- Shreya Sharma
The Settlement and Commitment Mechanism: A New Dawn in the Competition Law Regime
[Shreya is a student at Rajiv Gandhi National University of Law, Punjab.]
After the Presidential assent on 11 April 2023, the much-awaited new competition amendment has been unfurled amidst contemporary advancements in the competition regime in India. Certain keystone changes that are spelled out are introduction of a deal threshold value as a conditional pre-requisite for regulation of mergers and acquisition in India, revised definition of 'turnover' to reflect worldwide turnover, and broadened scope of cartel prosecution. Among other things, introduction of a settlement and commitment mechanism is a noteworthy addition, which is an effort to decrease litigation and facilitate a simpler and quicker dispute resolution alternative mechanism. In light of the present competition legal framework in India and several unsolved questions, the author attempts to analyze the newly added provisions including its application and implications.
In the ruling of Tamil Nadu Exhibitors Association v. Competition Commission of India, the Madras High Court noted that the Competition Commission of India (CCI) has broad residuary powers, the natural outcome of which could be the adoption of a settlement or compromise between parties over an antitrust problem. Taking inspiration from the matured foreign antitrust regimes along with the aforesaid ruling, the amendment attempts to bring in the framework for the settlements and commitments mechanism by adding Section 48A and Section 48B of the Competition Act 2002 (Act). 'Settlement' introduces an alternative route to resolve any violation of the anti-trust laws by any party and is a rather unconventional mechanism that has not yet become very popular, especially in countries other than the first world countries. The party that has been charged for violation or 'contravention' is required to admit the commission of such anti-competitive behavioral activities owing to enough evidence in the affirmative with the CCI after a full investigation. Subsequently, the CCI will have the authority to put an end to the proceedings based on the form, graveness, and effect of the violation or contravention. This resolution may be seen as a final order because since it more like an agreement between the parties, appeals cannot be initiated against these settlements. Notably, the CCI will be the main and last authority concerned in such cases.
'Commitment' primarily means that the enterprise against which the anti-competitive proceedings have been initiated has to agree to comply with a certain set of rules or more appropriately known as ‘behavioral remedies’. As a result, the initial proceedings as identified by the CCI may be terminated on account of such effective terms and methods of implementation as offered. It must be highlighted that the decision has to be made keeping in mind the interests of all the stakeholders involved including the interests of the parties involved in the investigation, the interests of the third parties and of the market conditions in general. They are a more effective compliance tool because they usually result in quicker and palpable remedies and changes.
An entity or enterprise against which an inquiry has commenced under Section 26(1) for a violation of Section 3(4) or Section 4 of the Act may submit an application under Section 48A(1) and 48B(2) of the Act. According to Section 48A(2), the settlement application may be submitted at any time after receiving the directive of the Directorate General (DG) but before the order is actually passed. As per Section 48A(3) of Act, the regulator may accept the proposal for settlement if the applicant pays the specified amount or subject to other terms and conditions for implementation of settlement and monitoring as specified in the regulations after taking into account the nature, the seriousness, and the impact of the violation or contravention. Additionally, while taking the proposal in consideration, the CCI is required to offer a window for the party involved, the DG, or any other third party to submit their suggestions and objections. If the CCI has opined that the proposed settlement has not reached a satisfactory outcome and there is a deadlock, it would reject the aforesaid proposal and proceed with the inquiry as per provisions in Section 26(1) of the Act. All settlement payments realised under the Act must be credited to the Consolidated Fund of India.
Alternatively, the parties facing accusations of anti-competitive behaviour may make agreements to change or alter their conduct (commitment). The commitment offer may be made at any time following the CCI's adoption of an order under Section 26(1) of Act, but within the window of time until the party receives the Director General's report as required by Section 26(4). According to Section 48 B(3) of the Act, the CCI has the final say on whether to accept applications for such mechanism, and it shall make judgements based on the nature, the seriousness, the impact, and the efficacy of the commitments. The CCI can reject the proposed application and proceed with its procedure under Section 26 of Act. There shall be no right of appeal under Section 53B of the Act against any order made by the CCI under the provisions of these sections.
Similar Provisions outside India
The settlement method was first implemented by the European Commission, which is in charge of the antitrust regulation in Europe, but the commitment mechanism was adopted after a period of time through Article 9 of Regulation 1/2003. The European Commission first restricted settlements to instances involving cartels and vertical breaches, that were subject to the procedural rules set down in Regulation (EC) No 622/2008. It has, however, lately implemented a separate method for instances involving abuse of a dominance from 2016. In European Market, it is a settled tenet that the commitment mechanism pertains to neither admission of guilt by the party concerned nor any formal finding by the regulator on the alleged contravention, but it is primarily concentrated upon prospective resolution or way forward for the problems identified in the relevant market, which was reiterated in Commission v. Alrosa Co. Ltd. The process for reaching a settlement often entailed the commission presenting the parties with evidence sufficient to end the trial for breaches, after which the party was given the opportunity to present their statement of objections. Ultimately, the parties will either concede culpability and reach a settlement or contest liability and proceed to trial. Also, the adjudicating authority allows a reduction of 10% in fines applicable to the contravening party.
The anti-trust regime in the United States underwent a change in the middle of the 1990s, with the new strategy being to prevent litigation and strengthen regulation. The adage "time is money" was more applicable than ever as businesses chose promises and settlements to protracted trials, even when the latter would have cost less or not resulted in a punishment at all if the agency failed to assemble sufficient evidence to prove a violation. Alongside, majority of the civil non-merger antitrust cases that the US antitrust watchdog, the US Federal Trade Commission, resolved were through negotiated settlements, referred to as "commitments", especially in cartel cases. Some pre-requisites for acceptance of a proposed settlement are, (a) existence of a cartel; (b) admission of guilt of contravention or alleged contravention; (c) cooperation of cartel’s participants; and (d) assurance by government not to levy further charges.
The Way Forward
This novel development is anticipated to be the impetus for the the much-needed boost for India’s competition ecosystem. The inclusion of these measures under the amended law is a very positive development that shows how India's antitrust laws are becoming more advanced. The new provisions would make the entire legislation more wholesome and holistic in approach, as the earlier framework provided for leniency provision which provided for lesser penalty in case a member of cartel would come out in public to the regulator to report some anti-competitive practices, but was limited to only cartels. While these provisions will have a broader application on abuse of dominance and vertical agreements. Also, this mechanism is expected to allow the regulator to use its limited resources judiciously and settle antitrust complaints more quickly. After the framework has been put in place, the concerned parties will have the choice to address the alleged contraventions more quickly without going through drawn-out investigations and inquiries. Ultimately, these tools will provide a push towards India new economic motto “ease of doing business”.
The new approach has elicited conflicting reactions from the legal field; some welcomed it as a much need move to cater lacunas of existing statue which will allow for easing the work of the regulator vis-à-vis facilitating out-of-court settlement without necessitating protracted legal proceeding, while others point out that it is a half- hearted move by quoting certain shortcomings, such as (a) limited application of the regime to only vertical agreements and abuse of dominance, while leaving horizontal agreements and cartels outside its realm, (b) no provision of lesser penalty for the entities concerned as is the case in other jurisdictions, and (c) no provision of appeal against the orders of the regulator in these cases. Only time will reveal what the future holds for the new framework - either it turns out to be a promising provision or ends up being a misstep.