Analysis of Draft Competition Amendment Bill 2020: Detailed

By | May 20, 2020
Analysis of Competition Amendment Bill 2020

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Analysis of Draft Competition Amendment Bill 2020 | Overview

Introduction

By the introduction of Competition Amendment Bill 2020, the Ministry of Corporate Affairs (MCA) has introduced some changes to the Competition Act, 2002 to enable smooth-running of the Act and ensure free and fair competition in the markets of the country. In 2019, the MCA formed the Competition Law Review Committee (CLRC) to examine the Act and propose amendments to it. The final report sent by the CLRC to the MCA contains several recommendations for changes in the provisions of the Competition Act, 2002. Following the report of the CLRC, the MCA introduced the Draft Competition (Amendment) Bill, 2020.

The Bill was issued on 20th February 2020 for general views of the public. The Bill’s initial glimpse shows that it calls for the much-needed clarity of some provisions and streamlining the reliability and robustness of the system.

Significant Changes | Competition Amendment Bill 2020

The review of the draft suggests that MCA has approved about 45 suggestions out of 50 proposed by the CLRC and this is a moment of pride for CLRC. Some of the most important changes introduced include

I. Reform in the Regulatory Structure of CCI

The CCI has been performing a lot of functions since its formation as it has been tasked with regulatory, adjudicative, quasi-legislative, and advocacy roles. With this in mind, the CLRC recommended a transfigure in the legislative system to make it more efficient and stable to tackle the modern obstacles.

On the basis of the recommendations, the draft provides for the formation of a governing body to be comprised of the chairperson of CCI, the six full-time members, the Secretary of the Department of Economic Affairs, Ministry of Finance or his nominee, the Secretary of MCA and his nominee and four other part-time members to be appointed by the central government. This body will be bestowed with the authority to lay down rules, to implement awareness-raising initiatives, and frame a national competition policy. The CCI from now onwards will perform only the function of adjudication and the board will exercise control on the affairs of the CCI.

Besides, the bill also calls for the formation of a committee comprising of three members. The extent and nature of functions to be performed by the board requires autonomy in its affairs.

II. Statutory provision to invite public comments

The CLRC has proposed a very positive change in the draft. The draft places a duty on the board to obtain public views on all the regulations done by it. This clause would definitely bring accountability and democratic governance to the system. However, the bill also has the limited exception of urgency in matters related to the public interest and internal operations of the CCI. But this exception doesn’t destroy the essence of the new provision.

III. Issuing the Penalty Guidance

The Penalty has been desired for a long time and this bill requires the CCI to issue directions on the penalty. The penalty guidelines are required to include identification of applicable restructuring plans and set out the criteria to assess the amount of the penalty and to incorporate relief and aggravating factors. The CCI has the power to enact restrictive penalties. Earlier, there was room for doubt on the manner in which the penalty was imposed due to the absence of any guidelines. The guidelines will offer much-needed clarification in the matter of penalty. However, there is nowhere mentioned in the bill regarding the time period under which the guidelines for penalty should be issued by the CCI.

IV. Expansion of the Definition of Cartel

The bill broadens the concept of a cartel to cover the buyer’s cartel as well. The objective of expanding the definition was to include the presumption of appreciable adverse impact on competition to the buyer’s cartel as well. Originally, the concept of cartel included just a group of producers, sellers, distributors, traders, or service providers but not buyers. It has long been known under antitrust law that a cartel may exist on either side of the market i.e. on the seller’s side or the buyer’s side.

Moreover, the buyer’s cartel had already been included under Section 3(3) of the Act, since Section 3(3) of the Act covered the fixing of selling prices and purchasing prices. However, this amendment makes it crystal clear that the groups of buyers are now included in Section 3(3) of the Act.

V. All Final Orders Made Appealable

Section 53A of the Act permits appeals to the National Company Law Appellate Tribunal of the orders of CCI, subject to the provisions mentioned in the Act. This clause was rendered for clarification in a major antitrust law case before the supreme court i.e. Competition Commission of India v. Steel Authority of India Ltd. And Anr[i]. In this case, the question before the Supreme Court of India was to determine whether the prima facie warrant of inquiry introduced pursuant to Section 26(1) can be challenged under section 53A or not.

The court following the literal interpretation rule held that the appeals would lie solely on orders passed pursuant to certain sections explicitly mentioned in Section 53A. The rationale behind such a decision was that the legislature has not mentioned Section 26(1) in the list of appealable orders under Section 53A.

The unintended result of this stringent reading and the inconsistency in the language in section 53A was that some final orders issued after the inquiry of Director-General also became non-appealable. Fortunately, the draft addresses this inconsistency by introducing necessary changes to Sections 26 and 53A of the Act.

VI. New Thresholds for Merger Control

The draft allows the CCI and Central Government to establish specific requirements for registration of mergers by adding a clause in Section 5 of the Act. The new requirements that can be notified in the public interest would also allow the CCI to establish sector-specific threshold based on deal value or the scale of transaction or some other criterion. The amendment tends to follow the proposal of the CLRC to monitor transactions in the digital market.

This control demands vigilance as the digital markets are very complex and dynamic in nature. This may result in the rise in regulatory costs for the companies which could have an effect on the ease of doing business.

VII. Consistent Inadequacies in the Act

The Draft Competition (Amendment) Bill, 2020 has to a large extent addressed all the major issues and fallacies of the Competition Act, 2002. However, there are still some loopholes in the Act which the CLRC should have provided the solution in their draft. A few important things which should have been included by the CLRC are

  1. A statutory requirement allowing a separate bench of National Companies Law Appellate Tribunal to hear antitrust complaints will significantly help to speed up the disposal of cases of Competition Law. This would help in achieving the objective of competition law in an efficient way.
  2. Apparently, The Act has some major gaps in the inquiry process adopted by the CCI. In addition, the authority of the CCI to issue such directions has been questioned on numerous occasions. The bill tried to fix these issues but could not provide an effective solution with regard to Section 26. The clause in the bill still leaves several gaps and is vague in nature. There is a need for a more lucid structure to solve the issue.
  3. The absence of a clear duty on the CCI to follow an effect-based principle when assessing the abuse of a dominant position is a major issue that should have been looked upon by the CLRC. Decision-making methods of the CCI show a lack of uniformity in the implementation of the effect-based approach. The governing bodies of many countries i.e. the European Union, Brazil, the United States, Australia, Canada, and Singapore have all implemented the rule of reason to examine the impact of the practices on abuse of dominant position.
  4. Unfortunately, the CCI has been working without a member of the judiciary for more than two years. In Mahindra Electricity Mobility Ltd. v Competition Commission of India[ii], the Delhi High court ruled that all final judgments of the CCI need to be made in the presence of a member of the judiciary. The presence of a judicial member will enhance judicial competence and there would be freedom from administrative control while passing the orders. Currently, the Competition Act, 2002 doesn’t make it compulsory for the CCI to have a judicial member. Also, in this aspect, no new changes have been introduced by the Bill.

Conclusion

The amendment bill aims to fix the gaps, shortcomings, and administrative problems in the Competition Act, 2002 which is targeted at lubricating the ease of doing business and reducing the load on the CCI. In addition, as concerns the modern world, the proposed draft aims to extend the concept of what constitutes a cartel. Moreover, the draft aims to strengthen the Competition Commission of India to inquest anti-competitive agreements. This is very important as the emerging economies are multi-sided markets that are vulnerable to rapid network effects.

It can be stated that the draft will favour mid-range start-ups, start-ups in the digital sector, and the general public. Overall, the Bill is a good step for an effective CCI 2.0.


References

[i] Competition Commission of India v. Steel Authority of India Ltd. And Anr (2010) 10 SCC 744

[ii] Mahindra Electricity Mobility Ltd. v Competition Commission of India (Delhi High Court)


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