Biting truths

The Week, October 04, 2012

Search major accused of driving users to ancillary services owned or operated by it.

Imagine that there is only one carmaker in the country. The company would be free to increase the price of its cars at will, as there is no worry of the competition taking away its business. And the consumers will be at the receiving end.

Imagine another scenario in which there are many carmakers but all of them discuss and fix prices. Here again, companies gain at the cost of consumers.

The key point in both these situations is lack of competition. While it is not something every consumer thinks about every day—often because of the plenty of options available—competition directly influences the price of all products. And if you thought there was fair competition in every sector, the orders passed by the Competition Commission of India (CCI) would make you think otherwise.

The CCI ensures companies do not take advantage of lack of competition in the market. The body has two wings—the chairman’s office and the director-general of investigations. The chairman’s office receives complaints, which are considered by the seven-member commission. If the matter is worth investigating, the case is 
forwarded to the DG of investigations. Otherwise it is closed at the first stage itself. After investigation, the report 
is discussed by the members and an order is issued on the basis of a majority decision. As of June 30, 2012, the CCI has delivered final orders in 90 cases. Currently, there are 47 cases with the commission and another 23 with the investigation wing.

Despite the ripples they have been making, the CCI’s orders are not conclusive, and most of them land up at the Competition Appellate Tribunal (COMPAT). Though many experts approve of the steps taken by the CCI, they say its weaknesses outnumber its strengths. “It has been a positive journey for the CCI in the last three years. But they have their set of problems, too. I would probably give them a three out of ten and that would be purely because of the activity shown by them,” said Pradeep S. Mehta, secretary-general, CUTS International, a non-profit organisation for consumer rights, social justice and economic equality. The CCI is severely understaffed. While two or three people work on a competition case in India, it is eight in the US and Europe. “The investigation wing has a severe quality manpower issue. They are operating at 50-60 per cent less than the sanctioned strength,” said Ashok Chawla, CCI chairperson.

Also, most officials in its investigation wing are on deputation. By the time they are trained, they get transferred. “Ministry of corporate affairs has taken up the view that people should only be on deputation there. We are trying to get it modified to the extent that there is a scope for people to be taken directly,” said Chawla.

There are allegations that the CCI is a dumping ground of former bureaucrats. But for Geeta Gauri, all members of the commission are former bureaucrats or retired judges. “The CCI needs people who are specialists in economics and legal issues, people who understand how markets and competition law work,” said Sajid Mohamed, partner at PDS Law & Associates, a law firm. Many competition lawyers have taken a strong view against many CCI orders. “Due to lack of proper growth of domain knowledge at all levels some of the complex disputes, and decisions thereof, under the [Competition] Act have generated controversies,” said Manas Chaudhuri, partner at law firm Khaitan & Company.

For instance, the NSE vs MCX case. In 2009, MCX-Stock Exchange complained against the National Stock Exchange of using its dominant position in the market to prevent competition in the currency derivatives segment. The CCI declared that the NSE used predatory pricing to thwart competition, and asked it to modify its zero pricing policy and pay a fine of 055.5 crore.

The CCI cited NSE’s predominance in the market to back its decision. Competition lawyers, however, say it was not correct as MCX was the largest player in the currency futures segment even at that time. The two dissenters in the commission, Geeta Gouri and Anurag Goel, did not find any abuse of monopoly by the NSE and, in fact, said that any meddling by the CCI would not help the consumer. The case is now with COMPAT. Some experts, however, say the ruling was fair. “NSE being dominant in the equity segment, leveraged its position to dominate the neighbouring market of currency derivatives (CD). Charging nothing in the CD market was predatory behaviour, since zero price is below any measure of cost,” said Amitabh Kumar, partner at law firm Jyoti Sagar Associates and former director-general of CCI.

In another controversial verdict, the CCI slapped a penalty of Rs630 crore on DLF, saying the realtor abused its dominance by asking apartment owners to sign one-sided clauses. Many law experts are of the opinion that the CCI’s notions in the case were misguided. Since it was a dispute between flat buyers and the builder, they say, it was a consumer case and hence the CCI should not have accepted it in the first place. “The accusation that DLF breached terms of contract between two parties is actually a contract law issue and not competition case,” said Naval Satarawala Chopra, partner at law firm Amarchand & Mangaldas & Suresh A. Shroff & Company. The CCI also faulted on the methodology it used to figure out DLF’s dominance in the relevant market. The DG calculated the market share on the basis of all-India revenues of realtors operating in Gurgaon. “A company might be a market leader in Mumbai, with one project in Gurgaon, but the DG estimated its market share in Gurgaon by using its all-India sales figure,” said Mohamed.

The CCI’s most defining moment came in June, when it fined 11 cement companies with Rs6,300 crore for fixing prices. “Cement companies reduced production, in fact, they produced much less than installed capacity thereby creating artificial scarcity. And although the sector was divided into five different zones, prices of all companies moved in the same manner. The price of cement rose faster than input prices. Cement companies had enough margin to reduce the prices but they did not do so, they kept increasing prices and earned handsome profits,” said the commission’s 258-page-long order.

Competition lawyers, however, say price parallelism is not illegal and suggestive of cartel behaviour in itself unless there are strong evidences. “They have relied mainly on circumstantial evidence to build up the case, which will be difficult to prove in courts. Even in the case of circumstantial evidence, they have not done proper economic investigation,” said a lawyer. This case also is with COMPAT.

Experts say most of these cases are going to land in the Supreme Court and the CCI is on a weak footing. “It is fine if these orders are reversed. Jurisprudence evolves only over time,” said Dhanendra Kumar, former chairman of CCI.

Some allege the CCI has been a laggard in taking up cases on its own. “They are not very proactive. There are violations happening in a lot of sectors which they have ignored,” said Mehta. It has taken up only five cases suo motu, which is only 2 per cent of the total cases.

The good thing is, corporates have started taking the CCI seriously. “We have been in discussion with them over several matters,” said the chief financial officer of a telecom company. “We want to comply. The feeling is that there is a body watching you, even if you escape the eyes of the sector regulator, and that is good.”

Fair play
    The Competition Commission of India (CCI) was established to provide a 
“level-playing field” to producers to ensure the welfare of consumers through fair competition in the economy.

  • Seven members, including the chairperson, comprise the CCI’s chairman’s office division while the director-general of investigations division deals with the cases forwarded by the former.
  • There are various sections like investigation, economic, combination, anti-trust and legal headed by some of the members.
  • The commission studies competition law violations based on specific complaints and can take up cases suo motu, too.
  • The complete report is discussed again by members and the final order is issued by majority approval.
  • Companies can appeal to Competition Appellate Tribunal (COMPAT) against an order.
  • CCI has delivered final orders on 90 cases as on June 30, 2012, 47 cases are still with the commission and 23 with the investigation wing.
  • Case study
  • 11 cement companies were fined a whopping Rs6,300 crore by CCI for “cartelisation”, but the companies got a stay order from COMPAT.
  • MCX alleged that NSE’s zero-pricing policy in currency 
derivatives segment stifled competition, for which CCI fined the latter Rs55.5 crore. The case is now in COMPAT.
  • DLF was accused of making apartment owners sign one-sided clauses, for which CCI fined the realty major Rs630 crore. CCI drew flak for this decision as experts felt that it was a consumer case and not a competition one.
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