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SHOULD CARTELS BE CONSIDERED UNDER THE SCOPE OF SETTLEMENT?

[Khushboo Sharma is a third year law student and Kushagra Tolambia is a second year law student at Dr. Ram Manohar Lohiya National Law University, Lucknow]


Introduction


To assess whether the Competition Act of 2002 presently adheres to the ever evolving anti-trust regime in India, the Ministry of Corporate Affairs established the Competition Law Review Committee (CLRC) in 2018. The Committee delivered its report in 2019 and made numerous recommendations for amendment.


Based on the CLRC report, the Ministry of Finance introduced The Competition (Amendment) Bill, 2022 (Bill), in Parliament to amend the Competition Act, 2002 (Act). The Bill aims to expand the definition of anti-competitive agreements to include agreements other than horizontal or vertical agreements that are against market practices. It also seeks to shorten the time limit for combination and introduce a settlement and commitment framework to reduce pending litigation.


The original Act’s cope has been altered by this revision, which has caused opposition from many social groups. The Bill was referred to a Standing Committee on Finance (Standing Committee) chaired by Jayant Sinha and established by the Ministry of Corporate Affairs on August 17, 2022. The Standing Committee submitted its report on December 13, 2022. This article aims to discuss the changes proposed by the Standing Committee concerning the inclusion of cartels in the settlement process under the Bill.


Key Changes Proposed by the Standing Committee on the Settlement Process


Cartelization: According to the Standing Committee, settlements should cover cartelization as well. Due to their inherent anti-competitiveness, cartels were not recommended for inclusion in the settlement procedure by the CLRC report. The Standing Committee suggests that the same must be decided on a case-by-case basis and be left to the judge’s discretion. Therefore, as a practical approach to the entire process, the Committee advises the expansion of the scope of settlement process in cartels.


Admission of Guilt: The measure does not mention whether making a settlement application or making commitments calls for an admission of guilt. The Committee believes that it shouldn’t be required on the surface. This indicates the shift in the lawmaker’s attitude from the admission of guilt via filing of leniency application under Section 46 of the Act to an approach promoting India’s Ease of Doing Business initiative. Additionally, it provides that following the Competition Commission of India’s (CCI) final order, the applicant must be given one final chance to reconsider the settlement or commitment.


Ability to withdraw: The only way the parties can leave the settlements or commitments process in the middle is if the commission rejects their application because they did not cooperate with the process or were unable to reach a final settlement, according to the provisions of the Bill. However, only the Commission has the authority to take such action. Therefore, there will be instances where the parties are unable to come to an agreement, and the Commission does not instantly reject their application, and the entire procedure may take a long time to complete. The Committee suggests giving the parties a choice to leave the settlement/commitment process.


Inclusion of the third party: The other stakeholders believe that recent changes made under Section 48(B) (4) could result in unusual third-party meddling and jeopardize the process’s confidentiality. Therefore, the Committee advises against including third parties in the settlement process; if necessary, they should be optional rather than required.


How Inclusion of Settlements Will Change the Dynamics of Competition Law?


The Bill suggests allowing companies under investigation for anti-competitive vertical agreements under Section 3(4) of the Act or for abuse of dominant position under Section 4 of the Act to settle their cases or make commitments to the CCI in order to reduce litigation.

Section 48A of the Act is being suggested to be added in order to implement settlements. In contrast to the status regarding commitment applications, settlements may be made by businesses or individuals even after the Director General has given the report of the investigation but before the regulator has made a final determination about the investigation. The CCI may evaluate the ‘nature and degree’ of the contraventions under both settlements and commitments and accept or reject the proposals thereafter. The proposed measures also give the CCI authority to revoke any settlements or agreements already reached should it determine that the proposal was insufficient or that the parties could not agree on a solution. Most notably, as orders made under these sections are designed to be non-appealable, the provisions aim to bind the parties to the schemes for settlements and obligations.


In the Bill, the ministry suggests establishing a Settlement and Commitment Framework to reduce litigation and offer parties to an ongoing cartel investigation a lighter punishment in exchange for disclosing information about other cartels. As per the CCI's Annual Report for 2020-21, there has been a significant increase of 55.21% in the number of pending cases at NCLAT in 2021 from 2019. Moreover, since most of the orders of the Commission are under appeal, the CCI is unable to recover more than 97% of its imposed penalties. This plight may be improved through the inclusion of Settlements and Commitments under the Act. The European Commission observed that on average a classic settlement case takes around 2.5 - 3 years, compared to the 5 years of ordinary procedure.


Section 2 (c) of the Act defines cartels as an association of producers, sellers, distributors, traders, or service providers who, by agreements among themselves, limit, control, or attempt to control the production, distribution, sale of, or trade-in, goods or provision of services.


Presently, cartels may request a reduction in their penalty from the CCI by filing a leniency application. Section 46 of the Act and the CCI (Lesser Penalty) Regulations 2009 (Lesser Penalty Regulations) specify the procedure for the same. The CLRC study examined the procedure and recommended that the Act be amended to incorporate the procedure for Sections 3(4) and Section 4 of the Act since doing so would help expedite the antitrust proceedings in terms of both time and resources.


These changes are a welcome improvement that will ensure that anti-competitive behaviour and practises in the market are quickly corrected; spare willing and legally compliant companies from having to endure the rigours of a thorough CCI investigation; and reduce the strain on the CCI’s resources.


In Tamil Nadu Film Exhibitors Association v. CCI, the Madras High Court ruled that settlements and pledges are acceptable within the terms of the Act so long as they do not permit the continuation of anti-competitive behaviour, impede free trade, or jeopardize consumer interests. The presence of settlement and pledges are available under other Indian legislations as well.


Settlement may take place in accordance with the Security and Exchange Board of India Act of 1992 on either monetary or non-monetary grounds. The Income Tax Act of 1961 goes so far as to mandate that the Central Government establish a Settlement Commission to resolve tax disputes (Section 245B). It is important to highlight at this point that settlement is not a novel idea in Indian law. Antitrust laws can also be changed to include a system of agreements and promises in order to uphold this legacy.


Similar to the laws in the United Kingdom, Europe, and Singapore, the Bill aims to provide the CCI with the authority to use Settlement and Commitment methods to resolve specific issues, giving parties an alternative to bypass long-drawn investigations and processes. The parties and the CCI are likely to profit from this approach in terms of resource efficiency, and it will also make it easier for the CCI to handle its backlog of cases. Another advantage of allowing settlement in cartels and other investigations is the saving on investigative resources as the investigation gets terminated at an early stage itself.


In some jurisdictions, settlements also offer ‘finality’ as they provide certainty to the outcome of the investigation. The European Union uses a settlement mechanism to speed up the procedure for adopting a cartel decision when the parties admit to the European Commission’s objections. In return, such parties receive a 10% reduction in the fine. Since the ‘Settlement Notice’ was announced in June 2008 in the EU, several cartel cases have been settled till now.


Furthermore, certain jurisdictions allow settlements in every type of antitrust litigation. In its settlement note of December 23, 2013, the Federal Cartel Office (FCO) in Germany explicitly stated that settlements are possible in all antitrust cases. The US has a history of using the settlement procedure and uses this technique to settle a large percentage of its cartel issues.


Conclusion


In cartel investigations, reaching a settlement has more benefits than drawbacks. By establishing a settlement process, the competition authorities can save resources that would otherwise be needed for further investigations, prosecutions, and the litigation of cartel cases. Further, the most crucial advantage of the settlement process is that an organization can minimize the potential adverse effects of an investigation on its reputation by selecting a settlement/commitment process.

Although the Bill states that the Act regulations will set forth the specific procedures for conducting commitments or settlements, it does not provide clarity on matters like admitting liability in order to obtain a commitment or settlement, amongst other things. The proposed amendments regarding the defendant’s admission of guilt and the government’s promise not to file any further charges can prove to be advantageous to defendants and their counsels.

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