3 design deficiencies in the CCI's draft settlement & commitment regulations

Not extending the settlement mechanism to cartels appears to be a missed opportunity. (Representational photo by Sora Shimazaki via Pexels)

In April 2023, the Indian Parliament introduced several changes to the Competition Act, 2002 (Competition Act) following a detailed review of its decade-long enforcement experience. The Competition Law Review Committee’s (CLRC) 2019 report that informed the 2023 amendments recognized two stumbling blocks to achieving effective enforcement - prolonged investigation and appellate review timelines, and relatively low rate of recovery of penalties. To address this, the Parliament empowered the Competition Commission of India (CCI) to prematurely terminate inquiries by either settling a case or accepting commitments.

A missed opportunity to address cartels

The CLRC recommended the introduction of settlement and commitment (S&C) mechanisms to achieve “procedural economy and efficiency of enforcement actions” for two types of potentially anti-competitive conduct - vertical restraints and unilateral conducts. However, the S&C mechanism could also be used to tackle the most pernicious form of anti-competitive conduct - cartels. Notably, the 52nd Standing Committee on Finance had recommended the expansion of the scope of settlement mechanism to cartels as well. Did both the CLRC and the Parliament miss an opportunity by not extending the benefit of settlements to cartels? Data on enforcement actions indicates so.

Our research shows that during 2019 to August 2023, the CCI received 506 complaints involving at least one allegation of collusion. In approximately 30 percent (145) cases, the CCI’s investigative arm - the Director General (DG) - found incriminating evidence. The CCI concurred with the DG’s findings in a whopping 85 percent (123) of the cases. Most of these decisions are under appellate review. The backlog of cases at the appellate tribunal and the Supreme Court stretches the appellate review timelines and reduces the recovery rate of the penalties imposed by the CCI. These numbers show that not extending the settlement mechanism to cartels appears to be a missed opportunity. An opportunity to settle cartel cases would certainly have helped raise the recovery rate of penalties imposed by the CCI and saved valuable resources spent in appellate proceedings.

Key design deficiencies in the draft S&C Regulations

Could the S&C mechanism miss the opportunity to secure “procedural economy and efficiency of enforcement actions” with respect to anti-competitive vertical restraints and abusive unilateral conduct as well?  A review of the draft S&C Regulations issued by the CCI throws up three key design deficiencies, among others, which if not remedied could make the S&C mechanism less attractive.

An effective S&C mechanism must balance two competing interests - the CCI’s aim of eliminating anti-competitive harm and preventing recurrence, and the investigated parties’ desire to secure a clean chit in the quickest possible time, with little to no change to their business models. To entice an investigated party to use the S&C mechanism, the CCI must indicate that its investigation is progressing towards a robust finding of infringement. Absent a clear signal to the parties about the evidence available with the CCI, they may prefer to fight the case all the way up to the Supreme Court.

Narrow window to offer commitments decreases their appeal.

Lack of adequate time for an investigated party to understand the case against it makes the draft regulations on commitments almost unworkable. Parties must offer a commitment within 45 days (with a 30-day discretionary grace period) from the date of receipt of the order initiating an investigation or prior to the receipt of the DG’s investigation report, whichever is earlier.

CCI’s orders directing an investigation are reasoned but do not necessarily contain evidence of anti-competitive harm arising from the alleged vertical restraint or unilateral conduct. They only reflect the CCI’s preliminary view on potential infringement. Absent such evidence, vertical restraints, and unilateral conduct, even by dominant enterprises, do not qualify as anti-competitive. The DG gathers the necessary evidence upon CCI’s direction. It is difficult for the DG to gather sufficient incriminating evidence within the first 45 days of the investigation. Therefore, the investigated parties will have little sense of the case building against them and hence little ability or incentive to offer commitments.

Potential for self-incrimination would hinder the adoption of S&C mechanism.

Second, the draft S&C regulations empower the CCI to use the material offered by parties as part of their offers to settle a case or seek early termination of proceedings through commitments. This construct jeopardises an applicant's incentive to utilize the S&C mechanism. An applicant will be expected to share all details of its conduct with the CCI, including sensitive business decisions as well as details of the nature, gravity and impact of the alleged contraventions for its application to be considered as “complete”. If the applicant is unable to agree to settlement or commitment terms with the CCI on any one of the many grounds, then not only would this lead to re-opening of the inquiry proceedings against it, but the CCI would be able to rely on the very information that the applicants had submitted as part of the S&C process. This runs contrary to global best practices and will act as a deterrent for parties from using the S&C mechanism.

Lack of a mechanism to modify S&C decrees could lead to intractable impasse.

Third, the draft S&C regulations do not contain any provision for revisiting or modifying S&C decisions. In fast-changing markets and market conditions, the terms of a settlement or commitment decree may require modification to keep them fit for purpose. Most jurisdictions allow modification of S&C decrees due to change in underlying facts or law which make the continued operation of the decree inequitable, or unworkable or unnecessary for the purpose the decree sought to achieve in the first instance. Lack of this mechanism makes the S&C mechanism envisaged by the CCI unappealing and risks making the CCI’s settlement or commitment decrees obsolete.

The good news though is the CCI’s steadfast commitment to engage with stakeholders. It has opened the window for consultations on the draft S&C regulations. Experience shows that the CCI meaningfully considers industry feedback. If the CCI is to further its aim of securing “procedural economy and efficiency of enforcement actions”, striking the right balance between the competing interests of the regulator and investigated parties will be a must.