In cases ranging from CCI v. Delhi Electricity Regulatory Authority and and Neeraj Malhotra v. North Delhi Power ltd. to the more prominent ones like those concerning Tata Sky Ltd. and DLF Ltd., the issue of overlapping and often conflicting jurisdiction of CCI and other Sectoral regulators has cropped up. Having discussed the issue of conflict between TRAI and CCI (available here), here is the first part of discussing the broader issue of Sectoral regulation within in Competition law in India.*
The command and control mode of governance in India which relied on state ownership gradually has gradually moved towards a regulatory governance framework where public-private partnerships and private sector participants have assumed the role of major-players. In aftermath of a securities scam in 1992 has seen several sector specific regulators emerging on the Indian regulatory horizon. As a result multitude of regulators, many a time, may regulate similar aspects of a corporate behaviour.
The Preamble of the Competition Act, 2002, mandates in light of the economic development of the country, for the establishment of a commission 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. Specific provisions contained within the legislation further exemplify the possible tension. The nub of the interface between competition authority and sector specific regulators in India lies on the four limbs of Sections 18, 21, 60 and 62 of the Competition Act, 2002. Section 18 of the Competition Act, 2002 entrusts the competition authority with an overarching duty of sustaining competition in the market. The amplitude of the duty suggests that the competition authority is vested with a comprehensive, overall vantage point on the economy, an advantage unavailable to any other sector-specific regulator.
Section 60 of the Competition Act, 2002 is the usual non obstante provision asserting the supremacy of competition legislation within the domain of competition enforcement, although Section 62 of the Act declares that competition legislation ought to operate in tandem with other enactments. Both sections are mandatory in nature. Further Section 21 of the Act, suggests that in any proceedings before a statutory authority, if such a need arises, the statutory authority may make a reference to competition authority In spite of an authoritative declaration of legislative intent in the Act, in practice, the electricity sector regulator, Central Electricity Regulatory Commission, for instance, has been empowered by statute to deal with competition issues in the power sector. Therefore, while the statutory framework provided for in the Competition Act, 2002 provides for a mechanism of reference between competition Commission and sectoral regulators, the same in this case is optional in nature and the regulator may choose not to do so. Many such similar nebulous competion-sectoral regulator interface arrangements give rise to an imperative need to reconcile the role of the regulator and the competition commission.
Operational framework of the competion-sectoral regulator interface in India
Para. 6.2 of the Revised Draft National Competition Policy aims to ensure competition in regulated sectors, and to create an institutional mechanism for synergized relationship between and among the sectoral regulators and/or the CCI and prevent jurisdictional grid locks. It further provides under Para. 7.1, that where a separate regulatory arrangement is set up in different sectors, the functioning of the concerned sectoral regulator should be consistent with the principles of competition as far as possible. Also there should be an appropriate coordination mechanism between CCI and sectoral regulators to avoid overlap in interpretation of competition related concerns.
The Policy recognises in Para. 10.2.2 that the objective of a sectoral regulator is to provide good quality service at affordable rates, but the promotion of competition and prevention of anticompetitive behaviour may not be high on its agenda or the laws governing the regulator may be silent on this aspect. The conflicts between CCI and the sectoral regulators could be caused by legislative ambiguity or jurisdictional overlap or legislative omission. Interpretational bias of the bureaucracy involved could further aggravate the conflicts. Such conflicts are bound to hurt consumers and the uncertainties that go with them can increase investment risks, and their resolution by a court of law may perhaps be time consuming, and therefore, be only the last alternative. A sectoral regulator may not have an overall view of the economy as a whole and may tend to apply yardsticks which are different from the ones used by the other sectoral regulators. As a result this may lead to a lack of consistency across sectors as regards competition issues. The CCI, which is expected to have developed the core competence, expertise and capacity in competition related issues, will be able to apply uniform competition principles across all sectors of economy. Also penalising violations of Competition Act is the exclusive area of the CCI.
Sector specific regulation presents distinct challenges in competition law and policy. While the role of a competition authority and sector specific regulator can be complimentary, the interface between the two may also manifest into a source of tension. Sectoral regulation typically, focuses only on the main aspects of business conduct such as access or final pricing, providing the ex-ante framework that regulated firms need to follow. Evidence of the complementary role of anti-trust and regulation can be traced in recently liberalised sectors, where regulation tries to ensure that the growth of competition is not impeded by incumbents holding a significant market power. While sectoral regulations are specific, competition law is generic, but both are intended to be complementary. However, the intended complementarity between sectoral regulation and competition law may suffer on account of legislative ambiguity.
Regardless of sharing a common goal, sectoral regulators and competition authorities generally have significantly different legislative mandates. Sector regulators typically have extensive, contemporary knowledge of the technical aspects of the products and services that are regulated. Enforcement by sectoral regulators may be better suited when fast, definitive resolutions are needed; when ex post enforcement creates excessive uncertainty; scientific and technical expertise is required to assess merits of arguments; the standards of proof required for competition law cases would not be sufficient for achieving the socially desired regulatory outcomes; structurally similar situations are repeated and consistent basic rules are desired. On the other hand, competition authorities can provide valuable input for those tasks for which they are not primary enforcers, as the skills necessary for delineating relevant markets, assessing likelihood of harm to competition, assessing entry conditions and assessing significant market power are particularly well-suited to their expertise. Therefore, enforcement by competition authorities may be better suited when: defining markets for regulatory purposes is necessary; ex ante regulatory enforcement risks distorting market outcomes; stifling new products and more generally creating costly errors; markets will not require ongoing oversight; and products of interest are subject to strategic manipulation that cannot be foreseen through regulation.
When establishing or re-evaluating such a complex regulatory framework, it is crucial that the decision on the division of labour between regulators and competition authorities be based on efficiency considerations. Such an optimal, sui generis model must be rooted within the context of the socio-economic exigencies prevailing in India. The Revised Draft Policy in Para.10.2.5, enumerated the benefits which such a framework for an interface between a competition regulator and a sectoral regulator should deliver: appropriately identify issues of concern; ensure appropriate channelisation of various concerns to the appropriate forum and obtaining corrective action at the earliest; establish a framework that avoids duplication of effort; conserve the Commission’s resources and limit its ambit only to matters of competition; and promote capacity building and developing expertise both at the level of the competition regulator and the sectoral regulator.
This post has been authored by Madhulika Kanaujia & Parth Gokhale, ex-students, B.A./B.Sc. LL.B., WBNUJS and has been mentored by Mr. Shouvik Kumar Guha.
*This post was previously published on November 23, 2011 on the earlier SITC blog
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