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Charting the Dilemmas of Private Enforcement Under Commitment Orders

The authors are Eshita Gupta and Yagya Agarwal, third-year students at Rajiv Gandhi National University of Law, Patiala.


Introduction


Competition Law serves dual objectives: on the demand side, upholding consumer welfare, and on the supply side, fostering healthy competition in the Indian market. However, there can be a situation of conflict between these dual objectives, where authority must prioritise one over the other. To address this dilemma, the court stated that the term “unfair” in Section 4(2) of the Competition Act, 2002 has to be interpreted from the perspective of consumer welfare. Hence, it can be said that any practice derogating consumer welfare will have more weight on the scale. This notion was further supported on the grounds of two theories: ‘the theory of harm’ and ‘the theory of exploitation’. The theory of harm states that enforcement of competition law should be done from the perspective of how much the consumer has been harmed, while the theory of exploitation contends that because consumers have less negotiating power, businesses are better positioned to take advantage of them. As a result, companies that violate antitrust laws and profit illegally at the expense of the public should be held accountable. Therefore, the paramount raison d’être of the competition law is consumer welfare, to ensure that the markets are fair, competitive, and open. In light of evolving market dynamics, the competition law regime was amended and Section 48A and Section 48B were introduced, marking the beginning of the settlement and commitment mechanisms in India. In light of this development, this blog aims to contemplate the possible ramifications and inherent challenges of private enforcement. The blog has also gained valuable insights and inspiration from the South Korean competition law regime as Indian and Korean commitment rules are modelled after those of the European Union. Thus, it holds significant relevance and importance to learn from the insights and experience gained from Korea’s mechanism.


Private Enforcement


Competition law enforcement is broadly categorised into public and private enforcement. In India, the competition authority holds the power to initiate investigations  suo moto. However, it relies on private entities for law enforcement, a stance akin to the US antitrust law. However, this reliance complicates matters, particularly in the context of the commitment framework, where the mechanism of private action damages is not clearly elucidated.


The concept of “commitment” in competition law may include admitting guilt for alleged violations. However, in the Indian context, there is ambiguity about whether the commitment framework protects applicants from admission of guilt for the alleged violation. The lack of such protection raises questions about the viability of the commitment provision. Thus, if India takes an approach where admission of guilt is introduced, third parties may find it easier to establish infringement of the applicant and may create a dilemma for the Competition Commission of India (“CCI”), namely, what will be the commission's course of action if the applicants admit guilt and any third parties then apply to the tribunal to claim compensation under Section 53N by establishing an infringement of competition law in light of such admission? To address such a dilemma, the CCI introduced Regulation 6 of the  Competition Commission of India (Commitment) Regulations, 2024, which states that a decree passed by the CCI against the applicant would not be interpreted as an infringement of any laws and regulations. This regulation resolves the challenge posed by the admission of guilt in the commitment framework, which could otherwise create uncertainty as the commitment proposal may contain critical and sensitive information, including a clear acknowledgement of guilt. Hence, Regulation 6 curtails the evidentiary value of any information submitted in the commitment proceedings and decree. By introducing this regulation, Indian practice is brought in line with the US practice, where under the Clayton Act, private parties do not have the power to use a commitment decree as evidence to seek compensation from the applicants of the commitment by bringing a lawsuit in court.


However, Regulation 6 of the commitment regulation will likely not address all issues as two more crucial questions arise before the CCI. Firstly, what will be the course of action of the CCI in case of a multi-jurisdictional cases in which a third party uses the applicant's admission of guilt in the foreign commitment proceedings to seek compensation in an Indian court, even though such applicant's commitment proceedings have already been settled or are in procedure before the CCI? This concern arises predominantly because Regulation 6 curtails the evidentiary value of the information submitted by the applicant before the CCI, but does not protect the information submitted by the same applicant in commitment proceedings before the other foreign jurisdictions. Secondly, another concern that can arise in such scenarios is when third parties use the commitment decree to make the parent company, which is not party to the proceedings, liable by lifting the corporate veil. In this way, they can use the admission of guilt by a subsidiary company against the parent company, as Regulation 6 prevents the use of information against the applicant before the court, but not against others. Without giving adequate protection to the applicant and parent company from the above two potential scenarios, the commitment mechanism would not be enticing enough to engage in. To address such dilemmas, it is suggested that, in the first case, the CCI should also restrict the evidentiary value of the information submitted by the applicant before the competition authorities of another jurisdictions; otherwise, Regulation 6 would lose its relevance because in multi-jurisdictional cases, the third parties can nevertheless hold the applicant accountable for compensation before the Appellate Tribunal under Section 53N by invoking information submitted under a commitment decree issued by a foreign jurisdiction. In the second case, it is suggested that where commitment proceedings are in progress against the applicant, the applicant's parent company should be made a party to such proceedings, as this will prevent third parties from bringing conventional proceedings against the parent company in response to the subsidiary company's admission of guilt. Without such limitations, settling parties may face difficulties in protecting sensitive information and self-incriminating statements, as well as the admissions made during the commitment process.


However, it still does not address another pivotal question regarding third-party compensation. As Regulation 6 limits evidentiary value, the third party will be deprived of the compensation that it would otherwise receive through the conventional proceedings in lieu of the applicant's violation of its legal rights. Usually, it has been observed in many jurisdictions that compensation to victims of infringements of competition law primarily rely on private litigation. However, an alternative approach is possible by using public enforcement tools to ensure earlier compensation for consumers. The core idea is to encourage applicants to compensate consumers during the stage of the proceedings. This can be accomplished by incorporating a voluntary compensation mechanism to remedy consumers and other affected parties for damages at the time the applicant submits a commitment proposal to the CCI. However, while it may be contended that a compensation plan is useful when the losses suffered by consumers and other affected parties can be measured in monetary terms, it is proposed that even in cases where damages are not specified in monetary terms, remedies can be provided by establishing a Competition Rehabilitation Fund for enhancing the competition environment in India, which would indirectly compensate the consumers. Incorporating such a scheme would bring India’s commitment framework on par with international standards such as those seen in South Korea’s Consent decree; for example, in the Naver and Daum case in South Korea, the company established a non-profit foundation worth $95.7 million to assist consumers who had suffered financial losses as a result of the company's biased advertising. Furthermore, money would be provided for consumer education, to raise awareness, and protect online consumers and small internet businesses. A similar remedy was also adopted in the SAP case. The incorporation of such changes will make India’s commitment framework more consumer-centric, upholding the spirit of Indian competition law, and effectively minimising private action damages or private enforcement.


Conclusion


The Competition (Amendment) Act, 2023 and Regulation 6 of the Competition Commission of India (Commitment) Regulations, 2024 introduce the commitment mechanism. However, it fails to address key issues such as the parent company liability for compensation in legal proceedings, the application of the commitment mechanism in multi-jurisdictional disputes, and the matter of third-party compensation. Therefore, it is proposed that the employment of mechanisms such as public enforcement and the establishment of a compensation fund to compensate third parties fordamnum emergens will not only handle such issues effectively but would also bring the rules in line with international best practices like those of South Korea. As stated in the Preamble of the Competition Act of 2002, consumer welfare is one of the paramount objectives of the Act. These recommendations can therefore enhance consumer welfare, provide relief to the affected consumer, and ensure competitiveness in the market.

 

 

 

                                                                                        

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