CCI’s Ashok Chawla Era!
He took over in October 2011 and it is under his watch that the Competition Commission of India (CCI) has grown into one of India's most important regulators. But it hasn't all been a bed of roses. Today on The Firm we speak to the outgoing chairman of CCI, Mr Ashok Chawla.
Ashok Chawla Chairman, CCI
Below is the transcript of Ashok Chawla’s interview with CNBC-TV18's Menaka Doshi.
Doshi: I am going to start by talking about merger control regulations which came into force around the same time that you took over at the CCI and in that period of time you all have cleared over 365 merger filings and only in three cases have you asked for any remedies. For your assessment of how the merger control regime has run so far?
Chawla: As you mentioned we have handled close to 400 cases so far but a lot of the cases, which have come and there are reasons for that a lot of the cases have been those, which involve intra-group restructuring, sale of equity etc which without much impact on the competitive landscape. So, we have therefore not felt the need to go in detail into many of those cases and it is only in a few of those that we have delved deep.
Doshi: Would you say that the current merger control regulations are good enough to deal with both the influx of cases and the type of cases coming into the CCI or would you call for changes to the merger control regulations. You had already told me in a previous interview that we did in the middle of last year that in fact the exemption threshold for target enterprises expires in March 2016, i.e. the notification regarding that comes to an end in March 2016. Can we expect to see some changes when it comes to exemption thresholds?
Chawla: The exemption thresholds and the notification that you are talking about is something which the government handles. They do consult us and it will be a call, which of course the government will take at the end of the day but looking to the fact that business and industry need a shot in the arm that the ease of doing business is very critical for the Indian economy at this stage and the government is focusing on that. I would think that there is perhaps a case for the notification and the exemption, which it brings in its wake to continue for some more time. That is also useful from the point of view of the competition commission. In that it will give us the bandwidth and the time and energy to focus on cases, which are really big and important.
Doshi: In your opinion do you think that there is a case to be made for enhancing the exemption limits thereby asking for fewer transactions to come to the CCI in the case of merger control?
Chawla: It may not be a bad idea, I agree.
Doshi: In the last 4 years we have seen 4 revisions to merger control regulations, the last one being in the middle of last year which was 2015 and from what I understand a fifth one is already in the offing.
Chawla: So, there are issues which have come up in terms of who should be filing the -- who is authorised to file a merger notification particularly in relation to multi-national companies, when should a notice be invalidated, should parties be heard before invalidating or not. So, these are questions, which have bothered the companies, which file and their intermediaries. We hope to resolve many of these issues in this round of change of regulations, which is ready and is just going to be notified in the next few days.
Doshi: It is interesting that you are looking to revise the invalidation provision because when you introduced it, when you introduced the concept in the draft merger regulation amendments last year there was a considerable amount of criticism. I had put that to you in a previous interview when we spoke of it and you had said that the philosophy or objective behind this is very often we get filings, which are incomplete, which do not give the entire picture. So, there is a lot of to and fro between our people and the CCI and companies or their lawyers who have filed. So, what we really want is the there should be a little bit more rigour and discipline in the filings which take place. You have defended the idea of introducing invalidations. I am told since then there have been about 18 merger filings that have been invalidated and you are now reviewing invalidation? Would you consider doing away with it altogether or amending the provision to allow for let us say more clarity as to what would be invalidated or more clarity on how hearing regarding invalidation would proceed?
Chawla: We thought that invalidation was necessary so that we could bring in more rigour and discipline in the fillings that take place and the commission and its officers get the kind of material, which they need to able to concentrate and focus quickly on a case. We found that very often it tends to get into a different loop and sometimes invalidation takes place may be where it is not entirely necessary etc. There were protests then, there are protests now. So, while we are retaining the provision what we do want to ensure is that we give the parties a hearing so that they know what our view point is and if they are going to correct it and remedy it immediately then that process, that burden is lessened for them.
Doshi: The other thing that I am told might come up for consideration when you look to amend the merger control regulations is more clarity on filing triggers?
Chawla: There will be clarity on what is the trigger point in terms of the other document but on market transactions and whether they form part of the transactions as a whole and whether it is linked in any manner etc will necessarily depend on the facts and circumstances of each case.
So, where it is in preparation of and it is integral to the overall transaction then it will be taken as something which should have served as a trigger. So, I don't think there can be very clear boxes to determine these kinds of things. Very often it will depend on what the facts are.
Doshi: I want to come back to the two instances in merger control where the CCI has ordered structural remedies. The first one was a Sun Pharma-Ranbaxy transaction and the second one was the global merger of Holcim and Lafarge, which had implications in India. Now, interestingly in the Lafarge situation CCI has ordered the divestment of certain assets to remedy the ill effects of this global merger. But government policy is proving to be a hurdle in the ability for the company to be able to sell those assets because the plants cannot be sold with the mining leases because the transfer of such mining leases is currently not permitted under government policy. Thereby, in short, the structural remedy that CCI directed is proving to be at this point in time difficult or impractical to adhere to. I am asking for your views not specific to this case but otherwise on what happens when CCI asks for a structural remedy that somehow government policy makes difficult to fulfill?
Chawla: Whether it is this case or any other case, if it so happens that by the time we give out a structural remedy, which is an order of the commission but that is pre-empted so to say by a legal change then obviously the parties will have to comply with the legal change, which is the situation in this particular matter.
This is something which is more like black swan event. It is not going to happen every day. It happens very rarely. It happened in this particular case that you are referring to because at one point in time we gave out the order on structural remedy and around the same point in time may be slightly later or so, the mining act was amended. So, these kind of situations don't arise in normal cases. They have arisen in this case and I think the process on the part of the company to come back with an alternative proposal is already on the table. So, that is not a major issue but to go back to your point, which is a larger issue the law of the land, which may change necessarily has to be kept in mind in terms of the application.
Doshi: So, will it be fair for me to assume and understand based on your response that CCI is reviewing the structural remedy that it ordered based on the alternative being offered by the party?
Chawla: Yes, we are in the sense that the earlier proposal was to sell two assets, then the company has withdrawn that and put a proposal which is more comprehensive, which covers this particular area where we had issues from the competition point of view. So, we are examining that. I presume we will have no objections as long as this part is taken care of and it becomes a wider proposal on the part of the company, which has been asked to divest.
Doshi: Now I want to move to what is often referred to in competition law jargon as behavioural cases. I am going to start by asking you for your assessment on how the CCI has fared in acting against both abuse of dominance as well as cartel matters?
Chawla: We have made a reasonable start but I think we perhaps could have done better and maybe we should be doing better in the years to come. Let me elaborate by saying that partly not too many substantive major cases have been brought to our notice. Number two, we haven’t been able to given our constraints been able to generate good cases, robust cases suo moto, which the law does allow us to do.
Thirdly, in the cases that have come, we have taken quite a bit of time in terms of the investigation at the level of director general and then once the judicial process takes over, which has its own dynamism, it has taken quite some time. May be this is a symptom of the teething troubles which a new organisation or body goes through.
Doshi: What would you mean by teething troubles?
Chawla: Given the fact that we are quite stretched as it is in terms of the internal capacity and certainly the investigation capabilities, the number of suo moto cases, have not been more than 5-10 percent of the total number of cases.
While the suo moto cases are no substitute for what should normally be coming from parties which are affected, they can contribute to that stream. So, on both sides even the fillings that take place are totally inadequate for a country of the size of India, for a USD 2 trillion economy.
Doshi: I do want to come to my final theme and that is institutional capabilities and processes. The first one I am going to talk about is the average time taken whether it is for merger, filling clearance or even cartel cases which I am told are often delayed. Now in merger filing clearances, I am told that the average time CCI used to take at the beginning of the imposition of the merger control regulations, was about 29 days. You yourself have alluded in a previous answer that, that timeline has now stretched to about 55 days. In your amended regulations you have bought yourself 60 days. What has gone wrong, why is it taking so much more time and should we be worried because now the burden of the number of merger and acquisition (M&A) cases coming to the CCI has increased. In fact your office has put out numbers that show that the number of fillings has increased every single month over the last several months?
Chawla: You are absolutely right. I myself acknowledge this and we are now in the process of changing our operating procedure at the level of the officers who examine this to be able to bring down in the vast majority of the cases, which may really have no major competition concerns to back to the 30-35 days or so that we used to take earlier. It is only in the maybe 10 percent odd cases which require detailed attention that we will need to take more time. So, you should watch this space and in the next 3-6 months, you will see a clear change from what has happened and why it has happened is that there were many more filings, which were taking place. Our people were trying to go into details in respect of even cases where perhaps there was no great need for intensive study. So, we have brought in a number of changes. We have brought in engagement with the parties at the level of group of members etc, which would enable that the larger perspective is seen before the matter comes to the full commission for a decision.
Doshi: I am told that CCI proceedings in cartel cases are also considerably delayed for instance, one lawyer gave me this illustration that in one cartel case, the CCI passed its prima facie order in 2013 but the investigation began only in 2015. What has gone wrong?
Chawla: I don’t think it could take that long unless there were some legal intervention on something to prevent that investigation from going forward. The starting of the investigation couldn’t have taken one and a half years unless the hand of the DG or the commission was restrained by some court, it is possible.
Doshi: Would you say that you are understaffed because I am told that in the early days of the CCI, the IIM-Bangalore did a study that has suggested that there ought to be 240 professionals staffed at the CCI and an equal number at the Director General's level and this by about the third year of the CCI's functioning, whereas today I am told that the total staff's strength, the professional staff strength would not cross probably even 100 or maybe just a little over than that. Are you considerably understaffed and maybe even underfunded and therefore under-resourced?
Chawla: The IIM study had given a number of close to what you have mentioned, probably not that high but they had indicated a number which was a good 9-10 years ago. The union cabinet approved the staffing strength, which is close to 200 and this was about 7 years ago and we are at about 65-70 percent of that full complement of staff we have today.
We do supplement that because we are somewhat short of professional, we do supplement that by engaging experts and research assistance, which the law and the regulations do allow us to take on board for shorter periods of time on a contract basis. So I wouldn’t say that we are very understaffed but yes, we need to build up the numbers both in the commission and more so in the DG's office where the staffing comes directly on reputation from the government. They are not part of the commission staff and we cannot interchange with them. They are supposed to be hands off in terms of the work that they do and also the streams that they come from. So there is some engagements that we are having the government on filling those posts and perhaps changing the recruitment rules there.
However, yes it is a process which is ongoing and Rome wasn’t built in a single day. So it is going to take some time, but I won't say that we are short in terms of resources. Whatever money we ask for, the government provides for that.
We have recently asked for quite a bit of money to move into a space, which the government agency is building in one part of Delhi, the national buildings construction corporation and government has despite all the difficulties, generously found the fairly substantial sum, which we will get over the next three years. So that the commission can then move into its own premises as against the rented premises that we are in. That is where we stand in terms of staff and funds.
Doshi: You have spoken o financial autonomy in one of your previous interviews just this last week or so and hence I asked you that question on whether you thought that the CCI was seriously under resourced. Have you made any suggestions to the government on how you can have financial autonomy, for instance your parallel other regulator, the Securities Exchange Board of India (SEBI) is an autonomous body financially?
Chawla: The point that I was making was and that holds gold, is that while on the one hand we are not, we kept the kind of money that we need, but it is that we have to necessarily go to the government for everything, because most regulators and that is what I said in the interview, when I said most, my hint was at SEBI which is not included in that category. The reason is that most regulators are not able to generate adequate income of their own. Therefore, you have to rely on funding from the state. One option is that every year you go, you get money and where you continue, which necessarily means that every kind of stipulation or rule of the government in terms of recruitment, in terms of salaries, in terms of compensation, in terms of all the rules and regulations, the financial variety would apply.
The other is the kind of flexibility which let us say the RBI has or SEBI has which is one of the newer regulators, they are self sufficient, so they are in a position therefore, as a result of that, in a position to decide the staffing pattern, to decide their broad levels of compensation which of course will not be very much out of line with what the government pays, but they have flexibility.
Doshi: Let me put it this way to you. Should CCI be financially autonomous as SEBI is?
Chawla: I do not think it will ever be. Cannot be because SEBI deals with a host of intermediaries and the fees which they collect and have collected over the years have brought them to that situation. Now, the only fees that we earn is from merger filings and there also, I find very often when we increase it a bit, there is a house of protest that while the companies will be very happy to pay the lawyers’ fancy sum, but when it comes to paying chicken feed to the regulators, there are protests. So, in any case, that apart. That is the only avenue that we have and I do not think that will, at any stage, make the competition commission self-reliant.
Doshi: Let me now come to what probably strikes the sorest note in your five years at the CCI and that is the cement cartel order that was heard on technicalities at the Compat and where the compact found that the principles of natural justice had been violated. And so, I am going to read from that order.
The Compat said that at the cost of repetition, we deem it appropriate to observe that even though he was not present during the hearing held on February 21st, 22nd and 23rd February 2012, the chairperson not only participated in the decision-making process but also initialed each page of the final order which as mentioned above, is strongly indicative of the fact that he had authored the impugned order.
It goes on to talk about why you ought not to have done that. It says it is matter of mystery that without having any idea about the arguments advanced by the advocates representing the parties which lasted for three days, the Chairperson of the commission could become party to the final order which resulted in the imposition of penalty of over Rs 6,100 crore. It must be remembered that the rule of law is an important cornerstone in our democratic setup and principles of natural justice are required to be followed.
This has been a black mark in your five years, probably the only one of its kind. How have you responded or reacted to what the Compat has had to say?
Chawla: The only response is that as the commission, as the appellate tribunal has directed, the commission will hear the matter based on whatever evidence was used at that adduced at that point in time. There will be fresh arguments and the commission will decide the matter as directed by the Compat within three months.
But, let me say on the issue of natural justice and the process which the commission has followed. The view that the commission has taken in all cases and it is not just only this case, is that we are not and we should not become a lock, stock and barrel judicial forum. That is not what is intended. We are a body of experts. That is what the mandate given to us by Parliament.
Doshi: But, surely you cannot be saying that it is alright for a member of the CCI to not be present for the verbal arguments and only rely on the written submission. I understand that the written submissions themselves may be fairly comprehensive, but there has got to be some value to verbal arguments or oral arguments. That is why you have them, and therefore, I am curious as to why this practice prevailed in the CCI and now given this Compat order, would it be fair to say that this practice will no longer prevail at the CCI even though you are not a judicial body?
Chawla: Yes, as I had mentioned, this was a practice we had been following in the past with a view to more functioning like a normal regulatory forum, but since the Compat has, very specifically, ordered in this particular case, this will be followed in this case and this is what the commission is now following. So, this is a process which is a part of the process of evolution.
Doshi: Have there been other instances or other cases where this practice may come up and hence the CCI order may, in some sense, the case may be returned to the CCI?
Chawla: Well, I am sure given what has happened in this order, the lawyers would be looking at this aspect closely and might choose to highlight these aspects in other matters which are before the appellate tribunal, but I am not aware.