Canadian COMPETITION LAW

April 13, 2010

We are pleased to feature an update on the progress of competition law in India during the past year from our friends at the leading Indian firm Luthra & Luthra.

(Contribution by G.R. Bhatia, Partner and Head of Competition Law Practice, Luthra & Luthra)

National Stock Exchange Inquiry

In November, 2009, the MCX Stock Exchange filed an information with the Competition Commission of India (“CCI”) for institution of an Inquiry against National Stock Exchange, the country’s largest bourse, for alleged abuse of dominance by indulging in unfair trade practice of  predatory pricing.  The CCI, after detailed submissions and hearing, decided on 8^th April, 2010 that there exist a prima facie case for Inquiry and directed its investigation arm, the Director General, to carry out investigation and furnish report with in 45 days.

According to MCX, the NSE has waived its transaction fee on currency derivatives and instead charges a fee of Rs 2 per lakh on the turnover in its derivatives segment and waiver of fee makes MCX unable to compete.  The argument of NSE is that fee waiver in the new currency derivate segment is in the nature of introductory pricing with no intention to eliminate competition and that it had philosophy of fee waiver at initial stages.

Under the Indian Competition Act, 2002 “predatory price” means the sale of goods or provision of services, at a price which is below cost, as may be determined by regulations, of production of goods or provision of services, with a view to reduce competition or eliminate competitors.

Other Recent Indian Competition Law Developments (March 2009 – March 2010)

The CCI was fully constituted in March, 2009 (initially the Chairman and 3 Members assumed the charge and later 3 more members entered the office). The twin ex post enforcement provisions relating to anti competitive agreements (“ACA”) and abuse of dominance (“AOD”) became effective from 20^th May, 2009 and the CCI commenced enforcement in these two dimensions of law.  The third component relating to regulation of combination is expected to come into force soon after the CCI fine tunes the Combination Regulations.

The CCI in the beginning and rightly so examined the “Draft Regulations” which were formulated by the initial team of officers (of which I was one of them)  in extensive consultation with stakeholders.  The CCI has so far notified the General Regulations which set out the procedure governing inquiry into ACA and AOD and also provide for incidental and attendant matters. It has also notified Regulations governing its meetings, leniency programme, engagement of experts, determination of cost of production in predatory cases etc.

It has by now over 20 senior officers and over 30 mid level officers besides 20 support staff.  The senior officers were given training in India (I was one of the faculty as Knowledge partner)  and later in the EC and training for mid level officers is on.  The most of the functionaries who have joined are on deputation from other government Departments.   The process of recruiting professionals from other than Government Department is at advanced stage.   Efforts to build  capacity through training is on but it is handling of cases which is likely to take time (a concern indeed).

The CCI’s investigation arm is headed by DG and he is assisted by two Additional DGs and couple of officers.  Till recently, the Advisor Law was also discharging the duties of the Director General.  Only last week, Mr. A. K. Chauhan, a Indian Revenue Service Officer, has taken over as Director General of the CCI.  Incidentally, once the CCI forms a prima facie opinion of alleged violation of provisions ACA and AOD, the requisitioning of Investigation Report from DG is a mandate for the CCI.  However, it is not necessary but optional for the Commission to call for report of DG in combination matters.

To maintain independence of DG in its functioning, the Government has recently made some changes in the modus operandi of selection of DG and its officers. DG office is housed in Bhikaji Cama Place, New Delhi.

The CCI has undertaken a final round of consultation with leading law firms (I also made presentation to CCI on 23^rd Feb., 2010) regarding Regulations governing merger and acquisitions and these are expected to be in public domain any time and M&A provisions are expected to be made effective any time.

Securities Exchange Board of India (“SEBI”) has set up an Expert Group under the Chairmanship of Mr. C Achuthan, former Member of Securities Appellate Tribunal, to revamp the Takeover Code.  Since it is imperative that the combination regulations of CCI and takeover code of SEBI are in harmony,  we are working and in liaise.

The CCI has by now instituted several enquiries against (i) film producers/distributors for alleged cartel in sharing of revenue with exhibitors, (ii) several banks for charging a penalty in the event of foreclosure of home loan account, (iii) exclusive supply arrangement between railway and a steel public sector, (iv) two airlines for entering into seats and host of other arrangements, (v) National Stock Exchange for not charging transaction cost, (vi) a travel agents association for removal of its member for not supporting a boycott of an airline.

A few sectors like banking and shipping are clamoring for exemption from the applicability of the Act which CCI is resisting (the power to grant exemption vests in the Central Government).

The CCI continues with its advocacy mandate and people in general and business in particular seems to be more aware than that of yesteryears about  competition issues in market and the  provisions of the Act.  The CCI has fine tuned its Advocacy booklets on dominance, intellectual property rights, bid rigging, cartels, advocacy, combinations, filing of information with CCI (available on its website www.cci.gov.in  The Commission for the time being is not assigning market/research studies to researchers (over dozen of such reports already completed and few are reportedly in progress).

We have been successful in some of the  policy intervention matters – such as auctioning of 3G, interoperability in mobile phone number, more rational interest rate policy relating to Saving Bank Accounts, deregulation/fair remunerative price  of cane procurement by sugar industry etc.

The Competition Appellate Tribunal is headed by Justice Arijit Pasayat, a former Supreme Court Judge besides two Members – it operates from Jawahar Bhavan, Janpath, New Delhi and CCI operates from HT House, KG Marg and both are in the heart of New Delhi and they are in walking distance from us.  CAT website displays list of cases to be heard and also the order passed.  It has already held in one of our case that appeal lies against prima facie decision of CCI which seems to have ramifications for the CCI.

The CAT is also seized of disposing of restrictive/monopolistic/ unfair trade practice enquiries which spilled over from MRTPC, the latter  was finally dissolved in Oct., 2009.  It is very clear that CAT is endeavoring to dispose of all the pending enquiries of erstwhile MRTPC so that it is not saddled with matters of erstwhile MRTPC regime.  It intends to focus and deploy its resources/time fully on appeals flowing from orders of Commission and to  determine quickly quantum of compensation to aggrieved filers.

CAT Bar Association has been formed to assist the tribunal appropriately.

The Government of India has also notified couple of Rules under the Competition Act, 2002 to facilitate oversight on its administrative functioning.

The Indian Institute of Corporate Affairs (IICA), a statutory body under the administrative control of the Ministry of Corporate Affairs, is the official agency to impart training inter alia to CCI officers and I am one of the faculty member and an expert panelist of IICA.

The Planning Commission is likely to undertake mid term review of its 11^th Five Year Plan which inter alia is to take up the issue of notifying National Competition Policy (NCP).  By the way, the Government of India set up a Working Group to suggest principles to be enshrined in  NCP and its oversight mechanism. The Managing Partner of L & L was a Member of the WG and I assisted the WG while in CCI.

There is no provision in the Competition Act, 2002 to deal with erroneous representations/claims, deceptive bargain sales, false disparagement by one of another, misleading lucky draw scheme.  All these aim to promote the sale and to make illegitimate dent into the market of another.  These were inter-alia governed under the MRTP Act but not under the CA02.  While the ordinary consumer can have some relief under the Consumer Protection Act, 1986 but a commercial buyer (intermediary, distributor, retailer, franchisee, licensee etc) aggrieved of such practices can not take refuge under the CPA.  The Government was contemplating to set up National Consumer Protection Authority to take care of such practices and to provide remedial forum for commercial consumers but the process of establishment of NCPA is yet to be geared up.

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