Panel moots watchdog for mergers of over Rs 500 cr

The nine-member committee headed by former commerce secretary SVS Raghavan has said in the report, which was presented to Prime Minister Atal Behari Vajpayee on Monday, that "mergers need to be discouraged, if they reduce or harm competition".

The Competition Law Authority will hear competition cases and also play the role of competition advocacy. The Committee has stated that two members of the Competition Commssion India will consitute the Mergers Commission. CCI will have at least 10 members including the chairperson.

The CCI will have power to formulate its own rules and regulations to govern the procedure and conduct of business. It will have the powers to impose fines and sentences of imprisonment, to award compensation and to review its own orders.

The trial before the CCI should be summary in nature. It will have limited powers of contempt. It will also have powers to review the ordes of other regulatory authorities on the touchstone of competition. Ther will be a provision for advance ruling. The investigative and prosecutiional wings will be separate but headed jointly by the Director General (Investigation and Prosecution).

All complaints will have to be made to CCI. The DG(IP) will not have suo moto powers, and can take up cases referred to him by CCI.

The committee has, however, cautioned against monitoring of all mergers by the adjudicating Authority, "for the reason that very few Indian companies are of international size and the in the light of continuing economic reforms, opening up of trade and foreign investment, a great deal of corporate restructuring is taking place in the country and that there is need for mergers, amalgamations as part of the growing economic process…"

The committee has further recommended that the potential efficiency losses from the merger should be weighed against potential gains in adjudicating the merger. It added that in cases requiring pre-notification, the merger shall be deemed to be approved if the adjudicating authority does not prohibit it within a specified period of 90 days.

According to law ministry sources, the draft bill to enact the Indian Competition Act and creation of Competition Commission of India would be drafted within two months and tabled in Parliament in monsoon session.

The committee has also recommended that horizontal and vertical agreements between companies should be covered by the proposed law, if it is established that they prejudice competition. Horizontal agreements relate to prices, quantities, bids (collusive tendering) and market sharing. Vertical agreements like tie-in arrangements, exclusive supply/distribution agreements and refusal to deal are generally anti-competitive.

The committee has further stated that abuse of dominance rather than dominance should be the key for competition policy/law. Abuse of dominance which prevents, restricts or distorts competition needs to be frowned upon by Competition Law.

On predatory pricing, the committee was of the opinion that instead of always taking an adverse view, such pricing "may be treated as an abuse only of it is indulged in by a doinant undertaking".

The committee has favoured divestment of shares and assets in state monopolies and public enterprises by the government and their subsequent privatisation. All state monopolies and public enterprises should be under the surveillance of the competition policy to prevent monopolistic, restrictive and unfair trade practices on their part.