Untimely end of COMPAT

Regulatory reform should be more than mere inter se transfer of responsibilities

On May 26, the government of India initiated the process of implementing its budgetary announcement of merging eight autonomous regulatory tribunals under the pretext that it would reduce cost and improve the efficiency and working of such quasi-judicial agencies. One of the replaced tribunals was the Competition Appellate Tribunal (COMPAT) which has now been merged with the National Company Law Appellate Tribunal (NCLAT). There is nothing available in the public domain, which suggests a consultation with the stakeholders had taken place before reaching this decision. It is noteworthy, when the UK government proposed to replace their antitrust regulator, the Office of Fair Trade, and the intermediate appellate body, the Competition Commission, with the unified Competition and Markets Authority, the UK government’s department for business, innovation and skills published for consultation, the details of the government’s proposal to ensure that the new body maintains the same clarity of analysis, robustness of decision-making process and transparency and political independence as that of its predecessor.

 
A regulatory assessment to determine the feasibility of merging apparently non-congruous regulatory tribunals was essential in achieving the objective of improving the efficiency of India’s regulatory institutions and to ensure there was no detraction from the quality of the existing judicial decision-making functions of the replaced tribunals. This is particularly important since at present, all pending matters before COMPAT, which have been transferred to NCLAT will be heard afresh. Some of the transferred cases include cases pending before COMPAT since 2012 and those where the COMPAT was about to pronounce its final order.
 
The untimely end of COMPAT throws up several regulatory governance issues. Most sectoral regulators such as Telecom Regulatory Authority of India, Securities and Exchange Board of India, and Petroleum and Natural Gas Regulatory Board are responsible for ex-ante prescribing the terms of licensing or required disclosures for accessing the sectoral markets. Thus, the adjudication responsibilities of the respective appellate authorities are limited to ensure the market participants are not in breach of such ex-ante prescribed terms of licensing or disclosure requirements. This is not true for the enforcement mandate of the Competition Commission of India (CCI) and COMPAT.

 

This means that the CCI acts more like a judicial body. CCI prescribes the rules of appropriate market behaviour by deciding cases of alleged violation of the provisions of the Competition Act, 2003 (Act). For example, unlike the telecom regulator, CCI will not ex-ante prescribe the appropriate tariff amounts for telecom services, but will rather decide cases of excessive pricing, if the same is unfair and/or discriminatory, by telecom service providers — applying their judicial mind, using rules of proportionality to penalise for violations, all the while ensuing compliance of procedural due process — and in that process determine the proper methodology of pricing services for the telecom sector. When approving a telecom merger the CCI needs to apply its judicial mind to determine if the proposed merger would cause an appreciable adverse effect on competitive conditions prevalent in the affected market of telecom services in India. Consequently, COMPAT’s job is also significantly different than those of the intermediate appellate bodies of the other sectoral regulators. It does not merely police the compliance of rules prescribed by a sectoral regulator but rather adjudicates if the CCI has correctly applied its judicial mind in enforcing the applicable provisions of the Act.

 
Over the past eight years of its existence, COMPAT, through its heavy casework, had been steadily building upon its institutional capacity such that its adjudicatory process respects due process and precedents. With the untimely loss of COMPAT’s institutional memory, the NCLAT — a generalist company law tribunal — may need time to recoup the jurisprudence developed.
 
Regulatory reform should be a top priority of any governance mechanism but it should be more than a mere inter se transfer of regulatory responsibilities of one agency to another incongruous one. Companies making investment decisions in India seek clear, predictable rules on how the country’s antitrust regime shall function. The Act has unfortunately been amended several times since it became effective on January 13, 2003. Such inconsistencies in India’s antitrust enforcement mechanism can have major negative ramifications for the Indian economy.

 Chaudhuri is a partner, antitrust team, Khaitan & Co, and Bose is assistant professor, competition law, Jindal Global Law School