A Review of the Competition (Amendment) Bill, 2012- II

In this post, I shall continue with my review of the Competition (Amendment) Bill, 2012 from the last post. Clause 6 of the Bill introduces Section 5A which empowers the Central Government to specify, by notification, different values of assets and turnovers based on the class or classes of enterprise for the purposes of Section 5 which defines a combination. The stated object of this proposed new provision is to provide the Government with a tool which is much more attuned to the dynamics of different market segments.

Unlike the current Section 20(3), which envisages a modification in the thresholds for Section 5 only once every two years, the proposed Section 5A is not encumbered by any such restrictions.  Also, the basis for change in thresholds as spelt out by Section 20(3), namely fluctuations in the wholesale price index or exchange rate of the Rupee, is absent in the proposed Section 5A. This perhaps could mean that thresholds may be altered with a specific view to address market anomalies and not merely to adjust the thresholds for inflation.

Critically, the proposed Section 5A retains the aspect of consultation by the Government with the CCI in altering the thresholds of assets and turnover. This raises an interesting question regarding the nature of the CCI. Since the Government is merely expected to consult the CCI and not seek its consent in changing the thresholds, could it be argued that Sections 5 and 5A in particular, and the Competition Act in general, are instrumentalities which further the economic policy/vision of the Government of the day (the Executive)? If so, is the CCI itself a part of the Executive despite performing several adjudicatory functions? Questions such as these were left open-ended by the Supreme Court in Brahmdutt v. Union of India and will hopefully be answered in the on-going Writ Petitions (W.P (C) Nos. 7638, 7087, 6634 and 6610 of 2014) before the Chief Justice of the Delhi High Court filed by auto majors BMW, General Motors, Mercedes Benz and other parties to the auto spare parts decision of the CCI. Among other things, the constitutionality of the CCI is under challenge in these petitions.

The next proposed amendment is the one to Section 26 by Clause 11 of the Bill. Here are the relevant extracts of  Section 26 as they read currently:

Procedure for inquiry under section 19

26. (1) On receipt of a reference from the Central Government or a State Government or a statutory authority or on its own knowledge or information received under section 19, if the Commission is of the opinion that there exists a prima facie case, it shall direct the Director General to cause an investigation to be made into the matter: Provided that if the subject matter of an information received is, in the opinion of the Commission, substantially the same as or has been covered by any previous information received, then the new information may be clubbed with the previous information.

(3) The Director General shall, on receipt of direction under sub-section (1), submit a report on his findings within such period as may be specified by the Commission.

(5) If the report of the Director General referred to in sub-section (3) recommends that there is no contravention of the provisions of this Act, the Commission shall invite objections or suggestions from the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be, on such report of the Director General.

(6) If, after consideration of the objections and suggestions referred to in sub section (5), if any, the Commission agrees with the recommendation of the Director General, it shall close the matter forthwith and pass such orders as it deems fit and communicate its order to the Central Government or the State Government or the statutory authority or the parties concerned, as the case may be.

(7) If, after consideration of the objections or suggestions referred to in sub section (5), if any, the Commission is of the opinion that further investigations is called for, it may direct further investigation in the matter by the Director General or cause further inquiry to be made by in the matter or itself proceed with further inquiry in the matter in accordance with the provisions of this Act.

(8) If the report of the Director General referred to in sub-section (3) recommends that there is contravention of any of the provisions of this Act, and the Commission is of the opinion that further inquiry is called for, it shall inquire into such contravention in accordance with the provisions of this Act.

A reading of Sub-section 6 reveals that if the CCI agrees with the finding of the DG that there is no contravention of the Act, it shall close the matter. The language of Sub-sections 7 and 8, however, seem incoherent and incomplete. Sub-section 7 alludes to a situation where the CCI does not agree with the DG that there is no contravention of the Act, in which case it may direct further investigation by the DG. The reference to “cause further inquiry to be made in the matter or itself proceed with further inquiry in the matter” is to a situation where the CCI may choose not to seek the DG's assistance for further inquiry. If such further inquiry does not yield results, Sub-section 7 does not explicitly empower the CCI to close the matter, but practically speaking one would think the logical consequence would be for the CCI to agree with the DG’s finding of no contravention under Sub-Section 6. After all, the CCI cannot endlessly enquire into the matter. However, if further enquiry reveals contravention of the Act, Section 26 and Regulation 21 of the CCI General Regulations are unclear if the CCI has the power to pass orders based on its findings.  

Similarly, under Sub-section 8 which deals with a situation where the DG finds contravention of the Act, it is unclear if the CCI may pass orders if it agrees with the DG although this appears to be logical conclusion. If, however, the CCI does not agree with the DG, Sub-section 8 does not appear to permit the CCI to close the matter.  Despite the absence of such power to differ with the finding of contravention by the DG and to close matters, the Standing Committee has observed that until February 2014, in 42 cases the CCI differed with the DG’s finding of contravention. In order to avoid such anomalies, the Bill proposed to insert “and make appropriate orders thereon after hearing the concerned parties” in both Sub-sections 7 and 8. Further, one of the recommendations of the Committee is to retrospectively provide a limited window of appeal to parties which have suffered as a consequence of closure of their matters by the CCI despite a finding of contravention by the DG. I am of the view that consequential amendments to CCI General Regulation 21 too must be effect to avoid any further voids.

In addition to the above amendments, the Bill also provides for a hearing to a party on which penalty is sought to be imposed by the CCI. Finally, the Bill seeks to empower the Chairperson of the CCI to approve search and seizure by the DG, who is currently required to seek the approval of Chief Metropolitan Magistrate. However, the Standing Committee has observed that such a change is premature considering that no flaws have surfaced thus far with respect to the existing mechanism. In its parting recommendation, the Committee has drawn the Government’s attention to the following questions/issues:

(i) Whether the Commission should be a body comprising of only retired persons or it should be a smaller multi-disciplinary body consisting of domain experts;

(ii) Whether more substantive amendments are required to enable the CCI to play a more vibrant and meaningful role in the economic development of the country like creation of robust data-base and formulation of coherent norms/principles in prevention/detection of cartels, price-manipulation/rigging and other market practices inimical to competition and orderly functioning of markets;

(iii) Whether the CCI should enhance its capacity to take cognizance of emerging trends and developments in industry relating to “unfair dominance” or “monopolistic practices”, such as cross-holdings in media ownership.

(iv) Protection of consumer interest through periodical studies/surveys on trends of consumer prices in different sectors.

(v) Whether the law should be designed in a manner that is unduly restrictive with rigid thresholds or should it be a facilitator for growth of business and industry while promoting fair play and freedom in competition and reasonable prices for consumers.

In my opinion, these are thought-provoking high-level issues which are worth ruminating over since they have a critical bearing on the role we expect the CCI to play in furthering its mandate under Section 18 of the Act.