. 43A,S.. 44,S. 45 and S. 46 of the act. In this regard it is worthwhile to examine some of the orders/directions that the CCI may pass under the above mentioned sections. S. 26(2) states that if the CCI finds no prima facie case after the receipt of any complains or information, it shall “close the matter” and pass necessary orders. Similarly S. 27 stipulates that CCI may pass appropriate orders if “after the inquiry” it finds a certain agreement in contravention of S. 3 & S. 4 of the Act. Further s. 33 confers power on the CCI to pass interim orders incase it finds “during the course of inquiry” that prima facie an anti-competitive practise is being carried out by the party against whom an allegation has been made. It is evident from S. 26 and S. 27 read with S. 53A (1)(a) that the jurisdiction of the CAT can be invoked only when the CCI has concluded the inquiry and passed any orders or directions. S. 33 read with S. 53A (1)(a) does provide the CAT with the power to hear appeals during the course of the inquiry, but that is only in cases where the CCI has passed an interim order. The CAT has no power under any of the provisions of the Act to intervene prematurely and halt any investigation carried out by the CCI. In case the Supreme Court finds otherwise, it would then necessarily require a legislative correction. As in principle the CCI being the regulator under the Act just as SEBI, IRDA etc. under their respective statutes should have the power to decide whether to investigate in a given case or not, otherwise the CCI will be stripped of all its powers and will end up as a toothless body.