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Context: Draft Competition (Amendment) Bill, 2020.
The Prime Minister, Shri Narendra Modi addressed the Economic Times Global Business Summit on March 6th 2020. The broad theme of the Global Business Summit 2020 is ‘Collaborate to Create: Sustainable Growth in a Fractured World’. Prime Minister Narendra Modi says the $5 trillion economic targets for India will be reached through collaboration with the private sector, fair competition, wealth creation, and removal of archaic laws.
This brings us to the questions of fair competition and the Competition Act. In this article, we will explain them below:
- What is the Competition Act?
- What is $5 trillion Economy?
- What is Competition Commission of India?
- Why is it in the news?
- What are the key changes proposed in the draft bill?
- What are the issues with the new draft bill?
What is the Competition Act?
- The Competition Act was passed in 2002 and has been amended by the Competition (Amendment) Act, 2007. It follows the philosophy of modern competition laws.
- The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring of control and M&A), which causes or likely to cause an appreciable adverse effect on competition within India.
- In accordance with the provisions of the Amendment Act, the Competition Commission of India and the Competition Appellate Tribunal have been established.
- The government replaced Competition Appellate Tribunal (COMPAT) with the National Company Law Appellate Tribunal (NCLAT) in 2017.
What is $5 trillion Economy?
- Simply put, the $5-trillion economy is the size of a national economy as measured by the annual Gross Domestic Product (GDP).
- The GDP of an economy is the total monetary (rupee) value of all goods and services produced in an economy within a year. GDP is a way among countries (economies) to decide who is the largest and so on.
- In 2014, India’s GDP was $1.85 trillion. In 2018, it is $2.7 Trillion, and India is the sixth-largest economy in the world.
What is Competition Commission of India (CCI)?
- Competition Commission of India (CCI) is a statutory body of the Government of India responsible for enforcing the Competition Act, 2002, it was duly constituted in March 2009.
- The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) was repealed and replaced by the Competition Act, 2002, on the recommendations of the Raghavan committee.
- CCI envisions to promote and sustain an enabling competition culture through engagement and enforcement that would inspire businesses to be fair, competitive and innovative; enhance consumer welfare; and support economic growth.
- Competition Commission of India aims to establish a robust competitive environment through:
- Proactive engagement with all stakeholders, including consumers, industry, government and international jurisdictions.
- Being a knowledge-intensive organization with high competence level.
- Professionalism, transparency, resolve and wisdom in enforcement.
Why is it in the news?
- The Ministry of Corporate Affairs (MCA) had invited public comments from stakeholders on the Draft Competition (Amendment) Bill, 2020 on or before 6th March 2020.
- The bill has been proposed further to the recommendations of the Competition Law Review Committee (CLRC) which had reviewed and recommended certain changes to the Competition Act, 2002.
- The Competition Law Review Committee (CLRC) was set up under the chairman of Mr Injeti Srinivas to comprehensively review the Competition Act and suggest substantive and procedural amendments for a robust competition regime.
- The CLRC submitted its report in July 2019, and its recommendations were closely reflected in the recent Draft Competition (Amendment) Bill, 2020.
What are the key changes proposed in the draft bill?
- Change in the regulatory structure of the CCI: CCI had been vested with adjudicatory, advisory, investigative, quasi-legislative, and advocacy functions. Recognizing this, the CLRC recommended a change in the regulatory structure to make it more robust and effective to deal with the new age issues.
- Establishment of Governing body:The Draft Bill also provides for the establishment of a Governing Board. The body will consist of 13 members including
- A Chairperson
- Six whole-time members
- Two government representatives (from the Ministries of Finance and Corporate Affairs) as ex-officio members
- Four part-time members.
- Statutory provision to invite public comments: In a very welcome move, the Bill creates an obligation on the Governing Board to seek public comments on all regulations. With a limited exception of urgency in public interests, and regulations pertaining to internal working of the CCI, this provision will bring elements transparency and democratic rule making to the system.
- Issuing the penalty guidance: the Bill requires the CCI to issue the much awaited penalty guidelines. The penalty guidance is expected to give recognition to the relevant turnover principles and lay down the manner of determination of the percentage of the penalty and application of aggravating and mitigating factors. The CCI has the power to impose prohibitive penalties and in the absence of any guidance the manner in which this penalty was being imposed was shrouded with ambiguities. The guidance may provide the much-needed clarity, even though the Bill falls short of imposing a mandatory time limit within which the penalty guidelines will be issued.
- Streamlining procedure for regulation of combinations: The Bill makes a large number of changes to regulation of combinations. Some of these, such as, reducing the time-limit for deemed approval from two hundred and ten days (210) days to one hundred and fifty days (150) days, make substantive changes.
- New thresholds for merger control:The Bill empowers the CCI and Central Government to define new thresholds for merger notification by introducing a proviso to Section 5. The new thresholds, which can be notified in public interest, will now enable the CCI to make sector specific thresholds based on deal value or size of transaction or any other criterion. The amendment appears to be in furtherance of the CLRC’s recommendation to capture transactions in the digital market.
- Definition of a cartel:Presently, the Competition Act defines cartels as an association of producers, sellers, or service providers who limit or control the production, distribution or price of goods and services. The Draft Bill amends the definition of cartels to include buyer cartels.
- Extending protection to holders of intellection property rights: In line with the recommendations of the CLRC, the Bill, seeks to widen protection offered to holders of IPR.
- The regime of settlements and commitments: In a very significant development, the Bill introduces a system for settlements and commitments permitting the CCI to close the investigation on basis of an application for settlement or commitment moved by the investigated party.
What are the issues with the new draft bill?
- Statutory recognition of an effects-based approach in abuse of dominance: Absence of a specific obligation on the CCI to adopt an effect-based approach while determining abuse of dominant position, still leaves much to be desired. The CCI’s decisional practice reveals a lack of uniformity in the application of the effects-based approach.
- A statutory provision requiring a separate bench of the National Companies Law Appellate Tribunal to hear competition appeals would greatly assist in faster disposal of competition cases.
- Clarity on the procedure of inquiry by the CCI: the Act currently has some gaping holes in the procedure of inquiry adopted by the CCI. The CCI’s jurisdiction to pass certain orders has in fact been challenged on various occasions. The Bill sought to address these but has failed to do so with respect to Section 26. The provision in the Bill still leaves many gaping holes and is defined by vagueness. A more lucid framework is highly desirable.
- Permitting an informant to withdraw a complaint: Currently, the Act does not permit the informant or a complainant to withdraw his complaint. An inquiry by the CCI once started can only end after the DG has completed the investigation and the CCI has passed an order agreeing or disagreeing with the DG recommendation. This is the situation even when the informant’s concerns with the investigated party have been addressed via settlements.
The Bill is a positive step in the direction of an efficient CCI 2.0. While there is something which remains desired, one can hope that the consultation process leads to beneficial outcomes and most concerns raised by the stakeholders are appropriately addressed.