The Business Standard, January 07, 2006

By Pradeep S Mehta

From giving the proposed commission some adjudicatory powers which are those of the Tribunal, to staffing it with ex-MRTPC personnel, the list goes on.

On my request, Company Affairs Minister Prem Chand Gupta asked his private secretary to show me the proposal for draft amendments for the Competition Act, 2002. Rather than a “yes, minister” response, the private secretary murmured that it is a secret document, and hence “sorry, minister”. I could never see it then, but have been able to obtain a copy now, when the same has been submitted to the Cabinet for onward submission to Parliament in the Budget session. In this age of “right to information”, the prime minister’s explicit directions to expand transparency in all public dealings, and wider public consultation to get the best policies in place, it is quite amusing that some in the government wish to continue to do things in such a sinister fashion, and for such an important law.

The new competition law, as a replacement of the archaic and inadequate Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, was drafted quite some time ago with wide public consultations. The concept Bill that came out was good, but the two drafts that were presented in Parliament were quite different due to some vested interests. Ultimately, it was passed in Parliament in 2003. However, the same was challenged in the Supreme Court because babus wanted to sit as judges, and the apex court was terribly pissed off.

The proposal now is to split the competition authority into two; one the Competition Commission as the regulator to be headed by an expert, and the Competition Appellate Tribunal headed by a judge.

Alas, once again, the debate will swing on selecting retired bureaucrats (read experts) and retired judges for the two bodies, because in both cases the age limits are beyond 60 years. This is despite the government’s assurance in Parliament that the body will not be a parking lot for retirees. It won’t look at competencies, and to ensure that bureaucrats find a place in both bodies, the proposed amendments have added “administration” in the qualifying criterion.

The only little hope of getting some better people is that the amendments propose a selection committee to be headed by a retired judge, when earlier the committee was headed by a minister. One wonders why the government did not take into account the proposal of the Raghavan Committee’s concept Bill to have a collegium (comprising of Chief Justice of India or nominee, finance minister, minister for company affairs, governor of the Reserve Bank of India and the Cabinet secretary) as the selection committee. The collegium was a high level selection committee, which could not have been influenced as easily as the newly proposed committee.

Second, no procedure has been outlined on how candidates will be identified.

Other than the institution, the framework of the law has to be sound for it to be effective. Unfortunately, there are many major flaws in the Bill. The first one is that the Competition Commission of India (CCI) will have regulatory powers, which include cease and desist, directions, injunctions and minor monetary penalties. These are adjudicatory functions. The Bill goes on to say that the appellate tribunal will be the adjudicatory authority, and will have the right to award compensation, and hear appeals against the CCI. Thus, the confusion which can emanate may lead to challenges, and make the Commission a toothless tiger.

Second, it is proposed that the MRTP Commission gets a two-year life after the new law comes into force, so as to deal with pending cases. This was considered by the Raghavan Committee, which had stated that all cases relating to unfair trade practices be transferred to the consumer disputes redressal machinery, while cases relating to restrictive trade practices and monopolistic practices be transferred to the new CCI. This was also incorporated in the law. Apparently, this change appears to have been made to suit the existing members at MRTPC, who were appointed quite recently. Concomitantly, the Cabinet note proposes that all staff of the MRTPC will be transferred to the CCI, which can add to further confusion. Besides that, importing deadwood into the CCI will turn it into MRTPC, mark-II, rather than a lean and mean body to work as a body which will need to be totally distinctive of the old MRTPC.

The third major flaw is that the new Bill adds another definition for preventing market access through unfair practices. There is no need for the same, which can lead to further confusion on the overlap of jurisdiction between the competition authority and consumer disputes redressal agencies. The existing definition of unfair practices under the clause on “abuse of dominance” is quite inclusive.

The fourth major flaw is the leniency provision, which had earlier read as a special relief to the first party who spills the beans in a case of collusion (for instance, cartels), and before the enquiry begins. It is now proposed that all parties who wish to cooperate with an enquiry can do so right until the time that the director general submits his report to the CCI. This would open the doors for rampant corruption, and defeat the very purpose of the leniency provision.

One of the most important drawbacks is not empowering the CCI to deal with competition issues in the regulated sectors, such as telecom, electricity and so on. In the best traditions of other countries, the competition authority, having an economy-wide remit, has the powers to deal with all behavioural issues, while the sectoral regulator deals with structural issues in the regulated sector. An effort was made by the department to do so, but that met with stiff resistance from regulated sector line ministries, which is but natural. A compromise provision has now been put in, which speaks about references to be made by the sectoral regulator to the CCI, but that its opinion will not be binding. This creates a disincentive to regulators to refer matters to the CCI. Another important suggestion being made in policy circles is that the Competition Appellate Tribunal become the common appellate authority for all regulators. That can promote convergence of thought and action. This is a model followed by some countries and merits serious consideration. It requires some wisdom to deal with the issue of overlap, which can only be dealt with by the prime minister.

Another crucial overlap issue is the absence of covering abuses due to intellectual property rights, which have been left rather weak. The TRIPs agreement in fact calls on countries to tighten this coverage. Many competition laws of the world have such a provision, and we too need to do so.

The seventh crucial drawback is that the proposal for regional benches of the CCI will be dropped on the grounds that the CCI will not be an adjudicatory body. For a huge country like India, the CCI can have regional offices, rather than benches, such as the registrar of companies. Many countries — both big and small — in the world have regional offices of the competition authority. You can’t sit in Delhi and police the markets of the country.

One only hopes that when the bill is placed in the parliament, lawmakers will look into it carefully. We have waited for the new competition law for long, and there is no harm in getting something, which is modern and effective, and doesn’t go back to the apex court to decide.

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