Insights on Competition-related Compliance

Ashok Chawla shares his views on business and competition in recent years and the role that CCI plays.

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Regulator Speak:

The major penalties are close to Rs 9000 cr but the actual amount that has come in is much less because cases are subject to re-appeal and the final decision still lies pending. - Ashok Chawla, Chairman, CCI

It has been three years since you joined CCI. How is life as a regulator?

It is a new architecture, a new regulator. As the economy moves more and more towards the market you need somebody to oversee and regulate. We get a cross section of cases and have good professionals to handle it. The advantage is that as in any new institution you have opportunity to mould it in a certain manner and give it the initial momentum. And this is also a challenge.

What have been the most difficult cases that you have handled here?

Well, the most-difficult cases will be the cases that relate to cartels. In cartels what is necessary is that investigator should be able to get evidence and that is not always easy. Because when there are people colluding with each other and corporates are joining hands they are careful not to leave any trace of having colluded. We faced challenges in the cartel case of cement companies in imposing penalties as there was a fair amount of evidence against them. One such case involved 17 big car manufacturers. The complaint was that they do not allow their spare parts to be widely available.  This brought in issues of restrictive policy and intellectual property.

We heard that matter, and when we were close to a decision two of the car manufacturers approached one of the high courts of our country which restrained our hands. It is been over a year and we still haven’t been able to pass the final order. (Subsequent to this interview, the CCI has imposed a fine of Rs 2545 crore on 14 car manufacturers).

How much more powerful and effective is the CCI as compared to its predecessor- the MRTPC?

They are two different kind of bodies. Earlier, the larger corporates would get approval to expand and if they violated those norms, the MRTPC would look into the matter and make suggestions. However, but there was no power to impose penalties because everything was controlled. That body also looked at fair trade practices, but it had no teeth as it belonged to the pre-1991 economic dispensation.

The CCI on the other hand does not seek to control the growth of corporates in businesses. It provides consolidations in M&A deals if it is above the threshold. The act empowers us to impose hefty penalties. That is a major instrument in ensuring compliance. 

Do you think CCI has enough teeth? Do corporates take the CCI seriously?

Well, the Competition Commission Act where it stands is completely robust. So it gives us adequate power.

I think to start with lots of corporate were perhaps not aware that things are changing and there is a new law that they have to comply with it. We have been there for five years so I think that now there is a fair amount of appreciation and understanding of what this whole regime is. Effective and full compliance, I don’t think, is something that can be taken for granted.

Now the attempt is to see that the companies will see the cost and benefits as well–cost of getting detected and benefits of doing the business the right way.

With every passing six months there is greater awareness on the part of companies to ensure compliance or at least not to default on sharing information and whatever else is asked by the commission and its officers.

Serious penalties have been imposed by the CCI in the recent past. Has India Inc starting taking such issues seriously?

In all cases of penalties, the companies appeal to the appellate tribunal. The major penalties are close to Rs 9,000 crore but the actual amount that has come in is much less because these decisions are all subject to appeal and the final decision still lies pending. The case law is being built with these first few cases. And in the next few years there will be more clarity on the economic jurisprudence.

Your reaction to what RBI Governor Raguram Rajan said about the role of regulators in the context of the Financial Services Legislative Reforms Commission. He said too many checks and balances on regulators could completely vitiate the flexibility afforded by rewriting laws.

In the RBI architecture there is an element of executive discretion. If you subject that to a very straight jacketed framework which is what the proposal of the legislative reform commission, then the efficacy of the regulator is curtailed. That is in case of RBI, but it is not so with other economic regulators. The (operating) Act very clearly defines the contours within which they operate. They are a disciplinary body which is entitled to impose penalties. Then the architecture provides for one appeal—to a judicial tribunal and a final test with Supreme Court.

There is this philosophy of regulation that you take away power from the state and do not give it to the judiciary which is saddled with all kind of matters. You give it to expert bodies or quasi-judicial bodies, but their decision cannot be final.  There must be some higher forum where natural justice is maintained and the matters can be re-agitated. In this arrangement matters do not get settled fast.

Any message that you would like to share with the CFO community?

CFOs have a crucial role to play in terms of ensuring that the top management focusses on competition compliance in letter and spirit.  Penalties are just an instrument of deterrence for people to change their behaviour.

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