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Awhile ago, a popular advertisement on TV used to claim that “barriers break when people talk". Perhaps taking a cue from this, the National Competition Policy Committee (NCPC), which was set up by the ministry of corporate affairs last year, has suggested an amendment to the Competition Act, 2002, mandating that sectoral regulators and the Competition Commission of India (CCI) “shall" speak with each other. As of now, the Competition Act merely states that sectoral regulators and CCI “may" mutually refer cases to each other. Interestingly, after the amendment, mere mutual reference of cases will be mandatory; both sectoral regulators and CCI will retain the freedom to decide the cases in the manner that they deem fit.

Ironically, although NCPC suggested mandatory consultation between sectoral regulators and CCI, it did not consider it fit to consult or seek any comments from the stakeholders on the proposed amendment to the Competition Act. Of course, in its new-found zeal to project a reform-oriented image, the government did not notice the irony and the Union cabinet has given a go-ahead to the proposed amendment. Indeed, the proposed amendment related to mandatory consultations between sectoral regulators and CCI is not only ill thought out, but NCPC has also glossed over the available wisdom from the disciplines of law and economics.

It would be trite to suggest that a transaction between sectoral regulators and CCI is not a zero-sum game. There is the possibility of a bargain between them. An application of the Coase theorem (named after Nobel Prize winning economist Ronald H. Coase) predicts that a vague initial allocation of legal entitlements between sectoral regulators and CCI will not matter from an efficiency perspective so long as free exchange is permissible. In other words, the misallocation of legal entitlements will be cured in the market by free exchange of entitlements (so long as the transaction costs of such exchange are zero). Indeed, there is ample evidence for such free exchange in several cases that have been mutually referred by both CCI and sectoral regulators.

It is unclear why NCPC remained unimpressed with the above evidence of the exchange between CCI and sectoral regulators. On the contrary, NCPC assumed the absence of such an exchange and suggested the usage of a “coercive" measure by an amendment of “may" to “shall" in the Competition Act. This indicates that NCPC relied upon what was christened as the “Hobbes theorem" by Robert Cooter. The Hobbes theorem suggests that people are incapable of solving problems unless a stick is used against them, usually government coercion. Indeed, without coercive threats, life would be, to repeat the words of the English philosopher Thomas Hobbes, “nasty, brutish and short".

NCPC’s hasty, albeit implicit, reliance upon the Hobbes theorem (while ignoring the Coase theorem) shows that they also ignored Robert Cooter’s improvised version of the Coase theorem. Cooter has argued that although Coase was excessively optimistic in his thinking that cooperation is bound to occur in the absence of transaction costs, the truth lies somewhere between these positions. Therefore, the law ought to minimize transaction costs and “lubricate private agreements". Such cavalier treatment of the Coase theorem, Cooter’s law and economics-based analysis is exacerbated by NCPC’s glossing over of the statutory framework that does not define the term “competition". In the absence of such a definition, it is likely that (even after the proposed amendment is carried out) that sectoral regulators will be tempted to classify such matters as involving non-competition issues.

In the Indian context so far, on a purely utilitarian perspective from the vantage point of consumers, multiple regulators dealing with competition issues have not necessarily led to bad outcomes. For instance, in the case of Neeraj Malhotra vs Deustche Post Bank Home Finance Ltd, CCI did not find the pre-payment penalty levied by the housing finance banks and institutions to be anti-competitive (see “The contours of competition", Mint, 14 December 2010). However, the banking sector regulator, the Reserve Bank of India, without characterizing the issue of pre-payment penalty as a “competition" issue, in spite of a contrary CCI order, later ensured that such pre-payments penalties are abolished.

In another case, Anila Gupta vs BrihanMumbai Electric Supply and Transport Undertaking, involved a consumer switching power utilities. The CCI avoided the issue, even though it was arguably a “competition" matter, and left it to the

appellate tribunal for electricity. The tribunal grabbed the opportunity with both hands and went ahead to proactively interpret the law in favour of ensuring consumer welfare.

Unfortunately, in the absence of any meaningful consultations with stakeholders and the opaque manner in which amendment to the Competition Act has been envisaged, it is unclear whether NCPC took cognizance of the above precedents. Further, the impact of the proposed amendments on similar cases in future is uncertain. Unless there is clarity about the applicable law and economics of competition policy and rigorous analysis of the impact on available precedents, such myopic proposals on Competition Act amendments are bound to recur.

Rahul Singh is an expert on competition law. He is a Counsel at Trilegal and teaches at the National Law School, Bangalore.

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