Published:The Hindu Business Line, September 16, 2005

By Pradeep S Mehta

In the current draft amendment Bill on the Competition Act, the government has proposed mandatory consultation for regulators with the competition authority, as against the earlier provision of `may’ consult. A welcome move, but better would have been an unambiguous coverage of behavioural problems in the domain of the competition authority.

A DEBATE is on in the country over the conflict between the to-be-set-up competition agency and the sectoral regulators. India still does not have an active competition authority, other than the inadequate MRTP (Monopolies and Restrictive Trade Practices) Commission, but speculation abounds on the likely overlaps between the two types of agencies ā€” the competition authority and the sectoral regulators.

The problem in India arises due to various factors.

First, the competition agency will be under the Ministry of Company Affairs, while the sectoral regulators are under different ministries, such as the electricity regulator is under the Ministry of Power and so on. This can lead to turf battles between the ministries and come in the way of applying competition principles.

For instance, if the Competition Commission of India (CCI) takes an action against BSNL for any anti-competitive practice, the Communications Minister will surely want TRAI, as the sector regulator, to sort it out.

Second, sectoral laws, in their objects clause, provide for promoting competition. In fact, both sectoral regulatory laws and that on competition law are part of the competition policy rubric, which seeks to promote orderly markets.

Third, the CCI is yet to be set up properly, so there is little clarity about how it will function. Often there is a difference between the legal mandate and the operating culture, which is also moulded by court pronouncements. There is further confusion when a law does not contain the non obstante clause, or the non-derogatory principle that allows the operation of the law in pursuance of its own objectives even if there is conflict with another law. Usually all laws contain a non obstante clause, as otherwise there will be chaos. On the other hand, such a clause can promote forum shopping, and thus clarity can only be achieved through conventions and praxis.

There is overlap between the two regulatory institutions in other countries as well. But some have found good solutions, and embedded them in the law. Others have developed maturity and adopted good practices as conventions.

For example, in the UK, there is a concurrence party, where all regulators and the two competition authorities sit and decide on the best agency to deal with a case. It has worked fairly well. In India, this approach may not be the best, because of rampant egotism and rigid hierarchical structures. Furthermore, we follow a pernicious system of sinecures, where retirees are appointed to regulatory institutions. In the event of any consultation, etc., each will first look at the seniority of a person rather than the propriety.

Additionally, the Competition Appellate Tribunal in the UK is the common appeals body for the competition authorities as well as all sectoral regulators. It thus conveys the political will of the government to have smooth operations in the market regulatory structure.

This also ensures convergence in application of competition and regulatory laws on issues where there is overlap, setting healthy conventions. The Union Law Ministry and the Planning Commission favour of such a common appellate tribunal.

Unfortunately, each of the sector regulators (including appellate tribunals) is governed by the sectoral ministry, and none will give up turf for not being able to maintain any influence over the appellate body. This includes appointing retired secretaries to the government, who have been rather `close’ to the powers, to these bodies, usually as heads of the regulatory body and members of the appellate tribunal. Many of these tribunals do not have sufficient workload to justify their huge expense and the associated trappings of power.

Second, is to have a common appellate tribunal to ensure harmonious application of both the laws.

There is a thin line between promoting and protecting competition. Indeed, the regulator is required to promote competition, as walso the development and health of the sector it regulates.

On the other hand the competition authority is required to protect competition in the market place so as to contribute to the economic development of the whole country. Further, the competition authority needs to maintain a firm stance on anti-competitive practices of the sector, or for that matter any firm in the marketplace, whether they are engaged in manufacturing or trading of goods and services.

A sectoral regulator is prone to be influenced by the sector, because of the frequent interaction between the two parties.

Furthermore, many of our sectoral regulators are manned by staff from the relevant ministry, thus defeating competitive neutrality because they have their biases and also a soft corner for the public sector player. On the other hand, a competition authority is an economy-wide market regulator and has much less chance of being influenced by any particular sector.

For India, France offers the best role model. First, France has divided the role of the regulators and the competition agency. Regulators are empowered to examine structural issues, while the competition authority looks at behavioural issues. Whenever there is an overlap, then it is mandatory for both parties to consult each other. This has been defined in both the competition law and the sectoral regulatory laws.

Brazil also offers a similar solution, where the competition law applies to all regulated sectors, and is administered by the competition authority. Of course, here too, the structural issues of a sector are dealt by the sectoral regulator. But they do consult the competition agencies.

In India, one problem in the structural area is of mergers and acquisitions (M&A) provisions in the Competition Act, 2002 which deals with them on the basis of some capital and turnover benchmarks. On the other hand, many of the regulators have their own guidelines on M&As, which may follow other requirements.

Such as the government guidelines on intra-circle M&As, which seek to ensure that there are at least three operators in a circle, and decisions are not based on capital employed or turnover. This could be an area of conflict, as to which law will apply to M&As in the regulated sector.

One issue that often comes into the discourse is the availability of subject matter experts with the specialist tribunal/regulator. It is absurd that none of our courts has anyone other than law professionals manning them. Whenever concerns were raised about the lack of technical/subject specialists, courts relied on technical advice and not necessarily on the arguments of lawyers.

The way ahead is quite clear. In the current draft amendment Bill on the Competition Act, the government has proposed mandatory consultation for regulators with the competition authority, as against the earlier provision of `may’ consult.

It is a welcome step forward, but better would have been an unambiguous coverage of behavioural problems in the exclusive domain of the competition authority. Only then can we hope to have an orderly market place.

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