Comparitive Comparison of Competition Commission of Pakistan and India

A COMPARATIVE ANALYSIS OF THE COMPETITION COMMISSIONS OF PAKISTAN AND INDIA

By M. Anum Saleem ^1^

Legal comparativism is an age-old and oft-used tool of developing and interpreting laws. In this sphere, Common Law countries have a particular advantage due to their shared legal history and the resulting ease with which laws can be compared, adopted or jurisprudence imported. It comes as no surprise, then, that Pakistan and India, owing to their shared legal and political history and similar social contexts, are able to easily replicate laws across their shared border. However, when it comes to the economic sphere, this trend hits a slight obstacle: the two countries have widely dissimilar economic histories. Until 1990, India had been a highly protected economy, highly influenced by Socialism, while Pakistan was majorly a free market economy for most of its history, which has off and on received protection from the government.

Basis of Laws

The Pakistan Competition Act is based on the Treaty of Rome under the European competition law regime. It covers five areas, namely, abuse of dominant position, anti-competitive agreements, deceptive marketing practices, mergers and acquisitions that substantially lessen competition. This law does not necessarily prohibit mergers and joint ventures with the argument of efficiencies; neither does it discourage organic growth. However, all mergers need to be reported mandatorily and require approval. According to section 11 of the Act, mergers that substantially lessen competition by creating or strengthening a dominant position are prohibited. Although the Commission reserves the right to approve it with or without conditions or require divestures. The law looks at all mergers, whether vertical or horizontal mergers.

The Indian law borrows from the European Union law as well as the Sherman Act, and also draws from the precedent monopolies law. It prohibits anti-competitive agreements, acquisitions, mergers, and combinations, and abuse of dominant position. Section 3 prohibits two types of agreements: Horizontal and vertical agreements and is based on section 1 of the Sherman Act of the US, and the Article 101 of the treaty on the functioning of the European Union.[^^[2]^^]("#_ftn2" "\"\""){#"_ftnref2"} The law is against any concentration of power, and questions any merger, or joint venture, or acquisition, above a certain threshold of asset or turnover, and often on the request of competitors. In 2007 amendments were made in the Act to make the filing of merger clearance mandatory.

The Indian law does not buy the efficiencies argument and is very prone to not approve mergers. In the first year and a half, the CCI reviewed 95 merger notifications and approved only one unconditionally.[^^[3]^^]("#_ftn3" "\"\""){#"_ftnref3"} This shows that it is more influenced by American law, as in the EU law, it is not the holding of a dominant position that is unlawful but the abuse of such a position. This rather than achieving overall efficiencies in the market, ends up favoring the competitors instead of the consumers.

The five major differences

Search and Seizure powers

In fact, the CCP s unique search and seizure powers go a step further in the same vein to vest the CCP with immense powers. Sections 34 and 35 grants the CCP powers to enter into, possibly forcibly, based on reasonable grounds, to enter into a search any premises and to seize, seal or make copies of relevant evidence found therein. Of course, this power is curtailed but based only on grounds of reasonability and in section 35(3) to not be excessive, vexatious or mala fide. These are powers that are unparallel by the CCI.

The importance of such powers cannot be underscored enough. A cursory view of the CCI s orders reveals not only a lack of awareness among market players about competition law, but enterprises also fight tooth and nail to resist the jurisdiction of the Commission as well. In such a scenario, where the markets that are being sought to be regulated are so hostile, such strong powers are key to ensuring the success of the Commission s enquiries.

At the same time, strong checks need to be in place to ensure that these powers are not too sweeping. There is ample room for abuse of such powers as the wealth of jurisprudence on privacy around the world, and within Pakistan as well, suggest. Especially in light of the right of privacy now enshrined in the Constitution of Pakistan after the 18th Amendment, every person is guaranteed a right to privacy. Thus, the Act contains within itself safeguards against the abuse of this power, i.e., the furnishing of written grounds for the use of this power, and penalties in case of abuse of this power.

Powers with respect to international business practices effecting competitive practices in the Commission s Domestic jurisdiction

Pakistan s Competition Act does not recognize any bar in its jurisdiction when companies partially owned by foreign concerns, or incorporated outside of Pakistan indulge in practices that are anti-competitive in Pakistan. In keeping with the provisions of the Companies Ordinances, these foreign-owned or foreign-incorporated companies can easily be served notices by the Commission. Surprisingly, India s Act makes no such allowance. This is highly worrying in a burgeoning economy like India s where more and more foreign investors are stepping into the domestic market. It is unclear how far the CCI s own jurisprudence allows for such interventions.

CCI/CCP Fund

Both Statutes set up centralized funds from where salaries of members and employees of the Commissions and other running expenses are to be met. These funds are to be replenished from charges and fees imposed by the Commission, from fund transfers from the Federal/Central Government, from donations from foreign aid agencies, return on investments made by the Commission itself[^^[4]^^]("#_ftn4" "\"\""){#"_ftnref4"}. However, Pakistan s Act allows the Fund to also be fed by all other funds which may become payable or vested in the Commission. This is problematic. This leaves the door open for donations from the corporate sector to fund the CCP, as is also the case with the SECP, as Dr. Tariq Hasan, former Chairman of the SECP pointed out.[^^[5]^^]("#_ftn5" "\"\""){#"_ftnref5"} It creates a conflict of interest for a regulatory body to be funded by the very bodies it aims to regulate.

At the same time, and acting in the opposite direction, the CCI s Funds are to be fed by charges and fees imposed by the Commission creates an impetus for the Commission to aggressively penalize offending enterprise in order to raise funds.

Definitions of Each Statute

One of the first things that is apparent in a very preliminary glance at both statutes is the degree to which important terms have been assigned meanings in the Indian Act, and how Pakistan s statute s definitions are far fewer in number. As a result, even key terms like consumer and article lack definition in Pakistan s Act. Interestingly, India s statute fails to give a concrete definition to dominant position, which is so often at the centre of each controversy before the Commission. It is tempting to think that this was a deliberate omission in order to give a degree of flexibility to the Commission but has earned the CCI considerable criticism over the years. Both the commissions have faced major challenges along the path of their developments.

CCI Challenges

While the Indian Act remained largely unimplemented from 2002 to 2007 on the matter of recruitment of the Commission officers, the Act was amended in 2007 to incorporate the clause of selection that members will be selected by a committee headed by nominee of chief justice, instead of by the federal government. The Commission became fully operational in 2009. The appellate tribunal has also now been established.

The orders passed have received much criticism on how the decisions were reached. They lack logical approach. There is a need for better skills for sound economic reasoning and there is little expertise in the competition analysis within the country. Also the orders have received much criticism as to the method of calculation of penalties.[^^[6]^^]("#_ftn6" "\"\""){#"_ftnref6"} The Commission has had an image problem; it wasn t seen as a friendly entity to businesses. Also, it has been bogged down with complaints by competitors etc., rather than being able to look into broader perspective of competition violations.[^^[7]^^]("#_ftn7" "\"\""){#"_ftnref7"}

CCP Challenges

The Pakistan Act from the start faced a constitutional challenge as it was initially passed as an Ordinance. It was re-promulgated twice, but in a July 2009 ruling, the Supreme Court, withdrew protection to the lapses of 37 Ordinances, the Competition Ordinance being one of them. The process of getting the Act passed was also excruciating. The Commission had been passing orders under the Ordinance and had issued an order against the cement cartel. The cement owners/shareholders had a huge presence in the Parliament. The bill that was presented in the Parliament, 14 amendments were proposed attempting to reduce the Act s powers, and only 3 were passed. The Act remained suspended until it was finally enacted in October 2010.

The huge backlog of pending cases in the courts, have also been a challenge. The Appellate Tribunal has not been established so far, thus so far appeals are dealt with in writ petitions in High Courts, or in Supreme Courts.

CCI Achievements

The Indian Commission has gone after large companies and instilled fear of hefty excessive penalties to act as a deterrent. They have looked at real estate, cement, steel, healthcare, entertainment, petroleum, travel industry, education, stock exchange, cricket board, and even Google. The breaking up of the cement cartel in India which comprised around 11 companies was a big achievement of the Commission. The Commission has looked at cases relating to agreements outside of India which have an adverse effect on competition within India. The Indian law gives them jurisdiction as to any agreement which adversely affects competition within India. This is especially important because MNC s have an unfair advantage because they can easily merge or acquire a company within India, and effect competition adversely.

The biggest achievement in India has been the setting up of the Appellate Tribunal, which hears appeals of the Competition Commission orders. This significantly speeds up the process of appeal, and also tends to keep economics and law both in perspective when making decisions.

CCP Achievements

An independent image has been built and protected by the Commission s fearless issuance of orders, and by expanding enforcement unfettered. Many sectors have been addressed, like banks, cements, sugar, LPG, poultry, edible oil, jute mills, dredging, power sector, shipping industry, stock exchanges, professional bodies, State-owned entities and even media organizations. Landmark cases have been the ICH agreement order, Urea manufacturers, and Cement.

Ist 3 yearsNext 3 years
Orders3264
Show Cause Notices219434
Search and Inspection418
Policy Notes613
Merger applications164355
Exemptions215437
Penalty7.326 Billion26.238 Billion

The table shows the improvements that have taken place from the first three years of the Commission to the next.

The assets have increased 173% and fee collection has increased by 133%. All this while the budget it was allocated has not increased; even to take inflation into account. Only a marginal amount of penalties imposed has been so far collected because most cases get interim relief in appeals in writ petition in High Courts and Supreme Court. Although only a marginal amount has been deposited, the Commission has continued issuing orders, and contributing to building competition.

CCI s and CCP s intervention in the case of Anti-Competitive Practices in the Cement Industry

The two cement industry cases under consideration here reflect the transition that the Competition Commissions from both India and Pakistan have had to face. The cement Industry is a highly concentrated industry and some economists might describe it as an oligopoly. This type of a market tends to make collusive behaviour more alluring for those in business. However when collusion leads to practices like price fixing or restriction of output or production, it has adverse affects on the end consumers. This type of collusion is called cartelisation. It is illegal under both countries Competition laws.

Analysis of the Arguments put forward

When one looks at how these two cases were adjudicated, the main thing that stands out is the forcefulness of the Competition Commission. When the arguments for the Pakistan Cement Industry case and the Indian Cement Industry case, were put forward, they were mainly all attacking the very jurisdiction of the Commission. If one is to say that these two Commissions came about the same time, a brief look at these arguments shows how the two Commissions have had to make themselves accepted by the legal and commercial society around them.

One of the major arguments raised in the 27.08 order was that the CCP is not an independent body and is under the directions of the Federal Government. This makes its impartiality and bipartisan functioning questionable. However, the CCP pointed out that it only takes those directives from the Federal Government that are not inconsistent with its policy directives. Moreover, whenever the Federal Government orders the removal of any individual from the Commission, an inquiry has to be set up to ensure impartiality and apolitical allegiance of the CCP.

Another major argument put forward in the Pakistan Cement Industry case was that the Commission does not have the power to take a suo motu case. The Commission in this regard said that as per section 28(1)(a) the Commission clearly has the power to initiate proceedings . Further section 30 also confers such powers on the Commission and there is no section in the Ordinance that stops the Commission to act in the way it sees fit.

The Indian Cement Industry case also puts forward the argument that the DG I&R does not have the power to take a suo motu action. The commission in turn responded by saying that the decisions by the Delhi High Court in Interglobe Aviation Ltd. v. Competition Commission of India and in Gujrat Guardian Ltd. v. Competition Commission of India when read together actually confer this power upon them in cases like the one in question - transfer of incompletely inquired cases of MRTPC.

Another major argument filed here was that the DG s investigation was the same as another ongoing cement cartelization case referred to as the case 29 of 2010. Hence the parties who were not being sued in that case wanted this evidence to be thrown out. The Commission put forward that the DG carried out two different investigations, any similarities in the two investigations have resulted from the fact that the nature and topics of the two cases are pretty similar so it must come as no surprise that the reports have much in common. But these similarities in no way cast a bias on the reliability of the investigation carried out and the evidence gathered.

One issue that both Commissions had to deal with was the argument over the imposition of a penalty on acts that were not unlawful at the time of action i.e. retrospective application of law. Both the cases come under jurisdiction when one piece of legislation is expiring and another is brought in or the current one is renewed. In the Pakistan Cement Industry case Khan Asfandyar Wali v. Federation of Pakistan was cited as giving Commission the power to penalize the companies for their past actions if the effects of the action can be felt even one day after the promulgation of the Ordinance. On the other hand, a similar conclusion was reached at in the Indian Cement Industry case by relying on the Bombay High Court s judgment in Kingfisher Airlines Ltd v. Competition Commission of India. In that case it was decided that although the Act was not retrospective in nature, it still covered those agreements that had taken place earlier but their effects could be felt or they were being acted upon now.

In the Pakistan Cement Industry case the Commission imposed a fine of around 7.5% of net profit rather than 15% because they thought it was sufficiently detrimental. The CCI, on the other hand, imposed a penalty of 0.5 times the net profit or nearly 50% of the profit. However, the parties in the CCP were able to seek the Supreme Court s stay on the matter, so these penalties were never imposed on the offending enterprises.

Conclusion

Despite their widely differing inception and roots, the Competition Acts of Pakistan and India share numerous common features. This, in turn, is reflected in the behaviour of the respective Commissions. Still, both have faced very different challenges in their growth and struggle to banish anti-competitive practices from their respective markets. In the end, Pakistan s Commission has managed to win international accolades for its conscientious and aggressive campaigning, advocacy, disposal of suits and its prompt notice of enterprises s behaviour. However, only time will tell if this trend continues, especially in light of India s concrete Competition Act.

***



[[1]]("#_ftnref1" "\"\""){#"_ftn1"} LL.B., M. A. Economics (Pb.), LL.M. (Toronto), Advocate High Court, Adjunct Faculty, LUMS, CEDR Accredited Mediator, Partner, Saleem and Shiraz, Advocates and Legal Counsel. The contributions of Maira Shahzad, Hiba Akbar and Saquiba Mazaree, BSc. Students at LUMS are gratefully acknowledged.
[^^[2]^^]("#_ftnref2" "\"\""){#"_ftn2"} Susanne, Rab. India Turns Up the Heat on Cartel Enforcement with First Fines in Energy Sectors. King & Spalding: Energy Newsletter. April 2012.

<http://www.kslaw.com/library/newsletters/EnergyNewsletter/2012/April/article8.html> accessed 19th November 2013.
[^^[3]^^]("#_ftnref3" "\"\""){#"_ftn3"} Chopra, Shweta Shroff; Sandhu, Harman Singh; Mangaldas, Armachand. India: Merger Control The Asia-Pacific Antitrust Review 2013: Section 2 Country Chapters.
[[4]]("#_ftnref4" "\"\""){#"_ftn4"} See section 51 of India s Act and section 20 of Pakistan s Act
[[5]]("#_ftnref5" "\"\""){#"_ftn5"} Interview with Dr. Tariq Hasan, former Chairman SECP, 12 October 2010.
[[6]]("#_ftnref6" "\"\""){#"_ftn6"} Kumar, Dhanendra. Getting Comfortable with Competition. AsiaLaw.com. April 2009. <http://www.asialaw.com/Article/2177409/Channel/16711/ Getting-comfortable-with-competition.html> accessed 19^th^ November 2013.
[[7]]("#_ftnref7" "\"\""){#"_ftn7"} CUTS International. Competition Commission of India Through the Eyes of the Media Doing Well! . 17 September 2012. <http://www.cuts-ccier.org/pdf/Competition_Commission_of_India_through_the_eyes_of_the_media-Doing_well.pdf> accessed 18th November 2013.

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