Authors: Kartikey Tripathi & Vedansh Raj
Second year students at Rajiv Gandhi National University of Law, Punjab
I. Introduction
On 17th September 2024, the Competition Commission of India (“CCI”) notified the Competition Commission of India (General) Regulations, 2024 (“Regulations, 2024”), thereby bringing into force a basket of changes to the regulatory framework since the General Regulations, 2009. The framework was in need of an overhaul for a long time to realise the changing needs of the Competition law. But the immediate force behind the Regulations was the amendment in the Competition Act, 2002 by the Competition (Amendment) Act, 2023, which was awaiting implementation. The CCI invited stakeholders’ comments and opinions on the draft regulations changes on 6 June 2024. Post-consultation, the Regulations were notified, thereby repealing the General Regulations, 2009.
Most notable of the reforms which the CCI incorporated is a new regulation for compliance– Regulation 54 of the Regulations, 2024, which states that the CCI may, at its discretion, nominate third-party Monitoring Agencies (“MA”) to monitor the implementation of orders passed by the CCI, especially under Section 31 or Section 48A or Section 48B of the Competition Act, 2002. Through this article, the authors shed light on the new framework for monitoring the implementation of the orders of the CCI through this breakthrough third-party intervention and highlight the implications, shortcomings and weaknesses that lie ahead for the new competition regime.
II. Monitoring Agencies and Their Terms of engagement
The MAs are independent of the parties in proceedings (“party/ies”) before the CCI and may include an accounting firm, management consultancy, any other professional organization or chartered accountants/ company secretaries/ cost accountants. The nature and technicalities around the independent agencies under Regulation 54 are discussed as follows:
Discretionary power of the CCI
Under Regulation 54 (1), the CCI is vested with the discretion to appoint MAs, to monitor the enforcement of the orders, as and when it deems necessary to oversee the proper follow-up on its orders.
Independence and Conflict of Interest
Under Regulation 54 (2), the MAs appointed for this purpose will be independent of the parties to the dispute and will have to mandatorily disclose any conflict of interest. Further, under Regulation 54 (3) (c), the MAs must compulsorily disclose any interest with regards to the matter at hand or the parties.
Responsibilities of the Agency
Apart from general monitoring, the MAs would be required to report the non-implementation of directions along with the report of the monitoring process. The MAs would also be bound to maintain the highest standards of confidentiality during their interaction with the party affected by the order. All of these duties, along with any others that the CCI deems fit, will be governed through the terms of engagement or the agreement.
Remuneration of the Agency
Under Regulation 54 (6), the MAs would be paid for monitoring undertaken by them under a specific regulation or as directed by the CCI. The payment would be contingent on the satisfactory discharge of the duties by the MAs.
III. Limitations, Repugnancy and Inconsistencies Encountered
This section discusses the possible impact and difficulties encountered due to the employment of MAs through past orders of the CCI, generally made under Regulation 27 of the CCI (Combinations) Regulations, 2011.
Reservation of the Party
Although the MA is responsible for disclosing its relation with the party under proceedings, the framework incorporates no mechanism for the party to contest the nomination of a potential MA.
Extent of Monitoring
Under Regulation 54, the CCI does not specify the extent of monitoring that the MA can do. Monitoring would depend upon the terms of engagement. The party being monitored cannot affect the freedom the MA exercises while handling its records and databases, (including formalized business strategies and plans) because it is not a party to the agreement. This arrangement bars the party to sue the MA on its own. The party can only raise disputes through CCI, but that remedy is restricted to when the conduct of the MA is malafide. In orders like China National Agrochemical Corporation, the CCI has directed that the MA be treated as indemnified and not accountable for any loss except for neglect or malafide. Further, how a party can hold the MA liable for misconduct is not well-established, as it is not a party to the terms of engagement.
In orders like In the Matter of Outotec OYJ and Metso OYJ, the CCI has allowed the sharing of confidential information to the MAs without the consent of the concerned party. While the information transfer between the party and the MA may very well be confidential, a party should have the right to lodge any legitimate reservations in a meaningful legal procedure but this has not been the case. In the past, the MAs have been empowered to various degrees, to act in the course of the monitoring. For example, in orders like Bayer AG, the MA was vested with the power to decide the quantum of confidential information to be disclosed for reasonable usage or required disclosure. Such an unconstrained power vested in a private entity to decide the reasonableness of disclosure threatens a party’s rights and questions the integrity of the CCI in the context of its delegated powers through the MA.
Duties of the Party towards the MA
The Regulations, 2024 do not list the duties that a party owes the MA in the discharge of the MA’s contractual obligations. This leaves uncertainty for the party as the stakeholder of the monitoring process. In the past, the CCI has made explicit the party’s duties through individual orders covering that party. Here, as noted above, the party is not a signatory to the terms of engagement and hence cannot be bound by them.
Need for Monitoring?
Regulation 54 restricts an MA to an ‘observing status’. The MA cannot direct the parties to comply with any order. The MA’s role is limited to informing the commission about the compliance or non-compliance of the order. Consequently, any compliance mechanism that the MA suggests has no binding power against the parties as it is only recommendatory. The CCI must approve a recommendation to make it binding, as in Eaton Power Quality Pvt. Ltd. v. Competition Commission of India & Ors.
V. Conclusion
The introduction of independent MAs in the Regulations, 2024 aimed to establish a similar framework compared with other subsidiary regulations. However, for the monitoring process to be as procedurally transparent as possible, the regulations need to consider legitimate problems companies might face when complying with MA mandates .
The framework could be improved if it incorporated agreements among all three interested entities: the CCI, the party under proceedings, and the MA. Furthermore, the CCI should provide a certain, objective and well-defined scope of monitoring to instruct the MA on the limits of its powers and duties. This would allow the time-bound completion of the monitoring process.
The party’s obligations to the MA must be made clear and comprehensive in advance to whatever extent possible, which could be supplemented by a case-to-case grant of powers. MAs look like a new limb of the CCI to put its orders into effect and hence, efforts must be made to make the monitoring mechanism centered around the legitimate needs and obligations of the company, who are the primary stakeholders of the monitoring process.
Note: This article has been reviewed by Mr. Steven Levitsky (Merger Clearance and Antitrust Counseling, Manhattan, New York, United States) at the Tier II Stage.