Commitments & Settlements: Transforming a Promise into Reality
Tracking the Competition (Amendment) Bill, 2022: Part 3
In the 13 years since the operationalization of the Competition Act, 2002 (Competition Act) the Competition Commission of India (CCI) has issued eye-watering penalties and investigated a staggering number of industries and enterprises. However, the average antitrust investigation is time-consuming and the CCI has only been able to recover less than 2.5% of the total penalties that it has imposed between 2018 & 2021 (based on the CCI Annual Report 2021) since most cases are challenged in appeal. Parties that are going through the process of investigation have found it to be data-intensive, time-consuming, and onerous and the penalties themselves have been unpredictable and impacted their bottom lines.
So when the Competition Law Review Committee (CLRC) in its 2019 Report recommended the introduction of a settlement and commitment mechanism – it was widely welcomed as a “win-win” solution for both the regulator and parties being investigated. The hope is that such a mechanism, which is available in several jurisdictions worldwide, would allow for a timely and quick market intervention and correction by the CCI in markets while minimizing litigation costs and providing parties with a predictable, time-bound outcome.
The statutory mechanism outlining how settlements and commitments will be implemented is contained in new Sections 48A and 48 B of the Competition (Amendment) Bill, 2022 (2022 Bill). The Government left the nuts and bolts of administration of these new mechanisms to the CCI, to implement through regulations. However, this left several issues either unaddressed, or ambiguous.
The Parliamentary Standing Committee on Finance (Standing Committee) has attempted to deal with some of these issues, namely:
Scope of coverage: The 2022 Bill permitted parties to apply for settlements or commitments, only in cases which involved allegations of vertical restraints (Section 3(4)) or abuse of dominance (Section 4). It did not extend this facility to companies that were being investigated in cartel cases. The logic appears to have been that allowing parties to settle cartel cases might be viewed as “going soft” on the most egregious forms of anti-competitive conduct. However, other mature competition agencies such as the EC permit parties to apply for settlements in cartel cases, and the Standing Committee has in its Report, now recommended that the scope of settlements and commitment applications be extended to include cartels under Section 3(3) of the Competition Act.
Acceptance of contravention: The 2022 Bill did not require an admission of contravention while applying for a settlement or a commitment. The Standing Committee recommends that the admission of contravention is not required for either an application of settlement or commitment. It’s worth noting that a settlement in the EC requires an admission of guilt.
No right of appeal on a settlement or commitment order: The 2022 Bill did not allow an order of settlement or commitment to be appealed. The Standing Committee does not alter this position but has proposed a modification to the 2022 Bill’s formulation, which suggests that no appeal is available to “any party who agreed to the settlement proposal”. It’s unclear whether this proposed modification adds any value, or conversely whether it creates a possible avenue for misinterpretation, i.e., that there is a limited right of appeal available to parties other than those who have agreed to the settlement proposal. This interpretation would be untenable without a corresponding amendment to Section 53A of the current Competition Act which lists the specific orders that can be appealed to the National Company Law Appellate Tribunal, the statutory appellate body under the Competition Act.
Claims for compensation - The 2022 Bill did not specifically permit parties to seek compensation under Section 53N from settlement and commitment orders. Currently, Section 53N permits compensation applications only in specific instances where there the CCI has found a contravention. The Standing Committee has suggested an amendment to Section 53N(1) and (2) to insert specific references which permit claims for compensation from an order of settlement. However, the proposed amendments to Section 53N seem incomplete, and would still allow compensation applications only where the CCI has arrived at a finding of contravention. Additional language will be required to remove this apparent contradiction.
Third party market testing & consultation – The 2022 Bill requires the CCI to provide its investigative arm, the Director General and third parties the right to provide objections and suggestions to a settlement/commitment proposal. However, the Standing Committee was of the view that such a right would result in significant interference by third parties and reduced confidentiality through the process. Accordingly, the Standing Committee has recommended that the proposed Sections 48A & 48B be modified to allow the CCI the discretion to seek third party views and that it not be a mandatory requirement to invite third party comments or objections.
Power to withdraw an application – The 2022 Bill permits the CCI to withdraw from settlement or commitment discussions if it is unable to agree with the parties on the terms of such settlement/commitment within the prescribed time. This right to withdraw from the settlement process is currently available only to the CCI. The Standing Committee has now recommended that a corresponding right of withdrawal of settlement or commitment be made available to the applicant within 7 days of being heard by the CCI. Further, the Standing Committee has recommended that materials and discussions used as part of the settlement/commitment process are submitted on a “without prejudice” basis and cannot thereafter be used by the CCI as evidence of the acceptance of a contravention.
Power to revisit the settlement/commitment decision – Under the 2022 Bill, once the CCI accepts and passes an order relating to a settlement or commitment, parties did not have any facility to revisit the CCI’s decision or its terms. The Standing Committee has recommended that the parties be allowed to apply to the CCI to revisit the terms of the settlement/commitment order even after such an order has been passed.
The Standing Committee is evidently keen to promote the use of the settlements and commitments mechanism and has significantly enhanced its attractiveness by clarifying that a settlement or commitment application can be made without an admission of contravention; will also extend to potential cartel conduct; will not be open to protracted appellate processes; and will limit third-party access rights. This will undoubtedly make the settlement and commitment mechanism a compelling alternative to parties who look to avoid protracted litigation proceedings and intrusive investigations. However, the Standing Committee has also permitted compensation claims from settlement orders which will make prospective settlement applicants wary of potential costs arising out of such compensation claims. It certainly helps that compensation claims are in their nascency in India and there is no suggestion that such claims will extend to the significant “treble damages” standard that are typical in such proceedings in the United States and elsewhere.
One thing is certain - the wide power given to the CCI to impose penalties and conditions in settlement orders and the uncertainty surrounding the process for arriving at such commitment & settlement orders will give potential applicants plenty to consider before queuing up to use these mechanisms.
As a larger policy and constitutional law question, it’s worth considering whether by limiting settlement & commitment proceedings to the applicants only and excluding third parties from the process (who may be affected by the terms of the settlement or commitment), as well as removing the right of appeal to those who might be affected by the outcome of such a settlement or commitment order – the amendments themselves may become the subject of future judicial challenge in our constitutional courts.
Thoughts and comments are welcome as always!