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The Competition Commission of India (CCI) is fast emerging as a messiah for consumers, though its orders have led to some confusion among manufacturers and sellers.
The commission - possibly the only entity that has both the will and the teeth to protect consumer interests - is taking its role very seriously, and routinely coming out with orders against companies by creatively interpreting the definition of dominant position and cartel formation to protect consumer interests. As a result, consumers have become more aggressive after the appellate courts and Supreme Court chose to uphold penalties against high-profile companies. However, many legal experts believe it is a slippery path that the CCI is treading on.
Earlier this year, the CCI slapped a Rs 2,544-crore penalty on 14 auto companies it found guilty of indulging in anti-competitive practices while selling spare parts.
Indian automakers - Maruti Suzuki India Limited, Mahindra & Mahindra and Tata Motors - are the worst-hit though they make spare parts available in the open market. The auto makers submitted their invoices, claiming they do not follow restrictive practices and sell spares to third-party workshops. However, no cognisance was taken of these arguments, nor were the companies called to defend themselves. In all cases where a penalty is being imposed, the companies are informed and allowed to put their views up. Pravin Shah, chief executive, automotive division, Mahindra & Mahindra, said: "We were not called for any separate hearing in connection with the imposition of penalty. We shall challenge the order based on the facts and after considering advice that may be received from our legal advisors."
Also, in the case of Tata Motors, its Jaguar Land Rover revenues have been included while imposing a penalty. Maruti, India's largest passenger car maker, claims it has no issues providing affordable spares to consumers. But unrestricted supply of spare parts would open up another Pandora's Box of problems. In a written statement, it said: "The requirement that parts be sold through our dealers and authorised distributors is also to ensure that when a customer wants to buy a genuine part, he can be sure of that and not buy a spurious part in an identical packing." Maruti said its dealers risk losing their dealership if they are found selling spurious parts.
Indian auto makers are finding it strange that even though they do sell spares in the open market through authorised dealers, they have been painted with the same brush that car companies who withhold supply of spares. This has resulted in the companies, who may be "lesser defaulters", pay more merely because their income from their diverse businesses is more than that of other car manufacturers.
What has also confounded the industry is that the commission has been inconsistent in levying penalties. CCI has not provided reasons, and most of these orders have been appealed against to the Competition Appellate Tribunal (Compat).
John Handoll, senior advisor, European and Competition Law, Amarchand Mangaldas, said Compat has highlighted that the CCI needs to provide more robust reasons for its decisions, and clearly set out the consideration when imposing penalties.
While not many are questioning the spirit behind CCI's orders and penalties, these are not changing the business landscape or the practices. After the apex court upheld the penalty on the country's largest real estate player, DLF Limited, developers were queuing up outside law firms to figure out if they needed to alter the agreements.
In most cases, the developers have retained the one-sided agreements. As DLF was penalised for the abuse of dominant position, builders who are not in a dominant position are not changing their agreements. According to the ruling of the competition regulator (and the appellate tribunal), the builder must first be dominant in a defined geography. Only then can they be liable for the abuse of dominance. This is the reason why subsequent complaints against other builders before the CCI did not result in penalties or enforceable cease-and-desist orders against unfair contracts.
Ashok Chawla, chairman, Competition Commission of India, in an emailed response said while the commission passes cease-and-desist orders, it is hoped that jurisprudence settles, and culture of the competition is imbibed by the industry. If the CCI continues to act like a consumer court, it could have far-reaching implications, believe senior lawyers and competition law experts. Avaantika Kakkar, a specialist in competition law at Khaitan and Co, said: "I think there is greater awareness about rights and obligations now, which is why consumers prefer the CCI as a forum. This may be unfortunate in the long run because our Consumer Protection Act is a strong law that has not been implemented very well."
Companies and their legal advisors believe that ultimately the orders of the CCI are only as good as the law that they lay down. The law, so far, does not require the builders to change the agreements if they are not in a dominant position.
Chawla contends that the Commission acts in accordance to the mandate of the Competition Act, 2002. "The commission became operational on May 20, 2009. It is much younger than the developed competition jurisdictions," he said. Legal experts and companies believe that if business practices have to improve, CCI must adopt the global best practices, irrespective of its age, especially when it comes to penalties and practices of consultation. Many legal experts and some former members of the Commission feel that the CCI would increasingly be under scrutiny when it comes to following best practices before issuing its orders.
Moreover for any cartel investigation to be successful, the CCI has to ensure the leniency programme is a success so that members of cartels are encouraged to tell on each other with the promise of a 100 per cent waiver of penalty for the first applicant for leniency. This is not yet the case in India. Although law firms are advising companies to take measures to comply with the competition law, till the Supreme Court adjudicates on this, the finality of the law will not be clear, say legal experts. But for corporates compliance with competition law has to become a habit, rather than an afterthought, points out Pallavi Shroff, senior partner, Amarchand Mangaldas.
| Hope culture of competition is imbibed by industry: Ashok Chawla |
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On why CCI's orders are yet to lead to changes in business practices...
The Competition Commission acts in accordance with the mandate of the Competition Act, 2002. Accordingly, the orders of the commission fall within the four corners of the Act and address the issues relating to the anti-competitive agreements and abuse of dominance, in the process protecting interest of the consumers. It is also pertinent to mention that the Competition Commission became operational on 20 May, 2009, and is much younger in comparison to the developed competition jurisdictions.
The commission has received information from the various sectors of industry. A number of orders have been passed by the commission under the provisions of the Act, and out of that a large number of orders are in appeals before the various courts.
On allegations by industry that many of CCI's investigations and orders fall more in the domain of consumer activism...
While the commission passes cease-and-desist orders, it is hoped that jurisprudence settles, and culture of the competition is imbibed by industry.
On status of CCI's leniency programme...
We have robust provisions of a leniency programme and have also received several cases under these provisions. As these reach finality, we expect a larger number of leniency petitions, which will facilitate our efforts to bust cartels and ensure fair play in markets.
| 'MORE THAN 80% OF INDIAN COMPANIES ARE UNAWARE OF COMPETITION LAW' |
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A first-of-its kind survey, Calibrating the pulse of Competition Law by EY Fraud Investigation & Dispute Services, that involved 80-odd respondents including around 35 law firms, senior advocates of Supreme Court and 45 corporate houses, finds that more than 80 per cent of Indian companies are unaware of the competition law, what it seeks to achieve, and likely consequences of their infringing it. Some other key takeaways from the survey were:
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