In Focus - Draft Settlement & Commitment Regulations
CCI released draft Regulations in August for public comments to operationalise Settlement & Commitment framework proposed under the Competition (Amendment) Act, 2023.
Introduction
Traditionally, antitrust proceedings can terminate either with the Competition Agencies finding sufficient evidence of an infringement of the competition law followed by appropriate remedies that may include a cease & desist order, monetary penalties, modifications, divestitures etc.; or they could close the case with a non-infringement decision.
However, increasingly, Competition Agencies also have a third option i.e. they can accept remedies (commitments or settlements) proposed by the parties to address the identified competition concerns. If accepted, the commitments/ settlements are binding on the party and the proceedings are closed forthwith.
Such consensual dispensation for early termination procedures in competition regimes is described variously in different jurisdictions such as “commitment decisions”, “settlement”, “consent decrees”, “consent orders”, “undertakings” or “written undertakings” etc.
Such resolution framework provides myriad benefits. It facilitates quicker resolutions as compared to full-fledged antitrust investigations. This not only saves time but also the substantial resources involved in the inquiry process and subsequent follow up litigation. They also allow for the crafting of remedies tailored to the specifics of the market and the behaviour under scrutiny, which might not be possible in infringement decisions imposed after a full investigation. By swiftly addressing antitrust concerns, commitment/ settlement mechanisms can help maintain a level playing field and foster healthy competition, ensuring stability in market dynamics. When firms can swiftly rectify antitrust concerns, they can redirect their focus towards innovation and improvement rather than getting embroiled in lengthy regulatory and legal battles. By opting for commitment decisions, companies can avoid the risk and uncertainty associated with legal battles, where the outcomes might be unfavourable and entail hefty fines.
These mechanisms encourage a cooperative approach between regulators and firms, which can potentially foster better compliance cultures within industries, as firms work together with regulators to find solutions to competition concerns.
Competition Law Review Committee Recommendations
Recognising the benefits of negotiated outcomes, the Competition Law Review Committee in its report submitted to the Government of India in 2019 opined that under the then existing framework, while CCI has been empowered to grant leniency in cartel cases, subject to satisfaction of certain conditions, the Competition Act did not expressly recognise settlements or commitments.
Against this background, the Committee deliberated if there is a need to amend the Competition Act to empower CCI to pass settlement or commitment decisions or both. The Committee agreed that procedural economy and efficiency of enforcement actions are driving factors for recognising settlements and commitments in the Competition Act. Such mechanisms are likely to enable the CCI to resolve antitrust cases faster and consequently, also free up its scarce resources. Further, businesses can avoid long investigations and uncertainty. Such negotiated remedies also enable authorities to impose innovative deterrents upon respondents while achieving equitable remedies for victims. Therefore, the Committee recommended that such a mechanism should be introduced in India.
The Committee further discussed the settlement mechanism as envisaged under the SEBI Act, 1992 and regulations issued thereunder.
Under the SEBI framework, the settlement terms may include a settlement amount and/or nonmonetary terms. The non-monetary terms may include suspension of business activities, exit from management, disgorgement on account of action or inaction of the applicant, lock-in of securities, etc.
Other than SEBI, the Income Tax Act, 1961 also sets out a settlement framework. The Committee also took note of the position in other jurisdictions and noted that EU, UK and Singapore also provide for a settlement mechanism for antitrust cases.
The Committee also recommended that settlement framework should be applicable for alleged contraventions of agreements under Section 3(4) and the abuse of dominance under Section 4 of the Competition Act. The Competition Act should empower CCI to pass settlement orders subject to certain conditions which may include settlement amount and for non-monetary terms.
With regard to timelines for submission of an application for settlement, it was agreed that the application may be filed only after receipt of the DG Report and within such time before the passing of a final order by the CCI, as may be specified by subordinate legislation.
The Committee also agreed that an order granting or rejecting a settlement application should not be made appealable.
It was brought to the attention of the Committee that certain jurisdictions like the EU, the UK and Singapore also provide for commitment decisions. Typically, commitments may be structural or behavioural in nature, or a combination of both.
Against this background, the Committee “deliberated if an enabling provision empowering the CCI to accept commitments may be introduced in the Competition Act. The Committee noted that commitments may enable the CCI to save its resources and may also lead to a swifter resolution of cases”.
Accordingly, the Committee “recommended that the Competition Act should be amended to empower the CCI to accept commitments from parties alleged to have contravened the provisions of Section 3(4) and Section 4 of the Competition Act. The Committee also recommended that the CCI should have the discretion to accept or reject the application for commitments. Further, it was agreed that the law should enable the CCI to review its decision to accept commitments in certain circumstances, including where the concerned party has acted contrary to the terms of commitment, when there is a material change in facts on the basis of which the commitment decision was passed or where the commitment decision was based on false, misleading or incomplete information provided by the concerned party”.
Introduction of Settlement & Commitment Framework under the Competition (Amendment) Act 2023
The Competition Act, 2002 (Act) aims to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India.
The Competition (Amendment) Bill, 2022, inter alia, provided for introduction of Settlement and Commitment framework to reduce litigations.
The Competition (Amendment) Bill, 2022 was introduced in the Parliament and was referred to the Parliamentary Standing Committee on Finance. The Committee submitted its report with its recommendations in December 2022. The Bill was passed by the Lok Sabha on 29 March 2023 and by the Rajya Sabha on 03 April 2023. The Bill received the Presidential assent on 11 April 2023.
Accordingly, CCI released drafts of Settlement & Commitment Regulations for public consultations on 23 August 2023 and the stakeholders were invited to submit their written comments within 21 (twenty-one) days from August 24, 2023 to September 13, 2023.
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Draft Settlement & Commitment Regulations
Settlement Framework
The Competition (Amendment) Act, 2023 introduced Section 48A of the Act to create a settlement mechanism. Section 48A of the Act enables an enterprise against whom an inquiry under Section 26(1) of the Act is initiated for an alleged contravention of Section3(4) or 4 of the Act, as the case may be, to apply for settlement before the CCI. It provides that a settlement application may be submitted at any time after the receipt of the report of the Director General but prior to such time before the passing of final order as may be specified by regulations. The intent of creating a procedure for settlement is driven by the need to reduce litigation and to ensure quicker market correction.
Accordingly, the CCI proposed the Competition Commission of India (Settlement) Regulations, 2023 (Settlement Regulations) and the same were released for public consultations on 23 August 2023.
?The Settlement Regulations provide the procedure to be followed during settlement proceedings including the following:
a) Form and contents of the application for settlement along with fee payable;
b) Procedure of settlement proceedings;
c) Period during which settlements may be proposed;
d) Manner in which the CCI will invite objections and suggestions to the settlement terms;
e) Factors to be considered by the CCI in assessing the settlement terms;
f) Manner of determining the settlement amount;
g) Nature and effect of the settlement order;
h) Implementation and monitoring of the terms of the settlement order; and
i) Revocation of the settlement order.
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Analogously, the Competition (Amendment) Act, 2023 introduced Section 48B of the Act to create a commitment mechanism. Section 48B of the Act enables an enterprise against whom an inquiry under Section 26(1) of the Act is initiated for an alleged contravention of Section 3(4) or 4 of the Act, as the case may be, to offer commitments before the CCI. It provides that an offer for commitments may be submitted at any time after an order directing investigation has been passed by the Commission but within such time prior to the receipt by the party of the report of the Director General, as may be specified by regulations. The intent of creating a procedure for commitment is also driven by the need to ensure quicker market correction.
Accordingly, the CCI proposed the Competition Commission of India (Commitment) Regulations, 2023 (Commitment Regulations) and the same were also released for public consultations on 23 August 2023.
The Commitment Regulations provide the procedure to be followed during commitment proceedings including the following:
a) Form and contents of the application for commitment along with fee payable;
b) Procedure of commitment proceedings;
c) Period during which commitments may be offered;
d) Manner in which the CCI will invite objections and suggestions to the commitment terms;
e) Nature and effect of the commitment order;
f) Factors to be considered by the CCI in assessing the commitment terms;
g) Implementation and monitoring of the terms of the commitment order;
h) Revocation of the commitment order.
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Conclusion
The Settlement & Commitment framework proposed by the CCI stands as a potentially transformative blueprint for ushering a new era of regulatory diligence in India. The ensuing public consultation period offers an opportunity where stakeholders including domain experts and the public at large can provide their valuable feedback which will go a long way in fine-tuning the framework, nurturing a regulatory environment which is conducive to economic growth and prevents anti-competitive practices.
As the CCI assimilates the rich tapestry of feedback garnered during this exercise, the blueprint may undergo refinements that align with the statutory framework. CCI has ensured that regulation making process remains both transparent and inclusive.