After being in business for around a year and a half, the competition commission of India (CCI) on December 2, passed its first final order where it held that the practice of imposing prepayment charges by banks and housing finance companies on the early repayment of home loans is not anti-competitive.

The impression is CCI tottered its way to be able to come of age. This first order was much awaited as an apprehension among many was brewing up if the competition watchdog was too timid to interpret the provisions of the competition act. The parliament passed the statute as early as 2003 itself and it took another four years (in 2007) for the subsequent amendment to be added.The provisions of the act on anti-competitive agreements and abuse of dominant position were notified in May, 2009.

Apart from this debate on the delay, there are questions on this lone final order that CCI has delivered where it has ruled banks can levy foreclosure penalty on home loans.

But before one explores the merits of the competition watchdog’s assessment in this particular order there are larger issues as to what was it that held CCI back all these years? What explains the inordinate delay on part of the government to streamline the hurdles? One also wonders if there were hurdles at all, were they substantive and genuine!

Vinod Dhall, former secretary in the ministry of corporate affairs and CCI’s first (acting) chairman who supposedly pulled a case in favor of the inception of the commission against all the hurdles, blames it on a legal entangle the act got into in the very beginning.

A petition in the supreme court challenged the provisions of the act on selection of chairperson and the members of the commission. The petitioner Brahma Dutt, an advocate himself contended since the commission would have adjudicatory powers, the chairman and members of the commission had to be persons connected with the judiciary picked for the job by the head of the judiciary and not be a bureaucrat or other person appointed by the executive as was envisioned in the original draft of the act.

Ruling on the issue, the supreme court advised creation of two separate bodies, one with expertise that is advisory and regulatory and the other adjudicatory .This led to formation of an appellate body Competition Appellate Tribunal (Compat) through an amendment act that followed four years later in 2007.

But so long as the power of judicial review of the High Courts and the Supreme Court didn’t impede, was there a necessity of having compat? Was there an apprehension in the judicial fraternity of being undermined by a body (CCI) which would rule over and above the already existing regulators which were judicial in nature? Was the apprehension justified? And if not, did the government have to bow to such an apprehension?

While Dhall says resistance was bound to appear as it happens with everything new, another expert on competition law on condition of anonymity says the formation of compat was to soothe – as he calls it, “the unfounded” –apprehensions in the judiciary. Against this assessment, it appears it was a balancing act to have the two bodies simultaneously- CCI and compat. Whereas the former is a body of non judicial members, the compat comprises members from the judiciary.

Obviously, the fall out of this “not so covert” confrontation between the executive and the judiciary was the disgusting delay in the deliverance of the CCI.

Interestingly, it’s the same apex court which in September this year placed extra ordinary reliance on CCI when in the Steel Authority of India (SAIL) judgment, it disallowed compat to interfere with the CCI investigation when it’s still underway. This ruling was seminal in the sense that CCI got stronger teeth in terms of clear cut statutory powers and expeditious statutory processes.

Apart from this confusion on the ambit of CCI, experts also lament that the government had not made adequate advance arrangements for the commission to kick off as soon as the amendment act was passed in 2003. It’s ironic that in the last one and half years of being into existence, the commission’s office shifted twice before finally settling down at its present office in the Hindustan Times building.

Delhi based competition lawyer Sitesh Mukherjee says, “In order to enforce a new enactment such as competition law, a lot of background preparation was required. Competent staff was needed to be recruited and later extensively trained in the nuances of competition law through capacity building exercises”. He adds, “Unlike other enactments, competition law requires inter-disciplinary research involving economics and finance. Accordingly, the Competition Commission of India (CCI) staff needed to be trained in legal, economic as well as financial aspects of competition law”.

Mukherjee’s assessment on the reasons for delay is understandable but the government would have surely done well to look into these aspects and stay geared up rather than doing this after CCI came into being.

Even if the debate on the delay is set aside and directed on the commission’s only final order about the penalty on prepayment of home loans, there are concerns which would take more time and tests to die down. On a complaint filed by one advocate Neeraj Malhotra against Deutsche Post Bank Home Finance Ltd in August, 2009, the competition watchdog has ruled that banks and housing finance companies were not violating competition laws by charging the penalty on early repayment of home loans.

Rohit Bansal of Hammurabi & Solomon Consulting, a corporate law firm, believes on both the core issues of dominance and collusion there is no case that can be made out against the order.

Dhall and Mukherjee echo the same.

But, although by a majority decision of 4-2, CCI may have ruled there is no abuse of dominance on the issue nor is there any collusion among the banks but at best, the order looks to be too simplistic and straightforward. May be, some more rigorous analysis of the law was needed underlines another expert.

The banks in their response to the commission have put apprehensions of higher lending risk and asset liability mismatch (ALM) in the event of removal of the prepayment penalty. That the commission’s ruling does not reflect a comprehensive economic analysis of ALM has been noted by the two dissenting members on board this order PN Parashar and R Prasad themselves.

A very intriguing aspect of this case is that the informant Neeraj Malhotra didn’t approach the commission after it’s director general submitted the investigation report, thus, stopping any further scrutiny of the matter by the appellate tribunal and may be by the supreme court in the event of which the case could have thrown some more curious turns.

The markets around are abound with cases of cartelization, mergers and acquisitions and anti competitive conduct by the businesses. Especially when the chips are down, instances of dominating players colluding to beat the competition arise more. This leads to challenges in the face of higher prices and fewer choices for the consumers and big fishes not allowing the smaller players a fair chance in the market. The competition watchdog sure needs to reflect more that it has the teeth in terms of clear cut statutory powers and expeditious statutory processes to tame it all and set it all right.

CCI came into being by replacing its dead and decaying predecessor Monopolies and Restrictive, Trade Practices Commission (MRTPC). MRTPC had 2,000 odd cases pending with it. Unlike MRTPC, which passed only cease and desist orders with no penal impact, CCI can impose fines and penalties, in some cases, up to 10 % of an entity’s last three years turnover. It will also eventually approve mergers and acquisitions once its powers in this regard are notified by the government.