Since February 2010, the Commission has taken up 82 cases, but has passed verdict in just three
NEW DELHI: As and when someone takes charge at India’s competition regulator, the person will be entering an institution whose biggest weakness is itself, casting aspersions on its ability to deliver prudent judgements. The Competition Commission of India (CCI), whose mandate is to ensure companies abide by competition laws, is understaffed by 38%. Its entire investigations team comprises government officers on deputation, who either lack the background or don’t have experience in unravelling economic and legal complexities typical of anti-competition cases.
Worse, in the way the CCI’s operations are structured , investigating officers have to make the unenviable choice of trying to appease their masters in the CCI or asserting their own independence. These structural flaws are reflected in the quantity and quality of orders passed by the CCI since February 2010, when it was armed with prosecution powers. The CCI has taken up 82 cases, but has pronounced judgement in just three: the MCX-SX complaint against the National Stock Exchange on free trading in currency derivatives; multiplex operators accusing film distributors of operating like a cartel; and banks levying prepayment charges in home loans.
Even those three rulings have generated much debate and disquiet. Not just on the verdict, but also the way the CCI arrived at it. Not just among the affected parties , but also among members within and independent observers outside. “On a scale of 10, I would rate it (CCI) three. Very poor,” says Pradeep S Mehta, a consumer activist who is part of a four-member government panel looking at ways to improve competition policy. “They (orders) look like research papers and superfluous,” says one of the five CCI members, requesting anonymity.
Beginning June 1, the ambit of CCI was expanded to include mergers and acquisitions . The day before that, India Inc saw five M&As being announced, in what was seen as a sign of how corporate India felt about having to deal with the CCI and its inherent weaknesses.
INDEPENDENT INVESTIGATION ARM
The CCI can be broadly divided into two divisions. There is the ‘director general office’ , which handles all investigations. Then, there is the rest of the CCI. At the very top, there is a chairperson, and five members, who are the decision-makers .
The members decide the complaints to be forwarded to the DG for investigation. Further, when they forward a case, they also give an initial opinion that competition laws have been violated. The DG investigates and rules if there is a violation or not. The five-member CCI panel looks at the DG report and takes the final decision.
There is an inherent conflict of interest in this directional flow of orders and division of responsibilities. Asks a senior official in the DG office: “Do you expect us to submit a report that is contrary to the commission’s finding that there is a violation of competition laws when my performance rating and budget approval is in their hands?” Of the 60 investigations completed by the DG, only thrice has it reversed the initial opinion of the CCI members to say there is no violation.
Although it is supposed to, the CCI has not made public the number of cases it has opened, or progress reports, or decisions taken. But two senior CCI officials say the commission has opened 82 cases so far; the DG has completed 60 investigations, but the five-member (earlier seven) CCI panel has decided on just three.
The low decision-making rate is despite the initial time limit of 60 days set by the Supreme Court – and agreed by the CCI – for the DG to complete an investigation. Although extensions are allowed in 30-day or 60-day blocks, an investigative officer says they have to finish a probe in four to five months. “The race is to somehow complete the cases, and not on quality,” he say
Naval Satarawala Chopra, the lawyer who represented NSE in the case filed by MCX-SX , says that investigation cases in developed markets that involve abuse of dominance take one to two years to complete . “Here, it is done in five or six months. As a result, the investigation is not done thoroughly,” says Chopra, a principal associate with Amarchand Mangaldas , a law firm.
POOR QUALITY OF PROFESSIONALS
This is partly because both the CCI and its investigation arm are under-equipped , both in hands and skills, says Rahul Singh, assistant professor, National Law School of Indian University, Bangalore. No CCI official spoke on record on the details on both counts. However, according to the CCI member quoted earlier, 50 of 144 sanctioned posts at the CCI, and 20 of 40 posts at the DG office, are vacant.
More importantly, the DG office, whose task is to investigate purported economic violations, only has staff on deputation from the government. The CCI member says that even when they have economic degrees, they barely put it into practice in their previous assignments. “In matters like competition, the issues are not static. It requires a lot of technical expertise,” says Bibek Debroy, professor at the Centre for Policy Research, a think tank.
The mismatch is reflected in the quality of investigation reports. “They are shoddy ,” says Singh, who also advises legal firms on competition matters. “It is a skills-deficit problem. They are not up to it.” Singh cites the order in a case by multiplex operators against 26 film distributors and producers. Both the DG and the CCI said there was “cartel-like” behaviour and fined the 26 distributors and producers 1 lakh each. “But under the (Competition ) Act, you either violate Section 3 (which deals with anti-competitive agreements ) or you don’t ,” says Singh. “What does it mean you engaged in cartel-like behaviour , but are not a cartel?”
Singh adds the Act sets the penalty for a cartel violation at three times a company’s profit or 10% of its turnover, whichever is higher. In this case, the CCI did not follow that rule. “You don’t have any discretion over that (penalty),” says Singh. The CCI member says the Act has a provision that allows the commission to come out with “any other order that the commission deems fit” .
GENERALISTS, NOT SPECIALISTS
Dhanendra Kumar, who retired as CCI chairman in June, speaks in different tones about the staff. In one instance, he points to the assessment of “national and international agencies” that trained CCI staff. “They told us the human material in CCI is one of the best.” But, later in the conversation, Kumar concedes that attracting talent was an issue because of legacy issues. “When we started, not many were willing to work with a newly constituted body,” he says. “The best one could do was to take people on deputation with the right qualifications.” Adds an economist who served on one of the CCI committees , not wanting to be identified: “We asked a few economists.
All said no. It isn’t about money, they don’t want to be part of the government system.” A 2006 report by five IIM-
Bangalore professors had recommended the CCI should have a staff strength of 200; 40% of them finance professionals (like chartered accountants and cost accountants) and another 40% economists. At the top, ex-bureaucrats are an overwhelming majority. When the CCI was constituted, six of the seven members were retired government officers; only one, Geeta Gowri, was an economist. “We need Lords (judges) with economic and enforcement background,” admits the CCI member.
In contrast, John Fingledon, the head of UK’s Office of Fair Trading, has a doctorate in economics from Oxford and has worked at leading academic institutions . He also worked as chairperson of the Irish Competition authority for five years. Similarly, Alexander Italianer, the DG for competition with the European Commission, has a PhD in economics.
VARYING INTERPRETATION OF LAW
The absence of specialists has led to varying interpretation of the Competition Act, as illustrated in the MCX-NSE case. In August 2008, the NSE launched trading in currency derivatives, for free. When MCX entered this segment that October, it followed suit on pricing. It also complained to the CCI that the NSE was trying to kill competition by cross-subsidising through other trading segments.
The central piece of the case was to define the ‘relevant market’ : is it the currency derivatives segment or is it all segments on the exchange? The DG said all segments, the CCI said only the currency derivatives segment. “It (the relevant market) was arbitrarily decided,” says Singh. “There are six provisions under the Competition Act that tell you what the relevant market is, but neither the majority , nor the minority, had the rigour to analyse the six provisions.”
The CCI, in a 4-2 ruling, asked the NSE to modify its zero-pricing policy and fined it 55.5 crore. “Both orders fall short of the detailed, logical, rigorous analysis expected of them,” adds Singh, who has served on a committee formed by CCI to suggest reforms in the institution.
REFORMING THE CCI
Last month, the ministry of corporate affairs , which appoints both the CCI chairperson and the head of investigations, constituted a four-member committee to frame a national competition policy and propose changes in the Competition Act. Both Kumar and Mehta, who are on the committee, say they will look into the staffing issue at the DG’s office.
Debroy, who has served in one of the committees that advised CCI, wants the DG to be made independent of the CCI, not just in investigations, but also in appraisals and budget. He also recommends freeing the appointment process from political interference. Incidentally, M Veerappa Moily, the new minister of corporate affairs , wrote to the prime minister in July that the government should stop appointing retired bureaucrats as regulators. Will Moily now walk the talk?
Problems With CCI
- IN TWO YEARS, THE CCI HAS TAKEN
up 82 cases, but decided only three. Even those three have invited much debate and disquiet, which goes back to the structural issues at CCI.
- UNDERSTAFFED: AROUND 50 OF 144
posts at the CCI, and 20 of 40 posts in its investigations wing are vacant
- SKILLS DEFICIT: INVESTIGATION team has no practicing economist, accountant or lawyer. And four of the five CCI members are bureaucrats
- LACK OF INDEPENDENCE: SINCE
appraisals of investigators are done by CCI, they are hesitant to challenge its directional drift in cases