India: Competition Commission of India
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The year 2014 has in many ways been a landmark year for the Competition Commission of India (CCI). It has been five years since the Competition Act came into effect and three years since the merger review process commenced.
The number of challenges for Competition Authorities are rising rapidly with the increase in business activity and the advent of new technologies that redefine market boundaries and economic power. India is no exception. The complexity of the cases in terms of products, process, technology and jurisdictional presence that have appeared before the CCI has clearly increased over the last few years.
Being a new law in India, there is no settled jurisprudence for Competition Law in India. Accordingly, the CCI has a responsibility not only to decide cases, but also to help develop sound jurisprudence that can act as guiding principle for stakeholders in future. It is even more important when the world is steadily becoming one single market. It is a natural expectation of MNCs operating in various jurisdictions that there exist predictable and sound jurisprudence in the country of their operation.
In May 2014, with the completion of five years of successful enforcement of the Competition Act, the CCI has acquired significant experience in handling cases under sections 3 and 4 as well as sections 5 and 6. A large number of cases have gone up to the Competition Appellate Tribunal; some of them are likely to find their way to the Supreme Court. The decisions of the Supreme Court, the highest court in the country, will bring further clarity to the interpretation and application of the law.
Since the coming into force of the enforcement provisions of the Competition Act, over 550 anti-competitive agreement and dominance cases have been handled by the CCI. Roughly half of these were disposed of at the ‘prima facie’ stage; a quarter have been adjudicated; and the remaining quarter are pending at various stages
Over the past five years, the CCI has dealt with a number of cases from across various industries. The CCI has taken serious note of the adverse economic impact that anti-competitive practices cause and has responded by using a combination of restraint orders, financial penalties and modification of agreements to alleviate the situation. This has sent a strong message to industry. So far, penalties totalling more than 120 billion rupees have been imposed on various cases to discourage anti-competitive conduct. In some cases, personal fines on senior officers of errant enterprises have also been imposed. The year also saw the CCI pass a number of orders against various industry associations that had helped its members enter into illegal agreements to restrict supply or fix prices of products.
Cases related to the functioning of the health-care and medical industry have been dealt in various forms by the CCI (ie, merger review, cartels and anti-competitive agreements in supply of drugs and equipment, etc). However, the Hiranandani case represented a novel market for consideration. The CCI considered the conduct of a hospital in restricting stem cell banks from collecting samples of stem cells as anti-competitive. A substantial fine was levied in the case and the exclusive agreement with one stem cell bank declared void. The hospital was also restricted from entering into other such agreements.
By design, competitive neutrality is one of the cornerstones of the Indian Competition Act and the CCI is following this principle in its true spirit. Being a developing nation wedded to the concept of ‘welfare state’, the government has to share the burden of developing vital infrastructure. This has resulted in the presence of large number of state owned enterprises (SOEs) across the economy over decades; yet this has not deterred the CCI and it is applying the law equally to SOEs. It has taken note of the market practices of one of the largest SOEs, Coal India Ltd and its various subsidiaries (in the market for non-coking coal) in several cases, and levied fines, directed modification of agreements, and prohibited it from continuing its anti-competitive practices.
With respect to the merger (called ‘combination’ in Indian competition law) review process, more than 230 applications have been filed. Of these, about 92 per cent applications have been disposed of. The CCI has tried to keep the merger regulations aligned with international good practices. Based on the experience gained since June 2011, the CCI has amended these regulations three times (once every year) with a view to providing relief to industry from making filings for such combinations that are unlikely to raise adverse competition concerns, reduce compliance requirements, make filings simpler and move towards certainty in the application of the Act and the Combination Regulations. Indian merger review is clear and specific in terms of mandatory requirement for notification, definite asset and turnover-based thresholds, certainty of timing of notification and fixed review period, and transactions ‘ordinarily not notifiable’. The CCI is fully aware that a delay in the process of merger review would not be in the interest of the merging entities because the dynamics of the market may change with time lag. Therefore, informal consultations both on substantive and procedural aspects on the lines of similar practices in other matured jurisdictions are encouraged. It is in recognition of its successful introduction of merger review that India has been co-chair of the International Competition Network (ICN) Merger Working Group for past two years.
2014 was the first year in which the CCI sought public comment in the course of a review relating to Sun Pharma/Ranbaxy merger. After detailed analysis in the second phase, the deal was allowed to conclude, subject to modifications imposed by the CCI. This represents a step forward in the CCI’s ability to undertake complex merger reviews. Other cases going into second phase such as the Holcim/Lafarge merger are likely to give further experience in handling complex merger cases.
The success of a competition regime cannot be gauged solely by the functioning of its regulator. The existence of a ‘competition culture’ in the economy is the cornerstone on which the legal regime stands. As mandated under the Competition Act, the CCI has taken its role as an advocate for competition in India seriously. An extensive programme for interactions is drawn up for each year, covering a wide variety of stakeholders. The primary focus of such interactions continues to remain the enterprises and industry organisations. In addition, the CCI has initiated a systemic programme of interaction with government organisations in the light of the role played by governments at various levels in defining the contours of the economy within which markets function. The outreach programme also targets students and budding researchers through internships.
Public procurement system in India is often guided by government policy to achieve certain socio-economic objectives and is decentralised with a multiplicity of entities at different level of government engaged in procurement. The CCI has an important role to play in ensuring fair process of competition in public procurement to achieve value for public money. Keeping this in mind, the CCI periodically interacts with government agencies and SOEs at senior levels and holds workshops for officials involved in procurement activities. It was the outcome of such outreach programmes that a number of cases have been filed by various government departments and SOEs, particularly with respect to the distortion of the tender and bidding process due to collusive bidding and bid rigging. The CCI has imposed substantial penalties upon the infringing vendors and suppliers.
Given the increasingly global nature of economic activity, handling complex cases involving multiple jurisdictions is a challenge for competition authorities across the world. With the increasing number of cross border mergers and acquisitions, it is important for regulators to be able to turn to one another to achieve optimum outcomes for all stakeholders. In view of this, the CCI has been deepening its engagement with key jurisdictions by way of signing memoranda of understanding (MOUs) to facilitate mutual cooperation on best endeavour basis. So far, MOUs have been signed with counterparts in the US, Russia, Australia, the EU and most recently Canada. The CCI looks forward to have cooperation mechanism with other jurisdictions as well. Entities practicing anti-competitive activities should not be allowed to enjoy jurisdictional arbitrage. Over the years, the engagement with other jurisdictions has been very fruitful and has taken the form of seminars and conferences. This engagement has allowed the CCI to learn from the experience of older jurisdictions. In addition, competition related provisions (CRPs) are being included in all the recent trade agreements being negotiated by India. The CCI is spearheading all such negotiations to ensure that the benefits from trade and investment liberalisation are not undermined by cross-border anti-competitive practices.
Apart from competition authorities, the CCI has also widened its engagement with the international competition community at large. Recently, the CCI hosted the International Competition Network Merger Workshop 2014, organised around the theme of ‘international cooperation and remedies in merger review’. The two-day workshop provided a platform for interaction for delegates from many jurisdictions, non-governmental agencies, law firms and scholars.
The CCI has achieved a reasonable degree of success in a short span of five years. It has refined its processes and has focused both on quality as well as speedy disposal, with only 25 per cent of conduct cases and 8 per cent of mergers filings pending. What is more, the CCI has kept the Indian consumer at the heart of its enforcement priorities. The CCI has proved that it can bite but, at the same time, has often considered the nascent law as a mitigating factor for inflicting lesser penalties. Its interpretations are getting support from the Appellate Tribunal (COMPAT) in most cases. Its investigation in several sectors – including cable television, real estate, banking and pharmaceuticals – has revealed regulatory fault lines, prompting the government and sectoral regulator to initiate ex-ante pro-competitive rule making. Several Indian trade bodies have started urging their members to adopt internal competition law compliance codes. Legislative efforts have been initiated to make competition law compliance a prerequisite for Indian companies to get listed on stock exchanges. Based on the CCI’s orders in the DLF case in the realty sector, the government is planning to legislate to have a real estate regulator to safeguard the interests of the consumers. In recognition of its achievements, the CCI was nominated at the GCR Awards in 2014 under the category of ‘Agency of the Year-Asia-Pacific, Middle East & Africa’ for the second year.
Challenges before the CCI
Given the continental size of the country, its large and disparate economy and, above all, weak ‘competition culture’, it is no easy task to monitor and identify the anti-competitive conduct of enterprises and correct them by prescribing appropriate remedial measures. The provisions of the Competition Law also do not allow the CCI to apply its resources as per priorities set by it. Nevertheless, the CCI tries to prioritise suo moto action, keeping in mind the more visible and direct impact on the lives of a vast number of people (eg, sectors such as pharmaceutical retail).
The enforcement of competition law by the CCI is being questioned by parties in various high courts. Issues raised in these forums pertain to the jurisdiction of the CCI. Parties are often able to obtain stay in both investigation of cases as well as adjudication by CCI. This not only delays the matters before the CCI but also forces it to devote resources in fighting off these challenges.
To evolve as an effective competition regulator, the CCI must continually update its skills and knowledge. A number of internal knowledge management programmes have been initiated within the CCI to encourage staff to freely discuss issues and to allow new joiners to learn from the experiences of the senior functionaries.
Competition enforcement all over the world is seen to be a major contributor to the development of fair and competitive markets, and therefore economic growth. In India, competition jurisprudence is at a nascent stage, but strong foundations have been laid by the CCI. This is being well supported by the highest court. It will be the endeavour of the CCI to enforce competition law through a judicious mix of wise and effective enforcement backed by widespread advocacy among stakeholders to foster a competition compliance culture in the country.