Inter-regulatory coordination to reduce arbitrage opportunity: CCI chairman

The government has referred the Competition (Amendment) Bill, introduced in the Lok Sabha during the just concluded monsoon session of Parliament, to the Parliamentary Standing Committee on Finance for review. The proposed amendments are expected to widen the scope for intervention by the Competition Commission of India (CCI). In an interview with Shrimi Choudhary, CCI Chairman Ashok Kumar Gupta explains the rationale behind the proposed amendments. Edited excerpts:

The Bill seeks to make inter-regulatory coordination more cohesive and symbiotic. Your take?

Inter-regulatory references gain significance because the CCI as an overarching market regulator has an interface with various sectoral regulators, especially when their functions can affect the broader scope and objectives of competition policy.

In this context, the existing statutory framework provides an inter-regulatory coordination mechanism whereby the CCI and sectoral regulators can interact and seek one another’s opinion on a non-binding basis. The problem with this mechanism is that the threshold for triggering such a mechanism for consultation is high.

The Bill lowers this threshold by providing that the CCI or sectoral regulators, as the case may be, may make a reference to each other on any issue that involves provisions of their respective statutes, i.e. the CCI can make a reference on any issue to a sectoral regulator in respect of the Act administered by the sectoral regulator and vice versa.

So, the proposal will engender comity among regulators and obviate gaps and overlaps among them; reduce regulatory arbitrage; and result in cohesive and holistic enforcement, providing certainty and predictability to businesses.

The Bill also enables the CCI to enter into MoUs with sectoral regulators.

There should not be any prior approval required from the CCI in the case of transactions involving open offers or acquisition of shares through regulated stock exchanges. How do you view this proposal?

In the case of market purchases where prices are volatile, if one is required to wait for approval from the CCI, the person or entity may lose the opportunity to buy shares at best prices. Further, if information relating to acquiring shares of a listed company is made public, it may result in speculation in prices and such a proposed acquisition may become unprofitable or unviable and thus may fail. Therefore, the time taken for their competition assessment and approval may increase the cost of transactions.

The proposed amendments establish a special framework for market purchases under which parties can conduct market purchases without prior notification and approval from the CCI. However, subsequently they would be required to notify the CCI within a specified time and will not exercise any ownership or beneficial rights in such shares till they get approval.

How will the change in the definition of “control” affect mergers?

“Control” includes controlling affairs or management. The Bill defines “control” as the ability to exercise material influence, in any manner whatsoever, over the management or affairs or strategic commercial decisions.

The relationship between shareholders/investors and enterprises is fast evolving and the concept of “control” needs to be one that enables the assessment of such relationship in the proper perspective.

Accordingly, it is felt the concept of “control” needs to be linked to the ability to influence strategic commercial decisions, which causes changes in market dynamics. This approach complements the conventional concept of control rooted in shareholding or affirmative/veto rights.

The change is aimed to bring clarity and certainty by specifying the control threshold in the Competition Act. It is expected it will make stakeholders more aware of their statutory obligations and prevent any unintended non-compliance.

What will constitute material influence?

Assessing material influence requires a case-by-case analysis of the relationship between acquirer and target. Material influence may arise owing to factors such as representation on the board of the target, contractually agreed consultation rights/veto rights, voting percentage held by the acquirer, etc.

How will the proposed settlement and commitment mechanism work?

The Bill seeks to introduce a ‘settlement and commitment’ framework to reduce litigation. The settlement mechanism would apply to alleged contraventions related to certain anti-competitive agreements and abuse of dominance. An application for settlement may be filed only after receipt of the investigation report but prior to such time as may be prescribed by Regulations, before the passing of final order by the CCI. CCI may impose certain conditions which may include settlement amounts.

It also empowers CCI to accept commitments which may only be submitted after an inquiry has been initiated by CCI, but within such time (as may be prescribed by Regulations), prior to the receipt of investigation report by the party concerned. Such mechanisms are likely to enable CCI to resolve antitrust cases faster and free up its scarce resources. Also, businesses can avoid long investigations and uncertainty.

A limitation period of three years gives the impression that old matters will not go to the CCI.

It has been observed that sometimes information providers bring cases before the CCI in respect of agreements or causes of action which date back in time. This creates uncertainty in markets and puts businesses in perpetual risk of being dragged to the CCI for any clause in the agreement which was executed long time back (in some cases, agreements were executed prior to 2009, when the law came into being) and is now alleged to be anti-competitive. Therefore, it became imperative to provide a threshold beyond which cases cannot be brought before the CCI.

When can we see a framework on the changes proposed?

It is important for us to have stakeholders’ views because they will help us in framing rules in line with changes in business models. The panel has been given three months to submit the report. Our groundwork has started in line with the proposed amendments.

What is the rationale behind an overhaul in the leniency regime for cartels?

Cartels are recognised as the most egregious violation of competition law and accordingly, it has been the focus of competition enforcement. It is indisputable that competition authorities face significant obstacles in detecting and prosecuting cartels since they operate under a cloak of secrecy. With a view to dealing with such challenges, most jurisdictions have developed leniency programmes. 

The proposed framework will further incentivise applicants to come forward with disclosures regarding multiple cartels, thereby enabling the CCI to save time and resources on cartel investigation. This will result in faster market corrections.