A road map for competition law

A road map for competition law
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First Published: Tue, Jul 01 2008. 01 02 AM IST

(Illustration by: StockXpert)
(Illustration by: StockXpert)
Updated: Tue, Jul 01 2008. 01 02 AM IST
India’s Competition Act, enacted in January 2003 and amended in September 2007, is a modern, economics-based, “state-of-the-art” law. It has been recognized in these terms by independent observers such as the Organization for Economic Cooperation and Development and the World Trade Organization.
(Illustration by: StockXpert)
Unfortunately, due to legal challenges followed by a prolonged process of amendments, the enforcement of the Act could not begin till now, giving India the none too happy distinction of being the only major economy without an enforceable competition law. (China’s law will become operational from 1 August.)
Like competition laws in most jurisdictions, the Act regards the formation and operation of cartels as a serious offence. A cartel that fixes prices, limits or controls production or supply, or technical developments, investment or provision of services, or that allocates markets or customers, or that directly or indirectly results in bid rigging or collusive bidding is presumed to have an appreciable adverse effect on competition (AAEC). This presumptive rule shifts the burden on the cartel to prove there has been no AAEC, making its defence all the more difficult. This is similar to the per se rule against cartels in the US. Cartels usually operate in great secrecy, and it’s unlikely that an agreement to operate a cartel would be a formal contract. This would, however, provide little relief to cartelizing parties as the law stipulates that even an informal arrangement or, as courts in the UK have ruled, even a wink or a nod could be sufficient to nail colluding enterprises.
What could make life particularly tough for cartel members is the leniency provision in the Act, similar to a whistle-blower measure. Thus, if any party to a cartel breaks away and makes a full, true and vital disclosure to the commission and cooperates till the proceedings against the cartel are completed, such party can expect lenient treatment. According to the commission’s draft regulations, the first such party approaching the commission can expect total leniency, the second party 50% reduction in penalty, and the subsequent parties lesser leniency. The leniency programme, first started in the US, has proved to be very effective in the hands of competition authorities worldwide in busting and punishing cartels.
Apprehensions have been expressed about the existence of cartels in India and the role of the industry associations concerned. In recent weeks alone, simultaneous increases in prices by enterprises in the same sectors could raise the legitimate question whether these increases are the result of agreements between the enterprises. Once the enforcement work of the commission begins, the enterprises or the associations may be hard-pressed to explain such simultaneous hikes.
Another important provision in the Act is on the regulation of mergers and acquisitions. Some sections of industry have questioned the need for regulating mergers on the ground that this provision could be misused or there could be delays that could kill the proposed merger. The fact is that merger regulation is part of competition law in all important jurisdictions, the reason being that while the vast majority of mergers do not adversely affect competition, some mergers could lead to monopolies or dominant positions, which may be inimical to competitive forces. Indian companies making acquisitions abroad have routinely approached competition authorities, for example, in the European Union (EU), the US, Canada and South Africa, for clearance of their acquisitions. Similarly, overseas companies always factor in the approval required from competition authorities before proceeding with a merger. In fact, in the absence of a specific merger provision in the law, mergers may have to be dealt with as anti-competitive agreements, thereby placing a Damocles’ sword over the transaction for an indefinite period. Thus, in the EU, for example, enterprises prefer to have their transaction treated as a merger rather than under the anti-competitive agreements provision.
Indian industry did raise some genuine concerns about the procedural aspects of the merger clearance; these have been carefully considered by the commission and addressed in the draft regulations. For example, the Act prescribes a 210-day limit for the commission’s inquiry into a merger, which was viewed as too long. So, the commission has in its regulations provided a 30-day limit for the clearance or else the merger may be deemed cleared. The exception would be when, within the 30-day period, the commission serves a show-cause notice stating that prima facie the merger adversely affects competition and, hence, why a detailed inquiry should not be undertaken. Similarly, the draft regulations include de minimis provisions effectively providing that smaller transactions or those having little or no connection with the Indian market need not be notified to the commission at all. It is in the interest of consumers and the economy at large that the commission’s enforcement work gets going. It’s vital to overcome procedural hurdles or misguided opposition to this vital economic law. The author is acting chairman of the Competition Commission of India. Comments are welcome at theirview@livemint.com
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First Published: Tue, Jul 01 2008. 01 02 AM IST