Avirup Bose & Pratik Datta: Debacle over natural justice

In a liberal market economy, economic laws should facilitate smoother transactions without having to always resort to courts, judges

Of late, there has been some visible discord between the Competition Commission of India (CCI) and the Competition Appellate Tribunal (Compat). CCI had imposed an aggregate penalty of around Rs 6,300 crore on 11 cement companies for cartelisation. The cement companies challenged this decision before Compat. They argued that the then CCI chairperson could not have signed the penalty order without hearing their oral arguments. Compat, after almost three years of arguments, upheld the challenge on the ground of breach of "natural justice" and remanded the matter back to CCI. CCI will now have to re-hear the cartelisation complaint, which was originally filed before the CCI in 2011.

The outgoing chairperson publicly expressed reservations about Compat's wide interpretation of "natural justice", saying that "all rules of judicial system are not applicable to the regulator". The ex-chairperson's view seems to be that strict application of judicial rules to a regulatory setting may not always be suitable. There is some merit in his argument.

The Competition Act, 2002, devises a scheme where the decision-makers of CCI, its "members" meet in "meetings" rather than in "benches" while exercising their quasi-judicial function of enforcing the Act. Section 22 of the Act specifically provides that the business of CCI shall be conducted at "meetings", with a quorum of three members, where a decision shall be taken by a majority vote of the members present and voting. The Act further provides that when the chairperson is unable to attend such a meeting, the senior-most "member" shall preside over it. Therefore, the Act specifically contemplates a "consensus model" of decision-making for CCI, almost akin to those taken by a board of directors. Given that this statutory arrangement has been "technically" blessed by the Supreme Court of India when it declined a constitutional challenge to the Act in Brahm Dutt vs Union of India (2005), Compat's ruling has possibly rekindled the debate.

This is not to say that procedural propriety is unnecessary in a regulatory context. But it is certainly absurd to presume that common law concepts like "natural justice" will be self-explanatory to bureaucratic enforcement agencies and regulators. Here, India's routinely ill-drafted regulatory statutes (under which the economic regulators function) are to blame. The concerns raised by the ex-chairman call for a larger review of the Competition Act from a regulatory governance perspective.

To understand the need for better legislative drafting, an example from the Competition Act will be useful. Section 36(1) of the Act merely states that in the discharge of its functions, CCI shall be guided by the "principles of natural justice". The term "natural justice" is not defined or explained but left for the CCI to interpret. Section 36(2) gives CCI powers of a civil court while trying a suit in matters like summoning and enforcing attendance of any person, requiring discovery and production of documents, receiving evidence on affidavit etc. However, no clear detailed procedure for imposition of penalty by CCI has been laid down in the Act or in its schedules.

Contrast this with similar UK laws. Section 112 of the UK Enterprise Act, 2002, deals with the procedure to be followed by the UK's Competition and Market Authority (CMA) while imposing penalties. Instead of using vague phrases like "natural justice", it lays down the exact procedure of imposing penalties in plain English. For example, CMA has to give notice as soon as possible; the contents of the notice are clearly laid down in the legislation itself; the procedure of serving the notice is also stated. Section 90 and Schedule 10 of the Enterprise Act provides the procedure for passing certain enforcement orders. Paragraph 2 of Schedule 10 requires CMA to give notice to a person and hear his representations before a ruling is made. It also lays down what such notice should contain and the process for serving such notice.

The UK legislative drafting style is primarily principles-based drafting. Yet their statutes often require enforcement agencies to comply with detailed procedures rather than vague common law notions like "natural justice". These detailed procedures are usually mentioned in schedules to the statute. The very concept of "natural justice" is hardwired into the procedures in the schedules with great clarity and simplicity. Bureaucratic agencies can then merely follow the procedures and automatically adhere to the principles of natural justice, without having to know or interpret what "natural justice" may mean.

India needs to adopt plain English drafting style for laws and regulations. Current Indian laws are drafted with the courts and judges as primary users. But in a liberal market economy, economic laws should facilitate smoother transactions without having to always resort to courts and judges. Laws should be drafted with non-lawyers (bureaucrats, regulators and entrepreneurs) as the primary audience. Jargon, Latin maxims and legal phrases should be avoided. Two good examples of this development are the Indian Financial Code, 2015, drafted by the Financial Sector Legislative Reforms Commission and the Insolvency and Bankruptcy Bill, 2015, drafted by the Bankruptcy Law Reforms Committee. Hopefully, the government will take cues to incorporate these best practices in statutory drafting for all future laws as well as review the existing laws to improve clarity to avoid unnecessary problems as the CCI-Compat discord has revealed.

Avirup Bose is an assistant professor of competition law at the Jindal Global Law School. Pratik Datta is a consultant with the National Institute of Public Finance and Policy