Commitments and Settlements in India: Background and Proposals

The Competition Act allows the Competition Commission of India (CCI) only to conduct enforcement proceedings for alleged violations of competition law and does not provide a mechanism for the CCI to accept commitments and settlements. While the Madras High Court has held that the statute vests the CCI with powers to issue a wide variety of residuary orders, including settlement orders,^[6] the CCI typically conducts only enforcement proceedings, concluding with either a finding of violation or the closure of a case.

The July 2019 Report of the Competition Law Review Committee (CLRC Report) recommended the introduction of commitments and settlements in India on the grounds that it would allow the speedy resolution of competition law investigations and as well as the imposition by the CCI of “innovative deterrents upon respondents while achieving equitable remedies for victims”.^[7]

Based on the recommendations of the CLRC Report, the Bill introduces two different kinds of negotiated remedies, i.e., “commitments” and “settlements”. Under the Indian competition law regime, an inquiry is initiated by the CCI by directing the Director-General (DG) to investigate into the alleged violations and present its findings to the CCI. “Commitments”, as introduced in the Bill, refer to remedies offered by the parties under investigation prior to the receipt of the DG’s report. On the other hand, “settlements” refer to remedies offered by the parties after the receipt of the DG’s report, but before the CCI passes a final order. The Bill further provides that there can be no appeal against commitment and settlement orders.

Potential Misses under The Bill

The Bill does not mention whether commitments or settlements would require an admission of guilt and is silent on whether a settlement or commitment order passed by the CCI will assume the impugned conduct to be an infringement of the Competition Act. This may cast doubts on whether any follow-on action for damages pursuant to the CCI’s settlement or commitment order would be permissible under Section 53N of the Competition Act, which allows for compensation claims against any “violation of the provisions of Chapter II” of the Competition Act.^[8] However, after taking into account the submission of various stakeholders on this issue, including the CCI and the Ministry of Corporate Affairs (MCA), the Standing Committee on Finance (2022-23) (Standing Committee)^[9] has recommended an amendment to the Bill to allow consumers to be able to seek damages from enterprises following settlement orders. Notably, the Standing Committee does not refer to commitment orders in the discussion on follow-on damages actions, which is encouraging given the early stage at which such commitments are offered.

The Bill currently allows the parties to invoke the settlement regime only in cases of alleged violations of the provisions of Section 3(4) (vertical agreements) and Section 4 (abuse of dominant position) and does not allow enterprises participating in a cartel to offer commitments or settlements. A mechanism of consensual enforcement is already available to cartel participants through the cartel leniency programme, available under Section 46 of the Competition Act and the Competition Commission of India (Lesser Penalty) Regulations, 2009. Under the leniency programme, participants in an alleged cartel can seek a reduction in penalty in exchange for disclosure of vital evidence about the cartel at any time prior to the receipt of the DG’s report by the CCI. As clarified by the MCA to the Standing Committee, there are two reasons for the exclusion of Section 3(3) (horizontal agreements, including cartels) from the proposed commitments and settlements framework: first, the existing leniency mechanism for cartels precludes the need to include these under the settlement regime; and, second, cartels and horizontal agreements being “egregious and pernicious in nature” are anti-competitive by their very nature and, therefore, do not fall within the envisaged settlement mechanism. However, disagreeing with the MCA, the Standing Committee has recommended an amendment to the Bill to include horizontal agreements within the settlement regime (and notably, again, not the commitments regime), thereby extending the consensual modes of enforcement in cartel cases after the receipt of the DG’s investigation report by the CCI, unlike the existing leniency mechanism.

General Risks of Commitments and Settlements

Despite the benefits of faster resolution of competition law cases and greater flexibility in crafting viable remedies for market correction,^[10] commitments and settlements may undermine legal certainty and the deterrent effect of competition law enforcement. Investigations followed by detailed enforcement proceedings, although long and costly, ultimately lead to binding legal pronouncements by the competition authority, appellate tribunals, and courts that allow competition authorities as well as market participants clearly to discern the limits of legal conduct and act accordingly in the future. Commitments and settlements do not offer an equivalent generation of precedents that may be applied uniformly across cases, and therefore provide limited guidance, if any at all.^[11]

Further, the implementation of such consensual mechanisms necessarily vests the competition authority with broad discretionary powers to decide whether to accept the commitments/ settlements offered in any case. Allowing appellate bodies or courts to examine the appropriateness of settlements through litigation may jeopardize the faster resolution of cases, which is also illustrated in the absence of any appeal mechanisms in settlements and commitments cases in the Bill. Generally, enterprises facing a competition investigation may face significant losses in their reputation and business prospects,^[12] and may also fear high litigation costs if they challenge the competition authority’s theory of harm before a judicial authority. Consequently, parties under investigation typically try to offer appropriate commitments or settlements to bring a quick end to the proceedings, which potentially provides the authority with an upper hand in negotiations.^[13]

In the absence of judicial scrutiny, competition authorities also have carte blanche in framing the theory of harm, and deciding what remedies are appropriate to remedy the harm. Competition authorities usually have the power to accept long-term behavioural commitments and can therefore engage in ex ante regulation of the parties’ future conduct, which typically falls within the domain of various sectoral regulators.^[14] Further, competition authorities may identify broader socio-economic issues, such as privacy violations^[15] or labour rights concerns^[16] as competition law issues, and secure commitments from the parties to cease and desist from certain conduct. In India, the CCI has shown a consistent trend of attempting to enhance its jurisdictional reach, often leading to turf wars with other regulators.^[17] Further, the CCI recently secured a landmark victory before the Supreme Court of India, which affirmed that the CCI is empowered to initiate an investigation into any issue which, in the opinion of the CCI, may have anti-competitive effects.^[18] In the absence of judicial review, the introduction of commitments and settlements may provide the CCI with the liberty to engage in ex ante socio-economic regulation, leading to an ever-broadening scope of anti-competitive harms.

Recommendations Towards Mitigating the Risks Emanating from the Bill

It remains unclear how the proposed framework will work in practice, and the Bill provides that the CCI will introduce regulations that set out the operational procedure of commitments and settlements.^[19] With a view to averting, or at least mitigating the potential risks outlined above, the regulations should seek to ensure that the quest for speedy competition enforcement does not undermine the fundamental principles of clarity and predictability in the operation of the legal regime.

Ensuring Clarity and Predictability

The Bill does not envisage any procedural safeguards in the operation of the commitments and settlements regime and does not set out how the appropriateness of proposed commitments and/or settlements will be assessed by the CCI. However, it is expected that the CCI will address these issues by way of detailed regulations to ensure clarity and consistency in the assessment of commitments and settlements.

In this regard, the CCI could take inspiration from the regulations governing the settlement proceedings before the Securities and Exchange Board of India (SEBI). Regulation 23 of the SEBI (Settlement Proceedings) Regulations, 2018 (SEBI Regulations) mandates SEBI to publish a settlement order containing “the details of the alleged default(s), relevant provisions of the securities laws, brief facts and circumstances relevant to the alleged default, the admissions made by the applicant, if any and the settlement terms.”^[20] While the SEBI Regulations do not require SEBI to outline its reasoning in its settlement orders, the orders are still expected to contain enough information for readers to gauge the specific legal violation committed by the respondent, and the precise terms of the settlement agreed upon between the respondent and SEBI, thereby ensuring transparency in the proceedings.

Further, Regulation 10 of the SEBI Regulations sets out a list of factors, such as the gravity of the alleged default, the conduct of the applicant during the proceedings and the extent of harm caused to investors, that SEBI is required to consider while assessing the appropriateness of proposed settlements, which limits the discretion of SEBI.^[21] Such enumeration of factors allows market participants to anticipate the decision-making procedure of SEBI regarding settlements, and therefore considerably reduces legal uncertainty. The SEBI Regulations also provide for the review of the proposed settlement terms by a High-Powered Advisory Committee (HPAC) after an initial assessment by an internal committee constituted by SEBI. The settlement terms are then placed before a panel of whole-time members of SEBI, which takes a final decision on whether to accept the proposed settlement terms. The HPAC, which is comprised of leading industry experts and at least one judicial member, is tasked with determining the appropriateness of the proposed settlement in light of the factors specified in Regulation 10.^[22] The assessment of settlement terms by the HPAC ensures consistency and coherence in the assessment of settlement terms by SEBI.

The Bill, as it currently stands, does not envisage such external review of proposed commitments and settlements.

Mandatory Market Testing

Similar to the practice followed by the European Union (EU),^[23] the Bill requires the CCI to seek suggestions and/or objections from third parties prior to the acceptance of commitments or settlements as a mandatory part of the procedure. However, in contrast to the EU practice, the Standing Committee’s Report has recommended that market testing should be discretionary and not mandatory, since consultation with third parties may compromise confidential information pertaining to the enterprises offering commitments and/or settlements.

The EU experience shows that mandatory market testing does not necessarily jeopardize the confidentiality of information. The European Commission (EC) only publishes the alleged theory of harm and the commitments made by the parties in the Official Journal of the EU, and there is no disclosure of confidential information.^[24] Inviting comments from third parties is not inherently antithetical to confidentiality concerns as third parties would not generally need access to confidential information of the enterprise in order to assess whether the proposed remedies are adequate to address the potential anti-competitive harm.

The opportunity provided to various market participants to voice their grievances concerning the proposed commitments also ensures that the rights of third parties are not adversely affected as a result of the commitments being proposed, while simultaneously ensuring that the undertaking in question is not forced to propose any excessive remedies. Accordingly, mandatory market testing may be necessary for the success of the proposed commitments and settlements mechanisms. To protect against the risks regarding disclosure of confidential information, the regulations should seek to limit the disclosure of information to the alleged theory of harm and the proposed commitments/ settlements only.

Disallowing Compensation Claims

Enterprises generally have an incentive to offer commitments or settlements as these negotiated means of competition law enforcement bring the enforcement proceedings to an end without any significant reputational and/or financial losses.^[25] However, a mandatory requirement of admission of guilt, and/or allowing affected consumers to seek compensation from enterprises that have offered settlements, may undermine such incentives. The admission of guilt may jeopardize the reputation of the enterprise,^[26] while the possibility of future claims seeking damages may open the floodgates of competition law litigation.

Moreover, the enterprise may stand a chance of successfully defending any allegations if it continues with enforcement proceedings. If settlements mandatorily require an admission of guilt and subsequent claims for compensation are allowed, as the Standing Committee recommends, enterprises under investigation are likely to prefer enforcement proceedings which provide the possibility of averting, or at least delaying, a conclusive finding of guilt and claims for damages. Accordingly, the recommended inclusion of a settlement order in the compensation provisions of the Competition Act may deter enterprises from offering settlements and, as a result, impede the functioning of consensual modes of enforcement.

Harmonising Cartel Settlements with the Existing Leniency Regime

The extension of commitments and settlements to cartels may be at odds with the existing leniency programme. The success of the leniency programme is premised on the proverbial ‘race to the courthouse’ where each enterprise in the cartel has an incentive to disclose information about the cartel to the competition authority before its co-conspirators, in the hope of securing a greater reduction in penalty. The first enterprise to provide vital information about the cartel to the competition authority may secure up to 100% reduction in penalty, while other enterprises are granted a reduction in penalty in the order in which they approached the CCI.^[27] If the settlement mechanism allows an enterprise to secure a substantially greater reduction in penalty than that available under the leniency programme, the enterprise would prefer offering a settlement over seeking amnesty through the leniency programme. On the other hand, if the permissible reduction in penalty under the settlement mechanism is significantly less than the amount of penalty reduction that the enterprise may be able to secure through the leniency programme, enterprises participating in a cartel are unlikely to offer settlements.

Further, an application for leniency necessarily requires an admission of guilt and exposes the enterprise to follow-on damages actions, which may not be the case with settlements. Follow-on actions for damages may involve a variety of commercial, legal and reputational risks stretching on for years. Accordingly, under some circumstances, settlements may be a more prudent alternative even when the reduction in penalty is less than that available under the leniency programme. Therefore, if cartels are brought within the ambit of the settlement regime, it should be done in a manner that does not affect the existing leniency regime while ensuring the new settlement regime is effective.

Conclusion

Commitments and settlements are undoubtedly a welcome development in the Indian competition law regime with the potential to enhance the efficiency of the Indian enforcement mechanism. However, in the absence of a carefully designed mechanism which is consistently enforced by the CCI, settlements and commitments may lead to legal uncertainty or introduce further complications to a regime intended to simplify the enforcement of competition law.

Footnote

^[1]      OECD Secretariat, ‘Commitment decisions in Antitrust Cases’ (2016); Giovanna Massarotto, Antitrust Settlements: How a Simple Agreement can Drive the Economy (Wolters Kluwer, 2019).

^[2]      Joshua D. Wright & Douglas H. Ginsburg, ‘The Costs and Benefits of Antitrust Settlements’ (George Mason Law & Economics Research Paper No. 16-42, 2016). Competition authorities across the world have regularly described settlement proceedings as more resource-efficient than enforcement proceedings. For example, see Alexander Italianer, ‘To Commit or Not to Commit: That is the Question’, Remarks at the CRA Conference, Brussels, Belgium (2013) (https://ec.europa.eu/competition/speeches/text/sp2013_11_en.pdf).

^[3]      Ryan Stones, ‘Commitment decisions in EU Competition Enforcement: Policy Effectiveness v. The Formal Rule of Law’, 38 Yearbook of European Law 361 (2019); Niamh Dunne, ‘From Coercion to Cooperation: Commitments in EU Competition Law’ (LSE Law, Society and Economy Working Paper No. 14/2019).

^[4]     Douglas H. Ginsburg & Joshua D. Wright, ‘Antitrust settlements: The culture of consent’ in Nicholas Charbit et al., William Kovacic: An Antitrust Tribute – Liber Amicorum (Vol. I, Concurrences, 2013) (observing that both the US Department of Justice and the Federal Trade Commission have resolved over 90% of their civil antitrust cases through consent decrees since the 1990s); Damien Geradin & Evi Mattioli, ‘The transactionalization of EU Competition Law: A Positive Development?’ 8(10) Journal of European Competition Law and Policy 634-643 (2017) (the European Commission relies on commitments and settlements in more than half of its competition law cases).

^[5]      Section 35, Competition (Amendment) Bill, Bill No. 185 of 2022 (http://164.100.47.4/BillsTexts/LSBillTexts/Asintroduced/185_2022_LS_Eng.pdf).

^[6]     Tamil Nadu Film Exhibitor’s Association v. CCI, Madras High Court, 2015 SCC OnLine Mad 7099 (27 March 2015).

^[7]      Ministry of Corporate Affairs, Government of India, Report of the Competition Law Review Committee (2019) 42.

^[8]     Chapter II of the Competition Act (Sections 3-6) deals with provisions on “Prohibition of certain agreements, abuse of dominant position and regulation of combinations”.

^[9]     Standing Committee on Finance, Fifty-Second Report on the Competition (Amendment) Bill 2022 (December 2022).

^[10]     Yane Svetiev, ‘Settling or Learning: Commitment Decisions as a Competition Enforcement Paradigm’, 33 Yearbook of European Law 466 (2014).

^[11]     See sources cited in n. 3, above, and Korbinian Reiter, ‘The Impact of Commitment Decisions on Legal Certainty’ in Market Design Powers of the European Commission? (Munich Studies on Innovation and Competition, Volume 13, 2020).

^[12]     Google Inc. v. Competition Commission of India, Delhi High Court, (2015) 150 DRJ 192 (DB) (27 April 2015).

^[13]     Florian Wagner-von Papp, ‘Best and even better practices in commitments after Alrosa: The dangers of abandoning the “Struggle for Competition Law”’, 49 Common Market Law Review (2020) 929.

^[14]     Firat Cengiz, ‘Judicial Review and the Rule of Law in EU Competition Law after Alrosa’, 7(1) European Law Review (2011) 127.

^[15]     ‘Case B6-22/16 Facebook, Exploitative business terms pursuant to Section 19(1) GWB for inadequate data processing’. Bundeskartellamt (Germany), (https://www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/Fallberichte/Missbrauchsaufsicht/2019/B6-22-16.html?nn=3600108).

^[16]     Labour issues are increasingly coming within the ambit of antitrust authorities. For instance, see The White House, Executive Order on Promoting Competition in the American Economy, July 9, 2021 (https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/); United States v. Jindal, United States v. Rodgers, Case No. 20-CR-358 (E.D. Tex. Apr. 14, 2022).

^[17]     For an overview, see Madhavi Singh, ‘The competition for India’s antitrust jurisdiction: Competition Commission versus sectoral regulators’, Journal of Antirust Enforcement (2022) (https://doi.org/10.1093/jaenfo/jnac01).

^[18]     Meta Platforms Inc. v. Competition Commission of India and Another, Supreme Court, SLP (C) No. 17121/2022 (14 October 2022).

^[19]     Section 35, Competition (Amendment) Bill, Bill No. 185 of 2022 (http://164.100.47.4/BillsTexts/LSBillTexts/Asintroduced/185_2022_LS_Eng.pdf).

^[20]     SEBI (Settlement Proceedings) Regulations, 2018, Regulation 23.

^[21]     Ibid., Regulation 10.

^[22]     Ibid, Regulation 14.

^[23]     Regulation (EC) No 1/2003, Article 27(4).

^[24]     Commission Notice on best practices for the conduct of proceedings concerning Articles 101 and 102 TFEU, OJ 2011/C 308/06, paragraphs 129-133.

^[25]     See n. 14 above.

^[26]     Stijn van den Broek & Ron G.M. Kemp & Willem F.C. Verschoor & Anne-Claire de Vries, ‘Reputational Penalties to Firms in Antitrust Investigations’, 8(2) Journal of Competition Law and Economics 8(2) 231-258 (2012).

^[27]     Nikita Koradia, Kiran Manokaran and Juhi Hirani, ‘The Leniency Program under the Indian Competition Law’ in Steven Van Uytsel, Mark Fenwick & Yoshiteru Uemura eds., Leniency in Asian Competition Law (Cambridge University Press, 2022).

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