Legal Blog: A Shot in the Arm for the Competition Commission

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Wednesday, February 9, 2011

A Shot in the Arm for the Competition Commission

By Zerick Dastur, Senior Associate of J. Sagar & Associates, Advocates & Solicitors

The Competition Commission of India is up and rolling. Recent judicial pronouncements in the field have acted as a shot in the arm for the regulator entrusted to promote economic efficiency and free and fair competition within the economy. The Commission has already commenced investigations in sectors including civil aviation, stock markets, private sector banks, housing finance companies, DTH service providers and disputes between film producers and multiplex owners. Recently, the Director General i.e. the investigating authority under the Act, has stated in its report that it appeared that the reality major DLF Ltd had violated the provisions of the Competition Act. Appropriate proceedings may be adopted by the Commission and action may be taken after completion of inquiry and affording the concerned party an opportunity to be heard. An order passed by the Competition Commission may be appealed before the Competition Appellate Tribunal constituted under the Competition Act, 2002. Any appeal against an order of the Appellate Tribunal will lie directly before the Supreme Court.

The recent judgment of the Supreme Court in an appeal filed by Competition Commission of India against the order of the Appellate Tribunal in the matter of Steel Authority of India Ltd. serves as an authoritative interpretation on a number of open issues. The judgment in effect enables the regulator to overcome a number of hurdles in conducting the process of investigation in a time bound manner. Not only does it provide that the a direction of the Commission to cause an investigation to be made on formation of an opinion by the Commission cannot be appealed before the Tribunal, it also provides that it is not mandatory for the commission to hear the parties affected prior to arriving at such a prima facie opinion. Thus the possibility of investigations being interrupted at the threshold with long drawn legal battles in the form of appeals to the Tribunal have been done away with. It has also been held that the Commission is a necessary and /or a proper party in every case before the Appellate Tribunal, thus giving the Commission an opportunity to put forth its perspective in every appeal before the Tribunal. The ruling could assist the Tribunal to arrive at a just and fair conclusion after hearing all concerned.

Similarly, the recent decision of the Bombay High Court in the writ petition filed by Kingfisher Airlines Limited is a landmark judicial pronouncement in context of a legislation which is in its nascent stage. The writ petition had been filed challenging the notices issued by the Commission in respect of an alliance between Kingfisher Airlines Limited and Jet Airways. While dismissing the writ petition the court observed that, though the Competition Act is not retrospective, it would cover all agreements entered into prior to the commencement of the Act which are sought to be acted upon by the parties after the commencement of the Act. The implications of this judgment could be widespread, covering a range of similar arrangements between corporate business houses. A special leave petition filed before the Supreme Court by Kingfisher was recently dismissed as withdrawn. 

Though the Competition Act was enacted in 2002, substantive provisions of the Act relating to anti competitive agreements and abuse of dominance were brought into force only on May 20, 2009. The Act inter alia provides that any agreement having an appreciable adverse effect on competition in India is void. The thrust of the Competition policy relating to anti competitive agreements is directed towards detecting and combating cartels. Agreements fixing prices or limiting or control production, supply or output of goods or services and market sharing arrangements are presumed to be void.

The Act empowers the Commission to initiate inquiry suo moto on its own motion or on receipt of any information from any person. Stringent penalty provisions have been prescribed. For instance, the Commission may impose penalties not exceeding 10% of the average turnover of the offender for the three preceding financial years. In case of a cartel, the Commission may impose upon each member of the cartel a penalty of up to three times the profits for each year of the continuance of the agreement, or 10% of turnover for each year of continuance of the agreement, whichever is higher. The Commission is also empowered to direct enterprises to terminate an agreement which is found to be anti competitive and direct the parties not re-enter into such an agreement. The Commission may further direct modification of an agreement which is perceived to have an anti competitive effect.

Like other developed economies, now India too has a comprehensive anti trust regime. The law will continue to evolve with experience in order to meet with the needs of a dynamic market and the then prevailing market situation. A lot has to be learnt from the experience of countries like the United Kingdom and the United States in dealing with similar situations. It can perhaps be said that the advent of the new law has opened up new dimensions to commercial law, regulatory practice and corporate compliances.

Zerick Dastur is a Senior Associate of J. Sagar & Associates, Advocates & Solicitors. He is a part of the Firms Competition Law practice and specializes in Corporate, Commercial & Securities Law.

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