Competition Amendment Bill
The cabinet has cleared the Competition Amendment Bill - that seeks to amend the definitions of turnover and group, reduce the approval timeline from 210 days to 180 days, provide for thresholds specific to certain classes of companies i.e. - sector specific thresholds and possibly even mandatory references between CCI & sectoral regulators. Its these last two proposals that have split the vote - to tell you why, I am joined by Amitabh Kumar, Former Director General at CCI and now Partner at JSA and Rahul Singh of Trilegal.
Let me start with the caveat- I do not have the Draft Amendment Bill, I do not think anybody has it because it is not out there in the public domain but what I do have is a member of the committee that in fact did draft that bill and So Mr Kumar, I am going to put my first question to you- the press release from the government post that Cabinet meeting on Thursday says that, “...the cabinet has approved the inclusion of a new Section 5A enabling the Central Government to lay down, in consultation with the Competition Commission of India (CCI), different thresholds for any class or classes of enterprises for the purpose of examining acquisitions, mergers and amalgamations by the commission”. I imagine to some extent this decision to have sectoral thresholds was prompted by what has gone on in the pharmaceutical sector. You all made this recommendation in the draft bill as well- explain to me why you think we need to have sectoral thresholds?
Kumar: Let me first put a caveat on your caveat that apart from the fact that I do not have the Bill with me nor am I supposed to have. I also will say that we do not know how many recommendations were actually accepted when the Cabinet note was made. Then let me try and answer.
I do not think the Committee ever proposed sectoral thresholds. But the Committee did discuss about the thresholds being too fixed- very high in terms of the size of the economy that we are- and we also felt that it is a dynamic concept which requires changes as the Commission gets more experienced and more and more merger filings come to its door. So in order to do that, the Committee felt that there could be a situation where instead of going through the legislative route, the thresholds could be left to the CCI which could do it through the regulations and that will be far more easier.
Now the other issue that you have asked and perhaps the government has taken a view on having different thresholds for different sectors is not uncommon in the world. If you look at many jurisdictions like China, even the EU I believe, then Netherlands- they have different kinds of calculations for the financial sector because if you look at the financial sector, the assets look huge but they are not assets because these are deposits, which have to be given back to the depositors. So having just an arithmetical threshold creates this problem of many more cases coming to the competition agencies than they can actually handle. Actually in the Committee, there were lot of discussions but there was no consensus on it, I must confess.
Doshi: Mr Kumar has pointed out that some jurisdictions make exceptions in thresholds when it comes to financial sector companies. From the little I have read on this topic, it seems that no country has specific thresholds for specific sectors- that is the argument being made, do you agree with it?
Singh: I think one of the issues behind why most countries do not want to look at sectoral interface in terms of jurisdiction and monetary thresholds is because it will be bringing back the market definition aspects from the backdoor. For instance, let us say now the filings which have happened at Competition Commission until now. Let us say today if you have to look at Reliance’s investment in TV18, just as an instance, how are you going to classify a kind of a sector that Reliance is in vis-à-vis Network18 which is a huge conglomerate itself. So how are you going to classify which sector it is and then accordingly say that these are the thresholds which are applicable and certain other thresholds are not applicable because parties are going to debate which market does it relate to. In fact, in my experience many of the merger applications that I have done, it relates to several sectors or several markets as such and therefore it is going to make the filings at the Competition Commission more expensive in terms of time, it is going to increase the transaction cost for Competition Commission as well.
Kumar: If we talk of extreme positions, it will be very difficult to argue. There could be an odd out case where on a case-to-case basis, it has to be decided. Let us take a more general example, we have a Specialty Chemical, which is a very small niche market- they are very small players but they are just one-two or three players in the world and they almost virtually control 100 percent of the market. But given our high thresholds, they have just escaped.
Doshi: They may escape filing but the Competition Commission has various other means at their disposal to be able to come down on a transaction that might create a dominant position in any industry even if the amalgamating companies or the acquiring companies do not come within the thresholds that they have laid out in merger control, right. So why do we need to have sector specific thresholds?
Kumar: You are right, theoretically it is all possible but if we do policing job in such a vast country with so many entities around, it is always going to be very difficult…
Doshi: You are fixing a different problem with a different solution.
Singh: I am just tempted to look back at the original draft of Competition Act 2002- the thresholds were much-much lower compared to what they are today, of course later on these thresholds were increased. So, in fact I kind of agree with you, which is that if the problem is of making sure that many merger filings should be reviewed by the CCI, I think there is another way of fixing that problem, which is essentially to just reduce the thresholds for everybody across the board and not look at different thresholds for different sectors.
Doshi: As long as one of you agrees with me I will move to the next point and that is of references – the press release by the government also mentions that the cabinet has endorsed the original proposal that a proposed amendment in the Competition Act requiring other regulators to mandatorily refer matters impinging on competition to the Competition Commission of India, and vice-versa to concerned regulators by CCI - This is again an issue that your committee had dealt with in the draft Bill. If you can tell me what you think the outcome will be?
Cabinet Note: ‘...also proposed amendment in the Competition Act requiring other regulators to mandatorily refer matters impinging on “Competition” to the Competition Commission of India, and vice-versa to concerned regulators by CCI, on matters relating to those regulators.’
Kumar: The original plan during the moving of the Amendment Bill in 2007 as well as that the referencing to CCI will be mandatory and then in 2007 it was also thought that CCI should also be then similarly asked mandatorily to refer the issues to the sectoral regulator wherever there is an issue only they can decide. But the word ‘shall’ was dropped at the instance of people who were not in favor of it and you can understand the ministry and the sectoral regulators who are already in position were totally against it. So the word became ‘may’ instead of ‘shall’ and it was felt that they are all responsible people and therefore they will keep making reference to each other.
But the experience has shown that although I am aware and give credit to CCI for having referred three such cases in my own matter which I have handled before them, there maybe many more, I am not aware of a sectoral regulator actually referring any matter to the CCI. So when the National Competition Policy was being drafted, that time the committee had again suggested that the only way to overcome the problem of overlap between sectoral regulators and CCI is to have a mandatory reference between the two.
Doshi: This Amendment Bill may correct that gap in the Competition Act as you seem to be pointing out but won’t we need subsequent corrections in the legislations that setup the sectoral regulators to ensure that those sectoral regulators do mandatorily refer to the CCI on matters of Competition.
Kumar: We have suggested that for the sake of clarity but even if those laws are not changed, this law is still binding because the law says that it not withstanding anything else that in any other law, this law has overriding powers. This is not a big deal- even after a mandatory reference, the opinion remains not binding. The only caveat which is still – it already exists in the law book is that if the referring agency does not agree with the opinion that comes to it, it will have to give out good reasons why it is not agreeing. So nothing else changes, only the referencing becomes mandatory.
Doshi: It’s always nice when regulators speak to each other even if their opinions are not binding as long as they are held accountable to those opinions…
Singh: Two good points; there are instances of sectoral regulators referring matters to Competition Commission as well. One instance is the Maharashtra Electricity Regulatory Commission, on electricity issue, it had referred the matter to Competition Commission and Competition Commission gave its opinion on the competition implications. Unfortunately I must hasten to add is that Competition Commission does not publish these opinions on its website and therefore they remain unknown to the general public. The second point I will make through an example which is that essentially – let’s say if we go back to the Competition Commission’s first final order in the banks pre-payment penalty case, Niraj Malhotra – in that case essentially Competition Commission said charging of pre-payment penalty is absolutely fine under Competition Act. Interestingly few months later Reserve Bank of India scrapped it saying that pre-payment penalty cannot be charged, of course not on the ground of it being anti-competitive but it being unfair for consumers in the mind of Reserve Bank of India. To my mind what is going to happen is the Reserve Bank scrapping of pre-payment penalty is probably going to get delayed because there will be questions about whether it is a competition issue or is it a sectoral regulator issue. Competition Act doesn’t actually define what is competition and therefore merely by seeing that sectoral regulators must be mandated to refer competition matters to Competition Commission, we are actually not resolving many of the issues. It’s a behavior issue which can be addressed only if regulators talk to each other.
Kumar: I am in little disagreement with Rahul here that if these mandatory clauses had existed, the RBI could not have done or done is not the issue because even with the mandatory clauses, as I explained, this is non-binding. The issue here is not of one particular case. There are many laws in our country like the Electricity Act where they also did with competition issues, the same names, expressions are used there as in the Competition Act but they are not defined, there is no machinery there. So there the similar issue is with the Petroleum and Natural Gas Regulatory Board (PNGRB) Act. So talking or forcing them to talk is always going to be good and this is how we can resolve this problem of overlap between the regulators and the competition agency even ignoring that one blip that in the prepayment of loans the CCI did not take the stance on behalf of the consumers.