THE JURISDICTIONAL CONFLICT- THE SEBI V. CCI

[Ritu Raj is a first year student at National Law University and Judicial Academy, Assam]


In recent years, the Competition Commission of India has thoroughly adjudicated on the extent of its jurisdiction on matters relating to Section 3 (Anti-competitive agreements) and Section 4 (Abuse of dominant position) of the Competition Act, 2002 ('the Act'). Due to the expansion of the Indian market, the legislature perceived the slant and sought to shield consumers from stonewalling through monopolistic methods of the companies. It sought to shield small businesses from a forcible takeover by a large corporation and prevent the formation of monopolies in the marketing sector.


The Competition Commission of India ('CCI') regulates all markets to detect any anti-competitive behaviour by individuals or businesses that significantly adversely impact competition. This regulation suggests that the CCI's authority extends to markets controlled by separate laws and supervised by specialist "sectoral regulators," resulting in an apparent jurisdictional dispute. Here[RM1] in the case of In Re: Brickwork Ratings India Pvt. Ltd. and CRISIL Ltd. and Others [Case No. 47 of 2019], where the CCI was once again confronted with the jurisdiction issue with the securities regulator, the Securities and Exchange Board of India ('SEBI').


FACTS OF THE CASE


The National Highway Authority of India ('NHAI') encouraged tenders to rate its bond issuances, and CRISIL Ltd., India Ratings and Research Pvt. Ltd., CARE Ratings Ltd., and ICRA Ltd. ('Opposite Parties') sent price quotes. The Informant lodged a lawsuit with the commission, charging that the competing parties had cartelized and cited identical/similar prices, in breach of Section 3 of the Competition Act, 2002.


The CCI notified the relevant sectoral regulator i.e. the SEBI (Credit Rating Agencies) Regulations, 1999 ('CRA Regulations') which regulates the credit rating agencies in India, of the complaint and welcomed its comments. SEBI claimed in its response that the complaint levied in the information against the Opposite Parties triggered the CRA Regulations. SEBI advised the commission not to consider the application because it is the responsibility of the regulatory authority to investigate such complaints and take effective action. However, it is because SEBI did not take any action on the complaint, that the CCI continued to hear the case on the merits.


ANALYSIS


SEBI being the administrative body for CRA, there remains a conflict of authority between the CCI and SEBI. This apparent conflict between the CCI and a sectoral controller like SEBI should be accommodated considering the distinct position that both bodies play in competition and securities law respectively.


The significant [RM2] jurisdictional conflict including the CCI and the Patent Controller was observed in the case of Telefonaktiebolaget LM Ericsson v. CCI, wherein the Delhi High Court expanded on the CCI's power. The Court construed sections 60 and 62 of the Act harmoniously and held that the role of the CCI is to encourage market competition, reduce entrance barriers, and ensure equitable and fair access for all to trade in the market. The case included the understanding and application of Section 3(5) of the Act, which allowed the IPR holders to 'sensibly' leverage their intellectual creation while not impeding the market competition.


The Supreme Court formulated an extraordinary two-step test to determine the issue of jurisdictional conflict in the case of Competition Commission of India v. Bharti Airtel. The case involved the telecom regulator TRAI hearing Reliance Jio's grievance about an alleged anti-competitive deal between Bharti Airtel, Idea, and Vodafone. The Supreme Court ruled that if there is a controversy of such authority, the sectoral regulator would be the first to adjudicate the disagreement by virtue of having more experience, practical resources, and reasonable solutions if any. However, the Court stressed that this would not preclude CCI from investigating the matter.


The Court explained the ambit of remedies available in both the acts and observed that despite the disputed activity being anti-competitive and causing appreciable damage to competition, its powers are limited to steps that can be taken solely under the TRAI Act. It is the CCI that is the master body in inspecting the nuances of competition in businesses. The CCI offers further structural remedies that facilitate the entry of new entrants and, as a result, industry competition.[RM3] Consequently, in Bharti Airtel, the Supreme Court deferred the CCI's jurisdiction in the presence of a statutory sectoral regulator rather than entirely ruling it out.


Another significant decision on the jurisdiction of CCI came in Monsanto Holdings Pvt. Ltd. v. CCI, wherein the Delhi High Court dismissed Monsanto's argument that CCI does not have jurisdiction in the dispute. Monsanto had argued that the regulator of Patent is the competent body to determine the patentee's rights and responsibilities. However, the Court distinguished this decision from the Bharti Airtel case, holding that the two authorities, the Controller of Patents and TRAI, are separate expert bodies with differing degrees of jurisdiction, and therefore the cases are "materially different".


APPLICATION IN THE CURRENT CASE


The Credit Rating Agencies are required by the CRA Regulations, 1999, to "conduct their business with high standards of honesty, reputation, and justice, and to refrain from engaging in any unfair practices." The CRAs' primary function is to rate debtors and provide statistics on the creditworthiness of debt issuers depending on their willingness to repay their interest and loan balance on time. In general, the ratings assigned by CRAs reflect their opinion about the credit risk associated with repayment of the credit facility based on the CRAs' proprietary rating frameworks, which take into account different factors into consideration such as market risk, sector risk, financial dimensions, management capability, and such like.


The Informant [RM4] claimed that the tactic used by opposing parties amounts to collusive bidding and bid-rigging, which violates section 3 (3) of the Act and also violates section 4 of the Act by predatory pricing. To these claims, the dissenting sides and SEBI objected to CCI's authority to hear such an appeal. The CCI applied the two-step test of the Bharti Airtel decision and determined that, while the issue of CRAs is solely under the purview of SEBI, investigating an issue involving anti-competitive deals and bid-rigging falls under the purview of the CCI.


It likewise held that the sole existence of a sectoral controller should not preclude the Commission's authority. The CCI explained that since SEBI had not given any information regarding the matter or started any action against the information, it had continued with the merits of the case. After the inquiry, CCI stated that the rules of section 4 of the Act do not provide for the misuse of "collective dominance" by various individuals and that there was no evidence on record that reflected anti-competitive activities.


CONCLUSION


According to Section 62 of the Competition Act, the "provisions of this Act shall be in addition of, though not in derogation to, any such law." This decision extends this to the securities legislation regulating CRAs, stating that the mere existence of a regulatory entity or sectoral regulator (in this case, SEBI) may not oust the CCI's authority, but rather postpones it before the concerned regulator adjudicates the issue in cases involving anti-competitive agreements and misuse of a dominant role. This case further explains the ill-defined situations where the CCI's authority seems to interfere with the stock market regulator. The CCI has the authority to exert control over CRAs and any other stock market-related body based on their anti-competitive behaviour in the market. As a result, the CCI has attempted to avert any potential dispute with SEBI by allowing it to continue under the CRA Regulations when investigating the suspected anti-competitive behaviour of the CRAs. Because of the inquisitorial powers granted to the CCI by the Act, the CCI continues to play an essential role in maintaining safe practices across industries.

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