Arbitrability of Competition Law Issues: An Indian Perspective

By: Neelam Meshram


INTRODUCTION

In the newfangled age of consistently increasing global trade and commercial disputes, one can see the steadily growing mechanism of arbitration as an alternative method of dispute resolution. Arbitration is a method whereby parties resolve their disputes using an arbitrator instead of national courts and more or less, people have found arbitration more approachable than courts due to many benefits like less time consumption; a flexible, neutral and impartial forum of adjudication etc. Though arbitration is more adaptable in cases which involve private parties when it comes to taking the public into account, difficulty arises and arbitrability of the subject matter comes into question.[1]

Competition law is one such matter which comes into picture when the question of its arbitrability arises. Arbitrability of competition law in India is not yet clear like that of the USA, EU where the statutory position is that in case of international contracts, antitrust issues can be submitted to arbitration.[2] The very object of competition law is to prevent market distortions and safeguard consumer’s welfare[3] which ultimately involves a substantial public interest element in its domain. And when it comes to violation of any of the provision of competition law, certain penal provisions have been incorporated into it which actually makes the arbitrability of competition law in a doubtful position.

Keeping in view the general idea about the adjudication proceedings under Competition law and method of arbitration as an alternative dispute resolution one could lean in favour of arbitration proceedings because of the pending decision before COMPAT or other higher authority prescribed under competition law.[4] In this context, CCI could play the double role of amicus curiae and parens patriae[5], by adopting US “second look doctrine”, formulated in Mitsubishi case[6].

INTERNATIONAL DIMENSION

Historically, even at international level, arbitrability of competition law seemed difficult enough to be operatively owing to the fact that disputes arising under competition law are fact-intensive and therefore, it is too complex for arbitrators to resolve them; or the problem may arise due to the fact that private nature of arbitration means that the competition law would not be applied openly or consistently; or that arbitrators have a pro-business bent of mind which might lead to under-enforcement of laws[7].

Despite the fact the judicial trends changed towards the arbitrability of competition laws and its beginning can be counted down from the very landmark judgment in the field, that is, Mitsubishi Motors Corp v. Soler Chrysler Plymouth[8], where the court held that antitrust issues can be submitted to an arbitration proceedings in an international contract and it should be given full effect and adjudication of such disputes shall be done by arbitrators who are more acquainted or experts in competition law.

Another case which comes to the countdown is EcoSwiss China Time Ltd. v. Benetton International NV[9] wherein European Court of justice has upheld the arbitral tribunal’s power to hear the issues relating to competition law.

In light of this international position with respect to arbitrability, the Indian position has been explained as under

ARBITRATION IN INDIA

Arbitration and Conciliation Act of 1996 (The Act) regulates arbitration in India and it includes both domestic as well as international arbitration within its ambit. Section 7 of the Act permits all disputes arising out of a legal relationship, whether contractual or not, to be submitted to arbitration. Therefore it can be interpreted from the wordings of the section that arbitrability of the dispute does not depend upon the nature of the dispute. However, Section 34(2)(b) and Section 48(2) puts bar on courts to set aside an arbitral award or refuse its enforcement if the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force or if the award is in conflict with the public policy of India. Combine reading of abovementioned sections renders it in vague arguments which are settled by courts in various judgments. It should also be noted that the Act does not define specifically what is arbitrable and what is not. Hence, the whole Act should be read keeping in mind Section 2(3) which provides that “this Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration”.

In the case of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited,[10] Supreme Court of India held that all cases relating to right in personam are required to be heard by courts only and cases relating to right in rem should be heard by arbitral tribunals. Following this case Supreme Court of India held in the case of Kingfisher Airlines Limited v. Prithvi Malhotra Instructor[11] that creation of special tribunal with respect to certain subject matter per se does not preclude arbitration in that subject matter. Instead, disputes would be considered non-arbitrable only where a particular enactment creates special rights and obligations and gives special powers to the Tribunals that are not enjoyed by civil courts. In this light, HDFC Bank v. Satpal Singh Bakshi[12] is a good instance, wherein Delhi High Court observed that the Debt Recovery Tribunal was created for expeditious disposal of cases arising under the general law of the land and not only to adjudicate on special rights created under the said statute. In such a case, the Court concluded that the matter falling within the jurisdiction of the Debt Recovery Tribunal can be heard by an arbitral tribunal as well. However, in Natraj Studios Pvt. Ltd. v. Navrang Studios,[13] the Supreme Court held that the arbitral tribunals, which are a substitute to civil courts cannot hear a dispute under the Rent Control Act because the statute provides these rights to be adjudicated in the specialized tribunals only, meaning thereby that certain cases shall not be heard by an arbitral tribunal despite the fact that the decision involves a right in personam, and not a right in rem.

Hence, at this stage it can be concluded that determination of arbitrability in the Indian context would require a two-fold enquiry. At the first stage, it needs to be determined whether the subject matter of the dispute is a right in rem, in which case, the dispute would not be amenable to arbitration. If, however, the dispute involves a right in personam, then the next question to be answered is whether the adjudication of such a dispute is reserved by the legislature exclusively for public fora as a matter of public policy. An affirmative answer to the second question would imply that arbitration in the subject matter is not permissible. The following section seeks to apply this working formula of arbitrability to competition law matters.

COMPETITION LAW IN INDIA

Competition Act, 2002 prohibits anticompetitive behavior between market players (cartels, price fixing etc.) having an adverse impact on competition, prevents a dominant enterprise in the market from abusing its dominant position and regulates mergers between enterprises that would result in a substantial reduction of competition in the market. The Competition Act is primarily enforced through the Competition Commission of India which is vested with both regulatory and quasi-judicial powers and the Competition Appellate Tribunal, established to sit in appeal from orders of the CCI; with the Supreme Court serving as the ultimate appellate authority.

ARBITRABILITY OF COMPETITION LAW ISSUES

Competition Act does not provide for an alternate method of dispute resolution and the CCI or COMPAT do not have statutory powers to direct parties to use such methods. The only time that the Court was confronted with the issue of arbitration of matters covered under the Competition Act was in Union of India v. Competition Commission of India.[14]In this case, parties who had entered into a Concession Agreement with the Ministry of Railways for operating container trains, filed a complaint before the CCI alleging that the Railway Board was abusing its dominant position by imposing increased charges and restricting access to infrastructure. The Railways challenged the CCI’s jurisdiction to hear the dispute in view of the extant arbitration agreement between the parties. However, the Delhi High Court allowed the CCI to hear the matter notwithstanding a valid arbitration clause, on the ground that the scope and focus of CCI’s investigation are very different from the scope of an enquiry before an Arbitral Tribunal. It was observed that ‘the Arbitral Tribunal would neither have the mandate, nor the expertise, nor the wherewithal’ to prepare an investigation report which is necessary to decide the dispute in question.

Hence, the position is that scope of proceedings in CCI/ MRTP Commission is different from the scope of proceedings before an arbitral tribunal whose mandate is circumscribed by the terms of the contract. However it cannot be seen as a blanket denial of arbitration for competition matters.[15] In such a scenario, whether the Courts would enforce the arbitration agreement continues to remain inconclusive.

Since there is no authoritative judgment which considers these issues from a public policy perspective, arbitrability of competition law disputes still remains an open question in India.[16] The following section attempts to determine the arbitrability of competition law disputes on the basis of general principles of arbitrability:

  1. Where the claim is right in rem

Disputes that can arise under competition law have both ‘private’ and ‘public’ elements. Section 19(1) of the Competition Act empowers any person, consumer or association to file information with the CCI with respect to any (alleged) contravention of the Competition Act. This is followed by an investigation (by CCI’s specialized investigation wing called the Director General) and once the fact of infringement is established, the CCI is empowered to punish the violation by imposing a penalty, issuing a ‘cease and desist’ order etc. Based on this finding of infringement, Section 53N additionally allows third parties affected by anti-competitive conduct to approach the COMPAT and claim compensation for the loss suffered by them due to the anti-competitive conduct. Compensation can also be claimed for losses suffered due to the failure of the other party to comply with the orders of CCI/COMPAT.

It is argued that the fact that ‘any person’ can bring a claim under Section 19 without any personal injury/interest in the matter highlights the public interest nature of the remedy. Any order made under Section 19 determining the validity of an agreement or imposing liability on the defaulter would therefore, be an order in rem because an anti-competitive behaviour not only harms the interests of the rival businesses that directly sustain losses but also has an impact on all the consumers, retailers who are forced to pay higher price for the goods. Since the remedy for a complaint under Section 19 would affect public interest at large i.e. persons other than the parties to the arbitration agreement, such an order can only be granted by CCI in the exercise of the power conferred upon them by the statute.

Section 53, on the other hand, provides statutory rights and remedies only to an ‘aggrieved party’ and such a claim would involve determining the rights and interests of only the individual party in the subject-matter of the case. Even if the right to recover damages requires the arbitral tribunal to make a finding of liability, it would not involve penal consequences but would merely be a step towards establishing a civil monetary claim or any other contractual remedy. This indicates that such an application involves a right in rem which is purely inter parties and does not affect the rights of the third party who are strangers to the arbitral proceedings. Therefore, the suggestion is that to the extent the Competition Act allows a private remedy, the test of Booz Allen stands satisfied and competition law does involve a right in personam capable of being arbitrated. When faced with an analogous question under the Business Practices and Consumer Protection Act 2004, the Supreme Court of Canada contrasted the wording of section 171 of the BPCA Act with that of section 172 and found that while under section 171, damages can be sought only by ‘the person who suffered damage,’ a section 172 claim may be initiated by ‘virtually anyone’ regardless of whether he was affected by a consumer transaction. The court observed that the fact that such persons do not necessarily act in their personal interest highlights the public nature of the remedy under section 172. The difference in language led the Court to conclude that while claims under Section 172 was not arbitrable, section 171 claims could nonetheless be arbitrated. Using the same rationale, the Federal Court of Appeal in a subsequent judgment held that Section 36 of the Canadian Competition Act 1985 is a private claim and arbitration is possible for this civil law aspect of competition law i.e. where parties claim damages for violation of competition law or allegation regarding the voidability of anticompetitive agreements.[17]

  1. Where the claim is reserved for adjudication by public forum exclusively

CCI is an overarching body to sustain and promote competition within the Indian markets. The Preamble and Section 18 of the Competition Act entrusts the CCI with an obligation to eliminate anti-competitive practices, protect the interests of consumers and ensure freedom of trade of all market participants. Section 61 of the Competition Act bars the jurisdiction of civil courts to entertain any competition law matter.

Applying the logic of HDFC Bank case, it is amply clear that the CCI was created to adjudicate on special rights created under the Competition Act and the dispute does not arise under the general law of the land (contract law, common law etc.). This leads us to conclude that the provision setting an exclusive jurisdiction of CCI could perhaps be construed as excluding arbitrability of competition law disputes.

One might argue that Section 61 of the Competition Act cannot preclude arbitration since Section 5 of the Arbitration Act begins with a non-obstante clause and provides that notwithstanding anything in any other law, the jurisdiction of the Court is excluded where there is an arbitration agreement.[18] However, this contention was shot down by the Court in Central Warehousing Corporation v. Fortpoint Automotive Pvt. Ltd.,[19] where it was observed that Section 5 cannot be read in isolation. It has to be necessarily juxtaposed with Section 2(3) of the Arbitration Act which states that the provisions of the Arbitration Act will not affect any other law by virtue of which certain disputes cannot be submitted to arbitration. In light of this judicial interpretation, there is little doubt that the exclusive jurisdiction of CCI restricts the arbitrability of competition law issues in India.

On the strength of this analysis, it can be reasonably concluded that given the extant competition and arbitration jurisprudence in India, it is highly unlikely that the Courts would allow arbitration of competition law disputes. Competition law disputes involve two facets – one is the administrative law aspect of competition law which includes the imposition of public sanctions such as fines for infringement.[20] A claim under such provisions involves a right in rem and fails to satisfy the first prong of the ‘arbitrability test’ and is therefore wholly unsuitable for arbitration. In fact, administrative aspects of competition law are not considered arbitrable in any jurisdiction in the world due to the public interest involved.[21] At the same time, violation of competition law also entails civil law consequences whereby an aggrieved person is entitled to make an individual, private claim for compensation for loss suffered due to anti-competitive behaviour or any other contractual remedy. Such civil law disputes satisfy the first prong of the arbitrability test since they involve right in personam. Despite this, these disputes would not be amenable to arbitration because Indian laws assign the CCI/ COMPAT with the sole mandate to address competition disputes, to the exclusion of any other body.

THE WAY AHEAD

Determining whether competition law disputes should be arbitrable has to be based on the consideration of two policy objectives. On one hand, there is a need to safeguard public interest by reserving sensitive matters for resolution only by national courts and on the other hand, arbitration needs to be promoted as a vibrant system of dispute resolution for imparting certainty and convenience to business transactions. In India, judicial hostility towards arbitration arguably stems from the concern that public interest would be injured if competition law disputes are allowed to be resolved by arbitration. However, as discussed earlier, there is now an overwhelming international judicial consensus that these are ‘archaic misconceptions’ and with the proliferation of arbitration, the relevance of public policy is diminishing on the international front, opening up the gateway to arbitration in hitherto foreclosed areas.[22] Though ‘arbitrability’ of a dispute is governed by the municipal law of each jurisdiction, arbitrability of competition law has emerged as a transnational principle.

It is also worth mentioning that precluding arbitration in competition law disputes is not the only way to protect public policy. One alternative is that the CCI can allow parties to go for arbitration and at the same time play the dual role of parens patriae and amicus curiae in the arbitral proceedings.[23] In the Mitsubishi case that allowed arbitration of antitrust disputes in the US, the Court balanced its strong stance in favour of arbitrability with an obligation for the arbitrator to apply the antitrust law. This means that while the arbitrators can determine questions involving competition law, the courts are empowered to take a ‘second look’ at the contents of the arbitral award at the enforcement stage to verify that questions of competition law have been properly addressed (popularly known as the ‘second-look’ doctrine).[24] In case of non-application/ incorrect application of the Competition Act (say, where enforcing the arbitral award would mean giving effect to an anti-competitive agreement) the Court can refuse to enforce the award on the ground that it runs counter to the public policy of the state. This ‘second-look doctrine’ which originated in the US and was subsequently mirrored in EU judgements,68 adequately ensures that arbitration would not provide private parties a chance to circumvent the mandatory competition law.

Another safeguard could be the use of Section 27 of the Arbitration Act that allows an arbitral tribunal to seek assistance from the Court in taking evidence. This provision can be used by the arbitral tribunals to consult the CCI when confronted with questions of competition law. This is an established practice in the EU where the European Commission routinely acts as amicus curiae in arbitral proceedings involving competition law to protect the public’s interest in the correct and uniform application of European Competition law.[25]

Furthermore, the arbitration of competition law disputes can offer an array of advantages. The protection of competition in India is heavily dependent on prosecution of anti-competitive behaviour by the CCI and the paucity of private actions is one of the greatest shortcomings of the Indian Competition law regime.[26].. In case of an infringement, howsoever huge the penalty imposed by the CCI maybe, the aggrieved party does not receive any restitution for the losses suffered due to anti-competitive practices. A report published in 2014 indicates that in the past five years of CCI’s establishment, almost all the cases decided by the CCI are pending in appeal before the COMPAT or further before the Supreme Court.[27] Consequently, no private claim has reached its conclusion and the aggrieved parties are still awaiting a remedy.[28] Enforcement of competition law by private parties is the backbone of the US competition law regime and even countries like the UK are now encouraging private enforcement.[29] By allowing compensation, India can effectively involve private players in the enforcement of competition law and the fear of paying high compensation would prove as an additional deterrent for violation of competition law.[30]

It is also important to consider that precluding arbitration of competition matters impairs the effectiveness of arbitration as an adjudication vehicle because it would mean that a reluctant party can make frivolous allegations of competition law infringement only to stonewall arbitration, thus defeating the whole purpose of the arbitration agreement.[31]

CONCLUSIONS

Recent times have witnessed significant developments in the field of arbitration in India. Between 2008 to 2011, India saw a 200 per cent growth in the number of disputes that have been referred for arbitration[32] and recent surveys suggest that more than 90 per cent of Indian companies who have a dispute resolution policy, would prefer arbitration, rather than litigation, for resolution of future disputes.[33]  This growth coincides with and is propelled by a sincere effort on the part of the Indian judiciary to minimize intervention in arbitral proceedings.[34] In a series of progressive judgments over the past few years, Courts have consistently reinforced India’s pro-arbitration approach. Consider for instance, the case of BALCO v. Kaiser Aluminium[35] where the judiciary declared that Indian courts have no power to intervene in a foreign seated arbitration; or Shri Lal Mahal Ltd. v. Progetto Grano Spa[36] where the Court significantly narrowed down the ‘public policy’ exception as a ground for review of a foreign arbitral award. As recently as in 2014, the case of Enercon (India) Ltd. v. Enercon Gmbh[37] saw Indian Courts infusing life into a nearly unworkable arbitration clause; while in HSBC Pl Holdings (Mauritius) Ltd. v. Avitel Post Studioz Ltd,[38] and World Sports Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte Ltd.,[39] the courts established a break from the past by allowing arbitration to proceed even when the dispute involved allegations of fraud. As India is attempting to reclaim its position on the stage of international arbitration, allowing arbitration to resolve competition law disputes, albeit with some safeguards, would be a step in the right direction to align India’s arbitration regime with international standards. A predictable arbitration regime would prove immensely useful in reducing risks in trans-border commerce, thus making the Indian markets more accessible to commercial parties.

[1] Assimakis P Komninos, ‘Arbitration and EU Competition Law 7’ (Univ Coll London, Dep’t of Law, Working Paper 2009) <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1520105&gt; accessed 14 December 2017.

[2] Mitsubishi Motors Corp v Soler Chrysler Plymouth 473 US 614 (1985); Eco Swiss China Time Ltd v Benetton Int’l NV 1999 ECR I-3055.

[3] Indian Competition Act 2003, Preamble.

[4] Rahul Goel & Anu Monga, “Private Antitrust Litigation 2014” (2014) GLOBAL COMPETITION REV 74,77 (2014); Robert B von Mehren, “From Vynior’s Case to Mitsubishi: The Future of Arbitration and Public Law” (1986) 12 BROOK J INT’L L 583 (1986).

[5] Rahul Satyan, ‘Policing Mergers, Remedies & Procedure’ (Competition Commission of India, 31 October 2011), <http://cci.gov.in/images/media/ResearchReports/Policing%20Mergers_%20Remedies%20&%20Procedure.pdf> accessed 13 December 2017.

[6] Albert Cluver Co v Scherk, 417 US 506.

[7] American Safety Equipment Corp v JP Maguire, 391 F 2d 821 (2d Cir 1968); Scherk v Alberto-Culver Co, 417 US 506, 94 (1974); Jacques Werner, ‘Application of Competition Laws by Arbitrators: The Step Too Far’ (1995) 12 J Int’l Arb 21, 23; Emanuela, LecchI & Michael Cover, Arbitrating Competition Law Cases (March 2008).

[8] Mitsubishi Motors Corp v Soler Chrysler Plymouth, 473 US 614 (1985).

[9] Eco Swiss China Time Ltd. v Benetton Int’l NV (1999) ECR I- 3055.

[10] Booz Allen and Hamilton Inc v SBI Home Finance Ltd (2011) 5 SCC 532.

[11] Kingfisher Airlines Limited v Prithvi Malhotra Instructor 2013(7) Bom CR 738 (India).

[12] HDFC Bank v Satpal Singh Bakshi (2013) 134 DRJ 556 (India).

[13] Natraj Studios Pvt Ltd v Navrang Studios AIR 1981 SC 537.

[14] Union of India v Competition Commission of India AIR 2012 Del 66.

[15] Anubha Dhulia, ‘Arbitrability of Competition Matter: With Special Reference to India’ (2012) Competition Law Reports .

[16] ibid.

[17] Murphy v Amway Canada Corporation 60-66 [2013] FCR 38.

[18] Arbitration and Conciliation Act 1996, s 5.

[19] Warehouse Corporation v Fortpoint Automotive Pvt Ltd [2010] (1) Bom CR 560.

[20] Sotiris Dempegiotis, ‘EC Competition Law and International Commercial Arbitration: A new era in the interplay of these legal orders and a new challenge for the European Commission’ (2008) 1 Global Antitrust Rev 135, 139.

[21] ibid; Organization of Economic Co-operation and Development (OECD), ‘Arbitration and Competition’ (2010) OECD DAF/COMP 11.

[22] Pavle Flere, ‘Impact on EC Competition Law on Arbitration Proceedings’ (2006) 3 Slovn L Rev 155.

[23] Rahul Satyan, ‘Policing Mergers, Remedies & Procedure’ (Competition Commission of India, 31 Oct 2011) <http://cci.gov.in/images/media/ResearchReports/Policing%20Mergers_%20Remedies %20&%20Procedure.pdf.> accessed 13 December 2017.

[24] Radieati di Brozolo, ‘Anti-trust: A Paradigm of the Relations Between Mandatory Rules and Arbitration – A Fresh Look at the ‘Second Look’’ (2004) 1 Int’l ALR 23 ; Patrick Baron & Stefan Liniger, ‘A Second Look at Arbitrability – Approaches to Arbitration in the United States, Switzerland and Germany’ (2003) 19 Arb Int’l 27 ; SI Strong, Class, Mass and Collective Arbitration in National and International Law (Oxford University Press 2013) 255.

[25] AES Summit Generation Limited and AES Tisza Erdma Kft v Republic of Hungary ICSID Case No ARB/07/22 (Sept 23 2010).

[26] Payel Chatterjee & Simone Reis, ‘Private enforcement of competition issues, Competition Commission of India vis-à-vis- Alternate Forums – Is it actually an option?’ (10 July 2014 <www.nishithdesai.com/fileadmin/user_upload/pdfs/Private_Enforcement_of_Competition_Law_Issues.pdf> accessed 14 December 2017.

[27] Rahul Goel & Anu Monga, ‘Getting the Deal Through: Private Antitrust Litigation’ (2014) 1 Global Comp Rev 74, 77; Aman Malik, ‘Complaints Dwindle as CCI Faces Awareness Deficit’ (Live mint, 25 Jan 2016) <http://www.livemint.com/Politics/p3uUm7UvYnBZTbbgljwU7K/ComplaintsdwindleasCCI-faces-awareness-deficit.html.> accessed 10 December 2017.

[28] Rahul Goel & Anu Monga, ‘Getting the Deal Through: Private Antitrust Litigation’ (2014) 1 Global Comp Rev 7 78.

[29] Barry Rodger, ‘Competition Law Litigation in the UK Courts: A Study of All Cases’ (2013) 2009-2012, 6 GCLR 55.

[30] Darragh Killeen, ‘Following in “Uncle Sam’s” footsteps? The evolution of private antitrust enforcement in the European Union’ (2013) 34 ECLR 480.

[31] Jan Paulsson, The Idea Of Arbitration (1st edn, Oxford University Press 2013) 119.

[32] Arpinder Singh, ‘Emerging Trends in Arbitration in India: A study by Fraud Investigation & Dispute Services’ (ERNST & YOUNG, 2013) <http://www.ey.com/Publication/vwLUAssets/EY-FIDS-Emerging-trends-inarbitration-in-India/$FILE/EY-Emerging-trends-in-arbitration-in-India.pdf.> accessed 14 December 2017.

[33] ‘Corporate Attitudes & Practices Towards Arbitration in India’ (PWC NETWORK, May 2013) <http://www.pwc.in/assets/pdfs/publications/2013/corporate-attributes-and-practicestowards-arbitration-in-india.pdf.> accessed 11 December 2017.

[34] Arpinder Singh & Yogen Vaidya, Taking a Pro-arbitration Turn (The Finanial Express, 15 May 2014) <http://m.financialexpress.com/news/column-taking-a-proarbitrationturn/1250892> accessed 11 December 2017.

[35] BALCO v Kaiser Aluminium (2012) 9 SCC 552.

[36] Shri Lal Mahal Ltd v Progetto Grano Spa (2014) 2 SCC 433 (India).

[37] Enercon (India) Ltd v Enercon Gmbh (2014) 5 SCC 1.

[38] HSBC Pl Holdings (Mauritius) Ltd v Avitel Post Studioz Ltd, Appeal No. 196 of 2014 in Arbitration Petition No 1062 of 2012, High Court of Bombay.

[39] World Sports Group (Mauritius) Ltd v MSM Satellite (Singapore) Pte Ltd AIR 2014 SC 968.


(Neelam is currently a student of National Law Institute University, Bhopal.)