Competition Commission of India: Emerging Appellate Body for the Sectoral Regulators

[Bhaskar Simha L. N. and Sumit Jain are currently working with the Centre for Competition Law and Economics (CCLE)]

The Competition Commission of India (CCI) was established by the Competition Act, 2002 to promote and sustain competition in the Indian market. The said piece of legislation drew no distinction for sectoral regulators and allowed the CCI to look into every domain, barring sovereign functions of the state like defence, atomic energy, currency and space. The overall scheme of the Act is technical in nature when it talks about industries in terms of ‘relevant product market’ and ‘similar trade’, and uses different standards   of proof for ‘horizontal agreements’ and ‘vertical agreements’. The timing of the legislation was also important, i.e. 2002, when banking sector was already regulated by the Reserve Bank of India (RBI), equity markets by the Securities and Exchange Board of India (SEBI), telecom industry by the Telecom Regulatory Authority of India (TRAI) and insurance sector by the Insurance and Regulatory and Development Authority (IRDAI).

Background

Supreme Court, in its order dated 5 December 2018 in Competition Commission of India v. Bharti Airtel Limited, demarcated jurisdiction for the CCI and TRAI. It held that the latter gets preference to look ‘first’ into the telecom cases and answered other questions of overlap between the two regulators. It said that the “…CCI could exercise jurisdiction only after proceedings under the TRAI Act had concluded/attained finality…” [para 99]. The Court also observed that orders under section 26(1) of the Competition Act are purely administrative in nature.

The said ruling comes in the background of Reliance Jio (Informant) filing an information with the CCI alleging anti-competitive conduct by Airtel, Vodafone and Idea among others parties (OPs). Even though the CCI ordered the Director General (DG) to conduct an investigation finding prima facie violation of the Act, the same order was set aside by the writ petitions filed by the OPs in the Bombay High Court. The High Court noted that the telecommunication sector is governed by the Telegraph Act and TRAI Act, and therefore the raised concerns would be addressed by the relevant authorities established under the said statutes, and not the CCI. The CCI in turn preferred an appeal with the Supreme Court challenging the High Court order.

Concerns and Issues

One of the primary concerns raised in the said judgment was the role of sectoral regulators and the “general” competition regulator in the growth of economy. The appellants argued that the former may not have an overall view of the economy, which the latter is able to fathom [para 92]. They even submitted that sectoral regulators are prone to “regulatory-capture” and promotion of anti-competitive behavior in the market is not high on their agenda. Therefore, the CCI should be allowed to look into the competition aspects of the matter.

On the contrary, respondents suggested that TRAI Act is a complete code in itself and its provisions prevail over the general Competition Act. They submitted that TRAI Act is a special legislation which regulates telecom sector in its entirety, including its competition aspects [para 87]. Therefore the jurisdiction of the CCI in the said matter is completely ousted. Even if there is a case to be made for CCI’s jurisdiction to be present, the same has to be decided on the basis of jurisdictional facts. Given that there are no jurisdictional facts, CCI could not have ordered investigation into the said case, and therefore its order is premature.

Analysis

The said ruling has dealt at length with overlapping jurisdiction between the CCI and TRAI. The Court has held that even though the two bodies do not deal in mutually exclusive domains, promoting competition in the telecom sector is not high on the agenda of TRAI. Therefore, even though section 11 of the TRAI Act talks about facilitating competition between the existing players, the regulatory body is consumed with enforcing the existing contracts and developing the said sector in line with global developments.

Another important observation is that even though TRAI gets to look first into the telecom sector cases, it is only the CCI which can look into agreements which are non-existent. A simple reading of sections 11 and 18 of the TRAI and Competition Act respectively would suggest that both the regulators deal with competition in the telecom sector; however, a closer look would suggest that the two bodies operate in separate regulatory spaces. The role of TRAI, as enshrined in the preamble to the TRAI Act, is one of a regulator in the telecom industry where it has to enforce existing contracts between the service providers, take care of the consumer interests, and ensure growth by ensuring continuous compliance of the issued guidelines. Competition between players, as sought in section 11 of the TRAI Act, acts only as an advisory and there is no mandate for the board of TRAI in this regard. The CCI, on the other hand, looks the market players with suspicion where it pre-empts them to form certain arrangement in order to control the market conditions. The same becomes evident in the definition of ‘agreement’ according to section 2(b) of the Competition Act, and therefore brings all such understandings under the ambit of anti-competitive practices.

There is equal substance in the argument that it should be best left for the aggrieved parties as to where they should seek relief. This becomes more pronounced given the nature of CCI where it also has adjudicatory functions to perform. However section 21 of the Competition Act would suggest that the lawmakers, while enacting the said legislation, had the question of overlapping jurisdiction in mind. Therefore section 21, which allows the CCI to look into matters on reference made by statutory bodies, solves purpose. In fact, an overall reading of the Competition Act would suggest that the legislation is quite technical in nature, in the form terminology it uses, and the procedure laid down for interpretation of its actionable provisions. Cases under section 4, i.e. abuse of dominant position, can only be processed under a scheme where the CCI has to first determine ‘relevant market’, second establish dominant position of the entity and then finally go for the abuse of dominant position case.

There might be a case for the CCI to look into the cases in parallel with the sectoral regulator, specifically in matters related to section 3 of the Competition Act, where the agreement formed by the parties is anti-competitive from the start. Given the peculiar nature of antitrust conduct and complexities involved in its enforcement, it may be prudent for the competition regulator to involve itself from the beginning. However, there is chance that in such cases the two bodies may arrive at conflicting views. The Court right observed that such a situation should be avoided [para 85].

The pronouncement by the Supreme Court is likely to have its impact on sectors like banking, equity, insurance, petroleum and electricity. All the said industries are regulated by independent statutory bodies, just like the TRAI, and therefore make them naturally closer to their parent regulator. The CCI until now has been looking these sectors without bar; however, post this ruling there is a high chance that such cases are first referred to the sectoral regulator. Only after a final observation is made would the CCI get a chance to look into competition aspects of the matter. The case of electricity and petroleum sector is of particular interest here given that, just like the TRAI Act, the governing legislations for both these industries, the Electricity Act, 2003 and the Petroleum and Natural Gas Regulatory Board Act, 2006 respectively, talk in their preambles about promotion of competition in the market. Therefore as a matter of precedent, the ‘first look’ test is likely to be more applicable in these sectors.

Supreme Court, in its judgment Competition Commission of India v. Steel Authority of India, has already held that the CCI is a quasi-judicial body which has adjudicatory functions to perform. The procedure elaborated in section 26 of the Competition Act would also suggest that the CCI, apart from the DG investigation report, relies a lot on the submissions made by the Informant and opposite parties. Therefore, a conjoint reading of the same with section 21 of the Act would convince the reader that CCI is suited more to look into cases, only after the sectoral regulator has provided its final observation. In absence of such a regulator, the CCI can conduct its own investigation through the DG, to arrive at conclusion.

There is literature available in other jurisdictions advocating merger of economic regulators in light of limited transfer of knowledge between them. However, the statutory history and jurisprudence applicable to the Competition Act in the Indian context would suggest that the lawmaker wanted to pay special emphasis to anti-competitive conduct in the market.

Another ancillary issue involved in the said case was the nature of order under section 26(1) of the Competition Act. The High Court held that the order passed by the CCI in the said case was quasi-judicial in nature given that the CCI gave ‘right to hearing’ to the parties. However, the Supreme Court correctly overruled the same in line with the SAIL pronouncement which held that orders under section 26(1) are primarily administrative in nature.

Conclusion

The Competition Act was enacted in 2002 to bring the regulatory regime in tune with the post-liberalization era. At the same time, there were other specialized bodies being set up to focus on sectoral-governance in India. Given that competition legislations world overrelies on ‘expertise’, there was an inevitable clash between the jurisdictions of the same. It is reasonable for the CCI to allow sectoral regulators to look first into their respective sectors, even if the matter pertains to anti-trust aspect. The CCI can look into these cases once the sectoral regulator has made a final observation. For industries like transportation and education, where there is absence of such an independent regulator, the CCI can use its investigative wing to directly venture into facts of the case and adjudicate. This would not only be prudent for CCI for effective usage of its resources, but would help to maintain a balance between the sectoral and antitrust regulators in the long run.

Bhaskar Simha L. N. & Sumit Jain

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