Business Today

Still a long haul

An empowered Competition Commission of India is asserting itself but teething problems remain.
twitter-logoManu Kaushikand twitter-logoSarika Malhotra | Print Edition: Nov 23, 2014
Ashok Chawla, Chairman, CCI
Ashok Chawla, Chairman, CCI: "India is a very big country and it will take some time to build capacities. Rome was not built in a day. It's a work in progress"

On August 22, his last day in office as Chairman of the Competition Appellate Tribunal (COMPAT), Justice Vikas S Sirpurkar spoke his mind. The former Supreme Court judge, who headed COMPAT for 27 months, wondered how could the Competition Commission of India (CCI) be empowered to impose hefty penalties on companies when none of its members were required to have a judicial background. Sirpurkar also observed that the government should have created a judicial body within the CCI, as suggested by the Supreme Court in 2005, to handle adjudicatory functions, according to Balbir Singh, Partner at law firm DSK Legal, who worked as an external counsel to the CCI until recently and heard the speech.


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Former chairman, Competition Appellate Tribunal

The speech, says Singh, took him by surprise, coming as it did from someone who had seen the CCI evolve up close and had also upheld many of the regulators orders. He doesn't entirely disagree with Sirpurkar, though. Singh says most CCI officials who probe into allegations of companies that follow anti-competitive practices or abuse their market dominance come from the tax department and have limited understanding of market dynamics, especially in areas like technology and patents, and sectors such as media and advertising. "Unless you have an understanding of market dynamics, you cannot take a fair call," he says. Still, he feels, the CCI has managed to do a good job in a short span of time. "Despite its shortcomings, the CCI has been able to create a deterrent in the market," he says.

Indeed, the anti-trust regulator has stamped its authority in the past two to three years by cracking down on companies for business practices that it says are anti-competitive or unfair to consumers. In 2011, it asked property developer DLF to pay Rs 630 crore for abusing its dominant position after complaints by flat owners in some of the company's projects in Gurgaon. In June 2012, it levied a Rs 6,300 crore fine on 11 cement makers for forming a cartel. Last December, it slapped a Rs 1,773 crore penalty on state-run Coal India. And in August this year it asked 14 auto makers to cough up Rs 2,545 crore after rapping them for selling spare parts at inflated prices through a limited network of suppliers. This is not all. The watchdog is also probing Internet search giant Google for alleged abuse of its dominant position.

Not surprisingly, many of these companies have challenged the CCI's orders and, in some cases, managed to get some relief. The COMPAT has, for instance, stayed the CCI's order against Coal India. It has also stayed the order against cement makers, but not before asking the companies to deposit 10 per cent of the penalty amount. As for DLF, the property developer first knocked on the doors of the COMPAT and, after facing rejection in the tribunal, later approached the Supreme Court. In August, the apex court asked DLF to submit the penalty amount pending a final order on its appeal.

CCI: The story so far
CCI: The story so far
The CCI is the successor to the Monopolies and Restrictive Trade Practices Commission, which was wound up after the government enacted the Competition Act, 2002. But the regulator started functioning only in 2009 after the government amended the law to give teeth to the institution. Broadly, the CCI takes on cases in three areas - abuse of dominant position (the DLF case); anti-competitive pacts, including cartels (cement companies); and mergers and acquisitions. It has handled 520 cases as of September this year - it received the most complaints against real estate companies - and the number will only grow as virtually everything related to business comes under its purview. But, despite the headline-grabbing cases, the CCI still faces a number of challenges.

The new law governing the CCI lacks clarity on several aspects, according to industry executives and competition law experts. Take, for instance, 'dominance', one of the most cardinal aspects of the law. Companies in a dominant situation have power to increase prices or limit production irrespective of competition. But the law doesn't define dominance specifically and gives no numerical value to establish dominance. So, a lot is left to discretion. R. Prasad, a former member of the CCI, says that "dominance is a subjective term". He cites the order against DLF as an example.


The order [against DLF] stood on a weak foundation as the definition of high-end apartments varies from person to person


Former member, CCI

The CCI order against DLF was in response to complaints filed by groups of flat buyers at three projects - Park Place, Magnolias and Belaire. The buyers complained about project delays and the increase in the number of floors in the projects without their consent. In its order, the CCI ruled that DLF abused its dominant position in the high-end residential market in Gurgaon. The regulator considered a flat costing Rs 2-3 crore as a high-end residential apartment. But no law defines what a "high-end apartment" is. The definition would vary depending on location and company, among other factors.

While probing into the flat buyers complaints, the CCI's investigation arm - the office of the Director General (DG) - said that DLF's market share among housing construction companies operating in Gurgaon exceeded 55 per cent, which placed it in a dominant position. Although DLF argued that the CCI should look at the entire National Capital Region to determine "dominance", the CCI wasn't convinced and ruled on the basis of the company's position only in Gurgaon. Chawla says companies would always want to expand the geographical market so that their dominance disappears. "In the European Union, they take 30 per cent market share as a safe harbour. Determining dominance in India is based on a host of factors. To base the judgment on those factors is something that will be disputed always," he says.

In the past, there have been differences within the CCI also on the issue of the relevant geographical market. Prasad, who spent four years in the CCI, cites the example of a case against the Chennai-based broadcaster Sun Direct TV. Prasad says there was a tussle between the investigation team (DG office) and some CCI members on the issue of the relevant geographical market. While Prasad and his team said that only South India should be considered the relevant market, the investigation team took the whole of India. As a result, the company was found not violating any provisions of the competition law, according to Prasad.

Questions are also being raised about the feasibility of implementing some of the CCI's orders. A case in point is the recent order asking 14 auto companies, including Maruti Suzuki, Tata Motors, and Mahindra & Mahindra, to sell spare parts more widely. Auto industry executives fear this could lead to counterfeit products flooding the market. R.C. Bhargava, Chairman of Maruti Suzuki, the countrys largest carmaker, says it is impossible for auto companies to ensure that defective or spurious parts are not sold in the after-sales market. "In Europe, they have a regulated system for it. Here, we don't have stringent regulatory mechanism against counterfeit products," he says. "The CCI doesn't have to necessarily follow the practices followed in developed countries. Any regulator must be able to see the appropriateness of such regulations in the Indian context."

It is not just the auto industry that has apprehensions about this order. Even people associated with the CCI feel the same. "Its feasibility is highly questionable," says K.K. Sharma, a former director general at the commission. "In Europe, there's an external agency that looks into the standardisation and authorisation aspects of such spare parts. We don't have any such agency in India. Also, it is not practical to monitor every spare part made in the country."

Observers say such half-baked judgements point to a serious flaw in the CCI's structure. "This, in a way, reflects the lack of sectoral expertise within the CCI because they are not able to balance their views with ground realities," says a senior lawyer involved in competition cases. Lack of expertise and a manpower crunch are becoming a big cause of worry for the regulator. So far, all four DGs of the investigation division have been from the Indian Revenue Service. "Although the commission tries to draw applicants from various government departments, a majority of applicants come from the revenue department," says Chawla.

The staff is also poorly trained. "The staff is on deputation. There's no system of internal training so they learn on the job, which is not a great idea. A lot of complaints have been made by counsels to courts in their arguments on account of untrained staff," says a former CCI official. Justice Sirpurkar says that some members should have judicial training since the CCI is a quasi-judicial body and has the power to levy a fine up to 10 per cent of a companys revenue. "You must know the basic principles of justice," he told BT. At present, none of the five members and the chairman have any judicial background. Chawla agrees that the CCI needs people with judicial training. He also highlights the need to build a cadre in the CCI. The commission's approved strength is 199 but it faces a 30 per cent shortage. "The biggest challenge for us is to build capacity to take on the rising number of anti-competitive cases," he says.

However, some believe otherwise. Prasad says the CCI is overstaffed. "Most people are idling. The senior staff comprises retired people with low motivation levels," he says.

Meanwhile, people with some familiarity with the competition law are in great demand. Law schools have started new courses to train professionals. The Indian Law School Pune is the latest to join the bandwagon with a diploma programme in competition law starting from November. The shortage of seasoned professionals is prompting old CCI hands to start their own practice or join law firms. K.K. Sharma, a former DG; Vinod Dhall, a former acting chairman of the CCI; and Amitabh Kumar, the first DG, are some such examples.

Opinion also varies on whether the CCI is hurting businesses or promoting competition in various sectors. "The commission's objective is to grow competition and, in the process, grow the economy, but its ad-hoc approach in dealing with anti-competitive cases is not serving any purpose," says Naval Satarawala Chopra, Partner at law firm Amarchand Mangaldas.

The CCI is also battling the perception that it is merely witch hunting. Following the DLF order, the commission is reportedly probing about 20 developers. "Many clauses [in flat buyer agreements] are lopsided in favour of the developers. The DLF case will act as a catalyst in cleaning up the real estate sector to some extent," says Vaibhav Gaggar, a counsel for the CCI.

Rajiv Kumar, Senior Fellow at the New Delhi-based think tank Centre for Policy Research, says the watchdog must go beyond the biggest and the mightiest. "There should be fear of regulators among companies that if they collude somebody will come down heavily on them," he says.

Industry, however, is sceptical about the way the CCI is going about its job. Some believe the commission should have taken a cue from global competition bodies before cracking the whip. Amarchand Mangaldas's Chopra says the European Commission did not levy any fine for the first seven years of enforcement of the competition law, recognising the need for provide companies to adjust to a new system. "The law has caught the corporate sector unawares," says Pankaj Mohindroo, National President of the Indian Cellular Association and Secretary of the Belaire Owners Association.

Industry executives say that, as a new institution, the CCI should have given time to industry to understand its working dynamics. "It is heavily inspired from the European Commission but India and Europe are different markets. Also, the European Commission came into being in a much mature economy than India's," says Rajeev Talwar, a whole-time director at DLF.

The DLF case also gave rise to confusion that the appropriate forum to deal with issues related to consumer grievances, especially in the real estate sector, was the CCI when, in fact, such issues come under the purview of the consumer dispute redressal commissions. Also, the CCI does not have the power to award compensation to consumers, who often are at the receiving end when companies adopt unfair or anti-competitive practices. Even in the case of DLF, the Rs 630 crore that the company has been ordered to pay will go to the government's coffers and the flat buyers are reportedly planning to file a class-action suit against the company to seek compensation.

With hefty penalty imposed on companies, the industry sees it as the regulatory overreach of the CCI. Also, companies feel there seems to be no clarity on the roles of different regulators. There have been several instances of a turf war between the CCI and other regulators. For instance, in 2012, the CCI was at loggerheads with the Central Electricity Regulatory Commission on the competitive aspects of the power sector. In August, the CERC issued draft rules to thwart intensifying competition in the power sector. The CCI opposed the regulations.

While the CCI is still finding its feet, there have been attempts to clip its wings. A spate of writ petitions filed in courts against the CCI's investigations indicate the growing opposition against the competition regulator. Notable examples include the Delhi High Court restraining the CCI from passing orders against Swedish telecom gear maker Ericsson and British construction equipment maker JCB, and granting a stay on the CCI's probe into a case involving the Institute of Chartered Accountants of India. Already, questions are being raised on the legality of the Competition Act. Keltech Energies, a Bangalore-based explosives company, has challenged some provisions relating to the CCI's functions following which the Supreme Court has asked for the central government's view.

All this has not deterred Chawla. "India is a very big country and it will take some time to build capacities," he says. "Rome was not built in a day. It's a work in progress."

Follow the authors on Twitter at @manukaushik and @sarikamalhotra2

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