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
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
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.”
The Competition Commission of India (CCI) was established to
“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.
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
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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