6.1 Introduction
Sanctions, designed not only to punish entities for their anti-competitive practices but also to deter them from engaging in similar practices in the future, are central to competition enforcement: the majority of competition legislations confer on national competition or other authorities the power to prescribe monetary or behavioural sanctions (or both), and governments as well as the public evaluate the performance of competition or other relevant authorities by reference to their ability to impose strong sanctions and, in case of monetary sanctions, their success in recovering them. The signifcance of sanctions is also evident in India and Pakistan: the Indian and Pakistani competition legislations confer on the CCI and CCP, a range of monetary and non-monetary sanctioning options in respect of findings of anti-competitive agreements and abuses of dominant position, and in the years since they became operational, the CCI and CCP have exercised these powers to varying degrees.
Interestingly, notwithstanding the emphasis particularly on monetary sanctions or penalties in the Indian and Pakistani competition legislations, these are not discussed at any length in the Raghavan Report or the Manes Report that had proposed modern competition regimes for India and Pakistan respectively in the first place.Footnote 1 This means that the penal provisions in the Indian and Pakistani competition legislations have been introduced without any discussion with the stakeholders. It also means that the scheme and language of the penal provisions is more in alignment with the foreign models on which they are based rather than the exigencies of the contexts for which these are intended. The compatibility and legitimacy deficit resulting from introducing penal provisions without consultation with domestic stakeholders has affected not only the way in which the CCI and CCP have exercised their penalising powers but also the quantum of penalties they have succeeded in recovering. Even more interestingly, it appears that the penal strategies adopted by the CCI and the CCP further clarify the links between the adoption and implementation stages of competition legislation in the two countries. This chapter traces the evolution of the CCI and CCP’s penal strategies and argues that the processes through which India and Pakistan adopted their respective competition legislations have a twofold impact on the penal strateiges: first, the direct impact which stems from the extent of compatibility and legitimacy generated for the Indian and Pakistani competition legislations through the adoption process, and second, the indirect impact which is linked to the adoption process lays the groundwork for the establishment of the competition enforcement infrastructure envisaged in the two competition legislations.
This chapter explores these issues as follows: Section 6.2 explores the manner in which the adoption processes in India and Pakistan are likely to impact the penal strategies of the CCI and the CCP at the implementation stage; Section 6.3 evaluates the direct impact of the adoption process by reviewing the penalties that the CCI and CCP have imposed over the years and understanding their connection with the compatibility and legitimacy generated for these legislations through the adoption process; Section 6.4 examines the indirect impact by examining the steps that the Indian and Pakistani governments have taken towards establishing the competition enforcement infrastructure envisaged in the Indian and Pakistani competition legislations, and the impact of this infrastructure on the CCI and CCP’s exercise of their penalising powers; Section 6.5 examines possible approaches for strengthening the penal strategies of the CCI and CCP and, therefore, competition enforcement in India and Pakistan.
6.2 Adoption Process and Penalties: Understanding the Two-Pronged Impact
The processes through which India and Pakistan adopted their modern competition legislation differed not only in the dominant mechanisms through which the transfer took place but also in the nature and range of institutions engaged by the countries for the purpose. This section re-visits the Indian and Pakistani adoption processes and examines the ways in which the unique combination of mechanisms and institutions engaged by the two countries in adopting their respective competition legislations are likely to impact the CCI and CCP’s penal strategies.
India had adopted the Indian Act through socialisation and had engaged bottom-up, participatory, and inclusive institutions from all three branches of the Indian state in both the deliberation and the enactment phases. These included the Raghavan Committee which had been established by the executive to consider and recommend the parameters of the proposed competition legislation, standing committees of the Indian parliament that had informed the initial enactment of the Indian Act in 2002 and its amendment in 2007, and the Supreme Court of India. Each of these institutions had the capacity to aggregate and evaluate information from stakeholders across the country and to adapt the proposed competition legislation in light of this information. Consequently, India was able to ‘Indianise’ its competition legislation and thereby to enhance its compatibility with and legitimacy in the Indian context. In contrast, Pakistan had adopted its competition legislations through coercion by the WTO and the World Bank and with limited domestic participation: although the World Bank team that had led the deliberations included representatives from Pakistan, it only held two or three public consultations over a brief six-month period and commissioned a Brussels-based law firm to draft the Pakistani competition legislation. Consequently, Pakistan was not able to generate a broad-based understanding of and acceptance for the competition legislation and the legislation remained more aligned with its international antecedents than with Pakistan’s context and priorities.Footnote 2
In influencing the compatibility and legitimacy quotient of the adopted competition legislations, the adoption processes in both India and Pakistan have directly impacted the penal strategies of the CCI and CCP. However, this correlation is neither simple nor binary and must be explored with care. Indeed, the data suggests that the somewhat higher compatibility and legitimacy of the legislation, as in India, does not automatically translate into an aggressive penal strategy, and the relatively limited compatibility and legitimacy of the Pakistani legislation does not necessarily lead to weak and hesitant competition enforcement. Further, the adoption processes in both countries have also indirectly impact the penal strategies of the CCI and CCP by the extent to which these have succeeded in laying the groundwork for the establishment of the competition enforcement systems envisaged in the adopted legislations: while the legitimacy of the competition legislation in India appears to have been conducive to the establishment and operation of the competition enforcement system, the relatively weaker legitimacy in Pakistan has obstructed the setting up and the functioning of its competition enforcement system. In both cases the establishment or otherwise of competition enforcement systems has further impacted the penal strategies adopted by the CCI and the CCP.
6.3 Direct Impact: CCI and CCP’s Approach towards Penalties in Their Orders
Imposing penalties is one among several sanctioning options available to the CCI and CCP under the Indian and Pakistani competition legislations, and in exercising their powers in this regard both the CCI and the CCP have considrable discretion to fix the quantum within the scheme of the penal provisions of their respective legislations. In terms of section 27(b) of the Indian Act, the CCI may impose a penalty ‘not more than ten per cent of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to such agreements or abuse’,Footnote 3 while under the Pakistani ActFootnote 4 the CCP may impose a penalty in an ‘amount not exceeding seventy-five million rupees or an amount not exceeding ten percent of the annual turnover of the undertaking’.Footnote 5
In the years they have been operational, both the CCI and CCP have made extensive use of their powers to impose penalties in respect of anti-competitive practices (which include anti-competitive agreements and abuses of dominance). However, while the CCI has almost always combined penalties with behavioural directions, even if simply directing the relevant parties to cease and desist from their anti-competiitve behaviour, the CCP has imposed penalties in isolation almost as much it has combined them with directions (Figure 6.1).
Figure 6.1. Penal strategies as per orders of the CCI (2009–20) and the CCP (2008–20)
A closer look at these orders reveals that in the eighty-five orders in which the CCI imposed penalties, it imposed a lump sum penalty only in two orders, both issued in its first year of its operations.Footnote 6 In the remaining eighty-three orders, the CCI expressed penalties as a percentage (ranging from 2 per cent to 10 per cent) of the average turnover (in case of companies) or average income or receipts (in case of associations and natural persons) calculated usually for three preceding years.Footnote 7 From 2018 onwards, the CCI refined its penal formula calculating penalties as a percentage of relevant turnover or income. In the majority of its orders, the CCI justified the rate at which it fixed the penalty by linking it to the severity of the infringement. In stark contrast, the CCP expressed its penalties as lump sums in all but six of its orders, in which it stipulated these as a percentage of the turnoverFootnote 8 and did not justify the quantum of penalties whether expressed as percentages of turnover or as lump sums in any of its orders. Overall, it appears that until 2018 the CCP imposed penalties in a greater proportion of its orders than the CCI, however, after 2018, the CCI and CCP imposed penalties in a comparable number of orders (Figure 6.2).Footnote 9
Figure 6.2. Evolution of CCI and CCP’s penalising strategies
The divergence in the CCI and CCP’s approaches towards imposing penalties may be directly traced to the processes through which India and Pakistan had adopted their respective competition legislations and the compatibility and legitimacy generated in the course of adoption. In India, the engagement of a wide range of institutions in the deliberation and the enactment phases not only allowed the competition legislation to be adapted for the Indian context, but also for Indian stakeholders to become aware of and understand the rationale and import of the legislation (even if not specifically of the penal provisions). The engagement of the judiciary particularly, bolstered the compatibility of the legislation with India’s pre-existing legal system and provided it with an important stamp of domestic legitimacy. Further, the fact that even before the CCI was made fully operational India had allowed a skeletal version of the CCI to engage in competition advocacy not only helped a wide range of stakeholders to become familiar with the Act but also helped the CCI to develop an understanding of the response its proposed enforcement actions were likely to receive. As a result of these efforts when the CCI was finally constituted and operationalised in 2009, it was more aware of and attuned with the domestic context and enjoyed a reasonable degree of legitimacy in it. However, this alignment with the domestic context it also made the CCI reluctant to pursuing an aggressive penal strategy and thereby to jeopardise the space it had so painstakingly carved for itself in the Indian legal context. In contrast, the introduction of competition legislation in Pakistan through top-down, exclusive institutions, drawn primarily from the executive which did not engage in broad-based discussions with stakeholders, prevented Pakistani stakeholders from understanding the rationale and objectives of the competition legislation and the legislation from acquiring greater compatibility and legitimacy in the country. The CCP that came into being through this process was isolated from the very entities it was mandated to regulate, and was almost entirely aligned with the foreign authorities with which it claimed a relationship. The confidence it gained from its international antecedents allowed the CCP to pursue a somewhat aggressive penal strategy in its early enforcement actions and thereby not only to sanction anti-competitive practices but also to leverage to leverage its international legitimacy to gain domestic legitimacy, in Pakistan.
The CCI’s relatively conservative approach in imposing sanctions is also partially attributed to socialisation, which impressed upon the CCI the need to take local conditions into account in enforcing the Indian Act and therefore to be cautious in imposing penalties. In the deliberation phase, the Raghavan Committee had urged that the authority established to enforce the legislation in India recognise that the Indian economy was transitioning from a controlled to a liberal economy and therefore not be harsh in sanctioning violations as doing so would be detrimental to economic growth in the country. Similarly, the CCP’s preference for imposing lump sum rather than pro-rated penalties may at least partly be traced to coercion, particularly to the World Bank’s emphasis in the deliberation phase on penalties being the most appropriate sanctioning strategy. As to why CCP decided the quantum of penalties without reference to turnover it may be argued that it would have been dififcult to obtain the necessary data in this regard.. However, this seems unlikely given that the majority of the CCP’s orders addressed violations by companies that are required by law to file and publish their financial reports it appears more likely that the CCP made a conscious decision to disengage penalties from turnover and thereby to expand the scope of its discretion in this regard.
6.4 Indirect Impact: The Role of Competition Enforcement Systems
Both the Indian and Pakistani Acts envisage a three-tier competition enforcement system in their respective contexts. At the base of this system are the national competition authorities, the CCI and the CCP, at the second tier are the Indian and Pakistani Tribunals that are mandated to hear appeals from the orders of the CCI and CCP, and at the third and final tier are the Supreme Courts of the two countries. This section examines the indirect impact of the adoption process on the CCI and CCP’s penal strategies by first tracing the connection between the adoption process and the establishment of competition enforcement systems in the two countries and then evaluating the role of the competition enforcement systems in shaping the CCI and CCP’s penal strategies.
6.4.1 Establishing the Competition Enforcement Systems in India and Pakistan
The early engagement of the parliament and the executive in India in the adoption of its competition legislation generated among ts state institutions a greater awareness, understanding, and ownership not only of the contents of the alacrity with which Indian Act but also of the proposed strategy for enforcing it which in turn contributed to the Indian government established and operationalised the Indian Tribunal. Although the impetus for establishing the Tribunal had come from the Supreme Court’s decision in the Brahm Dutt case,Footnote 10 the idea of establishing it had been presented to the Supreme Court by the government itself in the form of an undertaking in which it had committed to amend the Indian Act to segregate the CCI’s regulatory and judicial functions. The government had also drafted the relevant provisions of the 2007 Amendment Act and the legislature had enacted it after appropriate deliberations. It was in pursuance of these provisions that the executive established the Indian Tribunal almost immediately after operationalising the CCI.Footnote 11 On 20 May 2009, the government appointed a former Judge of Supreme Court, Dr Justice Arijit Pasayat, as the Tribunal’s first chairperson and for the next eight years, except for a brief period of under one year in which the Tribunal had a chairperson but no members, the Tribunal regularly heard and decided appeals from final and interim orders of the CCI.
In 2017 the Indian government and the legislature further amended the Indian Act to replace the specialist Indian Tribunal by the NCLAT which had been constituted in 2016 exclusively to hear appeals from orders under the Companies Act 2013 and the Insolvency and Bankruptcy Code 2016.Footnote 12 Interestingly, the government introduced this amendment to the Indian Act through a Finance ActFootnote 13 which is intended to ‘give effect to the financial proposals of the Central Government’ rather than to substantively amend legislation and may be passed by the legislature only after summary scrutiny. In introducing an amendment to the Indian Act in this manner, the government was not only able to move swiftly in changing in the competition enforcement system in the country, but also completely avoided the obligation of providing reasons for the proposed change and its impact on the effectiveness of competition enforcement in the country.Footnote 14 The significance of this change notwithstanding, it does not detract from the Indian Tribunal’s early role in developing and clarifying the provisions of the Indian Act and in shaping the trajectory of competition enforcement in India. At the time of writing it was too early to say whether the NCLAT would follow in its footsteps or chart a trajectory of its own which reflects its broader corporate expertise.
The engagement of the legislature and the executive in establishing the Pakistani Tribunal is rather different. The 2007 and 2009 Ordinances, both of which had been promulgated by executive orders without the engagement of the legislature, did not provide for a Pakistani Tribunal. In terms of both these Ordinances, appeals from orders passed by a single member or authorised officer of the CCP, were to lie to the CCP’s internal appellate bench, while appeals from all other orders of the CCP and those of its internal appellate bench lay to the Supreme Court.Footnote 15 The competition enforcement system prescribed in these Ordinances was challenged in various petitions before the courts, and even though the Supreme Court did not finally decide any of these petitions, the grounds on which the competition enforcement system was challenged are generally accepted to be correctFootnote 16 and perhaps it is because of this critique that the government amended the competition enforcement system in the 2010 Ordinance, so that appeals from tinterim and final orders, passed by more than one CCP member or by its internal appellate bench, were to lie first to the high courts, rather than directly to the Supreme Court and the orders of the high courts were to be appealed to the Supreme Court.Footnote 17
The idea of the Pakistani Tribunal was first introduced through the Pakistani Act which replaced the 2010 Ordinance. In terms of the Act, appeals from orders issued by more than one of CCP’s officers or members, were to lie to the specialist Pakistani Tribunal, and appeals from the orders of the Tribunal to the Supreme Court.Footnote 18 Interestingly, the provisions relating to the Tribunal were the only new provisions in the Act, which was otherwise substantially the same as the Ordinances that had preceded it which suggests that the Pakistani executive and the legislature did not reflect on the substantive provisions of the Pakistani Act and did not displace the effect of the original coercion. It may be argued that the legislature was reluctant to interfere with the substantive provisions of the competition law as these had gained a degree of domestic acceptance and legitimacy in the nearly three years that it had been in force, largely due to the aggressive CCP’s penal strategy in this period however, it may equally be argued that this reluctance was due to the powers of persuasion of the multilateral agencies that had introduced the law in the country in the first place.
This lack of meaningful engagement on the part of the executive and the legislature even in the enactment of the Pakistani Act meant that the executive neither fully appreciated the need for competition enforcement in the country nor its responsibility to facilitate enforcement by establishing the Tribunal. Consequently, even though the Pakistani Act – and thereby the provisions for establishing the Tribunal – came into force in October 2010, the government appointed its first member and chairman on in July 2011,Footnote 19 and allowed a further year to elapse before appointing the Tribunal’s technical members.Footnote 20 In April 2013 after functioning for only about five months and deciding only one appeal,Footnote 21 the operation of the Tribunal was brought to a halt due to one of its members resigning and the other retiring after reaching the age of superannuation. The Pakistani government took another two years to reconstitute the Tribunal by appointing two new members.Footnote 22 Consequently, it was nearly five years after the enactment of the Pakistani Act that the Tribunal finally had quorum to make rules for its conduct and proceedings and thereby to properly re-commence operations (Figures 6.3 and 6.4).Footnote 23
Figure 6.3. Evolution of competition enforcement system in India
Figure 6.4. Evolution of competition enforcement system in Pakistan
The Indian and Pakistani Tribunals, once established and operationalised, formed a critical first step in activating the competition enforcement systems in the two countries, and generating a dialogue and a feedback loop between the different tiers of the system. This feedback loop was significant in that it was expected not only help rationalise the CCI and CCP’s penal strategies and to contribute to the recovery of penalties imposed by them, but also to develop competition jurisprudence in the two countries and thereby to facilitate the steady integration of the adopted competition legislations into their pre-existing legal systems.
6.4.2 Tribunals and the Recovery of Penalties
For the CCI and CCP to be effective in bringing about pro-competitive reform in their respective countries it is important that they are able to recover the penalties they impose.Footnote 24 Under law, both the CCI and CCP are required to deposit their recovered penalties to their respective national exchequers: in terms of section 47 of the Indian Act all penalties realised by the CCI are to be credited to the Consolidated Fund of India and in terms of section 40(8) of the Pakistani Act all penalties and fines recovered by the CCP are to be credited to the Public Accounts of the Federation.Footnote 25 On a narrow view of enforcement, a well-functioning Tribunal which in hearing appeals from orders of the first-tier enforcement authorities restrains them from recovering the penalties imposed by them, may be seen as an obstacle in successful competition enforcement. However, a more holistic perspective, suggests that while the operation of the Tribunal may delay the recovery, its ability to review the orders of the first-tier authorities helps refine the rationale of first-tier authority’s penalising decisions and thereby strengthens its penal strategy which over time leads to more effective enforcement.
In India, where a large number of orders of the CCI are appealed to the Tribunal, the Tribunal’s response has varied according to the facts of the case. In certain cases the Tribunal has upheld the CCI’s final orders and dismissed the appeal(s)Footnote 26 while in others it has allowed the appeal, set aside the CCI’s order, and quashed the penalty.Footnote 27 In some of its orders the Tribunal has upheld the CCI’s order but revised the amount of penalty imposed by it,Footnote 28 whereas in others still, it has remanded the matter to the CCI for re-hearing.Footnote 29 Occasionally, appellants before the Tribunal have voluntarily withdrawn their appeals to directly approach the CCI,Footnote 30 while at times the Tribunal has dismissed appeals on technicalities.Footnote 31 In at least one instance, in which even though the Tribunal did not agree with the CCI’s justification for imposing the penalty, it chose not to interfere with the CCI’s order on the basis that the amounts involved were insignificant.Footnote 32
Interestingly, the impact of the Tribunal’s operation is not immediately evident in the quantum of penalties realised by the CCI. As per the CCI’s Annual Report 2018-19, from the commencement of its operations until 31 March 2019 the CCI had imposed penalties in 177 cases in the cumulative sum of Indian rupees 13,881 crore (or INR 138,810,000,000.00 or Indian rupees one hundred and thirty-nine billion, eight hundred and million only). However, until 2019 the CCI had only realised penalties in the sum of Indian rupees 126.92 crore (INR 1,269,200,000.00 or Indian rupees one billion, two hundred and sixty-nine million, two hundred thousand only) and had refunded Indian rupees 66.53 crores (INR 665,300,000.00 or Indian rupees six hundred and sixty-five million, three hundred thousand only). This means that from 2009 until 2019 the CCI had recovered a mere 0.91 per cent of the total penalties imposed by it and had refunded 52 per cent of the recovered amount, leaving its total recovered amount at approximately 0.45 per cent of total penalties imposed.Footnote 33 This somewhat bleak picture suggests that at the very least the activation of the competition enforcement system delayed (if not entirely stalled) rather than facilitating the recovery of penalties.
However, limiting recoveries is not the only impact of the operation of the Indian Tribunal as the Tribunal’s orders have also played an important role in rationalising the CCI’s penal strategies, particularly its methodology for fixing the quantum of penalties. For instance, by its order in Excel Crop Care Limited v CCI & othersFootnote 34 the Tribunal reduced the penalty of 9 per cent of the average of three years turnover of each of the contravening entities (as imposed by the CCI)to one-tenth of the amount on the basis that the CCI had not only failed to provide a justification for fixing the penalty at 9 per cent but had also arbitrarily selected the base turnover.Footnote 35 Similarly, in its order in Toyota Kirloskar Motor Private Limited v CCI and othersFootnote 36 the Tribunal revised the criteria applied by the CCI for determining the quantum of the penalty imposed and required the CCI to re-calculate it on the basis of ‘relevant’ turnover. The Tribunal also noted that it was not in favour of heavy penalties and recommended that the CCI approach penalties in the spirit of a ‘transitory reform process’.Footnote 37 In certain other cases, the Tribunal quashed the penalty imposed by the CCI on the grounds that it had en imposed without providing the respondent an opportunity of being heard in violation of the principles of natural justice.Footnote 38 Of these orders, the Tribunal’s order in the Excel Crop Care appealFootnote 39 is of particular significance, not only because it was challenged before the Supreme Court by both the appellants and the CCI and therefore represents the analysis of all three tiers of India's competition enforcement system, but more so because it has formed the basis for the CCI’s calculations of penalties in almost all subsequent cases.
Box 6.1 The decision of the Indian Supreme Court in the Excel Crop Care appeal
Background
In its final order in the suo motu case of Aluminium Phosphide Tablets Manufacturers the CCI had found Excel Crop Care Limited, Sandhya Organics Chemicals (Pvt) Limited, and United Phosphorus Limited to have engaged in collusive bidding and had penalised each of them in a sum equal to 9 per cent of their average turnovers for the three preceding years.Footnote 40
Appeal to the Tribunal
All three companies appealed the CCI’s order before the Indian Tribunal and the Tribunal, by its joint order,Footnote 41 affirmed the CCI’s decision to the extent that in jointly boycotting the 2011 tenderFootnote 42 and in quoting identical prices in tenders over several yearsFootnote 43 the companies had acted in pursuance of a ‘common design’Footnote 44 and had thereby contravened the provisions of the Indian Act.Footnote 45 However, in respect of the quantum of the penalty the Tribunal found that the CCI had not provided any ‘discussion whatsoever nor any justification’ for the penalty of 9 per cent on average of three years’ turnover.Footnote 46 The Tribunal therefore directed the CCI to re-calculate the penaltiesFootnote 47 by following the steps provided in the Indian Act,Footnote 48 and after taking into account all relevant factors.Footnote 49 Both the CCI and the appellants challenged the order of the Tribunal before the Supreme Court of India.
The Supreme Court OrderFootnote 50
The Supreme Court decided both appeals through a single order dated 8 May 2017 in which it confirmed that the CCI was within its rights to hold an inquiry into the bid rigging,Footnote 51 and that the DG had the power to investigate the boycott of the 2011 tender.Footnote 52 The Supreme Court also fully endorsed the Tribunal’s analysis and findings.Footnote 53
On the issue of the reduction of penalties, the Supreme Court held that the core question was ‘whether penalty under Section 27(b) of the Act has to be on “total/entire turnover” of the company covering all the products or if it is relatable to “relevant turnover”, viz., relating to the product in question in respect whereof provisions of the Act are contravened’.Footnote 54 The Supreme Court noted that section 27 itself did not clarify this issue,Footnote 55 however, after a detailed discussion in which it also referred to foreign jurisprudence, the Supreme Court concluded that ‘adopting the criteria of “relevant turnover” for calculating the penalty will be more in tune with the ethos of the Act and the legal principles which surround matters pertaining to imposition of penalties’.Footnote 56 The Supreme Court, therefore, declared that it did not ‘find any error in the approach of the order of the COMPAT [the Tribunal] interpreting Section 27(b)’.Footnote 57
As regards the CCI’s arguments that penalties were designed to act as deterrents to anti-competitive practices, the Supreme Court held that nevertheless ‘the penalty cannot be disproportionate to the violation and it should not lead to shocking results’. The Supreme Court also held that the aim of deterrence cannot justify an interpretation of the law that may lead to ‘the death of the entity’ itself and emphasised the importance of the doctrine of proportionality, which it stated was based on equality and rationality and was a ‘constitutionally protected right, which can be traced to Article 14 as well as Article 21 of the Constitution.’Footnote 58
The various iterations of the Pakistani competition legislation, the lack of certainty regarding its legal status, and the Pakistani government’s ambivalence towards establishing and maintaining the competition enforcement system, meant that prior to the legislation being amended to provide for the Pakistani Tribunal, parties aggrieved by the CCP’s orders could either challenge these before the CCP’s internal appellate bench (this option was available only to orders passed by single members or authorised officers of the CCP) or to bring appeals directly to the Supreme Court.Footnote 59 In this period, therefore, nearly all the CCP’s penalty-imposing orders were challenged before the general courts on constitutional grounds rather than appealed on their merits before the appellate bench or the Supreme Court. One of the first such petitions was brought against the CCP’s final order in the APCMA case.Footnote 60 Although the APCMA case had provoked considerable litigation while it was still pending before the CCP,Footnote 61 the matter appeared to have been resolved when the courts allowed the CCP to issue a final order in the matter. However, just as the CCP announced its final order the Lahore High Court once again restrained it from taking any adverse action against the defendants, thereby not only preventing the CCP from enforcing its order and from realising the penalties from the defendants, but also keeping it embroiled in constitutional battles and thereby diverting its already limited resources from competition enforcement to fighting for its legal survival.Footnote 62
The petitions in the APCMA case gave rise to other petitions against many of the CCP’s final orders. The majority of these petitions argued that that the CCP had not been properly and constitutionally constituted and lacked the quorum required to pass the final order. These petitions also alleged that the orders passed by the CCP were not in accordance with the competition legislation in force in the country; that the CCP had passed the orders with mala fide intent and by exercising powers beyond its jurisdiction;Footnote 63 the competition legislation could not be applied to agreements entered into before its coming into force;Footnote 64 and that certain actions of the CCP were tantamount to judicial review of subordinate legislation and, therefore, contrary to the law.Footnote 65 Some petitions also urged that the CCP’s orders were contrary to government policy in the sector to which these referred and, therefore, exposed the petitioners to possible adverse governmental action,Footnote 66 and that the CCP had not fully appreciated the facts in arriving at its conclusions.Footnote 67 Barring a few petitions decided on technical grounds,Footnote 68 the general courts most often simply admitted these petitions and restrained the CCP from recovering penalties by enforcing the orders it had already passed without addressing the considerable constitutional and jurisdictional issues that these raised.Footnote 69
Given that the petitions challenging the final orders of the CCP had been filed due to an absence of an independent and authoritative appellate forum rather than in response to genuine constitutional concerns, the number of petitions before the general courts was expected to decline once the Pakistani Tribunal had been established. However, the uncertain start of the Tribunal in 2013 meant that the practice of filing petitions in lieu of appeals lingered until 2015 when the Tribunal was finally made operational. In the next few years the Tribunal decided approximately sixteen appeals: dismissing two appeals on technical grounds;Footnote 70 deciding eight in favour of the CCPFootnote 71 and six against it.Footnote 72 In at least two instances, parties aggrieved by the Tribunal’s ordersFootnote 73 filed appeals before the Pakistani Supreme Court whilst the CCP challenged all orders in which the Tribunal had found against it. Unfortunately, however, beyond this period there is very little information regarding appeals filed before the Tribunal or its decisions in respect of these appeals. Also, at the time of writing the Supreme Court was yet to decide any of the appeals filed from orders of the Tribunal.
The government’s hesitation and delay in establishing the Pakistani Tribunal and the consequent diversion of matters to the general courts in their constitutional jurisdiction has played a large role in the CCP’s inability to recover penalties. At the time of writing despite the orders of the Lahore and Islamabad High Courts the CCP had still not commenced recovery proceedings in pursuance of its enforcement ordrs, most likely because it is waiting for the decision of the Supreme Court in respect of these petitions.Footnote 74 This means that the only penalties the CCP has recovered to date are those paid voluntarily by the parties. The CCP’s sense of helplessness and frustration in not being able to recover penalties is evident from the CCP chairperson’s messages in its Annual Reports 2013 and 2014. In the 2013 Annual Report, the chairperson noted that although the CCP had imposed penalties in the sum of PKR Rs 25 billion, it had not been able to realise any of these. The chairperson had therefore called upon the government to operationalise the Tribunal and had requested the courts to at least offer the CCP an opportunity of being heard before granting ex parte injunctions restraining it from recovering penalties.Footnote 75 Similarly, in the 2014 Annual Report, the chairman noted that over 300 petitions filed against its orders were still pending before the courts, and once again called on the government to operationalise the Tribunal.Footnote 76 Interestingly, this gridlock between the CCP and the government finds no reference in the CCP’s Annual Reports after 2014, which together with its reduced competition enforcement actions and an increase in orders passed in respect of deceptive marketing practices suggests a shift in the CCP’s enforcement priorities and its increased focus on advocacy.
In addition to obstructing the CCP from realising the penalties it had imposed, the government’s failure to operationalise the competition enforcement system also meant that the CCP received no support from the second- and third-tier competition enforcement authorities in rationalising and strengthening its penal strategy. With the Pakistani Tribunal having been fully functional since 2015 and the high courts finally deciding some of the petitions filed before them, there is reason to hope that all tiers of the competition enforcement system may gradually engage with each other. However, this hope is not without the lingering fear that the government’s initial delay in setting up the competition enforcement system may have irrevocably damaged not only the CCP’s confidence for strong enforcement actions but also its legitimacy which in turn may have caused it to redirect its attention towards other less controversial directions (such as competition advocacy), at the cost of meaningful competition enforcement in the country.Footnote 77
6.4.3 Beyond Penalties: Competition Enforcement Systems and Competition Jurisprudence
Once an appellate tribunal is functional it does much more than simply ruling on the appropriateness of the penalties imposed by the first-tier competition enforcement authorities. For instance, from the earliest days of its operations, the Indian Tribunal received appeals from the CCI’s interim and final orders on a range of procedural and substantive issues and through its orders either clarified the CCI’s processes and operations,Footnote 78 or provided a basis for the matter to be escalated to the Supreme Court, which sitting in its competition jurisdiction was able to guide both the CCI and the Tribunal in these matters.
The instances in which matters were escalated to the Supreme Court have proved particularly significant for competition enforcement. In engaging the first-, third-, and final-tier competition authorities the final orders in these matters have not only tested and strengthened the competition enforcement system but have also facilitated the integration of competition principles in the country’s pre-existing legal system. An important example in this regard is the Indian Supreme Court’s decision in the SAIL case which clarified procedures for the CCI and for the Indian Tribunal in several important respects.Footnote 79
Box 6.2 The decision of the Indian Supreme Court in the SAIL case
Background
In October 2009 the CCI initiated proceedings against the Steel Authority of India Limited (SAIL) upon receipt of an ‘information’ or complaint from Jindal Steel and Power Limited (Jindal), which alleged that SAIL had abused its dominant position in the relevant market by entering into an exclusive agreement with Indian Railways for the supply of rails. By an interim order dated 10 November 2009 the CCI sought comments from SAIL. However, rather than providing its comments within the stipulated time, SAIL sought a six-week extension from the CCI. By its order dated 8 December 2009 the CCI denied SAIL’s request for extension and directed the DG to investigate the allegations against SAIL and SAIL to supply its comments to the DG in the course of this investigation.Footnote 80
Appeal to the Tribunal
SAIL appealed the CCI’s order dated 8 December 2009 before the Indian Tribunal and on 11 January 2010 the Tribunal issued an interim order restraining the DG from continuing with its investigation against SAIL. When it received this order, the CCI sought permission from the Tribunal to join the proceedings on the basis that its order of 8 December 2009 was merely a direction for investigation and therefore not appealable before the Tribunal. On 15 February 2010 the Tribunal dismissed the CCI’s request to join the proceedingsFootnote 81 and rejected its contention that an appeal could not be brought against its direction to the DG.Footnote 82 On the question of whether the CCI had allowed SAIL sufficient time to file its comments, the Tribunal held that while the CCI was not under an obligation to invite comments from the defendants,Footnote 83 once it had done so, it could not ‘abandon the opportunity granted midway’.Footnote 84 Therefore, the Tribunal directed the CCI to re-hear SAIL’s application for extension of time and to provide reasons for its decision not only in this instance but in all future orders.Footnote 85 Throughout its order the Tribunal supported its arguments and conclusions with references to earlier decisions of the Indian superior courts.
The Decision of the Supreme Court
The CCI appealed the order of the Tribunal before the Indian Supreme Court,Footnote 86 and on 9 September 2010 the Supreme Court issued a detailed order which clarified several important procedural points both for the CCI and the Tribunal. The Supreme Court disagreed with the Tribunal both on the question of the maintainability of the appeal and the issue of joining the CCI as a party to the appeal. In respect of maintainability, the Supreme Court held that the orders stating CCI’s prima facie view or its directions to the DG were not appealable and confirmed that appeals could only be filed in respect of orders listed in section 53(A)(1)(a) of the Indian Act On the issue of joining the CCI in the proceedings the Supreme Court held that the CCI is a necessary and proper party to all proceedings that may be brought before the Tribunal against its orders or actions.Footnote 87 The Supreme Court also noted that although the CCI had no statutory obligation to issue a notice or grant a hearing to the defendants before referring a case for investigation, it was incumbent upon it to record its reasons for such referral. The Supreme Court further held that it was also incumbent upon the CCI and the DG to conclude all investigations and inquiries expeditiously so as not to adversely affect the parties to the proceedings. The Supreme Court also clarified that it was permissible for the CCI to issue an interim order during an inquiry or investigation provided that such an order was in compliance with section 33 of the Indian Act. The Supreme Court also required that the CCI issue a final order within sixty days of issuing an interim order.Footnote 88 The Supreme Court, as the Tribunal before it, drew upon Indian authorities and invoked norms of due process prevalent in the Indian legal system in arriving at its conclusions in respect of each of these issues.
On the other side of the border in Pakistan neither the Pakistani Tribunal nor the Supreme Court were able to support the CCP in its performance or in developing competition jurisprudence in the country, not becuase they were reluctant to do so but largely due to the government’s failure to establish the Tribunal and thereby to operationalise the competition enforcement system in Pakistan. According to the Law and Justice Commission of Pakistan Report 2015, when the Tribunal commenced operations in early 2015 there were forty-nine appeals pending before it. During that year, five new appeals were instituted while only one appeal was decided, therefore, at the end of 2015 fifty-three appeals remained pending before the Tribunal.Footnote 89 Further, according to a news report published in August 2017, the Tribunal had disposed of forty-four out of ninety-five appeals pending before it against orders of the CCP.Footnote 90 The news report also clarified that appeals against orders of the CCP that had previously been filed before the Supreme Court had also been transferred to the Tribunal.Footnote 91 Unfortunately, however, there is limited information about the operations of the Tribunal: the Tribunal neither maintains an official website nor publishes its statistics and the few of its orders that are available in the public domain, including those that have been reported in Pakistani law journals, are in respect of deceptive marketing practices rather than anti-competitive matters.Footnote 92 In the one reported order against a final order of the CCP in respect of anti-competitive agreements, the Tribunal appears to have accepted and endorsed the CCP’s findings without any evaluation or analysis.Footnote 93
Although some of the orders of the Pakistani Tribunal have been appealed before the Supreme Court,Footnote 94 and have raised some very important issues that, if decided, would have not only clarified the substantive provisions of the Pakistani Act but also the norms of procedure required to be followed by the CCP,Footnote 95 the Supreme Court has yet to decide any of these.Footnote 96 An important example in this regard is the CCP’s appeal to the Supreme Court against the Tribunal’s decision in the 1-Link caseFootnote 97 which remains undecided even after nearly ten years.
Box 6.3 The incomplete story of the Pakistani 1-Link case
The Case before the CCP
This matter proceeded from an allegation that several Pakistani banks had engaged in price-fixing contrary to section 4 of the Pakistani Act by fixing charges for a range of services, including ATM cash withdrawals, Utility Bills Payment Services (UBPS), and Interbank Fund Transfers (IBFT). In deciding this matter the CCP, relied upon a US precedent which fit the facts of the case,Footnote 98 and drew a distinction between prices fixed by a joint venture for the purposes of ‘creating significant and beneficial efficiencies that could not otherwise be accomplished’Footnote 99 (ie agreements for UBPS and IBFT) which it stated ‘may be considered under a rule of reason’ and may be eligible for an exemption under section 5 (read with section 9),Footnote 100 and other ‘horizontal price fixing agreements’ (ie for ATM cash withdrawal)Footnote 101 which it found to have ‘the object of preventing, restricting and reducing competition’ and, therefore, were not eligible to be considered for an exemption.Footnote 102
Appeal Before the Pakistani Tribunal
Aggrieved by the CCP’s order, the banks appealed to the Pakistani Tribunal to re-examine whether 1-Link and the banks in its network had violated section 4 of the Pakistani Act in entering into the range of agreements addressed in the CCP’s order. The banks also argued that in the event that the Tribunal found evidence of a cartel, may consider whether there were any mitigating circumstances that could ‘make it reasonable to condone the cartelisation’.Footnote 103 Rather than engaging with the core issue brought before it, the Tribunal noted that the ‘rigid application of competition law causes more harm than good’Footnote 104 and that a lenient and flexible application of the competition legislation did not mean that the ‘CCP should compromise when a violation of the Act has occurred or that cartelisation by way of price fixing should be spared just because the collusive conduct is de minimus in either scope or effect’.Footnote 105 The Tribunal then set aside the order of the CCP on consideration of the ‘broad and real context’ in which it operated.Footnote 106 In stating these views, the Tribunal did not engage with the reasoning detailed in the CCP’s order and did not consider any precedents, whether of the CCP, of foreign competition authorities, or of the Pakistani courts.
CCP Goes to the Supreme Court
The CCP appealed the Tribunal’s order to the Pakistani Supreme Court. It argued that the Tribunal’s judgment was contrary to the settled law on the subject; that the Tribunal had ignored the evidence on record and had misinterpreted the express provisions of the Pakistani Act in relation to price-fixing agreements; and that the Tribunal was not justified in setting aside the CCP’s order which was not only well-reasoned but also had been passed in accordance with the norms of due process and the requirements of the Act. On this basis the CCP asked the Supreme Court to set aside the Tribunal’s order, however, the Supreme Court is yet to decide this appeal.
6.5 Adoption Processes, Penal Strategies and Competition Enforcement
The mechanisms and institutions through which India and Pakistan adopted their competition legislations and the compatibility and legitimacy generated for these legislations in the adoption process due to the unique interplay of mechanisms and institutions pre-existing in each country, directly impacted the early penal strategies adopted by the CCI and CCP. Interestingly, the comparatively greater compatibility and legitimacy of the Indian Act rather than enabling the CCI to pursue an aggressive penal strategy, made it more cautious, perhaps due to its need for maintaining and safeguarding the space it had so painstakingly carved out for itself in the course of adoption. Conversely, the somewhat weaker compatibility and legitimacy of the Pakistani competition legislation set the CCP free of the need to negotiate its space with other elements pre-existing in the Pakistani legal system and allowed it to pursue an aggressive penal strategy and to chart a course that it perceived to be in alignment with its international antecedents. This aggressive penal strategy in turn helped the CCP leverage its international legitimacy to gain a foothold in the Pakistani context.
Notwithstanding the importance of the direct impact of the adoption process on the CCI and CCP’s penal strategies, it is its indirect impact that is of greater though less observed significance. This indirect impact stems from the extent to which the different branches of the Indian or Pakistani state engaged with each other in the course of adoption either generally or specifically in introducing the provisions for the Tribunals in their competition legislations which in turn affected the support they provided in the establishment of the Tribunals and thereby activating the competition enforcement systems in their respective contexts.
A functioning competition enforcement system brings important benefits: it has the potential to support the first-tier competition authorities in developing a more rational approach towards penalties and in enforcement more generally. This is likely to reduce the chances of these orders being challenged simply on the basis of the quantum of penalties, or if these are challenged for these to be resolved more expeditiously. A well-functioning competition enforcement system also engages the successive tiers competition authorities and brings the competition enforcement system into internal alignment which further faciitates their interaction with each other. Most importantly, as competition principles interpreted and applied in the orders of first-tier competition authorities are evaluated at each successive stage of the competition enforcement system first by competition specialists and generalist judges at the Tribunal and second by generalist judges well-versed in the norms of the country’s pre-existing legal system, these orders not only allow the competition law to become more compatible with and gain greater legitimacy in the country, but also to steadily integrate into its pre-existing legal system. It is also likely that these orders succeed in bringing forth a more competitive economy.
The point that particularly bears emphasising is that the low percentages of penalties realised by the CCI and CCP are not in themselves meaningful or accurate indicators of the progress of competition enforcement in India and Pakistan, and that it is important to evaluate these recoveries against the development of competition jurisprudence in the countries and the manner and extent to which all tiers of the competition enforcement systems have engaged with each other in the process.
In the case of India, even in matters where the CCI has not realised penalties so far, it has commenced an important conversation with the Indian Tribunal and the Indian Supreme Court and has rationalised its penal strategies in light of the feedback and guidance provided by either or both of them. Conversely, the CCP has been deprived of these benefits: not only is the Pakistani Tribunal still in the early stages of its operation and has made no comment about the penalties imposed by the CCP but also the Pakistani Supreme Court is yet to decide any competition appeals filed before it and to render its opinion in this regard. Therefore, while in India the disadvantage of limited recoveries is offset by the strengthening of India’s competition enforcement system, there is no such corresponding development in Pakistan. Going forward, it is likely that the interaction between the CCI, the Indian Tribunal, and the Supreme Court as inter-connected segments of the Indian competition enforcement system will contribute to the overall development of competition jurisprudence in the country, the enhancement of the compatibility and legitimacy of the adopted competition legislation. This in turn will escalate the pace at which competition principles integrate into and become part of the Indian legal context and bolster the extent to which the competition legislation is understood, utilised, and applied in the country to foster a competition culture and ultimately a more competitive economy. On the other hand, the erratic, superficial, and limited engagement between the CCP, the Pakistani Tribunal, and the Pakistani Supreme Court suggests that Pakistan has still some way to go before its adopted competition legislation is fully recognised and utilised as a legitimate and essential legal instrument and in the creation of a competitive economy.
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