Role Of General Counsels In Competition Compliance
General Counsels (GCs) form the backbone of not just the corporates but the economy as a whole. They are the trusted advisors to the Board of Directors and CEOs. Most Heads of Divisions, including finance, HR etc. look up to them for guidance and troubleshooting. A general counsel not only heads the legal team but is also responsible for ensuring that the company’s operations are carried out in accordance with the lex terra (law of the land) and that all periodical compliances are made as per schedule. With dynamic regulations, complex internal policies and high legal costs, the role of a GC is demanding and crucial.
In the present age, the legal and regulatory framework of a company includes compliance with not only the Companies Act but various applicable laws like environment, anti-bribery, money laundering, insolvency, trade, health, safety, employment, company, international trade, foreign exchange, data privacy, intellectual property, competition and anti-trust etc. Compliance with the rules of the Central government, ministries, state governments and sectoral regulators like the TRAI, IRDAI, etc. may also be necessary.
Various expert study reports, bring out the critical importance of compliance and risk management. According to the ‘Legal Departments in a Digital Era’ report by Wolters Kluwer and the European Company Lawyer Association, 72 per cent of legal departments say compliance and risk management are highly important. When regulatory requirements grow and become more complicated, regulatory obligations also increase, risking heavy fines and penalties. As per a ‘Survey of General Counsels’ by KPMG, the top three areas of regulatory risks revolve around competition, consumer protection and anti-bribery laws.
Competition law, as the name suggests, aims to promote and sustain competition in the market, for economic development of the country, freedom of trade for business enterprises, and welfare and protection of consumers. It has to be remembered that in the value chain, everyone is a consumer of goods and services. In India, Competition Act, 2002 is the guiding legislation for the enforcement of competition law and the Competition Commission of India (CCI) is the regulator. A general counsel must be aware of the nuances of competition laws and its compliance. His advice to the board in making decisions, care of personnel in attending meetings of trade associations, compliance during search and seizure, provisions of leniency, knowledge of exemptions under law and applicability of anti-trust laws in foreign lands where business is conducted, is paramount for the company.
In many landmark cases, the CCI has imposed heavy penalties on parties. As an illustration, it has imposed a penalty of Rs 1,337 crores on Google for abuse of its dominant position in the Android mobile device ecosystem and a Rs 936 crore fine on anti-competitive practices in relation to its Play Store. In a historic decision in 2016, the CCI imposed a penalty of over Rs 6,700 crores on 11 cement companies for the offence of cartelisation. Other big penalties include Rs 2,554 crores on car companies for failing to sell spare parts in open markets; Rs 1,773 crores on Coal India for monopoly and price fixing; Rs 630 crores on DLF for abuse of its dominant position in housing projects, et al.
Competition compliance includes two aspects – antitrust enforcement and combinations. The enforcement regime involves compliance with antitrust provisions under Sections 3 and 4. Section 3 prohibits enterprises from entering anti-competitive agreements in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services. This includes offences like imposing unfair prices, curbs on competition, bid-rigging, tie-in arrangements, exclusive supply and distribution agreements, etc. Section 4 mandates that no enterprise or group shall abuse its dominant position. This includes offences like discriminatory pricing; unfair conditions in the purchase or sale of goods/services; limitation or restriction of production or technical development of goods/services; denial of market access, unfair contracts; predatory pricing etc. A general counsel needs to be well aware and ensure compliance with these provisions to avoid the CCI’s scrutiny.
The combination regime necessitates a general counsel to be aware of the relevant sections for merger notification under Sections 5 and 6 above the stipulated thresholds and available exemptions. Section 5 states that the financial thresholds requisite for notification and Section 6 empowers CCI to approve the mergers and acquisitions. In India, it is a mandatory notification regime, and suspensory in so much as it cannot be consummated without the CCI’s approval. The CCI imposes a penalty for the non-furnishing of information on combinations under Section 43-A, which may extend to one per cent of total turnover or assets or the value of the transaction, as per the latest amendments. The CCI has also recently introduced a few business-friendly measures like a ‘green channel’ for speedier and automatic approvals of combinations.
Compliance with competition laws is necessary not only for the company but also for the economy. The CCI has released a compliance toolkit for businesses as well, which is available on its website. The commission believes in promoting a culture of compliance among businesses. The role of a general counsel becomes critical in ensuring such compliance. From preparing compliance calendars to due diligence, he is the man on whom the board and management have to lean. An agreement, when compliant with competition law will save legal costs to the company. In fact, it may be necessary to review all agreements from time to time, in the context of any changes, including those prevalent before 2009 when Competition Law came into force. Practices like bid-rigging, cartelisation and predatory pricing are frowned upon in competition law.
The role of a general counsel in all regulatory compliances in general, and competition law in particular is extremely critical in ring-fencing the company from various risks, avoidable costs and reputational damages which may affect the brand and share value. He is the man for all seasons, for whom the expression, ‘a stitch in time saves nine’ is aptly applicable!
(This article has inputs from Aditya Trivedi, Associate, COMPAD LLP)
Dhanendra Kumar is the founding chairman of the Competition Commission of India and ha been Executive Director for India at the World Bank. He is currently Chairman of Competition Advisory Services. (This article has inputs from Aditya Trivedi, Associate, COMPAD LLP)
