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The CCI publishes its draft Settlement & Commitment Regulations inviting stakeholders comments
The Competition Commission of India (CCI) released its first set of draft regulations on settlements and commitments (S&C) last evening (See the text of the relevant settlement and commitment regulations here & here, respectively). Several wide-ranging amendments to the Competition Act, 2002 (Act) were introduced over four months ago (see Axiom5 note on the April 2023 Amendments available here), but a number of these changes cannot be operationalised without the implementing regulations.
So why are the Settlement & Commitment regulations first off the block?
At the heart of what the Settlement & Commitment Regulations seek to achieve is an overall reduction in protracted investigations and court battles, and timely regulatory intervention to address instances of market failure. This proverbial win-win solution has attracted a lot of interest in the lead-up to its operationalization with some observers speculating that companies have already started to submit and the CCI has begun accepting S&C applications for ongoing inquiries. Except that until now, the modalities for the consideration of those applications have been unclear. This is probably why the CCI – which is itself eager to quickly resolve long-standing investigations without wasting agency resources further, has prioritized the release of these regulations.
What are the central substantive issues that the Settlement & Commitments Regulations raise?
While the draft Settlement & Commitment Regulations prescribe the process through which S&C will be operationalized by the CCI (which are more fully described in the Axiom5 Summary of the draft Settlement & Commitment Regulations), they raise a few notable substantive issues:
Can the materials submitted by the parties during a settlement or commitment proceeding be used as evidence against them? The draft Settlement & Commitment Regulations suggest that materials and information submitted by parties as part of their settlement or commitment application may be used against them or such other parties to the inquiry who are not part of the settlement or commitment proceedings (see Regulation 12 of the Settlement Regulations and Regulation 12 of the Commitment Regulations). While one can see some merit in allowing materials submitted by a settlement or commitment applicant to be used to strengthen the case against other parties to the ongoing inquiry who have elected not to become part of the settlement or commitment process – it is a mistake to enable the CCI to use such material against the very settlement or commitment applicant who has provided it. If the CCI wants to incentivize parties to avail of settlements or commitments, this provision must be suitably amended.
How long does a company have to submit a commitment application? While the duration within which an applicant may apply for a commitment appears to be a process question, it has a significant impact on the availability of the entire mechanism. Consider for a moment that a company exploring the possibility of offering a commitment must take a number of steps: carefully evaluating the risks and rewards of opting for such a commitment and appropriately designing a mechanism that will ensure that the market practices identified by the CCI in its preliminary order triggering an investigation (under Section 26(1) of the Act) are duly identified and addressed to the CCI’s satisfaction. This all takes time. The draft Commitment Regulations, however, provide companies with a 45-day window from the date on which the CCI issues its preliminary order initiating an investigation to submit a commitment application (Regulation 3(2)). Notably, on an average, the DG’s investigation takes anywhere between 3 months to 3 years. So, it is simply inconceivable why the draft Commitment Regulations would offer willing commitment applicants only a 45-day window. This must be changed if commitments are to be encouraged.
Due Process issues & withstanding judicial scrutiny – The CCI has been mired in litigation over due process issues since its very inception and the draft Settlement & Commitment Regulations must pay close attention to rights of parties if they are to withstand judicial scrutiny. Consider for instance the CCI’s right to treat a settlement or commitment application as “withdrawn” if it believes that the application is “incomplete” or “defective” (Regulations 3(3) of the Settlement Regulations & Regulation 3(4) of the Commitment Regulations). The unilateral right for the CCI to deem an application as being withdrawn and in parallel, use the information provided in the application against the applicant will not withstand the judicial high watermark. There must be opportunities given to applicants to be heard before deeming an application to be withdrawn; and the CCI must be required to provide a detailed order as to why the application was deemed incomplete. And finally, in no circumstance should the information contained in the application be used against the party providing it.
In addition to pointing out the due process lacunae contained in the draft Settlement & Commitment Regulations, it’s also worth noting where the regulations are silent and fail to provide adequate due process safeguards. Take for instance the entire process of lodging and considering a settlement or commitment application (Regulations 3,4 & 8 of the draft Settlement Regulations and Regulations 3,4 & 7 of the draft Commitment Regulations). The regulations do not identify how discussions and meetings with officers of the CCI must be conducted to explain each aspect of the proposal or indeed to negotiate meaningful remedies. The process is described entirely formalistically as being a series of submissions and considerations with no guidance on how engagement with case officers and CCI staff is to be conducted. These are necessary if S&C are to be meaningfully considered and yield results.
Keeping it confidential: The Act is noteworthy for its robust treatment and proactive handling of confidential information submitted during M&A filings and antitrust proceedings. There are statutory provisions (Section 57) and specific Regulations (Regulation 35 of the Competition Commission of India (General) Regulations, 2009 and the Competition Commission of India (Lesser Penalty) Regulations, 2009) which provide a self-contained mechanism for ensuring that confidential information is duly protected. However, neither the Settlement Regulations nor the Commitment Regulations refer to or specifically provide for confidential treatment of information submitted and used as part of the entire process. There is a passing reference to the need to create a “non-confidential summary” in Regulation 5(1) (of both the Settlement Regulations and the Commitment Regulations), so we assume that the absence of a specific confidentiality provision in these regulations is an oversight. In any event, a S&C regime will not succeed if there are inadequate safeguards for the submission of confidential information.
The missing “grandfathering” clause
As we point out above, perhaps one of the motivations why the draft Settlement & Commitment Regulations were the first off the block was because of the interest amongst companies to avail of this facility. Even though the amendments to the statute containing the S&C facilities were introduced in April 2023, the CCI has found itself in a bind since they’re not able to extend a benefit which was promised by statute, simply because the implementing regulations were not in place. Companies found themselves in a quandary, since they believed that they could submit commitment applications only until the DG Report was issued. Therefore, we had suggested (see PK Singh and Samir Gandhi’s Op Ed in the Hindu Business Line here) that in line with well-accepted judicial principles, the draft Settlement & Commitment Regulations must contain a “grandfathering” clause, which would acknowledge S&C applications that had been received between the date the law was enacted and the date on which the regulations are notified. Preserving the rights of parties who legitimately expected to benefit from the amended provisions of the Act would not only be in keeping with settled jurisprudence, but it would also provide a great fillip to the use of the S&C provisions in the Act. Regrettably, the draft Settlement & Commitment Regulations do not contain such a provision and by whittling down the time available to commitment applicants to 45 days from the time that the CCI passes its preliminary order under Section 26(1), it seems that parties will not be able to avail the benefits that Parliament has in its wisdom conferred through statute. We would sincerely hope that the draft Settlement & Commitment Regulations are suitably modified to include such a provision, before being notified.
The draft Settlement & Commitment Regulations are certainly a good starting point for discussion, and we look forward to a healthy debate and a productive consultation process.