Shashank Mehrotra *
This analysis explores the dichotomy between public and private enforcement of competition law, highlighting their distinct roles in safeguarding market dynamics. Focusing on India’s commitment mechanism within its competition law framework, it delves into the impact on third-party representations and the limitations it poses on private enforcement. Emphasizing the inadequacies of the current private enforcement landscape in India, it scrutinizes the challenges faced in seeking compensation and the hurdles presented by the commitment mechanism, ultimately underscoring the potential peril it poses to stakeholders’ rights, leaving them with limited recourse.
Introduction
In 2023, India formally enacted the Competition (Amendment) Act, 2023. A particularly interesting feature introduced in the Indian regime through the Act is that of the Commitments mechanism, which allows potential violators of the Competition Act to settle with the Competition Commission of India(“CCI”) by proposing structural and behavioural remedies to potential anti-competitive conduct. While the move has been welcomed by industry experts, serious issues on private enforcement need to be addressed. Though debated, commitment mechanisms are stated to bring about efficiency gains while remedying market distortions. Such thought however, little accounts for the accommodation of private enforcement claims, which remains dormant as ever in India. This concern was also noted by Dr. Aditya Bhattacharjea in his observations on the Competition Law Review Committee Report, but has not been addressed by the law-makers in the subsequent implementation of the commitments mechanism.
This blog focuses specifically on the impact that the mechanism has on the procedural and substantive rights of the third parties involved. To that effect, it closely looks at the rights of third parties for damages from anti-competitive behavior. Third parties here, involve other market players such as competitors and consumers that have borne the costs and damages of the potentially anti-competitive conduct of the committing party. It further explains that the same feature, among others, illustrates how the commitments mechanism rest on an unsound theoretical framework of Competition theory.
This piece first explains the significance of and distinction between private and public enforcement of competition law. It then explains the proposed commitment mechanism and its treatment of third party representations. Further, it elaborates upon the general condition of the private enforcement in India and finally concludes by remarking on how commitments are seen to imperil rights of stakeholders in a manner that leaves them with little recourse.
Private and Public Enforcement of Competition Law
Competition law can broadly be understood as entailing two aspects- private enforcement and public enforcement. Public enforcement of competition law comprises National Competition Authorities investigating, preventing and punishing prohibitive anticompetitive conduct of entities. Such conduct may be unilateral (Abuse of Dominant Position) or coordinated with other market players (Cartelization). The Authorities perform this function by the use of enforcing the applicable law and imposing remedies/fines upon the guilty entities. The primary motivation behind public enforcement is seen to be to ensure the optimum functioning of markets and minimization of instances of market distortion by way of anti-competitive conduct.
Private enforcement is rather different. While public enforcement is concerned with protection of macro-economic units in a market from anti-competitive conduct, private enforcement recognises and protects the interests of the micro-economic units such as individual competitors and consumers from the same. It is the aspect of competition law that recognises the direct economic harm that anti-competitive conduct of entities brings about for the rest of the market players such as competitors, consumers, downstream and upstream players. Anti-competitive conduct may harm the consumers in the form of higher prices and may harm the competitors by the way of reduced sales. Under private enforcement, such aggrieved market players may bring additional claims for damages by such anti-competitive conduct, in compensation for the losses that they have incurred. Such action usually follows the finding of guilt of the anti-competitive entities. Parties in private enforcement suits do not sue for general welfare, they sue to safeguard their own interests.
Competition Theory recognizes that effective implementation of both the limbs of competition law is essential for appropriate functioning of competition law, as only then is abusive conduct not only remedied and punished, but those who have suffered from such conduct have been duly compensated, remedying the market equilibrium.
In the subsequent sections of this blog post, I delve into the legal framework and examine the unsatisfactory state of the private enforcement regime in India.
Indian Commitment Mechanism And Third party Representations
In India, the introduction of the commitments mechanism is seen as a huge step towards the modernization of Competition Law. Commitment mechanism enables entities that are being investigated for antitrust liability to agree with the regulators on implementing behavioural or structural remedy that may alleviate the antitrust concern, in return of cessation of investigation against them. This is purported to bring efficiency benefits to antitrust regulators and potential defaulters alike- while also helping potential defaulters avoid a hefty vine for their conduct. Formally, the mechanism was introduced by the proposed addition of Section 48B of the Competition Act. It empowered any party against whom an inquiry has been initiated under Section 26(1) of the Act for a contravention of Section 4 or 3(4) of the Act to propose commitments to the CCI. A party may offer commitments between the duration of the order of inquiry by the CCI under Section 26(1) and any time prior to the receipt of the DG report. The Commission may take into account the nature, gravity and impact of alleged contravention and the effectiveness of proposed commitments in arriving at a final decision on this.
Serious questions emerge however, when one analyzes the effects and consequences of the Commitments Mechanism. This has been previously elaborated upon by authors, with them explaining how the Commitments mechanism is a stark move away from realizing the ideal of rule of law, leading to an issue of ‘shadow jurisprudence’, where those being governed by a law remain in uncertainty of its development and status. The dependence on the Commitments mechanism, it has been argued, brings forth such a situation as such decisions do not signify or determine the legality of the conduct in question, ensuring that such behavior remains in a grey area instead of being settled in law.
Presently, we can navigate the potential legal framework of commitments by looking at the enacted amendment and the draft guidelines on commitments.
There are two extremely significant elements to the Section that merit more attention. The Section imposes a duty upon the CCI to provide an opportunity of hearing to the applicant, the DG or ‘any other party’. Further, no appeal under Section 53B could lie against a commitments decision passed by the Commission.
In addition to the Act, the CCI also offers further guidance on the commitments procedure through the draft Commitments Regulations (“Draft Regulations”). The Draft Regulations clarify the procedure for adopting commitment decisions, which recognises the right of third party representations to the CCI. They also recognise the fact that an adoption of commitments decision will not be construed as a finding of contravention under the Act.
Private Enforcement in India
Private Enforcement in India is governed by Section 53N of the Competition Act, 2002. It recognises the right of any person to make an application to the NCLAT to claim for compensation. According to the Section though, this right is only seen to arise after the decision of the Commission or the Appellate Tribunal. Moreover, this is further emphasised upon later in the section, as it states that any application for compensation must include within it the findings of the Commission. Moreover, the explanation to the Section clarifies that any claim for compensation would only arise after the Commission or the Appellate Body has noted in its decision the violation of the Act.
It must be noted here that India’s private enforcement practice is significantly undeveloped. India has not seen a single private enforcement action succeed till date, the reasons being primarily attributed to the acutely long stage of appeals in India. The extent of private damages however, may be indicated by a compensation suit filed by MCX against NSE in the NCLAT. The amount claimed by MCX was of Rs. 589 Crore, after the imposition of penalty of Rs. 55 Crore by the CCI. While the suit for compensation was filed in 2014, the NCLAT website shows no recent developments on the same. The appeal of the main case itself is pending in the Supreme Court as of today. It is truly reflective of how private enforcement has been held hostage by the longevity of the judicial process.
A central problem that the commitments mechanism poses for private enforcement therefore arises with the pre-requisites for a claim for compensation under Section 53N itself. It has been made clear under Draft Regulation 6(1) that in adopting a commitment decision, an order agreeing to a commitments decision will not be construed as a commitment decision. All commitment decisions adopted in India, therefore, would immediately shut all doors to any claims for damages under Section 53N.
One may still look at the Draft Regulations to see possibility of private claims being accommodated in the Commitments decisions. Such accommodation is seen in the recognition of third-party representations to the CCI in the Draft Regulations. However, there is no mechanism within the Regulations that may accommodate or may enjoin the committing party to pay compensation to such third parties.
In the proposed Commitments regulation and regime under the Act, while theoretically it may be possible for an aggrieved party to make representations to the CCI highlighting the damages they have suffered as a result of abusive conduct, multiple problems would arise in such a scenario. First, the CCI does not have the required information at the stage of commitments to assess the validity of such claims. This is because the DG Report is essential for the CCI to understand the seriousness of the alleged conduct in the first place, and any assessment of the same in the absence of a DG report invites significant scrutiny. While under the Draft Regulations, the committing party has to submit its own report on the prospective effectiveness of the commitment and how it remedies alleged anti-competitive conduct, such a representation may obviously not represent the accurate picture. Second, without the DG report, the aggrieved themselves may not have the wherewithal to prove such a damage in the first place. This is especially important considering the highly nuanced and specialised nature of competition law, requiring claimants to present market studies and economic models to prove damages. Third, these parties do not enjoy any special legal standing to pressure the CCI into adopting a full-decision, so they would not be heard at all. This criticism has been levied in Europe as well.
The first two problems arise as a consequence of the much highlighted issue of sustained information asymmetries that are intrinsic to the negotiation and adoption of a commitment decisions.
Private entities often do not have the resources to pursue litigation for private enforcement largely due to the significant costs involved in any kind of competition litigation, since it is heavily dependent upon nuanced and complex market studies to come to a decision. Such studies have to be sanctioned, and are not generally publicly available beforehand. In such a case, the absence of a DG report significantly hurts the interests of parties that may have been impacted by anti-competitive conduct to even prima facie prove the genuineness of their claim so as to convince the CCI that the ‘nature, gravity and impact’ of the alleged conduct is too significant to be remedied by merely a commitments decision.
In the absence of a proper DG investigation, there is no proper mechanism for the CCI to assess the extent of damage by the alleged conduct. Now, one may be inclined to suggest that commitment decisions must only be adopted when the private damage is negligible, however, such an idea if ignorant of the celebrated principle in private enforcement according to which most violations of competition law necessarily lead to significant private damages. To furnish proof of claims of damages however, the issue of the need of complex evidence arises, which may prevent parties from making adequate representations in the first place. It is general practice in the EC to introduce claims of damages as follow-on actions on the recording of findings of guilt for anticompetitive conduct. Many competitors and consumers, especially in a developing economy like India, may be silently affected by anti-competitive conduct, without realising the same.
The EU Directive on damages also recognises this, and to accommodate the same states that anti-competitive conduct in the form of cartels may be presumed to result in harm to stakeholders in the market entitling them to damages. It further states that to accommodate for such asymmetry in other cases, placing a high burden on the plaintiffs at the initial stage to prove the harm caused to them by the use of such models must be avoided.[i]
Commitments Imperilling Rights
By thus disabling any claims for private damages, Commitment decisions affect not only the powers of the CCI to not pursue actions against committing party, but also those aggrieved by potentially anti-competitive conduct. It must be noted at this juncture, that though a commitment decision does not lead to a finding of a contravention, it does not mean that there has been no contravention of competition law, and resultant damage to private parties. In fact, a key motivator for parties to enter into commitment decisions is to avoid potential penalties for anti-competitive conduct. Experience in Europe has largely been reflective of the same, where in multiple decisions such as commitment decisions have led to situations which may be categorised as instances of ‘enforcement below the competition law’, effectively letting anti-competitive conduct go unpunished but remedied in the form of behavioural commitments.
In adopting a commitments decision therefore, the CCI may not concern itself with whether not conduct is anti-competitive, it primarily concerns itself with whether an alleged infringement is significant, in terms of its ‘nature, gravity and impact’ to warrant a fine. When it would determine that the conduct is not significant enough, it would forego investigation and enter into a commitments decision. The consequences of the CCI’s choice in such instances though, would directly be felt by private parties that may have been harmed by the possible anti-competitive conduct remedied through commitments.
The choices of the regulator in choosing administrative efficiencies for itself is therefore seen to have a definite adverse bearing on the rights of individuals and entities. On adopting a commitments decision, it not only foregoes its own right to fine an undertaking, it also, acting as a proxy, extinguishes the statutory rights of such parties.
Considering such effects, grave questions arise on the the power and possibility of the CCI to enter into commitments in the first place. A possible way forward may be to ensure claims for private damages stand accommodated within the commitments decision itself, negotiated between parties as part of the commitments negotiation. The law as it stands proposed however, does not account for such a possibility, not giving any legal position to third parties.
As explained earlier, no legal claim for damages even arises in such a negotiation by third parties, since all such claims necessitate the finding of contravention to begin with. However, private compensation may be agreed to as part of the larger commitments package. This would ensure that a violation on the part of the committing party must be considered a violation of the commitments agreement itself, mandating the CCI to reopen its investigation.
Such accommodation however, must be recognised via statute so as to give possible affected parties a stronger legal position. Competition jurisprudence around the world has recognised that all affected parties have the right to compensation. Considering that under statute, the same right has been recognised as well, the CCI would do well not to close doors to it altogether in the commitments regime.
[i] (14), Statement of Reasoms
*Shashank Mehrotra is a student at National Law University Delhi (shashank.mehrotra20@nludelhi.ac.in)
