A new era of competition law: Not only does this compel violators to make amends but also gives those affected a voice

I have a piece in today's Financial Express with Parker Karia and Manas Dhagat on the new settlement norms under competition law.

The Government of India recently paved the way for the Competition Commission of India (CCI) to enforce competition laws by allowing violators to enter into a settlement with the CCI, or make certain commitments to refrain from carrying out anti-competitive activities. Pursuant to the amendment, the CCI has recently proposed the framework for such settlement or commitment mechanism.

Commitment Mechanism Typically, if, upon receipt of information, reference from the government, or on its own motion, the CCI is of a prima facie view that there exists a contravention of the Competition Act, 2002, it orders the Director General to carry out an investigation. According to the proposed framework, it is only at this stage than the alleged violator can file a commitment application, within 45 days of the CCI’s order directing an investigation. Delay of upto 30 days may be condoned by the CCI, if sufficient cause for delay is shown. Further, a period of 10 days is proposed to be granted in case of defective or incomplete applications. The entire proceedings must culminate within 90 days of receipt of information of violation(s); however, this period may be extended.

Under this framework, in the commitment application, the alleged violator would have to provide the true and complete facts, including the gravity and impact of the contraventions and how the commitments offered would address the alleged contraventions as well as the modalities for implementation and monitoring of the commitments offered.

While considering the commitment application, the CCI would share a non-confidential summary of its prima facie opinion on the basis of which the investigation was initiated, the alleged contraventions and the commitments offered by the alleged violator, and other details it deems fit. Basis such summary, the Director General, alleged violator and any other party may submit their comments, objections or suggestions. Interestingly, in ‘appropriate’ cases, the CCI may even invite comments from the public. However, what criteria would be adopted to consider a matter for invitation of public comments is not known. It is also interesting that the alleged violator would get an opportunity to be heard only when the CCI is going to reject the application.

Pertinently, if the commitment application is accepted, it would not operate as an order containing a finding of contravention by the alleged violator, and would not be appealable. However, if the commitment application is rejected or withdrawn, the CCI’s inquiry would resume. Further, if the commitments offered pertain to only some of the allegations, the CCI can continue to proceed with respect to the remaining allegations, and information submitted by the alleged violator can be used in such investigation.

Lastly, a commitment order may be revoked in the event of false or incomplete disclosure, material changes in facts. Such revocation may be accompanied with costs upto ₹1 crore and re-opening of the investigation.

Settlement Mechanism An alleged violator may file a settlement application within 45 days of receipt of the Director General’s report pursuant to its investigation. Similar to the commitment application, a delay of upto 30 days may be condoned upon showing sufficient cause, and in case the application is defective or incomplete, the alleged violator will be granted 10 days’ time to rectify the same. Settlement proceedings must culminate within 120 days of the filing of the application, which may be extended by the CCI.

Similar to the process under the commitment mechanism, in the settlement application, the alleged violator would have to, among other things, provide true and complete facts in relation to the allegations, findings of the Director General, how the settlement proposal would address the allegations, details of previous contraventions (if any), gravity and impact of the contraventions, method of implementations of the settlement proposal, etc.

Thereafter, a non-confidential summary would be shared by the CCI, similar to the one under the commitment mechanism. Curiously, there is no provision for seeking public comments under the settlement mechanism. Pertinently, the settlement amount may go upto the maximum penalty that can be levied for the alleged violations, however, based on factors such as co-operation and disclosures made, a ‘discount’ of upto 15% may be applied.

In the event the CCI accepts the settlement application, it will pass a settlement order, which will not act as a finding of contravention. In case of rejection or withdrawal of the settlement application, the proceedings under the Competition Act, 2002 will be restored.

It is important to note that unlike SEBI’s settlement regime, upon filing of a commitment or settlement application, the draft regulations provide that CCI’s inquiry would be kept in abeyance till the disposal of the application, thereby saving regulatory time and resources. In our view, the settlement and commitment frameworks incentivize early engagement and cooperation between enterprises under investigation and the CCI, thereby fostering quicker corrections. The proposed frameworks enhance enforcement and resolution of antitrust matters, and would aid in reduction of protracted litigation, thereby giving real effect to the CCI’s mandate. In fact, subject to implementation, the proposed frameworks may significantly enhance the enforcement mechanism and also reduce litigation costs.

The proposed frameworks are broad, and thus allow for flexible mechanisms that can be tailored to address specific issues on a case-to-case basis, and commitments or settlement terms, as the case may be, can be designed to restore competition by measures such as divestitures, behavioral changes or such measures to address the anticompetitive effects of the alleged violation. By providing for comments from the other parties (as well as the public, albeit only in commitment framework), those affected by the alleged anti-competitive practices have been given a voice, and further transparency has been sought to be introduced in antitrust enforcement.

Further, the frameworks can enhance the operational certainty for businesses due to the ease of anticipating the potential consequences and the remedies, in an event of a breach. As a result, such businesses can minimise their risks accordingly. The mechanism can also help in preserving the reputation of the business, if they show willingness to address past mistakes and maintain fair competition.

However, owing to the fact that a commitment application is made at the stage of investigation by the Director General, and the settlement application can be made after the Director General’s report, there may be instances of parties filing both applications at the appropriate stages, thereby causing avoidable delays. In such instances, there may exist a risk of destruction of evidence by the alleged violator. Thus, there may be merit in reconsidering whether proceedings should be kept in abeyance during the pendency of a commitment or settlement application.

Further, while determining the settlement amount, the CCI must strike a delicate balance between deterring anticompetitive behavior and allowing for the benefits of cooperation in appropriate cases, all while safeguarding the public interest. It must carefully evaluate each case on its individual merits, considering the severity and impact of the violations, as well as co-operation and disclosures by the alleged violator. Furthermore, an applicant’s history of compliance with competition laws and its efforts to establish effective compliance programs should be considered when determining leniency. Keeping in mind the broader public interest, consumer welfare, and competitive markets shall help the commission to ensure that settlements ultimately serve the public interest.

Lastly, as the commitment and settlement orders are not appealable, and while there exist provisions in the draft framework for engagement between the CCI and the alleged violator, the Director General, other parties, and even the public at large (in ‘appropriate’ commitment applications), it is of significant importance that the applicants have adequate opportunities to engage in discussions related to commitment and settlement. Thus, in addition to seeking suggestions and comments on the summary prepared by the CCI under the proposed frameworks, an opportunity to be heard should be granted to the applicant, in order to make the process more meaningful.