Anomalies in our competition laws

LEGAL EYE

The Competition Act, with the 2007 amendments, is expected to replace the archaic and inadequate MRTP Act in the Budget Session. But there is still considerable angst on the dual roles of the Commission and the Appellate Tribunal.

As the laws stands, conflict with sectoral regulators on account of duplication of powers and absence of synchronisation is anticipated. The sectoral approach is based on sector specific issues, the telecom sector for example has devised its own merger control criteria, whereas the 2002 threshold limits, irrespective of sectoral considerations, appear too simplistic in 2008.

The concept of regulator is not new to India, the Reserve Bank of India being the most notable example. Conflicts arise when multiple regulators exercise concurrent authority over the same sector or have overlapping jurisdiction. Possibly that's why the amendments introduced Sections 21 and 21A, which provide a mechanism for mutual consultation between CCI and other regulators for opinion on any issue where conflict is perceived to facilitate harmonious resolution. How it will work is another matter.

To understand this better it is necessary to identify regulatory regimes and structures in India. Sectoral regulation is comparatively new, by which, policy, approvals and rule making, which were earlier vested in Ministries, are now exercised by independent regulators positioned between the legislature, executive, judiciary on one hand and the market and consumer on the other.

However, most regulators continue to be government departments and the conflict is perceived in the liberalised high growth sectors such as power and telecom. Though the TRAI Act specifically excludes matters of monopolistic and restrictive trade practice from its purview, in assuming jurisdiction, the distinction is often blurred. As for the Electricity Act, it has an overriding right over all statutes and the regulator can issue appropriate directions for curbing adverse effect on competition on sectoral players.

But the real hotbed of conflict and discord lies in the core M&A law, the Companies Act. The Act evaluates M&As on the basis of asset value and certain capital and/or turnover benchmarks. The Commission can direct combinations not to take effect or propose modifications, if perceived as adverse to competition.

CCI requires a mandatory intimation by the person or enterprise, whose proposed combination may exceed prescribed threshold limits, within seven days of Board approval or execution of any definitive agreement.

The Companies Act, under Sections 391 to 394, deals with mergers, amalgamations, schemes of arrangements etc. The parties prepare a scheme of merger or amalgamation, and obtain authorisation of the Board before filing it with the Company Bench of the High Court for approval.

"At this point, the High Court requires the inputs of two regulators. The Registrar of Companies, certifying that the affairs of the Company have not been conducted in a manner prejudicial to the interest of its members or to public interest, and a representation from the Central Government through the Regional Director (RD) under Section 394A of the Companies Act. Though Section 394A does not specifically provide for notice to the MRTP commission, Section 23 of the MRTP Act categorically envisages the Commission's approval for such Scheme to be effective. There is no corresponding reference in the Companies Act. The RD has to give his report in public interest as an impartial observer on behalf of the Central Government. In the 1980's, the Company Court often insisted on this, but since then this practice has been bypassed by both Courts and regulators."

The non removal of Sections 108A to 108H in the Companies Act is yet an instance of shoddy drafting. These provisions have been shutting between the MRTP and Companies Acts. By a 1991 amendment, the MRTP Act and the Companies Act were both amended. The concept of monopolistic undertakings was removed from the MRTP Act altogether, but Section s30A to 30G were reinstated as 108A to 108H in the Companies Act, prohibiting any entity from acquiring more than 25% of a public company without Central Government's prior approval, in order to regulate large acquisitions or divestments in case of public limited companies.

With the removal of the definition of dominance from the MRTP Act, this move was, quite redundant as all cases involving listed companies became subjected to the SEBI Takeover Code anyway. Incidentally Section 6 of the Act has similar language, but Sections 108A to G have not been repealed.

Its for the law makers to remove these anomalies "" otherwise the CCI will be reduced to a lemon. Till such time, one prays that regulators will act in unison.

The author is a partner in Rajinder Narayan & Co.

kumkumsen@rnclegal.com