MCA resists Competition Act changes

Live Mint, January 20, 2012

A high-level committee constituted for drafting a national competition policy has suggested scores of amendments in the Competition Act, aimed at making it simpler to interpret and widening the ambit of investigations against cartelization and mergers and acquisitions (M&As).

The ministry of corporate affairs (MCA) is, however, reluctant to make such sweeping changes so soon after the establishment of the antitrust watchdog, the Competition Commission of India (CCI), which was set up in 2009 with a chairman and five members.

A proposed amendment would widen the ambit of cartels to include buyers’ cartels and trade associations, which are currently not subject to investigation. Besides, the committee has suggested the inclusion of joint ventures (currently a grey area) while notifying CCI before any M&A is executed.

It has also suggested tightening a definition. In M&As, change in control would be one that leads to “decisive influence” by the acquirer. Currently, the term is loosely defined.

A copy of the proposals submitted to MCA has been reviewed by Mint.

The panel also proposed giving CCI the power of defining turnover for the purpose of deciding threshold limits that will require the watchdog’s clearance. It can, therefore, set appropriate thresholds for different sectors, besides revising these limits from time to time.

Currently, these powers rest with MCA.

This is particularly significant as in October, at a meeting chaired by Prime Minister Manmohan Singh, it was decided to make antitrust rules tighter for deals in the pharma sector, thereby bringing more pharma M&As within CCI’s ambit.

The committee, headed by former CCI chairman Dhanendra Kumar, includes competition law experts such as Amitabh Kumar, senior adviser (regulatory, competition and tax) at J Sagar Associates; Supreme Court lawyer Anand Pathak; Pallavi S. Shroff, senior partner at Amarchand Mangaldas; G.R. Bhatia, partner at Luthra and Luthra Law Offices; and Manas Kumar Chaudhuri, partner at law firm Khaitan and Co.

“The committee has submitted the draft national competition policy to MCA. As far as amendments are concerned, a presentation was made to the minister (corporate affairs minister M. Veerappa Moily). It’s for the ministry to take a call on what to include and what not to,” said Dhanendra Kumar.

MCA on its part is reluctant to accept all changes.

“The Act is still young and to bring in several changes will create confusion both within the CCI and the corporate world,” said a senior MCA official, who did not want to be identified.

A senior CCI official agreed with the MCA official. “Although it is up to MCA to accept amendments, the proposals are not such that they will take the Competition Act to a different plane in terms of its effectiveness,” said this official, who also didn’t want to be named.

So far, over 80 cases have come before CCI, but the commission has disposed of only a dozen of them.

The proposed amendments would also empower the CCI chairman to allocate cases to members. Currently, all members have to hear all cases with a majority view prevailing.

Besides, the CCI chairman would be empowered to authorize its director general for search and seizure of documents of companies being investigated. Currently, the same authority has to be obtained from a magistrate, which according to the presentation made by the committee to Moily, defeats the purpose of confidentiality as the process has to go through a regular court.

Similar provisions are present in the income-tax and customs Acts, according to notes prepared by the panel.

“The basic objective of any change in law should be to make it more effective. It is, therefore, important that the changes should empower the authorities mandated with the task of implementing the law and remove ambiguity in the provisions,” said Amitabh Kumar of J Sagar Associates.

These proposed changes, if accepted by the government, will need to be cleared first by the cabinet and then by Parliament and, therefore, will take a couple of years, said most people associated with the development.

“There is also a need to include professionals at CCI,” said Pradeep S. Mehta, secretary general of CUTS International, a think tank in the area of competition law. “We have also proposed that the number of members from judiciary and civil services should not be more than half the strength of the commission at any point of time,” added Mehta, also a member of the committee. Currently, this is at the discretion of the Centre.

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