India - The Need For Settlements And Commitments Under The Competition Act.

Legal News & Analysis - Asia Pacific - India - Competition & Antitrust

16 April, 2019

 

Background – The Problem of Pendency

 

The Competition Commission of India (‘CCI’ or ‘Commission’) receives a number of cases year on year pertaining to antitrust matters (i.e., cases relating to anticompetitive agreements and abuse of dominant position). Unlike combinations, these ‘behavioural’ cases before CCI take several years to dispose of.

 

For instance, CCI took five years to issue its decision in India Glycols Limited v. Indian Sugar Mills Association and Others[1] and seven years to issue its decision in East India Petroleum Private Limited v. South Asia LPG Company Private Limited.[2] On average, CCI has taken approximately four years to reach the final decisions it had issued in the year 2018 under Section 27 of the Competition Act, 2002 (‘Act’). Further, approximately 476 orders of CCI have been appealed before the Competition Appellate Tribunal (‘COMPAT’), between the years 2009 and 2017. The COMPAT has set aside 213 matters i.e., about 44.75% of these orders. There is also a growing backlog of cases pending before CCI’s investigative arm, the Office of the Director-General (‘DG’).

 

As per the CCI Annual Report 2016-17 (‘Report’), 129 cases were pending before the DG in the year 2016-2017. Pertinently, the Report notes the following: “It is observed that the investigations are taking increasingly more time for completion. This partly reflects inadequate staff strength in the office of the DG and partly reflects increasing complexity of cases being referred to the DG by the Commission.”

 

The above statistics demonstrate that a significant amount of CCI’s resources are being expended on long-drawn investigations and defending appeals against its orders. It is therefore imperative to consider adopting new methods through which CCI’s resources may be utilized more optimally, , i.e.,  a mechanism which ensures that the adjudication of cases by CCI is put on a fast track and consumes fewer of CCI’s resources, without affecting the quality of adjudication and investigation.

 

In more mature jurisdictions, such as the European Union (‘EU’) and the United Kingdom (‘UK’), competition law enforcement is streamlined and expedited by way of ‘commitments’ and ‘settlements’. The adoption of these mechanisms has been recently considered by the Competition Law Review Committee (‘CLRC’), a panel set up by the Government of India with a view to review and amend the Act. Drawing from such other jurisdictions, this article will examine the effects of adopting these enforcement tools in India.

 

Commitments

 

Commitment decisions in antitrust cases are enforcement tools by which a competition authority can terminate the investigation initiated against a party, on the basis of certain behavioural remedies (‘Commitments’). This is carried out by accepting such behavioural remedies, voluntarily proposed by the parties to address the initial concerns identified by the authority. Barring the United States of America (‘US’), Commitments are a relatively new enforcement tool for most competition authorities worldwide. For example, the European Commission (‘EC’) formally adopted the commitment procedure only in the year 2004.

 

Notably, Commitments cannot be offered in every case. Agencies worldwide consider certain criteria when deciding whether to accept a Commitment. These are: (i) the nature of the suspected infringement; (ii) the nature and ability of the Commitments offered to quickly and effectively solve the competition concerns; and (iii) ensuring sufficient deterrence in the future. In addition, agencies consider the interests of the parties involved in the investigation, interests of third parties and of the market in general.

 

In the US, the Federal Trade Commission (‘FTC’) and the Department of Justice (‘DOJ’) follow parallel procedures to impose commitment decisions. The DOJ files consent decrees, or civil consent judgments, in a US federal district (trial) court to obtain effective relief without taking a case to trial while the FTC issues negotiated administrative consent orders to resolve violations without a trial under its statutory authority. In addition to using consent decrees/orders in merger cases, the DOJ and FTC also use these tools to settle alleged competition violations that include both unilateral conduct, such as exclusive dealing and monopolization, and unlawful vertical agreements. Separately, the EC, though not obligated to do so, may consider a commitment decision if and when:

 

  1. The companies under investigation are willing to offer Commitments which remove the EC’s initial competition concerns as expressed in a preliminary assessment;
  2. The case is not one where a fine would be appropriate (this therefore excludes commitment decisions in hardcore cartel cases);
  3. Efficiency reasons justify that the EC limits itself to making the Commitments binding, and does not issue a formal prohibition decision; and
  4. The Commitments can be either behavioural or structural and may be limited in time. Moreover, the EC can reassess the situation if a material change takes place in any of the facts on which the decision was based. It is also possible for the company to ask the EC to lift a Commitment which is no longer appropriate.

 

Adopting commitment mechanisms to address competition concerns has a number of benefits for the enforcers, the enterprises involved in these proceedings, and for the market at large. First, commitment decisions are often driven by procedural economy. If negotiations start early in the process, the timelines of the investigation will shorten as a full investigation will become unnecessary.

 

Second, commitment procedures can facilitate a quicker resolution of cases with swifter changes to the market, and certain and ready results, as opposed to long, costly and often uncertain outcomes. They are beneficial for the business of the companies as the time invested in resources, and burdensome and lengthy antitrust investigations would be saved. Third, the investigated companies are not required to admit liability for the alleged infringement and in many jurisdictions, companies can avoid the threat of high, unpredictable fines associated with a possible infringement decision. In addition, as there is no fining of infringement, aggrieved third parties would not be successful in suing for damages (for losses suffered as a result of the alleged anticompetitive practises). Other factors, such as the positive media exposure (as the firm or company in question, is perceived as co-operative and willing to solve a possible competition concern) are also added benefits of the commitments process.

 

Presently, the Act is silent on the possibility of offering Commitments to CCI, although this may be amended in the near future. The obvious benefits of Commitments are the proficient disposal of cases while still addressing competition concerns, as well as the effect on CCI’s caseload as a result. The person/enterprise should be willing to offer commitments to remove CCI’s competition concerns, without an admission of infringement. Therefore, if the commitment procedure is adopted in India, the facility to offer Commitments should be available to less egregious practices – unlike cartels under Section 3(3) of the Act. Such an amendment will be consistent with the position in various other jurisdictions, including the EU.

 

Settlements

 

Like Commitments, settlements allow agencies/regulators to terminate cartel and other investigations early on, thus saving investigative resources. The investigated parties are rewarded for their cooperation with a reduction of the fine that would have otherwise been imposed by the agency. In some jurisdictions, settlements also offer ‘finality’ as they provide certainty to the outcome of the investigation.[3]

 

There are important differences between settlement procedures and commitment procedures:[4]

 

  1. To enter into a settlement negotiation, the agency is typically required to establish an infringement of the competition law as full investigation is required;
  2. Settlements require the company to admit liability for the infringement, whereas Commitments usually do not require the company to do so;
  3. Settlements still require the imposition of a fine, albeit with a reduction for cooperation with the agency; and
  4. Settlements constitute legal precedents for the treatment and establishment of an infringement, which have precedential value and can be used for establishment of recidivism or for purposes of filing a private action for damages.

 

The EU uses a settlement mechanism to speed up the procedure for adoption of a cartel decision when the parties admit to the EC’s objections, and in return such parties receive a 10% reduction in the fine.[5] The EC has to show the parties that it has sufficient evidence to bring a final decision, and the parties must respond with a statement of objections. Since the ‘Settlement Notice’[6] was announced in June 2008 in the EU, several cartel cases have been settled.[7]

 

Some jurisdictions also allow settlements for all types of antitrust proceedings. In Germany, on December 23, 2013, the Federal Cartel Office (‘FCO’) through its settlement note clarified that settlements are possible in all types of antitrust proceedings.[8] The US has a longstanding practice of using the settlement mechanism and settles a large majority of its cartel cases. A credible track record and clear fining guidelines provide useful guidance to defendants and their counsel when they assess the benefits and costs of entering into a settlement.[9] Therefore, by implementing a settlement process, competition authorities can save resources that would have otherwise been utilized for more detailed investigations, prosecutions, reasoning of detailed decisions and litigation of cartel cases.

 

The Act is silent on the adoption of a settlement process. However, the concept of settlements is not unknown in India. Notably, the Securities and Exchange Board of India (‘SEBI’) has already implemented a mechanism for settlements. The SEBI Act, 1992 (‘SEBI Act’) read with the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014[10] (‘SEBI Settlement Regulations’), envisages a mechanism for settlement of specific violations of various laws in relation to the securities market, by the payment of fees without admitting guilt.[11] Any person, against whom any proceedings have been initiated or may be initiated under Section 11, Section 11B, Section 11D, Section 12(3) or Section 15-I of SEBI Act, may file an application in writing to SEBI seeking a settlement (without admitting or denying the findings of fact and conclusions of law) of the proceedings initiated or to be initiated for the alleged defaults. On receipt of the application, SEBI may, after taking into consideration the nature, gravity and impact of defaults, agree to the proposal for settlement, on payment of such sum by the alleged defaulter or on such other terms as may be determined by SEBI. Therefore, CCI would not be the first regulatory body adopting such a settlement mechanism.

 

Conclusion

 

From an enterprise’s perspective, the main advantage of settlement mechanisms and commitment procedures is the ability to expedite the closure of the matter. The broad principle of these procedures, the importance of transparency and predictability, are additional benefits to an enterprise. By choosing a settlement/commitment process, an enterprise negates the impact an investigation may have on its reputation. This includes the negative impact of an unclear outcome of the investigation (i.e., the possibility of a high amount of penalty on the enterprise or its employees) and the negative influence of the investigation on an enterprise’s stock prices.

 

The end purpose of any antitrust legislation and its related agency should be to provide consumers and competitors a free market with healthy competition. For this, CCI should be given the necessary flexibility and discretion to perform its function in such a manner that it meets the objectives of the Act. Bringing an end to antitrust concerns should be the primary objective of the CCI, and by instituting mechanisms for settlements and commitments procedures, it should be possible to achieve this goal in a more efficient manner.

 

For further information, please contact:

 

Zia Mody, Partner, AZB & Partners

zia.mody@azbpartners.com

 

[1] Case No. 21, 29, 36, 47, 48, 49/2013.
[2] Case No. 76/ 2011.
[3] Available at https://one.oecd.org/document/DAF/COMP(2016)7/en/pdf.
[4] Available at https://one.oecd.org/document/DAF/COMP(2016)7/en/pdf.
[5] Available at http://ec.europa.eu/competition/cartels/legislation/cartels_settlements/settlements_en.html.
[6] Available at http://ec.europa.eu/competition/cartels/legislation/settlements.html.
[7] Till 2016, EC had successfully settled cases of varying degrees of complexity and with different unique feature in the pragmatic resolution of cartel cases: 21 out of 35 cases decided since 2010 are settlement cases, while eight out of 10 cases settled in 2014, and two out of five cases settled in 2015.
[8] Available at:

http://competitionlawblog.kluwercompetitionlaw.com/2014/01/17/the-fco-publishes-note-on-settlement-procedures-in-antitrust-proceedings-in-germany/.
[9] Available at https://www.globallegalinsights.com/practice-areas/cartels-laws-and-regulations/singapore.
[10] Last amended on December 27, 2017
[11] SEBI had settled 378 cases during 2014-15 to 2017-18 and collected approximately Rs52.25 crore as settlement amount