Archive for October, 2012

Imagine that there is only one carmaker in the country. The company would be free to increase the price of its cars at will, as there is no worry of the 
competition taking away its business. And the consumers will be at the receiving end.

Imagine another scenario in which there are many carmakers but all of them discuss and fix prices. Here again, companies gain at the cost of consumers.

The key point in both these situations is lack of competition. While it is not something every consumer thinks about every day—often because of the plenty of options available—competition directly influences the price of all products. And if you thought there was fair competition in every sector, the orders passed by the Competition Commission of India (CCI) would make you think otherwise.

The CCI ensures companies do not take advantage of lack of competition in the market. The body has two wings—the chairman’s office and the director-general of investigations. The chairman’s office receives complaints, which are considered by the seven-member commission. If the matter is worth investigating, the case is 
forwarded to the DG of investigations. Otherwise it is closed at the first stage itself. After investigation, the report 
is discussed by the members and an order is issued on the basis of a majority decision.

As of June 30, 2012, the CCI has delivered final orders in 90 cases. Currently, there are 47 cases with the commission and another 23 with the investigation wing.

Despite the ripples they have been making, the CCI’s orders are not conclusive, and most of them land up at the Competition Appellate Tribunal (COMPAT). Though many experts approve of the steps taken by the CCI, they say its weaknesses outnumber its strengths.  “It has been a positive journey for the CCI in the last three years. But they have their set of problems, too. I would probably give them a three out of ten and that would be purely because of the activity shown by them,” said Pradeep S. Mehta, secretary-general, CUTS International, a non-profit organisation for consumer rights, social justice and economic equality.

The CCI is severely understaffed. While two or three people work on a competition case in India, it is eight in the US and Europe. “The investigation wing has a severe quality manpower issue. They are operating at 50-60 per cent less than the sanctioned strength,” said Ashok Chawla, CCI chairperson.

Also, most officials in its investigation wing are on deputation. By the time they are trained, they get transferred. “Ministry of corporate affairs has taken up the view that people should only be on deputation there. We are trying to get it modified to the extent that there is a scope for people to be taken directly,” said Chawla.

There are allegations that the CCI is a dumping ground of former bureaucrats. But for Geeta Gauri, all members of the commission are former bureaucrats or retired judges. “The CCI needs people who are specialists in economics and legal issues, people who understand how markets and competition law work,” said Sajid Mohamed, partner at PDS Law & Associates, a law firm.

Many competition lawyers have taken a strong view against many CCI orders. “Due to lack of proper growth of domain knowledge at all levels some of the complex disputes, and decisions thereof, under the [Competition] Act have generated controversies,” said Manas Chaudhuri, partner at law firm Khaitan & Company.

For instance, the NSE vs MCX case. In 2009, MCX-Stock Exchange complained against the National Stock Exchange of using its dominant position in the market to prevent competition in the currency derivatives segment. The CCI declared that the NSE used predatory pricing to thwart competition, and asked it to modify its zero pricing policy and pay a fine of 055.5 crore.

The CCI cited NSE’s predominance in the market to back its decision. Competition lawyers, however, say it was not correct as MCX was the largest player in the currency futures segment even at that time. The two dissenters in the commission, Geeta Gouri and Anurag Goel, did not find any abuse of monopoly by the NSE and, in fact, said that any meddling by the CCI would not help the consumer. The case is now with COMPAT.

Some experts, however, say the ruling was fair. “NSE being dominant in the equity segment, leveraged its position to dominate the neighbouring market of currency derivatives (CD). Charging nothing in the CD market was predatory behaviour, since zero price is below any measure of cost,” said Amitabh Kumar, partner at law firm Jyoti Sagar Associates and former director-general of CCI.

In another controversial verdict, the CCI slapped a penalty of Rs630 crore on DLF, saying the realtor abused its dominance by asking apartment owners to sign one-sided clauses. Many law experts are of the opinion that the CCI’s notions in the case were misguided.

Since it was a dispute between flat buyers and the builder, they say, it was a consumer case and hence the CCI should not have accepted it in the first place. “The accusation that DLF breached terms of contract between two parties is actually a contract law issue and not competition case,” said Naval Satarawala Chopra, partner at law firm Amarchand & Mangaldas & Suresh A. Shroff & Company.

The CCI also faulted on the methodology it used to figure out DLF’s dominance in the relevant market. The DG calculated the market share on the basis of all-India revenues of realtors operating in Gurgaon. “A company might be a market leader in Mumbai, with one project in Gurgaon, but the DG estimated its market share in Gurgaon by using its all-India sales figure,” said Mohamed.

The CCI’s most defining moment came in June, when it fined 11 cement companies with Rs. 6,300 crore for fixing prices. “Cement companies reduced production, in fact, they produced much less than installed capacity thereby creating artificial scarcity. And although the sector was divided into five different zones, prices of all companies moved in the same manner. The price of cement rose faster than input prices. Cement companies had enough margin to reduce the prices 
but they did not do so, they kept increasing prices and earned handsome profits,” said the commission’s 258-page-long order.

Competition lawyers, however, say price parallelism is not illegal and suggestive of cartel behaviour in itself unless there are strong evidences. “They have relied mainly on circumstantial evidence to build up the case, which will be difficult to prove in courts. Even in the case of circumstantial evidence, they have not done proper economic investigation,” said a lawyer. This case also is with COMPAT.
Experts say most of these cases are going to land in the Supreme Court and the CCI is on a weak footing. “It is fine if these orders are reversed. Jurisprudence evolves only over time,” said Dhanendra Kumar, former chairman of CCI.

Some allege the CCI has been a laggard in taking up cases on its own. “They are not very proactive. There are violations happening in a lot of sectors which they have ignored,” said Mehta. It has taken up only five cases suo motu, which is only 2 per cent of the total cases.

The good thing is, corporates have started taking the CCI seriously. “We have been in discussion with them over several matters,” said the chief financial officer of a telecom company. “We want to comply. The feeling is that there is a body watching you, even if you escape the eyes of the sector regulator, and that is good.”

Fair play

The Competition Commission of India (CCI) was established to provide a 
“level-playing field” to producers to ensure the welfare of consumers through fair competition in the economy.

  • Seven members, including the chairperson, comprise the CCI’s chairman’s office division while the director-general of investigations division deals with the cases forwarded by the former.
  • There are various sections like investigation, economic, combination, anti-trust and legal headed by some of the members.
  • The commission studies competition law violations based on specific complaints and can take up cases suo motu, too.
  • The complete report is discussed again by members and the final order is issued by majority approval.
  • Companies can appeal to Competition Appellate Tribunal (COMPAT) against an order.
  • CCI has delivered final orders on 90 cases as on June 30, 2012, 47 cases are still with the commission and 23 with the investigation wing.

Case study

  • 11 cement companies were fined a whopping Rs. 6,300 crore by CCI for “cartelisation”, but the companies got a stay order from COMPAT.
  • MCX alleged that NSE’s zero-pricing policy in currency 
derivatives segment stifled competition, for which CCI fined the latter Rs. 55.5 crore. The case is now in COMPAT.
  • DLF was accused of making apartment owners sign one-sided clauses, for which CCI fined the realty major Rs630 crore. CCI drew flak for this decision as experts felt that it was a consumer case and not a competition one.

Credit: The Week


The Competition Appellate Tribunal (Compat) dismissed the plea of Financial Technologies India Ltd (FTIL) to be a party in the case related to NSE’s appeal against the Rs 55.5 crore penalty imposed on the stock exchange by fair trade regulator CCI.

The CCI order came on a complaint filed by MCX Stock Exchange (MCX-SX), which competes with NSE in the currency derivatives market. For dissenting opinion, see below.

MCX-SX was set up by FTIL and MCX, the country’s biggest commodity bourse.

A three-member Compat bench, headed by its Chairman Justice VS Sirpurkar, dismissed FTIL’s plea after observing that it does not “find any merit” in it.

FTIL’s plea was opposed by the NSE, which said that it was not a party before the CCI (Competition Commission of India) and hence there is no need for the same in Compat case.

The NSE had challenged the CCI order, passed last year, wherein it had imposed the penalty on the bourse for allegedly abusing its dominance in the equity market, thus affecting the competition in currency derivative segment.

FTIL is a specialist in providing IT solutions for the equity, treasury, forex, commodity, derivatives and depository segments.

Order u/s 38 by CCI and dissenting order by Dr. Geeta Gouri and Shri Anurag Goel here

Order of the COMPAT here

Credit: Indian Express

The pharmaceutical sector may have a separate threshold for mergers and acquisitions (M&As) to fall under the purview of the Competition Commission of India (CCI) if the amendments in the Competition Bill are passed in Parliament.

The amendments, cleared by the Cabinet, propose to give the Centre, the power to fix thresholds different from those in the Competition Act, 2002, for any sector in case of mergers and acquisitions (M&As).

A new section 5A has been inserted in the Act, enabling the government to lay down, “in consultation with the CCI, different thresholds for any class or classes of enterprises for the purpose of examining acquisitions, mergers and amalgamations by the commission”.

The move comes after the anti-competition watchdog expressed its inability to the government to have a different threshold for the pharma sector, for M&A purpose.

Last October, Prime Minister Manmohan Singh had asked the CCI to approve M&As in the pharma sector and had given six months’ time to the anti-competition watchdog to amend its legislation for the same.

The Foreign Investment Promotion Board (FIPB) is the nodal agency for approving proposals of foreign direct investments in the country.

Experts say the move will help not only the pharma sector but other sectors too which were being left out of the purview of the CCI given the high thresholds provided for in the Act. According to the Act, the acquirer and the acquiree should have a combined asset of Rs 1,500 crore and combined turnover of Rs 4,500 crore to fall under the purview of the commission.

“It is a good move. There are many sectors like the IT sector or the banking or insurance sector where it makes sense to have different thresholds. For instance, in the pharma sector, lower thresholds are required,” Amitabh Kumar, partner, J Sagar Associates, said.

Apart from the new insertion, the government has also proposed to change the definition of ‘group’.

As defined in the act, a group means two or more enterprises which, directly or indirectly, are in a position to exercise 26 per cent voting rights in the other. The government has raised this limit to 50 per cent. The Bill also seeks to provide the power of ordering search and seizures to the chairman of the commission. The Bill also proposes that while defining turnover, taxes would not be a part of the total value.

Press Release by Government of India

Credit: Indian Express

The U.S. Federal Trade Commission and the Department of Justice signed an antitrust memorandum of understanding (MOU) with the Government of India Ministry of Corporate Affairs and the Competition Commission of India (CCI) to promote increased cooperation and communication among competition agencies in both countries.  The ceremony took place in Washington, D.C.

The MOU was signed by FTC Chairman Jon Leibowitz, Acting Assistant Attorney General Joseph Wayland of the Department of Justice’s Antitrust Division, Indian Ambassador to the United States Nirupama Rao on behalf of the Indian Ministry of Corporate Affairs and CCI Chairman Ashok Chawla.

“We are delighted to enter into this memorandum of understanding with the Indian Ministry of Corporate Affairs and the Competition Commission of India.  It will strengthen the already excellent relations among the U.S. and Indian competition authorities by further facilitating cooperation on policy and enforcement matters,” FTC Chairman Leibowitz said.

U.S. and Indian officials who attended the signing of the memorandum of understanding included the following:

First Row (right to left): Jon Leibowitz, Chairman, Federal Trade Commission; Ambassador Arun Singh, Deputy Chief of Mission (DCM), Embassy of India; Dr. Ashok Chawla, Chairman, Competition Commission of India; Joe Wayland, Acting Assistant Attorney General, DOJ Antitrust Division.

Back Row (right to left): Blair Hall, Minister Counselor (Economic Affairs), U.S. Embassy in New Delhi; Maureen Ohlhausen, Commissioner, Federal Trade Commission; Edith Ramirez, Commissioner, Federal Trade Commission; Sukriti Likhi, Counselor (Economic), Embassy of India; Datta Padsalgikar, Minister (Personnel & Community Affairs), Embassy of India; Leslie Overton, Deputy Assistant Attorney General, DOJ Antitrust Division; Rachel Brandenburger, Special Advisor, International, DOJ Antitrust Division; Anjana Modi, Senior Economic Officer, Bureau of South and Central Asian Affairs (SCA), Department of State; Alyssa Ayres, Deputy Assistant Secretary, Bureau of South and Central Asian Affairs (SCA), Department of State.

Commenting on the signing, Acting Assistant Attorney General Wayland said, “We value our relationship with the Indian Ministry of Corporate Affairs and the Competition Commission of India.  We know that this memorandum of understanding will enhance that relationship in the years ahead, as we work together to ensure that markets are open and competitive, by identifying and remedying anticompetitive behavior.”

Key provisions of the MOU address the following:

  • Cooperation – The MOU provides that the U.S. antitrust agencies and Indian authorities will work to keep each other informed of significant competition policy and enforcement developments in their jurisdictions, and establishes a framework for technical cooperation.  The MOU also recognizes that when the U.S. and Indian competition agencies are investigating related matters, it may be in their common interests to cooperate.
  • Communication – The MOU establishes a framework for the U.S. antitrust agencies and the Indian competition authorities to consult on matters of competition enforcement and policy.  It also contemplates periodic meetings among officials to exchange information on policy and enforcement priorities.

The MOU is a framework for voluntary cooperation and will not change existing law in either country.  India adopted its modern competition law in 2002, and the law’s main provisions were put into effect between 2009 and 2011.

The Commission vote authorizing Chairman Leibowitz to sign the MOU on behalf of the agency, which was taken before Commissioner William E. Kovacic left the FTC and was replaced by Commissioner Maureen K. Ohlhausen, was 5-0.

MoU on Antitrust cooperation between the US DoJ, FTC, MCA and the CCI

Press Release: FTCDOJ and CCI

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