Role clarity for CCI from Supreme Court

Licensing regulators may have primacy on specific areas occupied by regulation

A recent decision of the Supreme Court on the interplay between the statutory roles of the Telecom Regulatory Authority of India (Trai) and the role of the Competition Commission of India (CCI) may lead to uninformed rejoicing by participants operating in licensed markets. The order deserves a detailed reading for its lucid explanation of how the two statutory agencies’ roles ought to be reconciled.

The apex court, in the facts of the case it was deciding (the dispute between a newcomer participant and other telecom operators) found that the questions of fact and law to which answers had to be found by the CCI by conducting an investigation, were issues covered by telecom regulations. The Trai is a licensing regulator and issues telecommunication licences and is the one-stop-shop regulator for matters of service quality, productivity and standards that have to be complied with by telecommunication service providers. The CCI is the competition police, looking for market abuse, cartelised conduct by market participants, and abuse of dominant position by any market player.

Now, in the case in question, the Trai was seized of determining various contested facts involving disputes between telecom service providers — clearly, a facet of the regulatory power conferred on the Trai. The CCI having to determine whether the regulations made by the Trai were violated or not, would lead to possibly odd and absurd outcomes. If the Trai were to absolve the persons complained against and if the CCI were to hold them guilty, or if the findings were the other way around, it would have led to absurd conflicts.  

It is noteworthy that while the Supreme Court has ruled that, first, the Trai must determine if there was a standard stipulation by them that was violated, after which the CCI could act, the apex court has explicitly repelled an argument that the CCI would have no jurisdiction in matters involving regulated entities. In fact, rejecting an argument that competition law was general law while telecom regulations were special law, the Supreme Court has said that both competition law and telecom law were special laws operating in their respective fields. It is primarily because in the facts of the case, the questions involved for determination were those of service quality and discharge of responsibilities imposed by telecom regulations, that it was considered vital for the telecom regulator to first arrive at a finding of violation.

Illustration by Binay Sinha

Such conflicts have often cropped up in the securities market. The capital market regulator, the Securities and Exchange Board of India (Sebi) had issued notice to an auditor for what was essentially fault-finding with the quality of audit. The issue went to the Bombay High Court on the ground that the Institute of Chartered Accountants of India alone had jurisdiction to regulate and pronounce upon the quality of an audit. The court ruled in that case that the Sebi would have jurisdiction to investigate only to see if the auditor colluded and conspired. If there were merely a finding of poor quality of audit, the Sebi would have no jurisdiction but if it  found evidence of collusion and fraud, it would have jurisdiction. Neither party challenged this finding and the Sebi’s final order is under appeal and sub judice on merits.

Likewise, under the Prevention of Money Laundering Act (PMLA), sectoral regulators such as Sebi and the Reserve Bank of India are required to stipulate by issuance of circulars, the circumstances and manner in which suspicious transactions must be reported to the Financial Intelligence Unit under that law. While stipulating such a circular, the Sebi not only quoted the provisions of the PMLA but also cited its own powers under Section 11 of the Sebi Act. When the regulator felt a certain broker did not discharge his duty to report, proceedings were initiated and a penalty was imposed. The Securities Appellate Tribunal ruled that since the provisions of the Sebi Act had also been invoked, the market regulator would indeed have jurisdiction in parallel to the entire apparatus under the PMLA to enforce that law.

Now, the Supreme Court’s ruling in the facts of the case would not mean that participants in regulated sectors would always have the joy of waiting for their own regulator to first find them guilty for the CCI to have jurisdiction. There could be facets of their operations that are not covered by any standards stipulated by their sectoral regulator, and anti-competitive conduct may be discerned in such facets. Likewise, the sectoral regulator may not have stipulated any standard in respect of some facet of operations, and the anti-competitive conduct could be in that sphere of operations. So also, there may be authorities that are not full-fledged licensing authorities or authorities that stipulate productivity standards. Alternately, there could be state agencies that stipulate standards as a matter of commercial contract, but may not be statutorily empowered to regulate and enforce as a matter of law other than to enforce the commercial contract. So also, a regulatory agency may merely have specific restricted statutory roles in specific spheres of operations, but anti-competitive conduct may be found in unregulated facets of operations.  In all such cases, the CCI may have jurisdiction to have a go at investigations directly.

Therefore, any rejoicing or bemoaning that the competition regulator’s jurisdiction has been denuded by the Supreme Court would be misplaced.  The clash of jurisdictions has only been clarified in a very specific factual context. Market participants in regulated sectors must still be careful not to cut corners in free and fair competition.

The author is an advocate and independent counsel. Tweets @SomasekharS