CCI vs. SEBI: Overlapping Jurisdiction of CCI and a Sectoral Regulator

[Neha Sinha is a 4th year B.A. LL.B. student at National University of Study and Research in Law, Ranchi]

The Competition Commission of India (‘CCI’) monitors markets of all nature to identify any anti-competitive practice by persons or enterprises leading to appreciable adverse effect on competition. This means that the CCI’s powers also traverse sectors governed by special laws and regulated by specialized ‘sectoral regulators’, invariably leading to an apparent jurisdictional conflict. Confronted with this issue, the CCI has attempted to resolve the overlap of jurisdiction with the Securities and Exchange Board of India (‘SEBI’) in In Re: Brickwork Ratings India Pvt. Ltd. and CRISIL Ltd. and Others (decided 29 December 2020).

Factual Background

The National Highways Authority of India had invited tenders from credit rating agencies (‘CRAs’) to rate its bond issuances, pursuant to which CRISIL Ltd., India Ratings and Research Pvt. Ltd., CARE Ratings Ltd. and ICRA Ltd. (collectively the ‘Opposite Parties’) submitted their price quotes. The Informant averred that the Opposite Parties cartelised and quoted identical rates in the bid and, hence, indulged in anti-competitive practices in contravention of section 3 of the Competition Act, 2002.

Since CRAs are regulated by SEBI, the CCI invited comments from SEBI regarding the Information. SEBI objected to the jurisdiction of the CCI but did provide any information, in case the CCI were to initiate any action against the Opposite Parties. Consequently, the CCI proceeded with the Information.

Analysis

As SEBI is the authority regulating CRAs, the apparent conflict of jurisdiction between the CCI and SEBI emerges. This apparent conflict between the CCI and a sectoral regulator has to be reconciled in view of the unique role each of these bodies play, as also the interplay between and competition law and securities law.   

In Telefonaktiebolaget LM Ericsson v. CCI, the Delhi High Court had ruled that the Competition Act is in addition to, and not in derogation of, any other Act. Since the case involved the abuse of patent rights, any competitive agreement which imposes unreasonable conditions was held to be in contravention of section 3 of the Competition Act. This judgement leads to the understanding that securities laws governing CRAs cannot be construed to be in conflict with Competition Act, as the latter is in addition to, and not repugnant with, the former.

The 2018 Supreme Court judgement in CCI v. Bharti Airtel was decisive in resolving the jurisdictional conflicts between sectoral regulator TRAI and the CCI, and in outlining the distinctions between the two. The Court had explained that the ‘CCI is not a sector based body but has the jurisdiction across which transcends sectoral boundaries, thereby covering all the industries.’

The Court propounded a two-step process to address concerns of jurisdictional conflict, wherein the jurisdictional fact has to be first determined by the sectoral regulator, i.e. TRAI, in this matter, in order for the CCI to proceed to examine the anti-competitive nature of an agreement. As a sectoral regulator, TRAI is better equipped to decide on jurisdictional aspects of telecom-related matters. However, this does not signify that the CCI’s jurisdiction is barred. Only after TRAI has returned its findings on the jurisdictional aspects and the proceedings under the TRAI Act have concluded can the CCI exercise its jurisdiction.

On the nature of the remedy provided under both the Acts, the Court explained that even if TRAI adjudges that the impugned activity is anti-competitive, thereby causing appreciable adverse on competition, its powers would be limited to the action that can be taken under the TRAI Act alone. It is the CCI which is the expert body in studying the nuances of competition in market. The CCI provides more structural remedies, which promote the entry of new players, and hence competition in the market. Thus, in Bharti Airtel, the Supreme Court did not altogether exclude the jurisdiction of the CCI in the presence of a statutory sectoral regulator, but only deferred it to a later stage.

In Monsanto Holdings Pvt. Ltd. v. CCI, Delhi High Court reiterated the decision of Ericsson that the CCI has jurisdiction when patent rights are abused. Hence, it is the exercise of the rights or the conduct which is to be examined by CCI and not the subject matter of those rights which is the domain of the expert body.  However, the Court held that the Bharti Airtel judgement is not applicable in the present matter concerning patent rights and Controller of Patents, as the role of Controller is ‘materially different’ from that of a regulator, i.e. TRAI.

SEBI’s primary role, as the preamble to the SEBI Act, 1992 states, is to regulate the securities markets. Hence, it acts as the regulator of the securities market, unlike the Controller of Patents. CRAs rate the issue of securities to enable prospective investors in deciphering the level of risks and creditworthiness of the securities. CRAs are governed under the SEBI (Credit Rating Agencies) Regulations, 1999 (‘CRA Regulations’) and are regulated by SEBI. The CRA Regulations have laid down a Code of Conduct in their Third Schedule which mandate that a CRA ‘shall observe high standards of integrity, dignity and fairness in the conduct of its business’ and it ‘shall not indulge in any unfair competition’. SEBI is the authority to inspect, investigate and initiate proceedings against a CRA in case of contravention of the CRA Regulations.

In the present case, the Opposite Parties had allegedly formed a cartel for bid rigging, hence falling afoul the Competition Act. The Opposite Parties contended that the CCI lacks the jurisdiction to proceed against them, as SEBI is the regulator of CRAs and exercises the requisite jurisdiction under the CRA Regulations to initiate an action against them. Rejecting this contention, the CCI relied upon the Bharti Airtel judgement to rule that the mere presence of a sectoral regulator, viz. SEBI, does not extinguish the jurisdiction of the CCI. Although the subject matter of CRAs falls within the domain expertise of SEBI, examining any conduct of a CRA alleged to be anti-competitive is within the jurisdictional ambit of the CCI.

The Supreme Court, in Bharti Airtel, has harmoniously interpreted the objectives of Competition Act and TRAI Act. The Court has reconciled the distinct functions of the CCI and TRAI to make way for both the statutory bodies and avoid any apparent conflict of powers. Resultantly, the CCI’s jurisdiction had not been altogether barred, but only pushed to a later stage until the conclusion of proceedings by the domain-specific regulator.

Pursuant to this two-step process approach, the CCI had invited comments from SEBI, to which the latter stated that the allegations levelled against the Opposite Parties attract the provisions of the CRA Regulations. Besides, SEBI is the right authority to entertain any complaint against CRAs and that the CCI may not entertain the same. It is to be noted that SEBI did not state in its comments on whether it has initiated any enquiry against the Opposite Parties for allegedly flouting the Code of Conduct under the CRA Regulations. Hence, SEBI did not adequately deal with the jurisdictional facts and technical issues, nor did it furnish any information on any proceeding against the Opposite Parties. In the light of these circumstances, the CCI exercised its jurisdiction and proceeded to decide the matter on merits.

The CCI has clearly followed the Bharti Airtel dictum in the present case and allowed SEBI to exercise its jurisdiction and contemplate actions under relevant laws. However, SEBI merely objected to the jurisdiction of the CCI and, as evident from the comments, did not initiate further actions under the CRA Regulations. The CCI has strived to apply the two-step process in the presence of a sectoral regulator. After the examination, the CCI concluded that there were no materials to show any abuse of dominance and the conduct of the Opposite Parties did not pose any threat to competition in market.

Concluding Remarks

While Ericsson and Monsanto have dealt with powers of Controller of Patents vis-à-vis the CCI, Bharti Airtel examined the seemingly conflicting jurisdiction between the CCI and TRAI. The presence of a specialised statutory body has always given rise to uncertainties regarding the jurisdiction of a body like the CCI which is not limited to a specific sector. Section 62 of the Competition Act lays down that provisions of this Act are in addition to, and not in derogation of, any other law. This reflects the legislative intent that there should be no repugnancy between the CCI and a statutory body or a sectoral regulator. This case further clarifies the grey areas where the CCI’s jurisdiction can appear to be in conflict with the securities market regulator. The CCI is within its powers to exercise jurisdiction over CRAs and any other securities market related body to the extent of their anti-competitive conduct in market. Thus, the CCI has attempted to avoid any foreseeable conflict with SEBI by giving it the leeway to proceed under the CRA Regulations, while probing the alleged anti-competitive conduct by the CRAs.     

Neha Sinha

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