Authors: Manas Mahajan [1] & Vaibhav Garg [2]
I. Introduction
On 11th April 2023, the half-a-decade long journey of the amendments to the Competition Law came to its terminus, which began with the recommendations of the Competition Law Review Committee (“CLRC”). One of the most exciting newly introduced features is the Settlement and Commitment (“S&C”) framework, which is an alternative to the usual penalty route. The current amendment is an endeavour to overhaul the competition law regime in India; consummated by the efforts of various stakeholders through their feedback and the recommendations of the Standing Committee on Finance.
On 18th May 2023, certain provisions of the Competition Act, 2002 (“the Act”) were notified came into effect as well. Certain provisions of the S&C framework which aim to enhance the leniency regime and appointment process of the Director General have raised many eyebrows. However, since the implementation of these provisions require formulation of rules by the CCI, it could take some time. This leaves certain matters unsettled for the time being.
This article aims to explore the new S&C framework, shedding light on the lacuna in the policy. Additionally, it attempts to address certain issues such as the wide discretion given to CCI, admission of guilt, recidivism, and the feasibility of adapting this foreign concept to the Indian market, among other ancillary issues.
II. The Concept and Genesis of the Settlement and Commitment Mechanism
The Competition Commission of India (“CCI”) has explained the objectives of the amendment as, reducing litigation and achieving faster market correction. Sections 48A and 48B are part of the amendment and are similar to the prevailing settlement and commitments regime across the world. Companies under investigation for abuse of dominance or anti-competitive agreements can use a settlement or commitment mechanism. They can apply for settlement proceedings after receiving the Director General's (“DG”) report under Section 26(3) but before the CCI's order.
The CCI will consider the contraventions and may agree to the settlement proposal, subject to specified terms. If the application is rejected or no agreement is reached, the CCI may continue with the inquiry. Similar procedures apply to commitments. Decisions on settlement or commitments are not appealable. Failure to comply, false disclosures, or material changes can revoke the CCI's order, and the inquiry may be restored. The settlement framework aims to reduce litigation, but compensation may also be awarded, increasing potential liability for entities.
The Act grants the CCI authority to impose significant monetary penalties (up to 3x of the profits or 10% of the turnover) for abuse of dominance and anti-competitive agreements. Despite its powers, the CCI's effectiveness has been hindered by lengthy appellate litigation, resulting in only about one (1) per cent of imposed penalties being recovered. The introduction of the settlement mechanism, which prohibits further appeals, aims to expedite proceedings, bring finality, and facilitate timely market corrections. This mechanism aligns the CCI with best international practices. Hopefully, the amendments will revamp the CCI’s functioning. Optimistically speaking, it may eventually absolve the blemish on CCI being a toothless tiger, whose penalty orders would only make it to the news headlines and then to the Appellate Court, to remain pending there for an uncertain period of time.
This framework is not novel in the Indian context. Courts have, in principle, hinted towards a settlement mechanism earlier. Various experts mention the 2015 Madras High Court judgment in TN Film Exhibitors Association as the first instance of the Courts recognising and interpreting ‘residual powers’ of the CCI u/s 27 of the Act. However, after the clarification in the CLRC Report of 2019, it has become trite that such ‘residual powers’ are typically ‘separately and expressly’ provided in the law, rather than being read within the statute by the Courts.
Previously, India's antitrust regime included a leniency program, also known as the ‘whistleblower program’. It offered reduced penalties to parties involved in cartels or prohibited arrangements under competition law. In 2019, the CLRC proposed a way forward to enhance the effectiveness of business cooperation in India, drawing inspiration from established antitrust jurisdictions worldwide. However, uncertainty regarding certain terms and procedural mechanisms may have discouraged enterprises from disclosing relevant information due to concerns about future repercussions or the equitable benefits and conveniences that antitrust authorities may offer them.
III. What Remains Unsettled for the Settlement and Commitments Framework?
Various stakeholders have raised their concerns regarding the S&C mechanism and sought clarifications on several ambiguities inter alia whether an admission of guilt would be necessary or not. Even though the standing committee had suggested not to make it mandatory, its language is ambiguous. Sections 48A and 48B use the word ‘contravention’ instead of ‘alleged contravention’. A repercussion which may arise out of admission of guilt would be opening up the pandora’s box of third-party complaints. The settlement mechanism is expected to face hinderances in achieving success as it may discourage parties from utilizing it. Clarity over admission of guilt is crucial for companies since they require a clear understanding of its implications to assess the long-term positive and negative impacts on their future. The impact is not just limited to the penalty or third-party claims; it can also affect their reputation and consequentially, market capitalisation.
Every company exercises its financial wisdom to undertake the route which maximises its profits. Interestingly, many experts have applied Game Theory, Prisoner’s Dilemma, in particular, to cartels and for maintaining monopolies. Through its positive commitments and whistle-blower schemes, CCI can disincentivise and deter anti-market practices. However, in order for a company to decide whether it should continue with the investigation or pursue the settlement route, it must know the details of possible penalties arising out of them.
The Act u/s 27 allows the CCI to impose a monetary penalty of up to 10% of the average turnover for the past three financial years. However, the Act lacks guidance or principles for the CCI in determining the penalty amount, resulting in broad and absolute discretion. The decisional practice of the CCI also lacks details on how the penalty amount will be determined. Companies need a certain degree of predictability regarding the potential fines they may face. Established penalty guidelines or principles may provide clarity and certainty to parties gauging the viability of settlement against facing penalties. Even if the party decides to participate in the settlement proceedings (which would risk their position), the CCI may still reject its plea. In such as case, how can a party be assured of no adverse consequences or prejudice during the investigation stage, and how can the objectivity of the process be maintained?
IV. Striking the Balance: Preventing Recidivism
Recidivism (the tendency to re-commit an offence) is considered one of the most debated and controversial outcomes of settlement proceedings. Antitrust regulators may feel uncertain about the future behaviour of the parties involved. In general, the European Union (“EU”) views recidivism as an aggravating factor when imposing penalties for alleged antitrust violations. However, this approach has faced criticism from stakeholders who argue that a clear distinction should be made between recidivism and leniency in order to improve enforcement outcomes. The EU's stance on recidivism as an aggravating factor aims to discourage repeat offenders and promote adherence to competition laws.
Nevertheless, critics argue that this approach may deter companies from participating in leniency programs. These programs are designed to incentivize companies to cooperate with antitrust authorities by providing information about cartel activities in exchange for reduced penalties or immunity. If recidivism is treated as an aggravating factor, companies may fear facing harsher penalties in the future, even if they come forward with valuable information.
The discussion on hand revolves around the right balance between deterring repeat offences and encouraging cooperation. Antagonists of leniency consider recidivism as an aggravating factor. They deem it necessary to discourage antitrust violations by ensuring compliance and believe that leniency programs should not shield repeat offenders from appropriate penalties. Nonetheless, some argue for a more nuanced approach which encourages companies to participate in leniency programs, ultimately strengthening antitrust enforcement and improving the market conditions overall.
To address these concerns, regulators and policymakers must comprehensively assess the potential impact of taking recidivism as an aggravating factor. They should develop clearer guidelines or criteria to differentiate between recidivism and leniency, considering factors such as the severity and nature of the violations, the level of cooperation provided, and the effectiveness of compliance measures implemented by the offending party. Finding the right balance between addressing recidivism and incentivizing leniency is critical for an effectively fair antitrust enforcement regime. A thorough analysis of the potential consequences of different approaches to recidivism qua settlement proceedings is necessary.
Unfortunately, fair negotiation is currently unavailable, and also parties do not have the ability to withdraw from proceedings. However, the standing committee, in its final draft of the Report, has suggested adding a proviso to Section 48A(1) containing a withdrawal mechanism for parties by applying within seven (7) days from the date of the hearing. The inclusion of this suggestion hints towards the intention and approach of the CCI.
V. Conclusion
It can be safely said that the nature of Section 48 and its mechanism is akin to a mutual or alternative remedial measure. It is efficient, and its consequences are final, in contradistinction to the penalties imposed after an investigation. We must keep in mind that the objective of the Act is not penal but to promote consumer interest and healthy competition in the market. The guilty entities have taken advantage of the appellate system in the Indian Courts and the pendency therein. In these proceedings, the focus is on picking apart the investigation, adjudication process and quantum of penalty imposed. In contrast, it should have been on working towards a solution to promote consumer interest in the market.
As asserted by the CCI Chairperson, Mrs. Ravneet Kaur, the settlement regime could be a game changer for the antitrust watchdog’s investigation in the country. The upcoming regulations will hopefully tackle the unsettled issues and address the issues of parties to be benefited from the settlement regulations, much needed and long-deliberated amendment.
Note: This article has been reviewed and edited by Ketan D. Parikh at Stage- II.