19 August, 2015
Conventus Law: How liberal is Section 27 of the Competition Act when determining the appropriate enforcement measures in the event there is a violation of it?
AZB: Section 27 of the Competition Act, 2002 (Act) lists the enforcement measures that the CCI can impose for violation of Section 3 (anti-competitive agreements) and Section 4 (abuse of dominance) of the Act. The measures identified in Section 27 of the Act include simple "cease and desist" orders to orders imposing penalties and in cases of abuse of dominance, possible order for division of the dominant enterprise. Moreover, Section 27 of the Act offers almost a carte blanche to the CCI to “pass such other order or issue such directions, as it may deem fit”. The text of Section 27 of the Act is broad enough to offer CCI with sufficient flexibility to design and direct an enforcement measure that would be both punitive and corrective. For example, imposition of penalty up to the higher of 3 times the profits or 10% of the turnover of the enterprises who are party to a cartel for the entire duration of the agreement is aimed as much at penalising a conduct as deterring companies for engaging in cartel agreements. The order to divide up a dominant enterprise found guilty of abusing its position of dominance would help change the market structure in such a manner that the possibility of abuse by a dominant enterprise is minimised.
In sum, Section 27 of the Act is broad enough to help CCI determine the optimum enforcement measure to address any instance of anti-competitive agreement or abuse of dominance.
Conventus Law: In Tamil Nadu Film Exhibitors Association v. CCI & Ors. (Film Exhibitors Decision), the High Court addressed for the first time the issue of whether private parties could enter into a settlement, thereby closing the door to an active investigation or inquiry by the CCI. Did the holding resolve the issue, and what kind of impact will the holding in this case have on businesses who find themselves involved in an ongoing investigation or inquiry by the CCI?
AZB: The Act is not designed to provide a forum for settling disputes between two or more individuals. Rather, the Act is aimed at and seeks to examine and prosecute instances of anti-competitive conduct in general, irrespective of whether the CCI initiates an investigation on its own (suo motu) or on the receipt of a reference from the Central Government or State Governments or on the basis of "information" provided by an enterprise against another. Once the CCI has decided to initiate an investigation, the continued participation of the enterprise providing "information" or the Central/State Government making the reference is not necessary. Moreover, once the CCI has formally initiated an investigation, the process can not be rolled back only because the enterprise providing "information" or the Central/State Government making the reference is not interested in pursuing it any further. In other words, even if the enterprise providing "information" to the CCI settles its dispute with the alleged infringer, the CCI investigation would run its course. The scheme of the Act does not expressly contain any mechanism to accommodate settlements between parties and the Madras High Court's decision in the Film Exhibitors case appears to recognise this. The decision though paves way for the CCI to at least consider the fact of the information provider settling its dispute with the alleged infringer as a relevant fact in reaching its conclusion on whether the alleged infringer has indeed violated any of the provisions of the Act. A settlement between the private parties may well indicate that the dispute in question is private in nature and does not necessarily involve a larger competition law issue.
Conventus Law: In that case, the High Court directed Tamil Nadu Film Exhibitors Association to file their settlement with the CCI, who then may either accept, modify or reject it so long as it meets the factors listed by the High Court. Are the factors specific enough to give CCI the guidance they need to make a decision on a proposed inter-party settlement?
AZB: The Madras High Court directed the CCI to consider (a) whether public interest would continue to suffer; and (b) whether the object of the inquiry would stand defeated by the acceptance of the compromise. The Madras High Court's decision recognises the fact that the Act does not expressly provide a mechanism for settling private disputes. Although broad, the two factors listed by Madras High Court offer the framework within which the CCI may accommodate private settlements while conducting its independent investigation, irrespective of the information provider's inclination to press on with its initial claims.
Conventus Law: This case focused on the issue of inter-party settlements. However, the HC did not address the issue of commitments or settlements made unilaterally with the CCI. Will these be allowed moving forward?
AZB: The Madras High Court stated that the CCI has not been created as an adjudicatory body to resolve private disputes arising out of agreements between two people. The Madras High Court did not expressly address the issue of commitments or settlement offers made unilaterally by an enterprise which is being investigated or has been found guilty of infringement. Notably, the Act does not contain any provision empowering the CCI to consider and accept commitments or settlements offered by parties to an investigation. The Act merely empowers the CCI to penalise enterprises found guilty of infringement and impose other enforcement measure. Unlike its peers in the USA and other jurisdictions, the CCI does not have the power to settle an antitrust case with an enterprise. Therefore, unless the Act is amended by the Indian parliament, it is unlikely that the CCI will be able to close an investigation on the basis of unilateral commitments offered by a party to an investigation. In case of cartels though, the CCI has and would continue to retain the power to waive penalty for such parties that approach the CCI under leniency mechanism and satisfy the requirements for penalty waiver.
For further information, please contact:
Rahul Rai, AZB & Partners
rahul.rai@azbpartners.com
