- Sushant Kumar, Vanshaj Dhiman
Turf Battle for Jurisdiction: Feasibility of the Exclusive Domain Model for Market Regulators
[Sushant and Vanshaj are students at Dr Ram Manohar Lohiya National Law University, Lucknow.]
With the Monsanto Holdings judgement, the Delhi High Court has given impetus to the debate of India opting for a well-defined legislative framework capable of ending the tussle between the Competition Commission of India (CCI) and sectoral regulators. The economic liberalisation in 1991 and the Harshad Mehta scam in 1992 triggered an overhaul of the finance sector, resulting in specialised sectoral regulators propping up. Consequently, this has resulted in a tussle between the CCI, a general watchdog of the market, and sector-specific regulators.
This tussle occurs primarily due to two reasons: the first being differing mandates and the second being the stage of interference by the relevant authority. Sectoral regulators were instituted with a mandate to prevent anticipated market failures, promote competition and consumer interest and to set standards/benchmarks in their respective sectors. On the other hand, the CCI acts as an economy-wide regulator with the objective of preventing abuse of market power. Additionally, the sectoral regulators act ex-ante while the CCI primarily acts ex-post.
The Mandate of CCI and Sectoral Regulators
Matters of competition law should be dealt with by an authority having practical expertise, training and resources in the subject area. In this regard, the wide mandate of the CCI is reflected in Section 18 and the preamble to the Competition Act 2002 (the Act). The CCI is empowered to eliminate anti-competitive practices having an appreciable adverse effect on competition, to promote and sustain competition and to prevent the abuse of one's dominant position in the market. Similar mandate manifests in the preamble of the Telecom Regulatory Authority of India (TRAI), the Petroleum and Natural Gas Regulatory Board (PNGRB) and the Central Electricity Regulatory Commission (CERC). They have been authorised to protect the interests of consumers, to facilitate competition and to prevent abuse of dominant position in their respective industries.
A conflict in the mandate is evident from the jurisdictional tussle between the TRAI and CCI reaching the Supreme Court. The judgement in Bharti Airtel came as a blow to the CCI when the Supreme Court held that TRAI had predominant authority in the telecom sector. However, the court tried to walk a tightrope by observing that the CCI could ‘follow on’ once TRAI had decided upon jurisdictional issues based on the facts.
Similarly, the Hon’ble Delhi High Court, in a writ petition filed by the Indian Oil Corporation Limited (IOCL), stayed the CCI investigation initiated on the information filed by Reliance Industries Limited. Even though the allegation was that IOCL, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited were engaged in a cartel in the supply of aviation fuel to Air India, a matter typically dealt by the CCI, the High Court was inclined to favour the jurisdiction of PNGRB. As a matter of fact, the PNGRB Act states that one of the board’s function is: 'to protect the interest of the consumers by fostering fair trade and competition amongst the entities'. The said petition is still pending.
In the electricity sector as well, the tussle between Electricity Regulatory Commissions and CCI is evident. Section 60 of the Electricity Act 2003 (Electricity Act) may be regarded as the cause of the problem. It confers powers in matters relating to market dominance on the sector regulator, which prima facie appears to conflict with the general mandate of the CCI. Non-obstante clauses in the Electricity Act (Section 174) and the Act (Section 60) further exacerbate this problem. Therefore, neither a proceeding before the CCI bars an applicant from availing other remedies nor a competition proceeding can be stopped on the grounds of any other proceedings pending before any other forum. Consequently, this places the Electricity Commissions in conflict with the CCI. However, the Delhi Electricity Regulatory Commission in Neeraj Malhotra v. NDPL held that allegations of anti-competitive behaviour, including abuse of dominant position by the DISCOMS, fell within the jurisdiction of the CCI. Nonetheless, this cooperation cannot be taken as granted.
Available Solutions with Reference to International Practices
Predominantly, there are three models – exclusivity model, concurrency model and consultative model - addressing the overlapping jurisdiction of competition and sector regulators across the globe.
The unacceptability of the concurrent model in the Indian milieu
In the concurrent model, both CCI and sector regulators would be bestowed with the powers to enforce competition law principles in a specific sector by adopting different instruments such as memoranda of understanding, joint sittings, joint reports, exchanging staff members, creating a competition network/joint working group etc.
The concurrent jurisdiction model, with varying degrees of cooperation, has been followed by countries like the United Kingdom, Ireland and Netherlands, to enforce competition law in different sectors. In Mauritius, South Africa and Namibia, the Competition Commissions and different sector-specific regulators are responsible for entering into agreements or MoUs with each other to coordinate and harmonise the jurisdictional powers among themselves.
It may not be desirable to adopt this model in the Indian milieu owing to the existence of already deeply rooted hierarchical structures and institutional culture. The bureaucratic nature of the sectors may ignite a turf battle among the regulators and government departments inter se when cross-sectoral issues arise. This would, in turn, make the whole process redundant. Furthermore, unlike the UK’s common appellate body for competition as well as sector-specific matters, each sector in India has different appellate tribunals that may obstruct efficiency and consistency across sectors.
Feasibility of the exclusive domain model
In this model, either the competition authority or the sector regulators are entrusted with the exclusive allocation of competitive matters regarding technical, economic and access regulations.
Indubitably, sector regulators have specialised sector-specific knowledge, but they do not have the resources and antitrust tools to deal with anti-competitive actions in the market. Therefore, sector regulators cannot and should not be allowed to enforce competition rules because they will most likely assess each contravention with a rule-based approach, whereas the anti-trust authority may look beyond and apply a risk-based approach or assess the anti-competitive practice based on the ‘rule of reason’.
Thus, sector regulators are better suited to deal with ex-ante structural issues and technical regulations (safety standards, tariffs, non-discriminatory third-party access, and entry-exit conditions) while ex-post behavioural issues and economic regulation (collusion, predatory pricing, market power, relevant market) ought to be left in the hands of the CCI. This will reduce the duplicity of competition enforcement, forum shopping, transaction costs and will promote the independence of competition authority and legal certainty.
Further, ex-ante rules will deter the ‘gatekeepers’, who may circumvent the definition of dominance, from controlling the access points and distorting the downstream markets.
The desirability of the mandatory consultation model
This model enables conflict resolution between CCI and the concerned sectoral regulator by the process of mandatory consultation. Though Sections 21 and 21A of the Act are not mandatory, they postulate the legislature’s intent of having a reference mechanism between the CCI and sector regulators. It would be naive to leave the potential jurisdictional conflict and gridlock to the institutional wisdom of the CCI or sector regulators. Scholarly works suggest that coordination between the CCI and sector regulators should be made mandatory by substituting the word ‘shall’ in place of ‘may’ in Sections 21 and 21A of the Act. A forum for regular exchange of ideas between the CCI and sector regulators needs to be established for the effective exercise of their respective responsibilities. This is because various studies suggest that a close relationship between the competition authority and sector-specific regulators would result in more competitive markets.
Instituting an exclusive domain model with mandatory reference for exchange of opinions is likely to yield better results for the Indian conditions in the foreseeable future. The adjudicating authority, after receiving the opinion of the relevant market regulator under the ‘mandatory reference’ route, must provide reasons for their agreement or disagreement. This would place the Appellate Authority in a better position when deciding an appeal against the order/judgement of the adjudicating authority. Nonetheless, the Central Government must devise a long-term plan to develop infrastructure and appropriate training for judicial officers of the tribunals for a smooth transition to the concurrent model.