Competition (Amendment) Bill, 2012: Gives Some; Takes Some!

It’s been a parliament session of half measures- the most successful was the banking amendment Bill that cleared both houses albeit with some changes. The long pending Companies Bill 2011 was passed in the Lok Sabha but is pending Rajya Sabha approval. The Competition Amendment Bill 2012 got only as far as being tabled!

Yet that's the Bill we want to talk about today because many of its 17 proposed amendments are game changers! Payaswini Upadhyay does some impact assessment.
 
It took the European Competition Commission 8 years to get a favorable ruling on the principle of collective dominance. In 1992, for the first time, the European Competition regulator alleged abuse of collective dominance by 3 Italian flat glass manufacturers. The regulator lost in the Court of First Instance. It was only in 2000 that the European Court of Justice accepted the regulator’s order on collective dominance in the case of Maritime Belge. The Court laid down that if two or more independent dominant entities act as a collective unit for their competitors, trade partners and customers in a particular market, such behavior would amount to abuse of collective dominance.
 
India is only now hoping to introduce this concept in its Competition Act by prohibiting abuse of dominant position by a group- jointly or singly
 
Amitabh Kumar
Partner, JSA
Former DG, CCI
“If you see the original provision in the Act, it already talks of dominance by an enterprise or a group of enterprises but the way the group is defined, it only leads to a structural linkage between the companies. So in a subsidiary or some other form of a structural linkage, what if it is found that two enterprises can still be taken to be jointly dominated; what the amendment now tries to bring in is a concept of economic linkage. The two firms may be independent of each other structurally but there is an economic dependence, say a very tight oligopoly and this something which is well accepted norm in the EU and in other jurisdictions as well.”
 
Manas Chaudhuri
Partner, Khaitan & Co.
“Sometimes around 2010, and in the month of August there was some kind of a boycott being declared by almost all airlines not to fly on a particular day and there was no way that the CCI could really prevent this; though there could be an assessment of harm that could happen on that particular day when all the airlines decided not to ply. So this example in my view could have come very close to an issue of collective dominance by all the players and the CCI -had the collective dominance provision been there- they could have at least instituted an enquiry to see, whether they really collectively decide to distort the market.”
 
In the second important proposed amendment, India makes a significant departure from developed countries by allowing for different sectoral thresholds of merger control. Currently all M&A transactions above this size must file for pre-clearance. The Bill proposes to enable the government to prescribe different thresholds for a class of enterprises. This was first suggested last year by the Arun Maira committee set up to examine the impact of M&A in the pharma sector. Concerned by the spate of foreign takeovers, the Maira committee suggested lowering merger control thresholds so that even smaller such deals would need pre-clearance by CCI. But many in industry are concerned that ad-hoc changes in thresholds could severely impact M&A. Dhanendra Kumar
Former Chairman, CCI
“There may be a lower threshold limit needed for a particular sector in order to have the right number of cases to come to see if there is likely to be an appreciable adverse impact on competition in the market; yet in a different industry, there could be a case for much broader threshold limit so that the normal cases are filtered and don't have to come before the Competition Commission. So I would say that this is a very progressive flexibility which is sought to be built in.”
 
Amitabh Kumar
Partner, JSA
Former DG, CCI
“It is probably in the right direction that the government in consultation with CCI should be able to fix different thresholds for different industries. The only caveat I would like to put here is that it should be done in wider consultation with the industry and other stakeholders; it shouldn’t be changed too often just because they want to get their hands on one particular matter, and there should be some certainty and if you’re going to change it out, say, on 1st January, you should bring it 4-5months in advance so that those negotiations which are going on should not get affected because the law suddenly changes overnight.”
 
The thresholds may differ but no sector will escape CCI scrutiny. This week when the Banking Amendment Bill was first tabled it proposed to keep bank mergers & amalgamations outside CCI’s jurisdiction. But this contentious clause had to be dropped for parliament’s approval maintaining CCI jurisdiction over the banking sector. The Competition Amendment Bill goes one step further in mandating regulatory consultation. It proposes to make it mandatory for the competition and sectoral regulators to refer matters to each other and respond within 60days if there is a possibility of violation of respective laws Amitabh Kumar
Partner, JSA
Former DG, CCI
“You know this non mandatory provision hasn’t worked since 2009. There have been very few references by sectoral regulators to CCI and equal references from CCI to other sectoral regulators, although I must concede that CCI seems to be a little more enthusiastic about making references than the other sectoral regulators. Nevertheless the bulk of the cases are being dealt with as if the other laws do not exist and so making them mandatory is likely to bring in more certainty for industry.”
 
And here's another significant departure from mature jurisdictions - CCI, currently needs a Magistrate's sanction to carry out any search & seizure operations - often referred to as dawn raids for their surprise element. The Bill proposes to vest the CCI Chairman with this power - a power enjoyed only by the Directorate of Revenue Intelligence, Director General and Commissioner of Income Tax and CBI in exceptional cases. In the United States, a dawn raid without a magistrate judge sanction is considered as a violation of the Fourth Amendment. The European Competition Commission needs to abide by the national laws of its 27 member states if it wants to conduct a dawn raid on a company and most member states require a court sanction.  Dhanendra Kumar
Former Chairman, CCI
“Normally, when the Director General feels there could be a situation when some information is available with the companies suspected of entering into a cartel, for eg, but they are not giving this information, then at present he would have to go to the Chief Metropolitan Magistrate and while the procedure does exist but the fact of the matter is the perspective may be different- there may be too many cases there. Also, there is a possibility of leakage; while in the case of dawn raids, the confidentiality and also the promptitude is important.”
 
Manas Chaudhuri
Partner, Khaitan & Co.
“The current situation of the CMM gives the sanctity of an independent agency authorizing the investigator to cause the dawn raid. Whereas if the CCI chairperson has been given the power in the proposed amendment, then there could be, I am not saying always, there could be a challenge that perhaps CCI is becoming a judge of its own cause - it is trying to cause the dawn raid against certain organizations, maybe at times it is absolutely flawless but at sometimes it can be questioned.”
 
Besides addressing collective dominance, dawn raids, sectoral thresholds and mandatory referencing, the Bill also seeks to plug a loophole in the existing framework. Under the existing law, if the DG finds a contravention and the CCI disagrees, there is no express provision under which the regulator can pass an order- an issue which is alive before the COMPAT in the case of DTH service providers where the regulator said that there is no violation but didn’t specify under what section it has passed this order. The proposal is to enable CCI to pass such an order under Section 26. And lastly, an amendment that will cheer companies- the Bill proposes that a party should be given an opportunity to make its case before the CCI imposes a penalty. But all of this will have to wait until the budget session of the parliament. In Mumbai, Payaswini Upadhyay